As policy attention shifts to recovery and rebuilding, AICD general manager of Advocacy Louise Petschler calls for a regulatory reset to support growth and modernise governance laws.
The immense public health, community and economic impacts of the COVID-19 pandemic continue to challenge boards and directors across all sectors of the economy. Even as activity returns across the community, social distancing, remote working and international travel restrictions will remain for some time. Boards are grappling with the scenarios, impacts and priorities for their organisations, to deliver sound stewardship through this period.
Australia’s progress in flattening the infection curve has encouraged the national cabinet to start charting the path to a “sustainable COVID-safe economy” by July, subject to precedents on testing, tracing and health surge capacity.
Just as Australia’s economic settings and public health measures must adapt to support recovery, so too must our regulatory and governance settings. We must reshape and reset the regulatory environment to boost growth and innovation.
Since March the AICD policy team has been working closely with government, stakeholders and regulators on the urgent crisis regulatory responses required during initial COVID disruption. We have been updating members on latest developments on the AICD’s COVID-19 website as this is a fast-moving space.
Significant relief and adjustments already in place include:
- Key regulators pausing BAU (business as usual) activity to focus on COVID-19 environment
- Relief from personal liability for insolvent trading until September 2020
- Extension of insolvency relief to charities and NFPs (incorporated associations are a WIP)
- “No action” positions from the Australian Securities and Investments Commission (ASIC) and the Australian Charities and Not-for-profits Commission on short-term virtual AGMs
- Use of the Treasurer’s COVID-19 emergency power to allow virtual AGMs and e-signatures, and execution under the Corporations Act 2001 until November 2020
- Reset of key regulator focus from BAU to COVID-19 challenges
- Increased focus on NFPs and charities in economic support policies including JobKeeper.
Many urgent challenges remain including three of the AICD’s current COVID-19 advocacy priorities (financial reporting, securities class action safe harbour and enhanced NFP sector support). These temporary relief measures are critical to supporting organisations through COVID-19 disruption — but they also highlight the prescriptive and constraining nature of many regulatory settings.
As we step into the challenge of rebuilding economic and community activity, it is vital we don’t simply “turn back” to regulations that were outdated even before the pandemic hit. Modernising our corporate law is an obvious focus. Just as COVID-19 disruption has accelerated digital and virtual strategies across all organisations, our laws also require a permanent revamp.
COVID-19 impacts have shown just how many Corporations Act requirements are based on physical process and paper — from physical mail-outs to uncertainty on holding virtual meetings. We must bring the law into the 21st century and facilitate virtual, remote and e-communication options — with safeguards to promote investor and member participation and engagement.
Bringing the director voice to decision-makers
Over recent weeks, the AICD has hosted virtual roundtables with government ministers to bring the experience and insights of AICD members to policymakers. We have held similar engagements with key advisory bodies including the National COVID-19 Coordination Commission and the Treasury Coronavirus Business Liaison Unit.
Supporting board focus on performance, innovation and productivity is also critical. We need directors to feel confident in trying different things and taking bold action, while exercising due care and diligence, and acting in the best interests of their organisation. Australia’s director liability environment is “uniquely burdensome” with a high reliance on personal liability, according to cross-jurisdictional research commissioned by the AICD.
The AICD has long called for clearer protections for directors who perform their roles with integrity and diligence while operating in a complex environment. We should carefully test the case for extending relief where it has been granted and expand balanced defences.
Class action reform
Australia’s securities class action market has become very attractive for third-party litigation funders, and is contributing to challenges in the D&O market. COVID-19 uncertainty requires urgent class action relief, but also highlights the need for a reset of the underlying law. Regulatory settings can promote robust disclosure and facilitate access to justice with a stronger public interest focus.
Business role in society
This crisis has underscored the role of business in society and why the interests of employees, community, customers and suppliers are critical to an organisation’s long-term success.
We must anticipate further disruptions and challenges — from pandemics and responding to climate change risks to evolving expectations of the role of the board. Resetting regulation will help support directors and boards respond effectively and diligently to these challenges, to build long-term and inclusive prosperity.
COVID-19 relief priorities
The AICD is calling for urgent action on continuing challenges in the COVID-19 environment. Read more about our Advocacy priorities on AICD’s COVID hub here.
Class action relief
The AICD is seeking a temporary safe harbour on securities class actions for earnings guidance and forward-looking disclosures relating to COVID-19 disruption, with ASIC retaining the right to bring actions. We have contrasted the approaches taken by other jurisdictions where the Securities and Exchange Commission has encouraged firms to extend disclosure with reliance on safe harbours.
The AICD has been engaging with ASIC and standard setters about guidance for directors grappling with disclosing material effect of COVID-19 on businesses in financial reports. These include approaches to solvency resolutions and going concern assessments by boards. We are also seeing consistent extensions to reporting timeframes. See our further coverage on class actions here.
The AICD continues to call for greater assistance and support for NFPs and charities. Welcome developments, including the changes to JobKeeper rules, will ensure more charities are eligible for relief. We continue to advocate for accelerated funding support for the sector, harmonisation of fundraising laws and further concessions for charitable donations.
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