Continuous Disclosure - What Duties do Directors Have?

Introduction

Listed Australian companies have an obligation to keep the market continuously informed, subject to certain limitations, about any information that a reasonable person would expect to have a material effect on the price or value of their securities. Failure to do so may put the company in contravention of section 674(2) of the Corporations Act 2001 (Cth) (Corporations Act).

A director involved in a company's contravention of section 674(2) of the Corporations Act also contravenes that section of the Corporations Act. Also a director may be in breach of their duties under section 180 of the Corporations Act to exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they:

were a director of a company in the company's circumstances; and occupied the office held by, and had the same responsibilities within the company as, the relevant director. Two recent cases provide some guidance on the application of section 674 of the Corporations Act, but also illustrate some of the practical difficulties for directors in making a decision whether or not to disclose information.

The James Hardie case

The NSW Court of Appeal in James Hardie Industries NV v ASIC1 held that James Hardie Industries NV (JHINV) was in breach of the continuous disclosure obligations in section 674 of the Corporations Act by not disclosing to the ASX from 25 March 2003 to 30 June 2003, information about the separation of James Hardie Industries Limited (JHIL) from the James Hardie Group.

At a joint board meeting of JHIL and JHINV on 25 March 2003, the partly paid shares issued to JHINV two years earlier were cancelled and ownership of JHIL was transferred to a foundation, which was independent of JHINV. A deed was executed under which JHIL (now renamed ABN 60 Pty Ltd) indemnified JHINV against asbestos claims. The...