Essay: Company Losses And Disclosure Requirements In Australia.

Part 1: Company Losses and Reorganization Plans

The company has reported a loss for the year 2016 since the company went under a new leadership. For the purposes of steaming in the cash flow, the company has gone into new structuring and reorganization plans. It sought to reduce in the operating losses and also focus on the business as being of core competence.

The company has been undergoing an intense battle of The Trading Environment in one of its key trading markets. This is mainly taken place in Britain in which the business has been hit. In Britain, its business of Surfdome has been hit with an intense amount of margin and sales due to pressure on sales. The business has been in a turmoil due to the unexpected exit of co-founder and Chief Justin Cameron due to weigh up of the privatisation bid (SMH, 2017).

The following table shows the relevant changes:

There has been a major change in the amount of the goodwill between the 2 dates due to the impairment that has taken place in its value. The company had made a greater amount of acquisition during the year 2015 but since the cash position of the company was slightly bad during the year 2016, it could make more investment in the subsidiaries. In respect of the statement of cash flows, the company has earned only a positive cash flows under financing activities and earned a negative flow in operating and investing activities. Hence, the company has suffered a negative cash flows in totality.

The statement of profit and loss shows that the company’s loss from the continuing operations have decreased. Which is the fact that the loss of the company has increased. The revenue of the company has though improved but the cost of sales has increased by more than 200% which is not good for the company and hence, the company’s losses from the continuing operations have increased.

The following table shows the relevant changes:

The company’s statement of profit and loss shows that it has incurred a loss of about $155,358,000 which is not good. Any investor would always want to invest in the company from which he could derive some capital gains as and when he sells his investment or the shares. Also, he wants a portion of profits from the company that he earns. This would be termed as the return on his investment. Now since the company under review has incurred a loss during both the years, an investment in such a company is not recommended.

The concept of these disclosure requirements are somewhat new to the country of Australia and are also timely about the information which is required in the market since this is the concept which is more than 100 years old. The regime of the continuous disclosure came into existence during the year 1994 and has been regulated since then and forms the part of the Corporations Act and also through the Listing rules of the ASX. The section 674 deals with the companies and lays down the fact that the investors would be informed about any information about the company through the medium of ASX which is available to the people that any other person would not have. The listing rule of 3.1 lays down that the information which is market sensitive would be disclosed to the entity whenever anyone becomes aware of the same and the Guidance note number 8 clarifies the application of the above stated point.

Part 2: Concept of Continuous Disclosure in Australia

The aim of the principle of continuous disclosure is the fact that it would go on to reduce the information which is in line with managers and the investors. There has to be an effective and also a timely disclosure of the information which acts as a good concept of governance and is also reinforced in the principle number 5 of the ASX Corporate Governance principles and the recommendations. The ASIC has a number of different options that are available wherein the company has breached the principle of obligation of the continuous disclosure. These would go on to include the civil penalty proceedings that have the maximum fine of an amount of $1 million along with the other criminal proceedings which have the enforceable undertakings and also use up the infringement notices that were introduced in the year 2004. When a company complies with the infringement notice, then that would not preclude the ASIC from taking the civil proceedings as against the people that have been involved in the stated breach. Also, it would into effect the right of the parties that have been adversely affected by the stated conduct as per section 1317 HA. The infringement notices enables the breaches to be dealt with in the manner so that the larger companies are able to see the infringement notices and also are able to enforce the undertakings for an easy or cheap way out with the minimum amount of the impact on the reputation.

The regime of the continuously disclosures could be judged by the policing activities of the ASIC. As per the presentation to the Australasian Investor Relations Association as on July 31, ASIC had prosecuted about 28 actions of the insider trading out of which 5 were resolved and that the rate of the conviction of the ASIC is about 4 times greater than the previous decade. In the past there have been about 25 active insider trading investigations and since the year 2010, ASIC had about 11 infringement notices to the 9 companies for all of the alleged failure for meeting up of the obligations of the continuous disclosures (the conversation, 2017).

The main aim of the continuous disclosure is the enhancement of the confidence and an informed participation by the investors in the market that deals with the secondary securities. This is expected to enhance the in depth, liquidity and the efficiency of these stated markets.

The continuous disclosure of the material price sensitive information seeks to make sure that the price of the securities reflects in the underlying economic value. This would go on to reduce in the volatility of the prices of the securities since the investors would have an increased access to an increased amount of the information about the disclosing of the performance of the company along with prospects and the information that could be factored into the prices of the securities of the company. The effectiveness of this disclosure would minimise in the potential for the insider trading and other such form of the market abuse which would be the result of an increased market abuse and also that could give rise to the entities withholding of disclosing the price sensitive information. The existence of this regime would go on to recognise the fact that the companies would not always have the incentive of voluntarily disclosing the information which is price sensitive to the investors. This is the most important part of the information that could have an adverse impact on the price of the securities of the company (Treasury, 2017).

Part 3: Financial Data and Implications for Investors

The requirement is that any company that is listed on ASX would be subject to the requirements of continuous disclosures under the Corporations Act and the Listing rules. This would be in addition to the periodic and the specific requirements laid down under the Listing rules.  These requirements are stated in the listing rule 3.1 and states that the company would oblige the same and in case, it fails to comply with the following, then the director of the executive who is involved in the contravention of the same would be held guilty.

• The information which is not available
• Any information which any reasonable person would expect to have an intense effect on the price of the value of the securities (IPHLTD, 2017).

After the year 2000, it was found that there were many of the legislative changes and an increased action of enforcement by the ASIC that was followed by the increased disclosure of the forecasts of the non-routine earnings by the management. In respect of the routine forecasts, there is as such no major increase in the forecast of the disclosures that have been observed. This result is in line with the fact that there is an increased disclosure which is apparent for the bad news which includes the non-routine forecasts. Also, there have been reports that there is a large gap between the expectations of the market and the actual performance which is much more specific but then only for the forecasts of the bad news. A recent pronouncement on the fact of the disclosure issues and also on the general pressure on the board requires in a bold and a clear regulatory response. There is a current uncertainty wherein the country requires in a balanced approach for continuous disclosure and also a transparent market which is at stake. There should be some of the changes in the listing rule of 3.1 so that there is a relaxation of the disclosure obligation so as to allow in the listed companies to meet the commercial objectives (Thomson reuters, 2017).

A recommendation should be the fact that there must be an adoption of rudimentary and functional periodic disclosures that are being used in the county of the United States. Also, there is a reasonable person test in listing rule number 3.1 A. there is no doubt in the fact that with an increase in the enforcement actions by the ASIC along with the legislative changes to the state regime would affect the corporate collapses and the scandals which are combined with the increase in the level of the non-routine earnings forecast disclosures.

In the nutshell, the concept of continuous disclosure is considered to be one of the cornerstones of the financial system of the country. It reflects in the entity with the obligation to immediately disclose in the information that concerns any person and that has some major impact on the financial statements and also on the price of the securities of the company. But it is also true that there are some of the exceptions on the same. This is the information which is termed as the price sensitive information. The disclosure of the unlisted company is subject to the obligations of the continuous disclosures and sets out the same in the chapter 6CA of the Corporations Act whereas the listed disclosing companies are subject to both the provisions of the Corporations act and the chapter 3 of the listing rules of Chapter 3 of ASX. The main behind this requirement is making sure of the integrity of the market and ensuing transparency. This system is kept as against the country of the United States wherein the regulation of the US Securities and the exchange commission requires the companies to disclose the facts which are related with the finance and business to the SEC on a periodic basis. Also there is a requirement wherein the SEC is notified about some of the events to the SEC as soon as they take place. The information which is sensitive to price is not exposed to the obligation of the continuous disclosure which does not require in the public disclosure till the time of the next periodic report is released. The system followed in US is less stringent and is also regarded as one of the best in the world. This is mainly due to the fact since it drives in the appropriate balance between the benefits of a market which is fully informed and also caters to the need of the information to remain confidential for certain period of time. 

References:

Archive.treasury.gov.au. (2017). Part 8. [online] Available at: https://archive.treasury.gov.au/documents/403/HTML/docshell.asp?URL=Ch8.asp [Accessed 8 Sep. 2017].

Hatch, P. (2017). SurfStitch shares dive as it warns losses to deepen. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/retail/surfstitch-losses-to-deepen-20170521-gw9z31.html [Accessed 8 Sep. 2017].

North, G. (2017). Disclosure requirements. [online] sites.thomsonreuters.com.au. Available at: https://sites.thomsonreuters.com.au/journals/files/2010/10/j04_v028_CSLJ_pt05_north.pdf [Accessed 8 Sep. 2017].

The Conversation. (2017). Explainer: Continuous disclosure obligations. [online] Available at: https://theconversation.com/explainer-continuous-disclosure-obligations-16894 [Accessed 8 Sep. 2017].

www.iphltd.com.au. (2017). Continuous Disclosure and Investor Relations Policy. [online] Available at: https://www.iphltd.com.au/wp-content/uploads/2014/10/Continuous-Disclosure-and-Investor-Relations-Policy.pdf [Accessed 8 Sep. 2017].