The Australian Institute of Company Directors (AICD) has backed calls by an influential Parliamentary Joint Committee for substantial reform to Australia’s securities class action settings.
The Committee found that shareholder class actions are ‘generally economically inefficient and not in the public interest’ with shareholders in net terms no better off.
AICD Managing Director and CEO, Angus Armour, said, “Australia has become a lucrative market for litigation funders capitalising on our strict liability disclosure settings to reap major financial rewards. We welcome the Committee’s finding that reform is needed to re-balance the no-fault disclosure laws driving the outcomes.
“These changes do not equate to a ‘watering down’ of disclosure requirements. 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 and they should be.”
“Rebuilding the economy post-COVID will require an environment that encourages investment and risk-taking while building business and market confidence. Australia’s current securities class action regime works against these goals,” Mr Armour said.
“Our securities class actions settings are out of step with comparable jurisdictions and encourage cases motivated by profit not public interest.”
The AICD argued that the COVID-19 temporary move to re-introduce a fault element in continuous disclosure laws should become permanent, a view backed by the Committee.
The AICD has also called for similar reform of misleading and deceptive disclosure thresholds contributing to securities class action claims. Such reforms would preserve Australia’s strong continuous disclosure rules and continue to hold accountable companies and boards that knowingly or recklessly breach them.
The Committee has also recommended reforms to the broader class action and litigation funding market that would improve its operation and outcomes for claimants.
“The AICD recognises the role that litigation funders can play in access to justice, especially in product liability, consumer protection and employment claims,” Mr Armour said.
“But securities class actions are different – driven by funder returns rather than the interests of claimants, with adverse economic and market consequences. Legislative reform on securities class actions should be a new year priority for the Government.”
Media Contact: Maegen Sykes 0439 167 567