In these uncertain times, the Morrison government is keen to give Australian companies more wriggle room when it comes to complying with their statutory obligations. Fresh off the back of changes to relax insolvent trading laws (which we wrote about here), the government has announced temporary amendments to the continuous disclosure regime applicable to Australian listed companies. Over the next 6 months, directors will only be liable for breaches of their continuous disclosure obligations if there is "knowledge, recklessness or negligence" around inaccurate disclosures made to the market.
The rationale behind the changes is simple – directors should be focused on navigating the immediate COVID-related threats facing their businesses rather than attempting to provide profit guidance and forward-looking information in a time when their ability to make those forecasts is severely undermined by current uncertainties.
The continuous disclosure regime exists to robustly protect investors' right to be fully informed of a company's performance. Listed companies are required to notify the market immediately of any information which would have a material effect on the price of its shares. This regime is the bedrock of investor confidence in the Australian share market.
The changes mean that directors will not be held to as strict a standard over the next 6 months for their disclosures. The Treasurer has been explicit that companies can choose to withhold earnings forecasts and forward-looking information from the market over the next 6 months (despite companies generally already having discretion before these amendments) and can limit the amount of information available to investors in general. Shareholders may want to exercise far more caution in their assessment of information released to the market (or lack thereof), particularly in a context where distressed companies may be looking to raise further capital.
The Treasurer is trying to discourage "opportunistic class actions" being brought against companies for allegedly breaching their disclosure obligations where, for example, forecasts of future performance are found to be inaccurate. However the door is still open to allege "misleading and deceptive conduct" - this isn't a green light for companies to present overstated or overly optimistic projections to the market in the hopes of attracting investment. We think that a well-resourced class action (typically with litigation funders sitting behind the nominal claimant) won't be dissuaded from bringing speculative claims with a view to forcing boards to settle to avoid protracted, expensive court battles. We think that the Treasurer's barely concealed concerns regarding shareholder class actions should be dealt with in the context of the recently announced reviews of class actions and litigation funding.
Of greater concern to us is that boards might think that the Treasurer has offered them a "get out of jail free card" in relation to their obligations of continuous disclosure over the next 6 months. This isn't good for the market or the legitimate interests of shareholders. Given the Treasurer's recent miscalculation (hello, $60 billion) and the ongoing capacity to make claims against boards, we wouldn't be staking the reputation of a company on these amendments.
The takeaway for directors? While less stringent disclosure obligations apply over the next 6 months, directors should still be seeking to keep the market as accurately informed as possible. The takeaway for investors? Be particularly discerning in your assessment of information released to the market over the next 6 months.
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