Advocacy Update - key points

Australia’s insolvency and voluntary administration framework are issues often raised by our members.

Have your say

The inadequacies of Australia’s insolvency and voluntary administration framework are issues often raised by our members, particularly those who are operating in the small business, start-up and not-for-profit sectors. We are keen to hear the thoughts from our members on what improvements, if any, could be made to deliver better outcomes for all stakeholders.

Questions to think about include:

• How could Australia’s corporate insolvency regime be improved to encourage corporate recovery?
• To what extent do existing insolvency arrangements facilitate or hinder business closure?
• Where should the balance lie between creditors and debtors in the arrangements?
• In your view, what feasible alternatives to the existing corporate insolvency arrangements have merit?

Continuous disclosure guidance

The ASX recently proposed changes to its guidance on continuous disclosure (Guidance Note 8: Listing Rules 3.1-3.1B). The changes mostly expand the guidance given in relation to analyst and investor briefings, analyst forecasts, consensus estimates and earnings surprises.Overall, the amendments are useful and the additional guidance and examples provided in the updated draft are very clear.

One thing directors have concerns with is the expectation that companies must disclose differences between their earnings and “the consensus estimate” of sell side analysts.

Often, determining a consensus among analysts is difficult because the spread on analysts’ views on expected earnings is quite large. The spread of views may be significant even for smaller listed entities that are only covered by two or three analysts.

We have also suggested that the ASX provide further guidance around what a “material effect on price” would be. Although it is important to recognise that what will be material will depend on each company’s circumstances. For example, a change in the price or value of an entity’s securities of five per cent may be material for some companies but may be quite common for others, given their particular context.

Collective action by investors

We provided feedback to ASIC on its consultation paper  Collective Action by Investors.

The paper proposes changes to ASIC’s existing regulatory guide on collective action by investors.

It is a sensible attempt to recognise that there is increasing engagement between investors and companies on a range of governance issues that should not be caught by the takeover and substantial holding provisions of the law.

However, simply identifying examples of conduct that is “less likely” to be examined by ASIC as constituting potential collective action is unlikely to provide significant comfort to investors as there is still a risk that engaging in the conduct will nonetheless expose them to possible prosecution. We have urged ASIC to consider issuing a new class order that extends relief to these types of conduct.

Accounting standards

In response to proposed amendments to IAS 7 – Statement of Cash Flows, the AICD has provided feedback to the International Accounting Standards Board’s (IASB’s) Disclosure Initiative.
Broadly speaking we do not support the changes proposed. We are concerned that although the proposed additional disclosures appear to be inconsequential and an easy fix to providing more information to investors, in practice, they may increase complexity and not provide the information investors want. 
We do not believe the IASB has sufficiently established the conceptual underpinning for requiring entities to prepare the reconciliation of financing activities in the notes to the cash flow statement. 
The proposed reconciliation fails to capture all items that may constitute an entity’s financing activities by not including such items as equity and cash.
We suggest the IASB delay the proposed changes and explore other options for providing such additional information to investors.