Julie Owens (Parramatta, Australian Labor Party) Share this | Hansard source

Well, here we are again. Under the cover of COVID, we've seen this government weaken superannuation and move to cut wages and conditions and now, surprisingly even for this government, to weaken the protections for mum and dad shareholders by weakening what is known as the continuous disclosure regime, which ensures that people who invest in shares in Australia have all of the information that company directors have at their disposal. That's the current system, and this tax law amendment bill moves to weaken it.

I also want to point out something about this government, because I find this quite interesting. Usually, when they do something that they want talked about and about which they want the spin to roll out across the community, they give the bills fabulous names like 'strengthening economic security' or something—even though quite often they do the opposite. But, when they want to hide something, they stick it in these tax law bills, with names like 'Treasury Laws Amendment (2021 Measures No. 1) Bill.' That's what this is. In it is a profound change to the way our entire share system works in Australia, and most mum and dad investors would not know that what they have assumed to be the case for decades is about to change.

I want to talk about the two schedules to this bill, because they are quite different. The first one, schedule 1, allows companies to hold virtual AGMs and execute a range of other government activities by electronic means. Currently they can do that, because of COVID, until 21 March. This extends that until September 2021. That's essentially a good thing. It's still very difficult for shareholders to hold AGMs. We still don't know what's going to happen with borders. It's a sensible thing. Even though on our side we have real concerns about the way that some of those AGMs do or don't allow shareholders to participate fully, we understand that, as a temporary measure, that's necessary and that's fine.

Schedule 2, however, is the one that has the problem in it. It extends what was a COVID-19 measure, which weakens Australia's continuous disclosure and misleading and deceptive conduct provisions, and it makes it permanent. Again, it's not extending it temporarily because there's a reason out there that requires it; it is permanently making this change.

There are probably people listening to this who don't know what this means—including mum and dad shareholders who might not know, because, again, they assume that the open and transparent system that we have is normal. It turns out that it's not and we're about to lose it. Let me go through a little bit of the history. Before COVID, we had a continuous disclosure regime. It was actually introduced by the Howard government in 2001. Companies and company directors were required to disclose publicly any information that was not generally available and that a reasonable person would expect to have a material effect on the price or value of the company's shares. So, if directors knew something that shareholders should know, they had to tell them. In 2001, John Howard, a Liberal Prime Minister, introduced this continuous disclosure regime. If a company or a company director failed to comply with those obligations, they could face a civil penalty action either by a shareholder or by ASIC. However, there was an out for the director, who would not be found liable in civil penalty proceedings for breaching those obligations if he or she took all reasonable steps to ensure that the company complied with its disclosure obligations and thought the company was complying with those obligations. So, again, directors were obligated to provide full disclosure to institutional investors, superannuation companies that invested and mum-and-dad shareholders. That's the way it's been since 2001, and it has underpinned a very strong, reliable and transparent share market system in this country. It's been a very good thing.

Under COVID, the government made some temporary changes, which said that companies and directors that failed to disclose price-sensitive information are liable to shareholders for the failure only if the company or director acted with knowledge, recklessness or negligence. That's quite a change. This bill makes that change permanent. It also makes another change permanent: it makes changes to the misleading and deceptive conduct provisions that currently apply to companies so that, in order for a company or director to face civil penalties for providing misleading or deceptive information to shareholders or the market, ASIC or an affected individual would have to prove that the company or director acted with knowledge, recklessness or negligence. So, from a situation where directors are obligated to disclose information that shareholders should know, we're moving to a world in which a shareholder would have to prove that a director acted negligently or recklessly by not providing information, even though the shareholder might not know what that information is because they haven't been given it. So this is an extraordinary situation where, first, in order for a shareholder or ASIC to take action against a company, they have to find out this information that has been kept secret, and then they have to prove that the director or the company acted with knowledge, recklessness or negligence. So the onus of proof here is on the shareholder. That's an extraordinary change. It's extraordinary that the director isn't obligated to make full disclosure anymore, but it's even more extraordinary that the onus of proof has moved to the shareholder.

Let's make no bones about this. These changes make it easier for companies and directors to get away with failing to provide price-sensitive information to the market. The government explanatory memorandum says it reduces the amount of time entities and officers must spend on assurances that they have complied—extraordinary. It makes it easier for companies and directors to get away with failing to provide price-sensitive information to the market. That's what it does. It makes it easier for companies and directors to get away with withholding information from, or providing misleading information to, the market or shareholders, because, in order for those directors to be brought to face the consequences, a shareholder has to prove that they knew and that they acted recklessly—an extraordinary change. It puts the interests of individual company directors above the interests of mum-and-dad investors, self-funded retirees and large institutional investors, all of whom rely on Australia's strict disclosure laws now. When we're talking about mum-and-dad investors, by the way, we're not talking about people who necessarily fully understand the operations of the market. We're not talking about people who necessarily follow all of the workings of a business in great detail. We're talking about people who quite often invest in companies based on their reputation. We now have a situation where directors could get away quite easily with not providing investors with the information that they need. It really is quite extraordinary.

I'm going to quote from the Australian Shareholders Association head, Allan Goldin, who said:

So the new instruction to management from Boards could be, if you want to keep some information to yourself or exaggerate a bit just make sure you don't tell me so no one can sue me—

the 'honest idiot' defence, as it's known. It's also known as 'don't ask, don't tell'. I think we've seen a bit of that in the Prime Minister's department, not that I would ever call the Prime Minister an honest idiot. But I would point out that the 'don't ask, don't tell' regime we have seen from this government will now apply to directors as well. It is quite shocking.

With something that is this serious, something that changes the fundamental understanding people have of the information they get from companies to inform their investment decisions, you would expect there to have been a comprehensive Senate inquiry. There was the beginning of a Senate inquiry, but it was cut short by the Liberal-controlled committee. It was such a short time frame that even the Treasury and ASIC didn't get to make submissions—honestly!

While we know that the schedule 2 changes are supported by the Australian Institute of Company Directors—I totally understand that—and the Business Council of Australia, they aren't universally supported. In fact, some extraordinary organisations have come out and said, 'This isn't right.' A 2020 survey of 195 senior company executives, conducted by the law firm King & Wood Mallesons, found that only 21.5 per cent of executives thought the temporary changes to continuous disclosure laws should be made permanent. Over 80 per cent said that the changes had not altered the way in which companies were making disclosure decisions. In other words, even the temporary changes don't have many friends. There is strong opposition to schedule 2 by a large and diverse coalition of parties, including the Australian Shareholders Association, plaintiff law firms and the Australian Council of Superannuation Investors.

Fortunately, the Senate has now decided to reinstitute a Senate inquiry, which won't report until June, so finally we might get a chance to look at this. If this government wants to get schedule 1 through and extend the ability of companies to have AGMs virtually, then it needs to split this bill. We're happy to split it so that schedule 1 can go through and schedule 2, which makes fundamental changes to the way the share market operates in Australia, can be properly scrutinised by the many stakeholders in this area.

You have to ask, quite frankly, why the government would do this. Why is the government making it easier to withhold information from shareholders and making it harder for shareholders to take action? The only reason the Liberal government has given is that these changes are needed to protect company directors from 'opportunistic class actions'. Presumably what they're saying is that, because there are some class actions against directors, every shareholder has to have their protections weakened in order to protect directors. Let's look at the problem the government is trying to solve. According to figures from the law firm Allens, in 2019 there were 10 shareholder class actions filed in Australia. In 2018 there were 20. It was a big year. In 2017 there were 15. In 2016 there were fewer than five, and the average for the last 20 years is about five. So, in order to protect an average of five companies a year from class actions—and I'm not saying whether they're opportunistic or real or whatever—the access of every shareholder in Australia to relevant information that informs their investment decisions will be weakened. What an extraordinary thing! And something this profound is not called the 'Tax Laws Weakening Continuous Disclosure Regime Bill'; it doesn't even have a name. It's hidden in a tax laws amendment so that the vast majority of people will not see it.

This is extraordinary, coming from a government that thinks it's about business. This is extraordinary, coming from a government that pretends that it's the economic manager of the country. Our share market—the trust that people have in it, its transparency and the way it works—underpins investment in this country, investment by businesses within Australia and by international investors. If you weaken the trust that people have in the information that informs their investment, you weaken the trade and investment in Australia. Don't you get that, this party of business and this party of the market?

When people are going to risk their money on an investment and you tell them, through this sort of action, that they can no longer trust the information they're getting, they will go and invest elsewhere. They will invest elsewhere because they're not stupid, particularly big institutional investors. You will weaken our share market and you will lessen the investment that comes into Australia because you want to protect, from your own explanation, the somewhere between five and 20 companies that face class action each year in Australia—that's it. Every shareholder is treated badly in order to make that small protection, this focus that you have on class actions. This is a shocking piece of legislation. Now that the Senate has reinstated the inquiry, if you want to get schedule 1 through, to temporarily extend the capacity for AGMs to be held virtually, which is important, you're going to have to split the bill. That's your option now. Schedule 2: you shouldn't be doing it and you really have to rethink it.

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