When Is a Final Decision Not Final?

  Key Learnings from the ASIC v iSignthis Saga

### Overview:

The recent Federal Court decision regarding the proceedings brought by the Australian Securities and Investments Commission (ASIC) against iSignthis Limited and its former Managing Director and CEO, Mr. Nickolas Karantzis, sheds light on the nature of unilateral decisions in the context of continuous disclosure obligations. It reveals that even a seemingly final decision can still be part of an ongoing negotiation, thus benefiting from an exception to disclosure rules depending on the parties' subsequent conduct.

### A Final Decision or a Negotiation?

The Court's ruling emphasizes that the exception to disclosure under ASX Listing Rule 3.1A for "incomplete proposals or negotiations" extends beyond transactions to include commercial negotiations. Notably, the Court found that a decision expressed as "final" might still be considered part of an incomplete negotiation as long as active dialogue continues between the parties.

In this case, iSignthis was entitled to rely on this exception to avoid disclosing Visa's decision to terminate its relationship with the company.

- **Continued Engagement**: Despite Visa's termination decision on April 17, 2020, it continued reviewing documents and engaging with iSignthis on underlying issues until May 12, 2020.
- **Commercial Dynamics**: In commercial negotiations, decisions can often change, and parties may reconsider their positions.
- **Strategic Considerations**: Immediate disclosure of the termination could have adversely affected iSignthis's ability to persuade Visa to reconsider its decision.

### Breach of Continuous Disclosure Obligations:

However, the failure to disclose the termination on or shortly after May 12, 2020, constituted a breach of iSignthis’s continuous disclosure obligations. Additionally, Mr. Karantzis was found to have breached his duty of care and diligence as Managing Director under section 180(1) of the Corporations Act by not taking reasonable steps to ensure compliance with these obligations.

### Insights and Implications:

The Court's approach highlights the complexity of determining the precise point at which a disclosure obligation is triggered. A listed entity may struggle to identify when a decision by a counterparty is genuinely final, especially from the other party's perspective. This underscores the necessity for careful consideration, ongoing monitoring, and maintaining a factual basis for any determination that a decision remains open to negotiation.

In summary, this case provides valuable insights for listed entities and their directors on navigating continuous disclosure obligations, especially during periods of suspension, and underscores the importance of ensuring that information provided to the ASX is neither false nor misleading.

## Suspension is Not a Defense: Key Learnings from the ASIC v iSignthis Saga:

### Continuous Disclosure Obligations During Suspension:

iSignthis argued that the information concerning Visa's termination was not material price-sensitive information because trading in its shares was suspended. They claimed that a reasonable person would not expect the information to have a material effect on the price of its shares during the suspension. However, this argument failed. Section 674(2) of the Corporations Act considers not just "price" but also the underlying "value" of the securities.

A market-sensitive event during a suspension can affect the underlying value and off-market trading. The Listing Rules (18.6 and Guidance Note 8) clarify that continuous disclosure obligations remain, even if trading in an entity’s securities is suspended.

### Obligation to Provide Accurate Information to ASX:

The case underscores directors' (and other officers' and employees') duty to ensure information provided to ASX is not false or misleading under section 1309(2) of the Corporations Act. Mr. Karantzis breached this prohibition by failing to ensure the accuracy of information provided to ASX regarding the Visa termination. The Court noted that responses were "non-responsive," "disingenuous," and appeared to "distract the ASX," with iSignthis believing ASX treated it unfairly.

Mr. Karantzis could not rely on the fact that he sought legal advice to establish that he had taken "reasonable steps" because:
- The advice did not involve fact-checking or due diligence.
- The information provided was objectively false or misleading, and he was aware of the true position.

The "reasonable steps" exemption only applies when an officer or employee does not know the underlying facts and takes reasonable steps (e.g., making reasonable inquiries or relying on someone else) to ensure the information is not false or misleading.

### Other Key Takeaways:

- **Seriousness of Directors' Breach**: The seriousness of a directors' breach of duty under section 1317G of the Corporations Act is determined by the degree of departure from the required standard, not the actual or potential harm caused. Penalties can be imposed even if the consequences were minimal.
- **Duty of Care and Diligence**: Section 180(1) requires directors to ensure accurate information is provided to the market and to be prepared to respond to questions and correct misunderstandings during analyst briefings.
- **Proceedings Scope**: The proceedings involved iSignthis and its former MD/CEO. ASIC did not proceed against the non-executive directors.

This case highlights the importance of maintaining continuous disclosure obligations, even during trading suspensions, and the critical responsibility of directors to provide accurate and transparent information to regulatory bodies.