The Andrew Forrest/Fortescue Metals decision has set a difficult precedent for Australian Boards of Directors. How high should the standards of continuous disclosure be? So high that they’re difficult to meet?
You may have heard the Federal Court handed down its decision in the Fortescue matter and found Andrew Forest and Fortescue itself had breached the continuous disclosure rules.
It think this represents an interesting turn in relation to where courts are going and what courts expectations are of directors in relation to this important area of corporations law. Both the regulator and the courts I think are raising the standard to a point that makes it very difficult for directors to know with certainty that they’ve met their obligations. The courts seem to be prepared to trade off the importance of immediacy for a need for precision and we all know that the reality is that when you are in the pressure environment of making announcements and trying to get announcements in front of the media and explain transactions to shareholders it isn’t always possible to do exhaustive due diligence on the form of the announcements and their content.
That said, of course you have to be careful but the standards to me seem to be being raised to a level that doesn’t meet the market’s need for immediacy.
What this means with this increased level of scrutiny is directors are simply going to have to do the work to make sure that their announcements are essentially bullet proof. They’re going to have to have processes in place that they can demonstrate to the regulator and possibly a court that they took steps to ensure that the content was verified, that they were certain about the statements that were made, that statements that were in the nature of opinion were clearly identified as different from those which were in the nature of fact. What it really means is that directors and those responsible for issuing communication with shareholders are really going to have to be prepared to trade off the need to get announcements in the market with the need to get them right.