Josh Frydenberg’s softer disclosure rules complicate ASIC’s cases

Treasurer Josh Frydenberg with ASIC chairman Joe Longo and deputy Sarah Court.

Josh Frydenberg’s action to relax continuous disclosure rules for ­directors of Australian companies could have major implications for several high-profile cases of interest to corporate cop ASIC. These include the troubled Crown Resorts and one of the largest floats in the past 12 months, Nuix.

New Australian Securities & Investments Commission chairman Joe Longo played down the change, but conceded it was too early to tell what the impact would be on cases.

Big business has been pushing for a lowering of the threshold on continuous disclosure because of what it argues is an alarming increase in class actions and rising insurance fees for boards. Last year, ASIC was on record opposing any relaxation, but Mr Longo noted this was before his time.

Asked if he thought the change would make his life harder as an enforcer, he paused. “I don’t know,” he said.

“We have a strong corporate culture of disclosure in Australia. The government took a policy position on this and obviously listened to views from everyone. It has just been implemented, and I think we need to see what happens over the next year or two. Sitting here and talking to you, am I worried about it? No, I’m not.”

The changes to continuous disclosure now mean that directors are only liable for civil penalty proceedings where they have acted with “knowledge, recklessness or negligence” in terms of disclosure. Shareholders in Crown Resorts have had huge losses and the Bergin inquiry in NSW and the royal commissions in Victoria and Western Australia have exposed serious issues of malfeasance on behalf of directors.

“We are looking at Crown,” Mr Longo said. “Clearly it’s a higher standard in order to take action, but whether that is actually going to stop us bringing an action, we will have to wait and see.”

Investors in Nuix are also furious after the company floated as a stockmarket darling with what turned out to be wildly optimistic forecasts in its prospectus. ASIC is investigating founding directors.

“It was one of the biggest floats of last year,” Mr Longo said. “It traded very well for several months and then it didn’t and clearly there are significant potential issues there that we are investigating and taking very seriously. I’ve got no concern about how we handled that prospectus at the time. I’ve looked at that very carefully, we’ve had very experienced people looking at it. I’m quite comfortable with what we did.”

Between December 2020 and May, Nuix shares fell on a series of announcements about downgrades. “Over that period there were a number of disclosures, downgrades published to the market several times. The question from a continuous disclosure perspective is whether those announcements to the market were timely enough. There were certainly several of them,” Mr Longo said.

He acknowledged the strong public interest and said the watchdog was doing its best to complete investigations but that it would take some time.

There is a criminal investigation into possible insider trading by sacked chief financial officer Stephen Doyle, his brother Ross and father Ronald. ASIC stopped Ross Doyle from leaving the country but shares the Doyles had in Nuix were not frozen.

“We took the view that lifting the escrow restrictions would not compromise either our investigation or the rights of others to seek potential legal redress from any of the parties. That was our judgment on that,” Mr Longo said.

“Now there is a lot going on in relation to Nuix. The market actually knows a lot more than would normally be the case because of the release of that affidavit. So we’ve got the insider trading investigation and we are also looking at the forecasts of the prospectus and restatements of the financial accounts.” Where Mr Longo drew a line on Nuix was on politics, when Labor senator Deborah O’Neill used parliamentary privilege to accuse one of his highly regarded commissioners, Cathy Amour, of a conflict of interest as a result of her previous job with Macquarie Bank eight years earlier. Macquarie was the major shareholder in Nuix.

“Even those privileges have to be exercised with a sense of fairness,” Mr Longo said of Senator O’Neill at the time.

“This committee, with all due respect, is getting close to being quite unfair to Commissioner Armour with the way it is approaching these issues.”

The new higher bar for ASIC on director duties to disclose will be tested by another ongoing case against ANZ in relation to the controversial $2.5bn equity capital raising in August 2015 that became the subject of a criminal cartel case.

In addition to the ACCC’s cartel case, an ASIC’s action, which was stayed in 2019 ahead of the outcome of the ACCC matter, is still alive.