As recommended by the Parliamentary Joint Committee for Corporations and Financial Services in its report on litigation funding and class actions, the Government is making permanent the temporary changes it made to Australia’s continuous disclosure laws in May 2020 and which are due to expire in March 2021.
Specifically, the Treasury Laws Amendment (2021 Measures No. 1) Bill amends the Corporations Act 2001 so 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”. This will discourage opportunistic class actions under our continuous disclosure laws. The bill also makes clear that companies and their officers are not liable for misleading and deceptive conduct in circumstances where the continuous disclosure obligations have been contravened unless the requisite “fault” element is also proven.
The changes do not affect the Commonwealth’s ability to prosecute criminal breaches or ASIC’s ability to issue infringement notices and administrative penalties without proving fault.
The introduction of the fault element for private actions also more closely aligns Australia’s continuous disclosure regime with the approach taken in both the United States and the United Kingdom.
During the period the temporary fault element has been in place, Treasury has identified that there has been an increase in the number of material announcements to the market, relative to the same period last year.
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.