ASIC announced on 21 January 2009 that its current ban on covered short sales of financial securities will continue until 6 March 2009.

ASIC had previously advised that it would continue the current ban on covered short selling of financial securities until at least 27 January 2009. A key reason for the extension of the ban lies in the current volatility of overseas financial security markets.

In extending the ban, ASIC has failed to follow the lead of the UK regulator, the Financial Services Authority, which lifted its ban on covered short sales of securities on 16 January 2009.

ASIC believes this extension will allow it time to assess the risks to the local market in the event the ban is lifted in light of the current developments in other jurisdictions, although ASIC has not ruled out lifting its ban on covered short sales of financial securities before 6 March 2009.

ASIC has also reminded market participants that the daily reporting of gross short sales introduced as part of the earlier measures to fortify the financial securities market will continue, and that strict compliance with the ban on naked short selling is required.

At this time, market participants should be aware that the position with respect to covered short sales of financial securities is that:

• covered short sales of financial securities remain banned;
• covered short sales of other securities are permissible;
• daily reporting of gross short sales is required; and
• naked short sales continue to be banned indefinitely.

ASIC Insolvent Trading Crack Down: Are you at Risk?

In an increasingly tough economic climate, ASIC has warned that it intends to step up efforts to monitor potentially insolvent companies and ensure that directors take appropriate steps in circumstances where a company becomes or is likely to become insolvent.

The recent appointment of Michael Dwyer as commissioner of ASIC has coincided with an ASIC crack down on insolvent trading and reinforced the risk of directors being held personally liable for allowing a company to trade while insolvent.

The Corporations Act places a duty on directors of a company to prevent insolvent trading and the penalties for breaching this duty are severe. Directors may have some protection under the few defences available under section 588H of the Corporations Act, however these are limited in number and scope and should not be relied on by directors to absolve themselves of the duty to remain alert to the risk of a company becoming insolvent.

There are potentially a number of ways to mitigate the risk of insolvent trading to both the company and the directors. Directors concerned about risk of their company trading while insolvent, their duty to prevent insolvent trading or their exposure to liability for insolvent trading particularly in light of the recent comments made by ASIC should seek professional advice and assistance as early as possible.

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