Dave Sharma (Wentworth, Liberal Party) Share this | Hansard source

The Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 makes two suites of changes to the Corporations Act. Schedule 1, which we've been discussing this evening, extends from 21 March to 15 September this year the expiry date of the temporary relief allowing companies to use technology to meet regulatory requirements to hold meetings such as AGMs, distribute related materials and validly execute and witness documents. Schedule 2 of the bill permanently introduces a fault element for our continuous disclosure laws so that companies and their officers will only be liable for civil penalty proceedings where they have acted with knowledge, recklessness or negligence in failing to update the market with price sensitive information.

Allow me to turn first to schedule 1. This relief was originally introduced on 5 May 2020, using a temporary instrument-making power which was inserted into the Corporations Act as part of the government's response to the coronavirus crisis, and was subsequently extended. While this relief currently expires on 21 March this year, in just under a week's time, the rationale for its introduction remains. COVID-19 continues to cause uncertainty and associated public health orders continue to be introduced from time to time which restrict movement, meetings and large gatherings. It's necessary for the continuation of business that companies be able to plan with certainty, to host meetings and to execute documents without necessarily having to physically meet.

The relief in this bill, the adjustments in the provisions in schedule 1, ensures that companies can get on with business while cooperating with public health orders to ensure that the COVID-19 risk remains abated. Schedule 1 contains enhancements to the temporary relief previously introduced as a result of feedback and consultation. These enhancements ensure, amongst other things, that companies are required to meet the same substantive regulatory standards regardless of whether a physical, virtual or hybrid meeting is held. It allows shareholders to opt in to receive hard copies of meeting related materials. It also allows that whether company officers physically or electronically execute documents, including things such as deeds, via signature or witnessing the application of a company seal, such execution will be valid, which means that the rights and the obligations contained in those documents will remain enforceable. The provisions in schedule 1 also improve the technology and neutrality of other regulatory requirements related to meetings and document execution. These improvements are all consistent with the recommendations of the interim report of the Senate Select Committee on Financial Technology and Regulatory Technology.

In addition, the government is also proposing permanent reforms that will continue to allow companies to electronically sign documents and send meeting related materials electronically to be in place when this temporary extension ends. The government is also proposing to conduct an opt in pilot for hybrid AGMs, or annual general meetings, which will allow shareholders to choose to attend meetings either in person or virtually. This pilot will commence when the extension to the temporary relief ends on 15 September 2021, with the aim of this pilot being to encourage companies and shareholders to engage with technology with a view to considering whether future permanent reforms are needed to allow companies to effectively use technology to engage and interact with their shareholders.

Schedule 2 to this bill will amend our continuous disclosure laws so that companies and their officers will only be liable for civil penalty proceedings where they've acted with knowledge, recklessness or negligence with respect to updates on price sensitive information to the market. What schedule 2 does is make permanent the temporary relief that was introduced by the government in response to the coronavirus crisis on 25 May 2020 and subsequently extended until 22 March 2021. Why are these reforms necessary? I know those opposite disagree with the need for these reforms. What these reforms are intended to do is reduce to the threat of opportunistic class actions enabling businesses to allocate resources to where they're most needed, to improving efficiency, to hiring new workers, to growing, to investing and to make it easier for businesses—and particular company directors—to focus on those decisions that will make it easier for business to grow and create jobs for the economy. These reforms will mean that company directors and senior office holders, rather than spending a disproportionate amount of time taking defensive measures to mitigate the threat of opportunistic class actions brought against them, will now have time to focus on what the proper purpose of the business is, which is growing, producing and employing.

The threat of class actions has also made it more difficult for companies to release forward-looking guidance to the market. Without a high level of protection, companies and company office bearers may choose to withhold forecasts of future earnings or other forward-looking estimates, thereby limiting the amount of information available to investors. This is a long-overdue step in controlling the rise of baseless and costly litigation that mostly benefits for-profit litigation funding groups, most of which are based offshore. As Ashurst's partner Ian Bolster, a leading class-action practitioner, said recently:

Australia has a "class action friendly environment" where the lack of regulation for litigation funders had incentivised the rise of flimsy cases that bully corporations into settling.

Everyone is entitled to their day in court but it shouldn't be a vehicle for funders to profit, it should be a way for people to access justice.

Since class actions first became a reality in Australia in 1991, almost 30 years ago, the amount of class actions has grown dramatically, particularly shareholder class actions. The Australian Law Reform Council noted as well that, of these shareholder class actions, 28 per cent of the litigation proceeds went to funders, 15 per cent went to legal expenses—so almost half of the proceeds are going to litigation funders or the lawyers—and only 55 per cent went to affected shareholders. Federal Court data also shows that, contrary to what the member for Kingsford Smith said earlier, the number of class actions in Australia is actually on the rise quite dramatically; the number of class actions in Australia has tripled over the past 10 years.

If you look at the insurance market for directors and officers liability insurance, you see that the risk is increasing. The standard premium for directors and officers liability insurance rose 75 per cent on average in 2019 and 88 per cent on average in 2018. So what schedule 2 will do is amend our continuous disclosure laws so that companies and their officials will only be liable for civil penalty proceedings where they have acted with knowledge, recklessness or negligence with respect to updates on price-sensitive information to the market. This will not alter the existing administrative penalties regime issued by ASIC, so ASIC can continue to issue infringement notices without proving knowledge of recklessness or negligence. Infringement notices can continue to be used for less serious breaches as a fast and effective regulatory response that is both proportionate and proximate in time to the alleged breach. This standard is also retained for ASIC's other nonpecuniary enforcement tools, such as requiring a disclosure of information to the market or obtaining a court order, which will ensure that the regulator, ASIC, can continue to enforce compliance with the law but without entities facing class actions where they've acted honestly and without negligence.

Schedule 2 also introduces the same standard of liability for misleading and deceptive conduct where an entity or an officer has allegedly failed to provide an update with price-sensitive information to the market. This ensures that those who bring class actions for an alleged failure to update the market must prove that a company or officer has acted with knowledge, recklessness or negligence, whether they bring the action under continuous disclosure or under misleading and deceptive conduct provisions. The introduction of this fault element for private actions will more closely align Australia's continuous disclosure regime with the approach already taken in comparable jurisdictions, including the United States and the United Kingdom.

The threat of class actions has skyrocketed in recent years, and it has made it considerably more difficult for companies to release reliable forward-looking guidance to the market. Without a high level of protection, companies may choose to withhold forecasts or other forward-looking estimates, thereby limiting the amount of information available to investors and lessening the amount of information available to regular shareholders and the market. Raising the liability standards so that companies only face civil penalty actions where they have acted with knowledge, recklessness or negligence will allow companies and their officers to confidently provide guidance to the market without exposing themselves to the risk of opportunistic class actions. Reforming these obligations will also allow businesses to allocate resources towards improving efficiency and output, making it easier for businesses to invest, to create jobs and to ultimately grow the economy, which surely is the goal of all of us here. I commend the bill to the House.

Debate interrupted.

See this speech in context