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Liberty Specialty Markets
Liberty Specialty Markets

Fair and reasonable: industry applauds permanent disclosure plan

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A major broker has welcomed a plan to permanently ease continuous disclosure requirements for listed companies, saying the proposed rule change will put Australia in step with the US and UK, and help address soaring directors' and officers' insurance premiums.

Today, Treasurer Josh Frydenberg said the government will submit a bill amendment to permanently extend temporary changes it made to Australia’s continuous disclosure laws in May. The rules had been slated to revert back next month.

It will mean companies and officers are only liable for a breach if there has been “knowledge, recklessness or negligence” around price-sensitive updates to the stock exchange.

Marsh’s head of Financial and Professional Practice Pacific Craig Claughton says the bill is “just a sensible decision” and will help correct Australia’s onerous disclosure requirements which have been “unduly hard and out of step with other first world jurisdictions”.

“It’s overwhelmingly positive,” Mr Claughton told “I am pleased the government has listened and is taking action.”

Australia has seen an escalation in securities class action activity backed by litigation funding. That in turn led to a surge in directors’ and officers’ (D&O) premiums, and reduced insurance capacity.

In the last 12 months, the average increase in premium for ASX-listed firms was more than 200%, Marsh says. Executives were also having to assume significant up front risk themselves as they were securing less cover and blown-out excesses, which reached deductibles of up to $250 million and are regularly in the range of $100-150 million.

Directors have been “damned if they do and damned if they don’t,” Mr Claughton says, as it was too difficult to be fully compliant and best meet the needs of shareholders.

“They couldn’t win,” he says.

Under the Treasury Laws Amendment (2021 Measures No. 1) Bill, which amends the Corporations Act 2001, companies and their officers will only be liable for civil penalty proceedings in respect of continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence”.

Companies and their officers are not liable for misleading and deceptive conduct unless the requisite “fault” element is also proven.

“This will discourage opportunistic class actions under our continuous disclosure laws,” a statement from Mr Frydenberg says.

Mr Claughton says Australia has more than 600 separate pieces of legislation in which directors can be held personally liable. The proposed rule change will assist boards, which can struggle to secure quality talent, with experienced candidates nearing the end of successful careers wary of taking on so much legal risk and the threat of being sued.

“This is fair and reasonable,” Mr Claughton said of the Bill.

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

The temporary trial of the rule change has already helped listed companies to continue to update the market during COVID-19 and the uncertainty it generates. Without it, companies may have been encouraged to hold back from providing information due to concerns they would be hit by securities class actions if information was later found to be incorrect, Treasury says.

“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,” it says.

The government says the changes do not affect its ability to prosecute criminal breaches, or the regulator’s ability to issue infringement notices and administrative penalties without proving fault.