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Easier disclosure rules won’t hamper prosecutions

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Proposed changes to permanently ease continuous disclosure requirements for listed companies will not water down the government’s ability to prosecute criminal breaches, or the regulator’s right to issue infringement notices and administrative penalties without proving fault, Treasury says.

The continuous disclosure onus had 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.

Under a new Treasury Laws Amendment (2021 Measures No. 1) Bill to amend 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”.

They will also not be liable for misleading and deceptive conduct unless the requisite “fault” element is proven.

“This will discourage opportunistic class actions under our continuous disclosure laws,” Treasurer Josh Frydenberg says.

The changes were introduced in May but had been slated to revert back next month.

The insurance and broking industry welcomed the bill to make the change permanent, saying the proposed rule change will put Australia in step with the US and UK and encourage economic growth from confident entrepreneurship.

Marsh’s head of Financial and Professional Practice Pacific Craig Claughton told last week the rule change was “overwhelmingly positive” and he was "pleased the government has listened and is taking action”.

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.