Continuous disclosure extension a ‘wink and nudge’ to accountability
Federal Treasurer Josh Frydenberg’s decision to extend financial disclosure provisions is a “wink and nudge to dishonest corporate behaviour”, according to one class action lawyer.
The Morrison government’s decision to extend softer financial disclosure rules for a further six months is a clear signal to corporate Australia to “relax and get loose with the truth”, the Keep Corporations Honest campaign has warned.
Keep Corporations Honest spokesperson and Slater and Gordon head of class action, Ben Hardwick, said the move was cynical and dangerous.
“They say you should never waste a crisis and the corporate lobby certainly got the memo,” Mr Hardwick said.
“This is a cynical use of COVID-19 to justify the long-held goal of reducing corporate accountability for misleading the market.
“Powerful corporate interests have long lobbied to remove Australian laws that make company directors accountable. In COVID-19, they’ve found the perfect cover.”
The federal government will extend temporary continuous disclosure provisions that apply to companies and their officers for a further six months until 23 March 2021, to continue to provide regulatory relief for businesses that have been impacted by COVID-19.
This would extend the existing relief which temporarily amended the Corporations Act 2001 so that companies and officers remained liable where there had been “knowledge, recklessness or negligence” with respect to updates on price-sensitive information to the market.
The extension would be made under the instrument-making power that had been inserted into the act as part of the government’s response to COVID-19.
Mr Frydenberg, said the heightened level of uncertainty around companies’ future prospects as a result of COVID-19 exposed companies to the threat of opportunistic class actions for allegedly “falling foul” of their continuous disclosure obligations if their forecasts in the middle of a pandemic were found to be inaccurate.
“In response, companies may hold back from making forecasts of future earnings or other forward-looking estimates, limiting the amount of information available to investors during this period,” Mr Frydenberg said.
“Importantly, evidence to date shows that the temporary exemption has assisted companies to continue to update the market during this difficult and uncertain time.
“In fact, Treasury has identified that there has been an increase in the number of material announcements to the market during the period the relief has been in place, relative to the same period last year.”
The Treasury stated that, given the impact of COVID-19 and the uncertainty it generates, it remains considerably more challenging for companies to release reliable forward-looking guidance to the market.
Mr Hardwick said that, in the wake of lobbying from corporate Australia, the Morrison government is “working on weakening that accountability from every angle. It needs to be called out”.
“When the pandemic first hit and the Treasurer rushed to give companies relief from accountability it was strange, but most allowed some benefit of the doubt given the uncertainty of the moment. But extending the licenve to mislead now is completely unwarranted,” Mr Hardwick said.
“Australia’s continuous disclosure laws have been successful in forcing better corporate behaviour. Because they fear being hit by class actions, Australian corporations have been relatively careful to keep the market informed.
“That’s partly why we have only seen 82 shareholder class actions filed in Australia over the past 16 years, as opposed to 441 in the US in 2018 alone.”
Mr Hardwick emphasised the integrity of markets depends on strong continuous disclosure laws.
“Our corporate regulators work hard with limited resources, but they can’t be everywhere at once,” he said.
“We need strong laws that hold corporations accountable to investors to ensure that they are being open and honest.”