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New Continuous Disclosure Regime in Australia

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.

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

  1. 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;
  2. An entity that fails to comply with the above may be met with the following consequence(s):
    (a) The entity may be prosecuted by ASIC for criminal offences, be issued with administrative penalties or infringement notices;
    (b) If the entity has knowledge that it would, or is reckless or negligent as to whether it would, have a material effect on the price or value of the its securities, ASIC may pursue civil penalties or initiate private actions against the entity

  3. Officers of the entity are not liable for misleading and deceptive conduct under the Corporations Act Section 1041H or the Australian Securities and Investments Commission Act 2001 (Cth) section 12DA for failing to disclose material information, unless the officer has knowledge or is reckless or negligent in failing to disclose material information.

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 relating 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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