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Tech Start-up Breaches Continuous Disclosure Obligations

The rise and fall of Getswift, a tech start-up formerly listed on the ASX, has reached its conclusion with the Federal Court finding that the company had breached its continuous disclosure obligations and engaged in misleading and deceptive conduct. Three of its directors were found to have been involved in those contraventions and breached their directors’ duties.

Getswift had made a series of announcements on ASX that it had entered ‘exclusive multi-year’ agreements with 13 clients including well-known names such as Amazon, Commonwealth Bank of Australia, Pizza Hut, Fruit Box and Fantastic Furniture, and its share price went from the IPO price of 20 cents in November 2016 to $4.00 in December 2017. ASIC argued, and the Court agreed, that there were other material circumstances that qualified those announcements – for example, the existence of trial periods and the fact that some of the agreements could be terminated by the counterparty at any time) that should have been disclosed in the announcements but were not.

Why is this case important?

The Federal Court’s decision highlights the following important questions that a board/disclosure committee should consider to comply with continuous disclosure obligations:

  • Is there any other material information that is not in the announcement but should be (particularly if it qualifies the information in the proposed announcement)?
  • Has the company made other representations to ASX in previous disclosures that may impact how the proposed announcement is perceived/interpreted by investors?
  • Following the relevant announcement, is there any subsequent material information that would qualify the previous announcement which should be disclosed? For example, has the agreement been terminated or materially changed?

What else do you need to know?

Omitted information

ASIC contended that Getswift should have noted in its announcements that there were trial periods and there was a right to terminate during the trial period, as a reasonable person would expect that information to have a material effect on the price of the shares. The Court did not accept Getswift’s argument that such information was already generally available to investors in the company’s prospectus. The Court held that while the prospectus had indicated that clients could terminate their relationships at any time, those statements had to be viewed contextually against any subsequent disclosures and representations by the company. As Getswift had subsequently specified in its Appendix 4C submitted to ASX (and before the announcements regarding the contracts were made) that “transformative and game changing partnerships are expected and will only be announced when they are secure, quantifiable and measurable”, investors could interpret that the contracts that were subsequently announced by Getswift were indeed “secure” and not terminable at any time.

Share price

Getswift argued that the omitted information and any omitted qualifying information could only be material if it had a material impact on the share price and given that the share price did not move substantially after each announcement, that information was therefore immaterial. The Court held that materiality of information may be assessed by having regard to the actual impact of the information on the share price but was not by itself conclusive.

We note that Getswift is now listed on the NEO Exchange in Canada.

For more information, please contact Jo Ruitenberg.