Full Court sets tone on shareholder actions, ahead of CBA appeal

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Under the Corporations Act 2001 (Cth) and the ASX Listing Rules, listed entities have an obligation to disclose immediately, information concerning the listed entity that is not generally available and that a reasonable person would expect to have a material effect on the price or value of the entity’s securities.

This appeal arose from the decision of Justice Moshinsky in October 2023, that ANZ breached continuous disclosure rules by failing to disclose a $750 million bailout by underwriters, during a $2.5 billion equity capital raising in August 2015. 

His Honour found that the bank should have alerted the market to the agreement by the underwriters to pick up the shortfall of between $745 million and $790 million from the capital raising.  Had that information been disclosed, people who ‘commonly invest in securities’ within the meaning of the Corporations Act would have held an expectation that the underwriters would promptly dispose of shares and therefore place downward pressure on ANZ’s share price (the prompt seller inference).

ANZ appealed from Justice Moshinsky’s decision on the following bases:

• people who ‘commonly invest in securities’ are influenced in deciding whether to acquire or dispose of securities, based on company fundamentals and the information here was not relevant to the value of ANZ’s shares;
• the information was not ‘material’ within the meaning of the Corporations Act, if proper consideration was given to additional contextual information which would render it immaterial;
• proper regard should be given to what ANZ knew and understood when assessing the materiality of the information; and
• the information was not information ‘concerning’ ANZ.

Value of shares not the test

Justice Lee (with whom the other judges agreed), held that the test for materiality under the continuous disclosure regime does not require the relevant information to have a concrete effect on the economic value of the shares.  His Honour said:

The contention the materiality test requires the information to have an established economic value effect is a gloss. Relatedly there is no necessity to prove that a change in the price of securities occurred to establish liability

His Honour held that any inquiry into compliance of disclosure obligations involves a question of fact and a focus on the time at which it is alleged the disclosure should have been made, including a consideration of all relevant material. It is sufficient if the information would be likely to influence the decisions of potential investors.

His Honour noted that ANZ’s focus on fundamental value:

Makes little practical sense when one considers the way the market operates in the real world and the forensic realities in sometimes proving changes in the fundamental value of a share.

Additional context / ANZ’s understanding

ANZ also argued that the primary judge wrongly found the information to be material, because his Honour failed to properly consider additional context, which rendered the information immaterial. ANZ argued that when viewed in light of the additional information, the prompt seller inference would not arise as the additional information revealed that the underwriters did not intend to dispose of the shares promptly.

That additional information in essence was that:

• the book was fully covered;
• at least one reason for the underwriters taking up the shares, was to avoid allocation to certain hedge funds that might sell quickly and create a disorderly market; and
• ANZ understood from communications with the underwriters that they would not promptly sell their shares and create a disorderly market.

There was some difference of opinion amongst the appeal judges in relation to those arguments.  But ultimately, the majority held:

• the fact that the book was covered and the reasons for avoiding issuing stock to hedge funds, had no bearing on the materiality of the information because neither undermined the prompt seller inference;
• the balance of the contextual material submitted by ANZ did not affect the materiality of the information; and
• the test is an objective one; general assurances as to the underwriters’ intentions to hold on to the shares may have been subjectively credible to ANZ but that did not mean the information was not material.

Not information ‘concerning’ ANZ

ANZ argued that the information was not information concerning ANZ within the meaning of ASX Lising Rule 3.1, because the information concerned the identity and intentions of ANZ shareholders and not the business or assets of ANZ.

All three appeal judges rejected this argument. Justice Button and Justice Markovic upheld the primary judge’s finding that the information was information concerning the bank because it ‘represented the outcome of a large placement of ANZ shares’. Justice Lee noted:

ANZ’s attempt to introduce a gloss to achieve a ‘balance’ by creating an artificial demarcation between information that may concern the subjective intentions of shareholders with information concerning the entity, is misconceived.

ANZ’s appeal was dismissed with costs.

Australia and New Zealand Banking Group Limited v Australian Securities and Investments Commission [2024] FCAFC 128

Federal Court of Australia, Markovic, Lee, Button JJ, 2 October 2024
Appellant’s Solicitors: Allens
Respondent’s Solicitors: Johnson Winter & Slattery

AustLII Link

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