Former ASIC deputy chair Daniel Crennan supports corporate law changes

Daniel Crennan, who was deputy chair of ASIC for more than two years, supports changes to Australia’s continuous disclosure laws.

Daniel Crennan, who was deputy chair of ASIC for more than two years, supports changes to the continuous disclosure laws. Picture Kym Smith

Former Australian Securities and Investments Commission deputy chair Daniel Crennan has supported changes to continuous disclosure obligations in a speech to a suite of high powered silks.

Australia’s continuous disclosure laws were changed in May 2020, winding back requirements around “fault” in continuous disclosure laws, requiring litigants to prove “knowledge, recklessness or negligence” by companies.

This change was pitched by Treasurer Josh Frydenberg as striking “the right balance between ensuring shareholders and the market are appropriately informed while also allowing companies to more confidently make forecasts of future earnings or provide guidance updates without facing the undue risk of class actions”

In his address to the LegalWise In-House Counsel Conference, Mr Crennan said the changes introduced by Mr Frydenberg would encourage “rigour in the decision-making processes”.

“Any major policy reform with respect to the markets or the financial system more broadly carries with it some element of risk,” he said on Wednesday.

“One would have thought, however, that any risk in this instance would be largely mitigated by the existence of a well-funded and sophisticated market regulator, ASIC coupled with a sophisticated and proactive market operator, the ASX.”

Mr Crennan noted although the intended effect of the changes was to hamper class actions against ASX-listed entities it was unclear whether this had eventuated.

Several major class action players have struck out against the changes introduced to wind back the fault requirements in favour of misleading the market.

However, Mr Crennan said suggestions the changes would sink good corporate governance were overblown.

“From a prospective defendant’s perspective, there is a significant culture of compliance in the Australian equities markets with respect to continuous disclosure,” he said.

“Given the reputational risk of the fault elements in the continuous disclosure regime in any regulatory or private action, if anything, one might imagine, that the culture of compliance will improve.”

Speaking after his address, Mr Crennan told The Australian the changes in continuous disclosure brought the country more in-line with how similar laws functioned in the US and the UK.

“This is addressing a lacuna or legislative glitch that should have never occurred which exposed company’s present day shareholders to either very high insurance bills or actual loss,” he said.

Mr Crennan said class action settlement sums “are gobsmacking” but the previous regime saw funders and litigators reap as much as 50 per cent of the total settlement.

“For example, of a $40m settlement in a recent securities class action case, over $10m went to the funder and just under $10 went to the lawyers,” he said.

“These amounts are, no doubt, tantalising in a “no fault” environment.”

Mr Crennan, who left ASIC in October 2020 after more than two years, said if the changes introduced last year proved problematic, there was capacity to change them after the review in two years.

“If it somehow ruins everyone’s lives or the market becomes profoundly dishonest they’re reviewing it anyway,” he said.

“The fact of the matter is that the reforms are logical and will not stop shareholders seeking compensation through the class action system in appropriate circumstances.”