Corporate 5 Minute Fix 06: material business risk disclosure, JORC Code update, Takeover Panel's Guidance Notes

Financial reporting alert: ASIC's spotlight on material business risk disclosure

As the deadline approaches for the lodgement of FY23 annual reports, directors of listed entities are reminded to ensure material business risks are effectively disclosed.

ASIC has warned that it will continue to "closely review" a sample of annual reports to ensure that material business risks (including sustainability-related risks) are correctly disclosed.

ASIC shines the spotlight on the significance of transparency in the operating and financial review (OFR) and points out the example of Namoi Cotton Limited and Fluence Corporation Limited. Following ASIC's review of those listed entities, the companies made various additional material risk disclosures in subsequent documents announced to the market. An OFR is a key requirement of a listed entity's annual reporting under section 299A of the Corporations Act and is designed to be read in conjunction with the entity's financial report. It must set out all the information that shareholders would reasonably require to make an informed assessment of an entity’s operations, financial position, business strategies and prospects for future financial years. Clear and comprehensive explanations about the impact of economic and market conditions, business strategies, risks, and future prospects should therefore be provided.

ASIC encourages directors to use its Regulatory Guide 247 (Effective disclosure in an operating and financial review) as a guide for the level of risk disclosure required when preparing an OFR. Importantly, ASIC highlights that such risk disclosure should include a discussion of sustainability-related risks "where those risks could affect the entity’s achievement of its financial performance or outcomes disclosed, taking into account the nature and business of the entity and its business strategy".

In relation to sustainability and climate-related disclosures, ASIC encourages directors to engage with both the Task Force on Climate-related Financial Disclosures recommendations and the recently published International Sustainability Standards Board standards.

Update on JORC Code Review: enhanced transparency and ESG focus

The Corporations Act requires representations and statements made to the market by Boards to have a reasonable basis. To meet this obligation, board members need to ensure that they have conducted thorough research and comprehensive analysis to support their claims. In the context of mineral resources, the Joint Ore Reserves Committee's Code sets the framework and standard for evaluating technical information. Adhering to a recognised standard also allows an effective comparison by boards, investors and shareholders with the mineral results of other companies.

That Code has been under review the first in 11 years, a review which has garnered significant attention due to its potential impact on Australia's mineral and exploration industry. In late 2022, JORC provided a much-anticipated update to stakeholders regarding the progress of its review of the JORC Code. We examine the update here.

Takeovers Panel Guidance Note 7 and 19 Updates

On 14 December 2022, the Takeovers Panel released two Consultation Papers seeking comments in relation to the proposed revisions to Guidance Note 7 regarding deal protection, and Guidance Note 19 regarding insider participation in control transactions. On 8 August 2023 the Panel published the updated Guidance Notes. Learn more about the two updated Guidance Notes here.

ASX Compliance Update – 16 August 2023

In its latest compliance update, the ASX has provided guidance to ensure timely reporting and addresses various aspects of corporate reporting, regulatory standards, and operational practices that listed companies must keep in mind to maintain compliance with ASX Listing Rules.

1. Order of Announcements During Reporting Periods

When releasing Appendix 4D/4E/4F and associated documents, companies are required to follow a specific sequence:

1. Submit the relevant Appendix and any other documents as required by ASX Listing Rules 4.2A, 4.3A, or 4.4A.

2. If applicable, provide the dividend/distribution online form.

3. Release other significant material, such as media releases and presentations.

Irrespective of the order of lodgment, ASX will prioritise releasing the Appendix 4D/4E/4F documents to the market, followed by the other documents.

Furthermore, companies can request early release arrangements for their financial reports during reporting periods if there are special arrangements. The request should be made to [email protected] (ASX Market Announcements), but this will be subject to a best endeavours basis.

2. Review Time for AGM Notices

With the AGM season around the corner, ASX reminds companies to allocate sufficient time to submit their draft notices of general meeting with Listing Rule resolutions to ASX for review. The ASX generally advise of any objections to the draft document within 5 business days. Companies must be aware that in cases which involve multiple resolutions or complex transactions, including any request for waivers under the Listing Rules, additional time should be contemplated in their meeting timetable, beyond the 5 business days for ASX to advise of any comments.

3. Security Purchase Plan (SPP) Waivers

Companies conducting SPPs must obtain security holder approval under Listing Rule 7.1, unless specific exceptions apply. ASX has historically granted waivers from Listing Rule 7.3.9 when the identities of SPP participants are unknown at the time security holder approval is sought.

However, ASX advises that waivers will not be granted if the SPP offer closes before the meeting, as participant identities are then ascertainable. To qualify for a standard waiver, the offer must meet the conditions specified in ASIC Corporations (Share and Interest Purchase Plans) Instrument 19/547 ("ASIC Instrument") and other terms outlined in ASX Guidance Note 17.

Companies are also urged to consider ASX Guidance Note 17 for a clear understanding of waiver eligibility under Listing Rule 7.3.9 and Listing Rule 10.11 in relation to SPP offers that fall outside of Listing Rule 7.2 exception 5.

Where companies intend to issue free attaching options as part of their SPP, ASX has advised it is less likely to grant a waiver from Listing Rule 10.11 due to the increased complexity introduced by the free attaching options, including the fact that options might not be eligible to rely on the ASIC Instrument.

4. Reminder to adhere to Appendix 7A Timetables

ASX reminds companies to adhere to the timeline in Appendix 7A which outlines timetables for various corporate actions.

ASX has noted that several listed entities have encountered delays due to incomplete steps before the Day 0 deadline, resulting in delays in the completion of the corporate action and supplementary disclosure to the market about revisions to the initial timetable.

Entities are reminded that several steps must be completed before Day 0 trading starts, in the following circumstances:

1. Bonus issues and standard pro rata issues: – Ensure compliance with timetables outlined in Appendix 7A.

2. Accelerated Entitlement Offers: Request a trading halt before Day 0 trading begins and complete specific steps before noon (Sydney time) on Day 0 according to Appendix 7A.

3. Appendix 3B: Failure to comply with the Day 0 time limits are usually related to the late lodgement of Appendix 3B. Companies are reminded to:

a. lodge their Appendix 3B on time:

b. the online lodgement of Appendix 3B submission after cut-off time will result in error message ;and lodgement will be blocked until the timetable is revised;

c. MS Word versions of Appendix 3B will not be accepted.

Under Listing Rule 3.10.3, companies must notify the ASX of a proposed issue of securities either in Appendix 3 B or an announcement accompanied by Appendix 3B. A separate unstructured announcement about a proposed issue of securities will not satisfy a company's obligation.

d. Extending Closing Date: companies intending to extend the closing date for a pro rata issue or accelerated entitlement offer, must notify ASX by noon (Sydney time) three business days before the close of the offer.

5. Beware of False ISIN Services:

ASX cautions listed entities against third-party invoices related to International Securities Identification Numbers (ISINs); which are not legitimate and should be disregarded.

Only ASX, in partnership with APIR Systems Limited, are authorised to allocate Australian ISINs. The ASX reports ISINs to the Association of National Numbering Agencies (ANNA) for official registration.

6. Upcoming deadlines for periodic reports

Listed companies are reminded of several upcoming deadlines for periodic reports, timely lodgment will avoid automatic suspension of the entity's securities under Listing Rule 17.5. Those periodic reports and their deadlines are:

• Preliminary final reports (June year-end) – Thursday 31 August 2023.
• Statutory half year financial reports (except mining exploration entities) (December year-end) – Thursday 31 August 2023.
• Statutory half year financial reports for mining exploration entities (December year-end) – Wednesday 13 September 2023
• Statutory audited annual accounts (June year-end) – Friday 29 September 2023.
• Annual reports (June year-end) – Tuesday 31 October 2023 for listed companies and Friday 29 September for listed registered schemes.
• Quarterly Reports for Mining and Commitments Test Entities – Tuesday 31 October 2023
• An investment entity must also notify the NTA of quoted securities within 14 days of the end of each month.
• An entity that has a dual listing and has CDIs issued over quoted securities must also lodge an Appendix 4A within 5 business days of the end of each month.