Australia Finalises Changes to Continuous Disclosure Laws

The changes will discourage opportunistic class actions and protect companies from liability unless their officers have acted with “knowledge, recklessness or negligence”.

Australia’s Treasury has announced legislative changes that will make permanent temporary changes to the country’s continuous disclosure laws.

In May 2020, the government suspended the continuous disclosure provisions of the Corporations Act for six months, seeking to protect businesses against opportunistic class actions alleging breaches of the law amid heightened Covid-19 uncertainty.

The changes were due to expire in March, however a parliamentary committee had recommended they be made permanent, in a report published in December 2020.

The Treasury has now amended the Corporations Act to ensure that companies and their officers can only be liable for civil penalty proceedings in respect of breaches of their continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence”.

Treasurer Josh Frydenberg said the permanent amendment will discourage opportunistic class actions, and make clear that companies and their officers are not liable for contraventions of their continuous disclosure obligations unless the requisite ‘fault’ element is also proven.

The changes are aimed at striking a balance between ensuring shareholders and the market are appropriately informed, and enabling companies to make forecasts of future earnings more confidently or provide guidance updates without facing the undue risk of class actions.

The changes do not affect the government’s ability to prosecute criminal breaches or the ability of ASIC (Australian Securities and Investments Commission) to issue infringement notices and administrative penalties without proving fault.

“The introduction of the fault element for private actions also more closely aligns Australia’s continuous disclosure regime with the approach taken in both the US and the UK,” Frydenberg said.

The amendments will have the effect of relieving companies of some of the legal risks involved in attempting to provide guidance to the market, protecting them from such guidance being used against them afterwards.

“These permanent changes mean business will continue to have a disclosure regime that gives them the confidence to keep the market better informed, without the risk of spurious legal action if circumstances change,” Business Council of Australia CEO Jennifer Westacott told ABC News.

Meanwhile, critics argue that the disclosure rules could increase the scope and temptation for company insiders to trade on major, financially sensitive information to make profits, or avoid losses, at the expense of uninformed investors.

The amended disclosure laws could also scare off investment needed to recover from Australia’s ongoing recession, reports The Guardian. “These changes could undermine that confidence by providing protection for companies making poor disclosures,” said Louise Davidson, CEO of the Australian Council of Superannuation Investors.

“Making these changes permanent could damage investor confidence at a time when investment will be crucial to a recovery. Continuous disclosure provisions are fundamental to market integrity and should not be diminished.”