Posted: 06 Apr. 2020 5 min. read

COVID-19: Key corporate governance impacts for listed company boards

The COVID-19 pandemic is unsurprisingly having significant impacts on ASX listed companies across various industries, as they seek to manage the financial and operational impacts on their businesses. Continuous disclosure and AGMs are two important focus areas for Boards at this time.

Continuous Disclosure

Under ASX Listing Rule 3.1, a listed entity is required to notify ASX immediately of any information concerning it of which it is, or becomes, aware, and which a reasonable person would expect to have a material effect on the price or value of its securities.

There are certain exceptions, including where the information comprises matters of supposition or is insufficiently definite to warrant disclosure (the entity would still need to satisfy ASX that the information remains confidential and that a reasonable person would not expect the information to be disclosed).

Entities impacted by the COVID-19 pandemic must balance any need to keep the market informed under Listing Rule 3.1 with the severe challenges of being able to provide a complete and accurate announcement that complies with both ASX and Corporations Act requirements. In addition, there is the challenge of immediacy – there is no real room to move in the timing of announcements once materially price sensitive information becomes apparent, which may occur in an already-stretched executive team.

It may be useful for Boards to consider the following:

  • Has scenario-testing been performed so that the entity is prepared in the event that an announcement under Listing Rule 3.1 is required  (for example, what would happen if the Chair or Managing Director fell ill, or a Government intervention required the shutdown of a material part of the business)?
  •  Are there scenarios under which published earnings guidance is likely to be impacted or under which the entity might need to either withdraw or issue new guidance?
  • Where there is an impact, is the entity in a position to accurately quantify or otherwise assess the likely materiality of the impact?
  • Are the entity’s continuous disclosure policies and procedures well understood and fit-for-purpose, including in a virtual working environment? How will practical authorisation of market announcements be obtained, and who is in charge of the process?

The key question for Boards is what to disclose and when to disclose it, not only to satisfy the requirements of ASX LR3.1, but also related Corporations Act requirements such as having a reasonable basis for forward looking statements and the requirement not to make any false or misleading representation. The general duties of Directors will also be a factor including taking skill, care and diligence.

So, when does the Board have an accurate view? Boards should consciously determine this and should seek legal advice where unsure. The ASX has also provided guidance in its most recent Compliance Update.

AGMs

The evolving COVID-19 environment, including incremental Government restrictions on physical gatherings, travel, and physical distancing, presents significant challenges for 31 December balance date entities that are required to hold their AGMs by 31 May 2020 as per the Corporations Act (i.e. within 5 months of the end of their financial year).

Virtual AGMs (AGMs conducted wholly online), are not permitted under the Corporations Act and ASIC does not have power to provide any class-based relief allowing virtual AGMs.

ASIC has published guidance and ‘no action’ positions for entities with a 31 December balance date where the AGM is postponed or delayed for two months (held by 31 July 2020 or such later date as ASIC may provide) and/or is held ‘virtually’ using technology that provides members as a whole a reasonable opportunity to participate (subject to the entity’s constitution). ASIC will also allow updates to be provided electronically, including by way of an ASX announcement, avoiding mailing costs.

Boards proceeding with physical AGMs should exercise caution in light of Government advice and interventions.

Boards will need to review the entity’s constitution to determine when the AGM can be held and in what format. There may be opportunity for the entity to hold the AGM in hybrid form – both at a physical location and with online facilities. Where that is not possible, Boards may wish to obtain legal advice. ASIC’s ‘no action’ position in relation to virtual AGMs is unlikely to protect Directors from any third party actions for damages or to prevent a court from declaring resolutions made at a virtual AGM to be invalid at a later date.

For entities that are unable to hold a hybrid or virtual AGM (and Boards may consider revising the constitution to provide for hybrid or virtual AGMs in future), Boards should consider delaying the AGM in accordance with ASIC guidance. This includes where entities have already printed and issued notices of meeting.

Boards should also consider what announcements, if any, are required to be made to ASX and on the entity’s website to ensure the market is properly informed regarding the entity’s AGM arrangements. Boards should also ensure their company secretariat and/or investor relations teams are equipped to answer inevitable questions regarding the AGM.

For further information, please contact Deborah Latimer and Karen Den-Toll. You can also visit our Corporate Governance webpage for more information.

More about the authors

Deborah Latimer

Deborah Latimer

Partner, Audit & Assurance

Deborah is a Partner in our Governance, Regulation and Conduct Practice. She is a lawyer and has over 25 years’ experience within the financial services sector in Australia including regulatory, industry (in-house) and consulting experience. Deborah is a Fellow of the Governance Institute of Australia (FGIA) and of the GRC Institute (FGRCI), and a Graduate of the Australian Institute of Company Directors (GAICD). From a sector perspective Deb has deep experience and expertise in Wealth Management and her focus areas of practice are superannuation, insurance, and managed funds.

Karen Den-Toll

Karen Den-Toll

Partner, Audit & Assurance

Karen is a partner in Deloitte’s Sydney office in the Governance, Regulation and Conduct practice. She has over 20 years’ experience in the financial services industry and has a breadth of experience including corporate governance, crisis management and dispute resolution. Karen is the primary author and co-editor of the CCH text “The Essential Guide to Financial Services Reform”, and the Australian Bankers’ Association’s Discussion Paper on Customer Advocates. Karen focuses on the prevention and resolution of issues arising from conduct, and addressing reputation risks arising from conduct issues, as well as customer advocacy.