Continuous disclosure reforms to be made permanent and other COVID-19 relief extended – what directors need to know


    In welcome news, the Treasurer has announced his intention to legislate permanent reform to continuous disclosure laws and extend relief for virtual AGMs and electronic communications until 15 September 2021.

    Continuous disclosure reforms and extension to misleading and deceptive conduct provisions

    The Treasurer’s announcement on disclosure reform followed the recent parliamentary inquiry into class actions where the AICD backed calls for substantial reform to Australia’s securities class action settings. If passed by the Parliament, the bill would ensure that companies and their officers will only be liable for civil penalty proceedings in respect of continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence”.

    Does the extension of virtual AGM relief apply to NFPs and charities?

    The Treasurer’s changes to the Corporations Act to enable virtual AGMs apply to public companies, including companies limited by guarantee. This will capture NFPs structured as companies limited by guarantee.

    However, registered charities that are companies limited by guarantee are not required to comply with the requirement to hold AGMs under the Corporations Act. Instead, they must comply with ACNC Governance Standards, which require charities to be accountable to members. Charities may still however choose to convene meetings of members to assist in complying with the ACNC Governance Standards. The charities rules or constitution may also mandate an in-person meeting.

    Incorporated associations (a common NFP structure) will need to refer to requirements set out in each State and Territory.

    The proposal is consistent with the temporary relief provided by the Treasurer during COVID-19 with the important exception that it is intended to extend to potential liability for misleading and deceptive conduct (which was originally omitted from the Treasurer’s COVID-19 relief). In other words, a plaintiff would need to prove fault where misleading or deceptive disclosure is alleged (ensuring alignment with the approach taken to the continuous disclosure provisions). Refer to AICD’s early article for further details on the emergency continuous disclosure relief here.

    The omission of misleading and deceptive conduct laws from the temporary relief was a significant concern for the AICD, so the extension to misleading and deceptive conduct provisions (which often form the basis of claims by plaintiffs in a securities class action) is a major, positive development.

    In the AICD’s view, if legislated, the changes would represent an important rebalancing of disclosure settings, and should act as a significant disincentive to the bringing of speculative shareholder class actions.

    In particular, the Government anticipates that the reform would trigger costs savings for D&O insurance given securities class actions have been a primary driver of recent increases. Notably, D&O insurance broker Marsh welcomed the announcement as “great news” and said it “represents an important and positive step forward for directors, corporations, and their insurers.”

    Critically, directors and corporations should understand that the nature of disclosure obligations remain untouched. The reckless or negligent director, and the individual who knew that disclosing information would affect the share price and said nothing, is still on the hook as they should be. The quality of disclosures has not decreased as a result of the Treasurer’s temporary relief and this permanent measure will bring us closer into line with the regulatory approach of nations like the US and UK. Indeed, in those overseas markets, the bar for bringing shareholder claims will remain higher even should the bill become law.

    Backlash to the proposals has been swift however, with significant opposition emerging from investor groups and plaintiff law firms. The bill has now been referred to the Senate Economics Legislation Committee with a report due by 12 March 2021. The AICD looks forward to participating in the inquiry with a view to the legislation passing.

    Six month extension of virtual AGMs and electronic communication relief

    The Treasurer has also announced his intention to extend the expiry date of the temporary relief allowing companies to hold virtual meetings, such as annual general meetings, as well as distribute meeting related materials and validly execute documents electronically from 21 March 2021 to 15 September 2021.

    This is welcome relief, sought by the AICD and others, especially given 31 December financial year close entities are currently planning their AGMs. Following 15 September 2021, meetings will need to be conducted consistent with pre-COVID-19 laws which require an-in person meeting to be held.

    In addition, following 15 September 2021 the Government will:

    • conduct a 12-month opt-in pilot for companies to hold hybrid annual general meetings to enable a proper assessment of the shareholder benefits of the virtual meeting component. Given hybrid meetings have always been permitted under the Corporations Act, subject to a company’s constitutional requirements, we await further details to understand the scope of the opt-in pilot; and
    • finalise permanent changes to allow electronic signatures and electronic communications of documents prior to the expiry of these temporary arrangements.

    The Government’s apparent backing away from permanently allowing virtual AGMs is disappointing, and reflects significant opposition from investor groups who felt the retail shareholder voice had been lost during some virtual AGMs last year. That said, there had been a material risk that hybrid meetings would be mandated for listed entities, so at least that outcome has been avoided.

    The AICD intends to use the pilot period to continue to mount the case for platform agnostic legislation.

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