NEW CONTINUOUS DISCLOSURE REGIME IN AUSTRALIA

The new continuous disclosure regime in Australia marks a significant shift in the regulatory landscape for listed companies. Effective as of May 2021, the amendments to the Corporations Act 2001 introduced a fault element to the continuous disclosure obligations.

Among other things, 2021 saw the amendment of plenty of legislation, some in the wake of the pandemic, others to keep up with the ever-changing demands and expectations from the Australian legal system – such as the introduction of fault element to disclosure laws.The Federal Government on 10th August 2021 passed the Treasury Laws Amendment (2021) (Measures No. 1) Bill 2021 (Cth). The Bill received Royal Assent on 13th August and solidified on the 14th, making permanent the temporary changes to disclosure laws which were previously initiated from May 2020 to March 2021.

The amendment, which establishes a fault element in civil penalties and private action, is aligned with recommendations from the Parliamentary Joint Committee on Corporations and Financial Services after its inquiry into litigation funding and the regulation of class actions.

For investors and other market participants, this change means that the information they receive is more likely to be significant and relevant, enhancing market transparency. However, it also places greater responsibility on investors to scrutinize the disclosures they receive and understand the context behind them

Is your company compliant with Australia's new disclosure regime?

WHAT’S NEW

Following the passing of the Bill, Australia’s continuous disclosure regime now looks like this:

Listed entities are required to provide timely disclosure of information which would have a material effect on the price or value of its securities; such information is what a reasonable person would expect – Listing Rule 3.1 and Section 674(2) of the Corporations Act;

An entity that fails to comply with the above may be met with the following consequence(s):

(a)

(b)

IMPLICATIONS OF THE NEW LAW

According to legal experts, such amendment is unlikely to substantially change the standards for continuous disclosure in Australia. Firstly, the obligation to comply with Listing Rule 3.1 and Section 674(2) remains and ASIC can still prosecute entities in breach, regardless of the entity’s state of mind.

Furthermore, the newly introduced fault element is irrelevant when deciding whether or not disclosure of material information can be delayed pursuant to the confidentiality provision (Rule 3.1A.1) in Listing Rule 3.1, which continues to be a tough judgement call for officers. And in circumstances where negligence must be proved, judgement errors made in honesty can seem negligent in hindsight.

So it seems that the new regime provides some protection for entities where materiality an information is not obvious or difficult to ascertain.

However, it is important to note that the amendment does address a “loophole” that existed in class actions. A class action plaintiff typically argues that a company (a) fails to disclose material information in a timely manner, and/or (b) engages in misleading and deceptive conduct for providing inaccurate statements. The amendment applies the same standard of liability for misleading and deceptive conduct in relation to non-disclosure, such that a company is only liable (for either cause) if it has acted intentionally, recklessly or negligently. This is meant to make it harder for shareholders to bring a class action.

CONCLUSION

Will this amendment water down the quality of disclosure? Will future class actions become less opportunistic? It is difficult to predict how this particular change will affect the landscape of continuous disclosure in Australia. It is probably for this reason that a two-year review period has been put in place, in which the Treasurer will determine the effectiveness and challenges of the new regime. We can only wait and see if this new law is indeed a substantial change or a mere change in angle.

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