Case: Australian Securities &amp; Investment Commission v Southcorp Ltd [2003] FCA 1369 ; (2003) 130 FCR 406
Outcome: considered
legislative history of the continuous disclosure provisions was reviewed by Lindgren J in Australian Securities and Investment Commission v Southcorp Ltd [2003] FCA 1369 ; (2003) 130 FCR 406 at [7] - [16] . I gratefully adopt his Honour's review in part: [7] A review of the legislative history of the continuous disclosure provisions shows the importance that the legislature and the regulator have attached to them, and the publicity which has been given to them. [8] In June 1991 the then Commonwealth Attorney-General, Michael Duffy, requested the Companies and Securities Advisory Committee (the Committee) to examine the need for a legislatively-based continuous disclosure regime. [9] The Committee reported in September 1991. It noted that while the Corporations Law (the Law) required disclosure of information in particular sets of circumstances, it did not contain a comprehensive scheme for the full and accurate disclosure of market sensitive information on a timely basis. The Committee noted that Australian Stock Exchange (ASX) Listing Rules required a listed company or trust to notify its home exchange "immediately" of any information that was necessary to avoid the establishment of a false market in its securities, or that was likely to affect materially the price of its securities. The Committee recommended the introduction of a statute-based enhanced disclosure regime which would: overcome the inability of general market forces to guarantee adequate and timely disclosure by disclosing entities; encourage greater securities research by investors and advisors, thereby ensuring that securities prices more closely, and quickly, reflect underlying economic values; ensure that equity and loan resources in the Australian market are more effectively channelled into appropriate investments, and that funds are withheld or withdrawn from poorly performing disclosing entities. This will promote capital market efficiency; assist debt holders in monitoring the performance of disclosing entities and thereby determine whether, or when, to exercise any right to withdraw or reinvest their loan funds, or convert debt to equity; act as a further, or substitute warning device for holders of charges over corporate assets, that breaches in covenants may have taken place, or the risk of default has increased; assist potential equity or debt holders of disclosing entities to better evaluate their investment alternatives; lessen the possible distorting effects of rumour on securities prices; minimise the opportunities for insider trading or similar market abuses; improve managerial performance and accountability by giving the market more timely indicators of corporate performance; encourage the growth of information systems within disclosing entities. This assists directors in their decision making and compliance with their fiduciary duties; and reduce the time and costs involved when preparing takeover and prospectus documents. [10] Following a process of consultation, the Government decided to introduce continuous disclosure provisions into the Law. On the Second Reading Speech on the Corporate Law Reform Act (No 2) 1992 (Cth), which contained continuous disclosure provisions proposed to commence on 31 December 1993, Senator Bolkus, Minister for Administrative Services, stated: ... an effective disclosure system will often be a significant inhibition on questionable corporate conduct. Knowledge that such conduct will be quickly exposed to the glare of publicity, as well as criticism by shareholders and the financial press, makes it less likely to occur in the first place. In essence, a well-informed market leads to greater investor confidence and, in turn, to a greater willingness to invest in Australian business. ( Australia, Debates, Senate , (1992), p 3581) [11] The continuous disclosure provisions were eventually introduced as ss 1001A, 1001B, 1001C and 1001D of the Law by the Corporate Law Reform Act 1994 (Cth) s 4 , Sch 1, Item 92, and commenced on 4 September 1994. Subsection 1001A(2) provided that a listed disclosing entity must not contravene the continuous disclosure provisions of the listing rules of a securities exchange applicable to the entity, by 'intentionally, recklessly, or negligently' failing to notify the securities exchange of information that was not generally available, and which, if it were generally available, a reasonable person would expect to have a material effect on the price or value of the securities of the entity. In November 1996, the Companies and Securities Advisory Committee (CASAC) conducted a review of the continuous disclosure regime introduced in 1994, and released a report entitled "Report on Continuous Disclosure". In that review, a survey had been conducted of listed disclosing entities. The CASAC report concluded that the regime was operating effectively for those entities. The report stated at para 1.7: Respondents to this survey considered that continuous disclosure had helped to keep the market, and investors in listed disclosing entities, more informed. Continuous disclosure also reinforced the obligations on directors and management to disclose material information to the market. Respondents considered that investors gained a better and more timely understanding of the issues facing the company and how these might affect the value of their shares. Continuous disclosure also encouraged listed entities to formalise their lines of internal communication to ensure that the directors and senior management were fully informed of all events affecting the price or value of the entity's securities. Overall, the respondents considered that continuous disclosure encouraged greater investor confidence in the price discovery mechanism of the securities market. The majority of the 70 listed disclosing entities who responded to the CASAC survey, indicated, in relation to question 22 dealing with external advice, that they had sought professional advice, mainly from law firms, on the application of continuous disclosure requirements. That advice included whether disclosure was required in the circumstances, the operation of the provisions which created exceptions to mandatory disclosure, and whether certain information would have a material effect on the price or value of securities. The present case includes consideration of whether legal advice was given to FMG concerning FMG's continuous disclosure obligations; the effect of any such legal advice and the reasonableness of the defendants' reliance on any such advice. On the commencement of the Financial Services Reform Act 2001 (Cth) on 11 March 2002, s 1001A, which contained the original continuous disclosure obligations, was replaced by s 674 in a new Chapter 6CA of the Act. The Revised Explanatory Memorandum for the Financial Services Reform Bill 2001 explained that the placement of the continuous disclosure provisions near Chapter 6D reflected the fact that these provisions deal with ongoing disclosure obligations in relation to securities as defined for the purposes of Chapters 6D and 7. The Revised Explanatory Memorandum also explained: Proposed section 674...generally replicates section 1001A of the Corporations Act , subject to changes in terminology. In order to comply with the Criminal Code , the fault elements currently contained in subsections 1001A(2) and (3) have been omitted and the default fault elements under the Code will apply in future to offences against this provision. Proposed section 678 applies the Criminal Code to all offences in Chapter 6CA at commencement. The Revised Explanatory Memorandum also explained that contravention of the continuous disclosure provisions would give rise to a liability for financial services civil penalty provisions, in line with the approach taken to a number of other prohibitions related to market misconduct.