Government shouldn’t cave to ‘hysterical messaging’ about class actions
Australian companies have nothing to fear from continuous disclosure laws if they do right by investors and customers, say plaintiff law firms.
On Monday, 25 May 2020 Treasurer Josh Frydenberg announced that the federal government will temporarily amend continuous disclosure provisions that apply to companies and their officers – effective from Tuesday, 26 May 2020 – in an attempt for them to “more confidently provide guidance to the market” in the wake of COVID-19.
“Given the impact of the coronavirus crisis and the uncertainty it continues to generate, it has been considerably more difficult for companies to release reliable forward-looking guidance to the market. Therefore, the government will temporarily amend the Corporations Act so that companies and officers’ will only be liable if there has been ‘knowledge, recklessness or negligence’ with respect to updates on price-sensitive information to the market,” Mr Frydenberg said in a statement.
“These changes will be made under the instrument-making power that has been inserted into the act as part of our response to COVID-19. The heightened level of uncertainty around companies’ future prospects as a result of the crisis also exposes companies to the threat of opportunistic class actions for allegedly falling foul of their continuous disclosure obligations if their forecasts are found to be inaccurate.”
Companies may, Mr Frydenberg noted, hold back from making forecasts of future earnings or other forward-looking estimates, limiting the amount of information available to investors during this period. Moreover, it will be harder to bring actions against companies and officers during COVID-19, he added.
As reported earlier this week by Lawyers Weekly, defendant firms have welcomed the amendments, noting they could be a catalyst for lasting change to continuous disclosure laws.
A capitulation to the desires of big business?
Speaking to Lawyers Weekly, Slater and Gordon head of class actions Ben Hardwick said the legislative amendments are a "response to a problem that never existed".
"Plaintiff law firms were not anticipating a rush of disclosure-related actions as a result of coronavirus. Investors and the public should be wary about any steps to water down corporate accountability," he argued.
"The Treasurer’s move is best understood as a baby step on the business lobby’s path to dismantling Australian class actions altogether. The ultimate goal is to ensure Australians do not have the means to band together and take on corporations."
Companies cannot ‘shirk their responsibilities’
Maurice Blackburn CEO Jacob Varghese agreed, saying the changes to the Corporations Act are not necessary.
“The continuous disclosure rules already provide exceptions where there is uncertain information. The risk is that this change allows companies to hide bad news that has nothing to do with COVID-19. If bad directors take advantage of this change to lie to shareholders and people whose savings are in superannuation, the Treasurer will share responsibility,” he warned.
“There should be no green light for company directors to hide information from the people who actually own a company. We can’t hope to build a lasting economic reconstruction on a platform of lies.
“In just two weeks the government has announced an inquiry into the [Corporations Act], extended the scope of the [Corporations Act], and reduced the scope of the [Corporations Act].
“All those contradictory announcements have one thing in common: they let big companies shirk their responsibilities to shareholders, employees and consumers.”
Conflation with class actions
According to Shine Lawyers head of litigation and loss recovery Jan Saddler, taking steps to safeguard the effective operation of the corporate sector during such turbulent times “is understandable and to be commended”.
However, she noted, “to conflate the challenging economic outlook caused by COVID-19 with the risk of ‘opportunistic’ class actions is gratuitous and unnecessary”.
This is so, Ms Saddler argued, “given the other issues facing the country at the moment, and reflects the hysterical messaging we have heard so often, and even more loudly in recent times, from big businesses and their lobbyists, about the need to protect them from class actions”.
“Corporate Australia has nothing to fear if they do the right thing by their investors and their customers,” she submitted.
Adero lawyer Kellie Pledger offered similar sentiments, noting that her firm “takes the view that businesses will need some sort of protection, particularly in the shareholder class action space, post-COVID-19, though Adero [hopes] that the Morrison government does not overreach when providing that protection to the detriment of employees”.