A Case for Persistence in the Disclosure Obligation

Abstract

The corporate regulator, the Australian Securities and Investments Commission (ASIC), has experienced some lack of success in attempting legal action to address reaches of the Corporation Act’s continuous disclosure provisions. This was evident in the initial failure of proceedings against Fortescue Metals Group. ASIC’s action sought orders to impose civil penalties on the company and, for the first time, on an individual, the chief executive. The regulator’s belief that the lower court decision warranted ‘review by an appeal court’ was endorsed when, on 18 February 2011, the Full Court of the Federal Court of Australia upheld ASIC’s appeal. If, as requested by the company, leave is granted to appeal to the High Court against these findings, then any future decision by Australia’s highest court could be of assistance in establishing the legal parameters of the continuous disclosure obligation.

The difficulty in mounting a criminal prosecution for intentional breach of the disclosure rules saw the first prosecution for this offence discontinued in January 2009. As a result, ASIC has relied on the civil penalty and infringement notice regimes for subsequent enforcement of continuous disclosure by listed companies. Greater powers have been given to ASIC to pursue market misconduct but these ‘market integrity rules’ do not interfere with the continuous disclosure provision or the related ASX listing rule.

Keywords: market integrity, continuous disclosure, ASIC

JEL Classification: M40, M41