ASIC seeks increased disclosure on directors

Increased disclosure around the history of company directors and key managers, including previous convictions or personal bankruptcies, is one of the proposals outlined by the Australian Securities and Investments Commission (ASIC) in its prospectus disclosure consultation paper.

ASIC stated that it sought to improve disclosure within company prospectuses used for initial public offerings or by those with listing intentions through various proposals set out in its recently released Prospectus disclosure: Improving disclosure for retail investors consultation paper. The improved disclosure requirements aim to improve the quality of information released on the proposed business model as well as the associated risks, making it easier for retail investors to use prospectuses to make an informed decision, ASIC stated.

In its consultation paper, ASIC highlighted a number of shortcomings in the current disclosure requirements, one of which was the absence of complete disclosure on directors and key managers that lead or manage companies. ASIC proposed that prospectuses should explain the relevant expertise and skill of directors and key managers, as well as any criminal convictions, personal bankruptcies, disqualifications or disciplinary action within Australia or other jurisdictions in the last 10 years. ASIC also proposed that an explanation be required if a manager or director was an officer of a company that went insolvent during or within 12 months after their term.

Another current shortcoming identified in current prospectus requirements was that risk disclosure was too general, ASIC stated. It proposed that all principal risks be highlighted, as a list of every conceivable risk may not necessarily help investors make an informed decision. ASIC noted that risk disclosure should be specific to that company, with an explanation of what is likely to happen if the risk actually occurs.

ASIC also noted that other shortcomings of prospectuses included fragmented information around risks, returns as well as the company’s business model, which ASIC proposed could be addressed with further detailed information.