Treasurer Josh Frydenberg’s move to discourage class-action lawsuits shows that Australia is “soft on corporate misbehaviour”.
Treasury will move to amend the Corporations Act to ensure that companies and their officers will only be liable for civil penalty proceedings if they violated disclosure obligations with “knowledge, recklessness or negligence” – a change that will see directors “get away with duping mum and dad investors”, according to Class Actions Australia.
“The ASX is about to hit an all-time high, and the Treasurer thinks it’s important to offer extra shields to company directors to avoid accountability. It’s madness,” said CAA spokesperson Ben Hardwick.
“Australia’s robust stock market disclosure laws mean investors can operate from a position of knowledge. Australian directors know they have to be open with the market or they might be accountable to their investors through a class action. Josh Frydenberg is apparently uncomfortable with this situation.”
Treasury has defended the changes, saying that they will not affect the Commonwealth’s ability to prosecute criminal breaches or ASIC’s ability to issue infringement notices and administrative penalties without proving fault.
“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,” Treasury said.
The temporary changes first came into effect in May 2020, at the height of the COVID-19 crisis, to allow companies to provide guidance to the market during a period of significant upheaval. But any move to make them permanent flies in the face of transparency and accountability, CAA said.
“Josh Frydenberg has revealed his hand with this decision, but I suspect the Senate crossbench may have greater integrity when it comes to defending the true interests of investors and our markets,” Mr Hardwick said.
“The last thing we should want is for Australia to develop an international reputation as a jurisdiction that’s soft on corporate misbehaviour. That’s a surefire way to dry up investment.”