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COVID-19: what are the key implications for boards and corporate disclosure?

Company directors need to be proactive about new risks, such as coronavirus (COVID-19). What should directors be considering in order to mitigate the risks to companies caused by COVID-19 and to meet their disclosure obligations?

COVID-19 has already had a significant impact on many Australian companies, as evidenced by the Australian stockmarket falling almost 10% from its recent highs. 

As the pathogen continues to spread, it raises a number of issues for company directors and may trigger disclosure obligations for ASX-listed companies. In light of this, ASIC Chairman James Shipton recently told the Australian Financial Review that the corporate regulator was “monitoring corporate contingency plans in case the virus spread locally and was checking that listed companies were disclosing to investors any material impact on their profits.” 

Directors’ duties and contingency plans 

In a world where the risks faced by a company are constantly changing and new risks such as COVID-19 emerge, directors need to constantly assess the foreseeable risk of harm to a company, including non-financial risks such as reputational harm and compliance with laws, to satisfy their directors’ duties. This includes testing risk frameworks periodically to ensure their practical effectiveness.    

COVID-19 presents companies with a number of possible financial and non-financial risks, such as:

  • lower customer numbers and revenue, particularly for industries such as travel and tourism;

  • supply chain disruption and changes to business operations;  

  • impact on contractual arrangements, including implications under force majeure clauses and financial covenants; and

  • compliance with specific laws and regulatory obligations, including employment, health and safety laws.

Boards and management teams will need to understand the impact of COVID-19 risks on their business and, where relevant, develop and implement contingency plans. For example, consideration should be given to the following areas: 

  • Supply chain disruption: Supply chains will be a particular focus given that many Australian companies rely on suppliers from China and other countries which have been heavily impacted by COVID-19. While a number of laws already require companies to understand and mitigate certain risks in their supply chains and operations, COVID-19 puts a further spotlight on the need for companies to understand their supply chains and to consider alternative supply arrangements. In particular, companies which are reliant on single supply sources are likely to be more exposed and will need to consider supply chain diversification and other contingency plans. The impact of supply chain disruption may also have flow on consequences for a company’s ability to meet its obligations to customers. Boards will need to carefully assess these risks and possible mitigation options, including the ability to rely on force majeure clauses.

  • Financial covenants and liquidity considerations: The potentially significant business interruptions caused by COVID-19 are unlikely to relieve companies from their repayment obligations under facility agreements and may even trigger events of default. Directors will need to pro-actively consider the liquidity position of their companies and the implications of the outbreak under applicable financing arrangements.

  • Compliance with health and safety and other laws: Whilst companies will of course continue to place priority on protecting the health and welfare of their staff, there are also a number of ways that COVID-19 could lead to a breach of obligations and/or reputational damage for a company - for example, where a company fails to take adequate steps to ensure the safety of its employees from exposure to the pathogen. This could have flow-on consequences for directors, particularly in light of recent court decisions which have adopted the ‘stepping stones’ approach where directors may breach their duties if they expose the company to the risk of prosecution, liability or reputational damage. 

Disruption of corporate transactions

Many corporate transactions are also likely to be disrupted by COVID-19, for example:

  • travel restrictions may limit a buyer’s ability to conduct due diligence investigations;

  • buyers may seek to terminate or renegotiate deals, for example by seeking to rely on ‘material adverse change’ conditions in sale agreements or by reopening purchase price negotiations where the value of the target has be reduced due to COVID-19 impacts; and

  • disclosure of risks relating to COVID-19 may be relevant for prospectuses and other capital raising documents.  

More broadly, market uncertainty and volatility may also have a negative influence on M&A and equity capital market activity levels. 

Market disclosure obligations

Directors of listed companies will also need to consider the continuous disclosure ramifications of COVID-19.

Like many global companies, some ASX-listed companies have already made market announcements about the impact of COVID-19 on their business and underlying earnings. One company’s shares fell almost 10% after announcing that the company’s business performance in February and March would be heavily impacted by COVID-19 and noting that the rate of recovery was unclear. On the other hand, increased demand for certain products has resulted in COVID-19 leading to increased revenue for some companies, such as a2 Milk which reported sales ahead of expectations.

A failure to make disclosures required under the ASX Listing Rules could lead to liability for both the company and its directors, including under the ‘stepping stones’ approach described above. Class actions might also follow for companies which fail to make timely and accurate disclosures in accordance with their obligations.

Moving forward – ensuring COVID-19 is a focus for boards and directors 

Regulators, courts and corporate laws have lifted the bar regarding expectations of directors. Failing to properly consider relevant risks can lead to serious consequences, with ASIC taking a more aggressive approach to enforcement and class actions becoming more prevalent. 

So what practical steps should boards be taking to protect their businesses as well as discharge their directors’ duties? 

  • Consider if an assessment of COVID-19 should be on the next board meeting agenda.

  • Seek advice on your ongoing obligations to employees from a health and safety perspective.

  • Ensure an updated crisis management response and business continuity plan is in place.

  • Assess the impact on your supply arrangements and consider alternative avenues for supply.

  • Review your contractual obligations to customers and your financial arrangements to identify potential issues and mitigation strategies. Engage early and proactively with other parties.

  • Consider if a pre-emptive capital raising would be prudent.

  • Monitor your disclosure obligations on a regular basis.

This article is part of our insight series COVID-19: Navigating the implications for business in Australia and beyond. To get notified by email when new COVID-19 insights are released, please subscribe for COVID-19 updates.


Sandy Mak

Head of Corporate


Board Advisory Corporate/M&A Banking and Financial Services Capital Markets

This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.