The Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (Bill) introduced by the Australian Federal Government on 17 February 2021 has now passed both Houses of Parliament and will become law once it receives Royal assent.
The Bill makes permanent the temporary relief that was introduced by the Government in response to COVID-19 relating to an entity's continuous disclosure obligations, by making amendments to the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Corporations Act 2001 (Cth) (Corporations Act).
The Bill seeks to amend the Corporations Act and ASIC Act by:
- removing the objective reasonable person test in the continuous disclosure obligations in sections 674 and 675 of the Corporations Act and replacing it with a test that considers the subjective state of mind, so that entities and officers will only be eligible for a civil penalty where they have acted with 'knowledge, recklessness or negligence' in failing to update the market with price sensitive information;
- imposing the same fault standard for misleading and deceptive conduct under section 1041H of the Corporations Act that relates to the alleged failure to provide an update with price sensitive information to the market;
- providing that a person involved in an entity's contravention under the new standard will remain liable for a civil penalty, subject to the application of any exculpatory defences; and
- incorporating the requirement for an independent review of the legislation after 2 years.
Importantly, the Bill retains the existing standard for administrative penalties and criminal offences, so ASIC can continue to issue infringement notices without proving knowledge, recklessness or negligence.
The Bill incorporates the recommendations made by the Parliamentary Joint Committee1 and the Australian Law Reform Commission.2 The Australian Government anticipates the reforms will address 'opportunistic class actions' and have a positive impact on the availability of directors and officer's insurance within the Australian market. The changes will also more closely align the Australian continuous disclosure regime with the approaches taken in the United States and United Kingdom.
Shareholder class actions have contributed significantly to losses in the directors' and officers' liability insurance market in recent years. Only two shareholder class actions have run to judgment to date3, with the balance often settled and defended at great cost to their insurers. Those losses have naturally resulted in significant premium increases for corporate Australia and in some cases, an inability for companies to procure or afford suitable directors' and officers' liability coverage.
Setting the bar higher for plaintiff law firms and funders to successfully bring and prosecute shareholder class actions, and bringing Australia's position on continuous disclosure into line with the approaches taken in the United States and United Kingdom, is a welcomed development.
1 Parliamentary Joint Committee on Corporations and Financial Services (PJCCFS), Litigation funding and the regulation of the class action industry, PJCCFS, Canberra, December 2020.
2 Australian Law Reform Commission (ALRC), Integrity, fairness and efficiency—an inquiry into class action proceedings and third-party litigation funders, report, 134, ALRC, Brisbane, December 2018.
3 Crowley v Worley Limited  FCA 1522; TPT Patrol Pty Ltd as trustee for Amies Superannuation Fund v Myer Holdings Limited –  FCA 1747.
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