The Morrison government has made continuous disclosure law changes permanent — what does that mean for shareholders of ASX companies?
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Since COVID-19 struck, it’s been harder to bring action against ASX companies for breaches of continuous disclosure laws and it won’t get easier post-pandemic.
Last night, the Morrison government extended some of the temporary COVID-19 related changes for another 6 months until March 31 2022.
Most closely scrutinised were the proposed changes to breaches of continuous disclosure laws for ASX and private companies.
Those rules have now been made permanent – although a review in two years was promised to One Nation in exchange for their support.
Companies and directors will now only be held liable where they acted with knowledge, recklessness or negligence.
Prior to COVID-19, prosecutors needed only prove a breach of the law — regardless of the state of mind of companies or their officers.
Is this a good thing or a bad thing? It depends on who you ask.
The Business Council of Australia (BCA) and the Australian Institute of the Company Directors (AICD) both welcomed all of the changes.
The latter said it would prevent speculative class actions and increasing insurance premiums.
“This reform provides greater certainty for companies to make disclosures to the market, without the apprehension of speculative class actions challenging this disclosure with the benefit of hindsight, and that is in everyone’s interest,” said AICD CEO Angus Armour.
“When these measures were originally introduced as a COVID-19 relief measure, our market integrity was sustained because the obligation on directors and companies to disclose information did not change and it does not change now – those who do the wrong thing will still be subject to the full force of the law.”
While there has been little opposition to the package today, opposition senators last night warned it would make cases more difficult to prove.
Green Senator Nick McKim warned that the changes might “pave the way for the insider traders to make hay” and said the COVID-19 “shock” last March justifying the changes had passed.
Although his party did support the virtual AGM measures, he expressed concern that these too might be made permanent without consideration being given to their impact.
“The parliament must be given the opportunity to fully examine the merits of any proposal to permanently allow virtual AGMs,” he said.
Another opponent was Labor senator Carol Brown.
“These disclosure laws have functioned as the bedrock of our Australian investment framework and have stood this nation and our investors in good stead for a long time,” she said.
“Without the robust strength that we currently have in our corporate disclosure rules, it is likely that we will see dodgy directors getting away with failing to release timely, relevant and indeed crucial information to shareholders so that they can make informed decisions about their investments.”
Meanwhile, a proposed amendment by Senator Rex Patrick – which would have closed a loophole allowing about 1,100 private companies, many of them family offices, to not disclose their financial records to regulators – was voted down.
Although the bill needs to be signed off again by the House of Representatives given the Senate’s amendments, this is likely to be little more than a formality with the government’s majority in the lower house.