Disclosure protection gains support

Directors and executives will still be required to comply with the ASX’s listing rules around continuous disclosure, the ASX says.

The ASX would “continue to work closely with government, regulators and other stakeholders to ensure the best outcomes for the Australian market, especially during the current pandemic”. Picture: AAP

Company directors and executives will still be required to comply with the ASX’s listing rules around continuous disclosure, despite the federal government’s temporary changes to the Corporations Law, the ASX said on Tuesday.

But observers said the changes would provide some relief for company directors and officers against potential law suits as a result of their guidance and forecasts about their company’s financial position in the current highly uncertain period created by the COVID-19 pandemic.

While the ASX will continue to enforce its listing rules requiring continuous disclosure, observers said it would now be a lot harder for directors and officers to be sued if their guidance later turned out to be wrong, unless they had been deliberately reckless or negligent in their comments or failed to inform the market of something material they knew about.

They said the temporary new laws, announced by Josh Frydenberg on Monday night, would help to protect company directors and executives from “opportunistic” law suits and class actions during the COVID-19 crisis as they came into the end of June financial reporting period and the subsequent annual general meeting season.

A spokesman for the ASX said on Tuesday that it supported the government’s temporary changes to the Corporations Act that it said were “consistent with maintaining Australia’s strong and effective continuous disclosure regime”.

It said the amendments to the law were “designed to help protect against opportunistic class actions in particular”.

But it said the changes would not “detract from the way the ASX monitors and enforces its rules”.

The spokesman said the ASX would “continue to work closely with government, regulators and other stakeholders to ensure the best outcomes for the Australian market, especially during the current pandemic”.

The chairman of Flagstaff Partners, Tony Burgess, said the move was “clearly a positive initiative”.

In an interview with The Australian on Monday, Mr Burgess and former ANZ chairman Charles Goode called for relief to be provided to directors around their continuous disclosure obligations in the current highly uncertain environment.

Mr Burgess said it was good to see the government responding promptly to alleviate a real business problem created by the COVID-19 crisis.

He said he hoped the six-month relief period provided an opportunity for “a more detailed review and a more permanent overhaul of the continuous disclosure regime in so far as it related to earnings guidance”.

Andrew Lumsden, a partner at law firm Corrs Chambers Westgarth, said the Treasurer’s determination was a “welcome dev­elop­ment”. He said it was “in the interests of better disclosure and a more informed market for issuers only to be liable in cases of intention reckless or negligent mistake”. He added: “For months now, corporate Australia has been trying to make the federal government aware of the challenges of providing accurate, forward-looking statements and earnings guidance during the time of the COVID-19 pandemic.”

The changes operate by modifying Sections 674 and 675 of the Corporations Act so listed entities and their officers are only liable if there has been “knowledge, recklessness or negligence” with respect to updates on price-sensitive information to the market.

Craig Claughton, head of FINPRO in the Pacific region for global insurance giant Marsh, said Mr Frydenberg’s announcement was positive, especially for the company directors and officers.

“It importantly gives our directors and officers a bit of breathing space whilst guiding their companies during and out from this current pandemic,” he said.

“This is a good first step to introducing some regulation so as to ensure that the majority of settlement proceeds go to the plaintiffs.”