In May 2020, the federal government brought in a temporary change to continuous disclosure laws so that companies and their officers would only be liable for civil penalty proceedings in respect of continuous disclosure obligations if they had acted with “knowledge, recklessness or negligence”.
They would also not be liable for misleading and deceptive conduct in circumstances where the continuous disclosure obligations have been contravened unless they were proven to be at “fault”.
The Treasury Laws Amendment (2021 Measures No. 1) Bill, which amends the Corporations Act 2001, was originally set to expire in March 2021. However, the federal Treasurer Josh Frydenberg has now confirmed that government is making the change permanent.
Mr Frydenberg said the change would “discourage opportunistic class actions under our continuous disclosure laws”.
However, he added that the changes do not affect the government’s ability to prosecute criminal breaches or ASIC’s ability to issue infringement notices and administrative penalties without proving fault.
“[The change] ensures that there is still a basis to bring civil actions for breach of the continuous disclosure laws, but there has to be fault. It has to be reckless. It has to be negligent or fraudulent. And that is really important,” he said in a media briefing.
“But we have also left in place the existing law where ASIC can issue infringement notices on a no-fault basis, and that sees Australia adopt similar position to the US and the UK regulators,” he said.
Mr Frydenberg told journalists: “So, it’s really important that we have a balance here where the regulation provides the opportunity for transparency, for accountability, for actions to be brought, but, at the same time, it doesn’t create an undue burden on the corporate sector.”
According to the Treasury, during the period the temporary fault element has been in place, there has been an increase in the number of material announcements to the market, relative to the same period last year.
“These changes strike the right balance between ensuring shareholders and the market are appropriately informed while also allowing companies to more confidently make forecasts of future earnings or provide guidance updates without facing the undue risk of class actions,” he said.
The change was recommended by the parliamentary joint committee for corporations and financial services in its report on litigation funding and class actions.
[Related: Westpac cops another class action]