The Australian Securities and Investment Commission (ASIC), is turning the screws on the dissemination of misleading market announcements.
Over the last few years several cases have been disputed where a public company’s failure to disclose factual information has seen shareholders file class action suits to recover ill-informed investments made due to misleading information.
As ASIC has now decreed that companies must conform to the continuous disclosure obligations of the Corporations Act 2001, listed construction companies’ are being placed under increased pressure for the reporting and independent assessment of their projects.
Currently, Leighton Holdings’ shareholders are launching a class action against the construction group claiming that they were misled about the company’s position.
The firm allegedly told investors to expect that the company make a profit of nearly $500 million last financial year. However that initial forecast was heavily downgraded to a loss as stock prices plummeted about 14%.
Shareholders and Maurice Blackburn Lawyers claim that Leighton failed to disclose the business’s woes as soon as they became apparent which is its responsibility under the Corporations Act 2001.
According to ABC News it is reported that those involved in the class action will be seeking $400 million in compensation.
And Leighton are not alone in facing the wrath of ASIC.
Fortescue Metals Group (FMG) had made a number of ASX announcements and statements between August 2004 and March 2005, concerning framework agreements entered into between FMG and three Chinese companies for the construction of a mine and a port in the Pilbara region of Western Australia. The announcements made by FMG indicated that the agreements created legally binding obligations.
In 2005, ASIC brought proceedings against both FMG and its Chairman and CEO Mr. Andrew Forrest alleging that the announcements were misleading and deceptive and breached FMG’s continuous disclosure obligations. The trial judge had dismissed ASIC’s case and determined that the agreements were binding. However on February 18th, 2011 ASIC appealed the decision to the Full Federal Court and the decision was overturned.
The court found that the actual agreement was only an agreement between FMG and the Chinese contractors showing that the contractors will carry out the works. As the agreement contained no details on the works nor had an agreement been reached on price, the court found that essentially it was an agreement to begin negotiations.
Thus, as FMG announced the agreement as ‘a major breakthrough’ which would likely influence prospective investors the court held that FMG had misled the public.
Jacqueline Romero of Honan Insurance Group says that the judgment once again serves as a reminder that companies and individuals will be held to account. “Information released to the market must be correct and verified and preferably vetted by a lawyer. If a mistake is made and it is discovered that an announcement may be misleading, it is crucial that this is corrected as soon as you have become aware. As we have seen, not doing so will not only implicate the company, but also the individuals involved in the contravention”.
Insurance such as Directors and Officers Liability is a must have in today’s increasingly litigious business environment. Individual directors and officers will be held personally liable if they breach the many duties and responsibilities imposed on them under contract conditions, common law and statutory legislation. Every company is exposed to such liability regardless of size. Directors and Officers insurance responds to potential exposures faced by those managing the company including the costs of defending a claim and costs of attending a formal inquiry at the request of a regulatory body.