Australia sees meaningful reform to its continuous disclosure laws

On 10 August 2021, the federal government passed legislation to reform Australia’s continuous disclosure laws. The bill was introduced into parliament in February 2021 following the recommendations of the Parliamentary Inquiry into Litigation Funding and Regulation of the Class Action Industry (December 2020). The legislation follows a package of anticipated wider reforms under consideration, which was complemented by the passing of legislation regulating litigation funders which took effect in August 2020.

The changes to the disclosure regime mean that disclosing entities and their directors and officers will only be liable in civil penalty proceedings for continuous disclosure breaches where they acted with ‘knowledge, recklessness or negligence’ in relation to updates on market sensitive information. This means that shareholders will only be able to successfully litigate for alleged breaches of continuous disclosure where there is clear knowledge, recklessness or negligence by the directors and officers with respect to continuous disclosure. These changes also bring Australia’s continuous disclosure obligations more closely in line with the USA and UK.[1]

The legislation will be subject to review in two years.

As reported in Aon’s February Insights article Changes to Continuous Disclosure Rules – The Impact on the D&O Market in Australia, the D&O market for Australian insureds has been subject to ongoing profitability pressure which has seen a contraction in market appetite for the provision of insurance to listed companies, accompanied with large increases in premiums and deductibles.

It is anticipated that the legislative change will bring greater stability to the D&O market.

In the short term we anticipate the change, together with the seeds of new unencumbered D&O capacity entering the market, will assist to ease some of the pressure on further upward premium alignment.

In the medium term, Insurers are expected to closely monitor any consequential developments in securities class action activity including changes in the frequency and severity of claims, developing trends in relation to early settlement versus court determinations and any changes in the way, or against whom, securities class actions are brought.

If those trends support improved insurer profitability, increased D&O market competition is likely to prevail, which we would expect to positively impact the D&O Market.

[1] Permanent Changes to Australia’s Continuous Disclosure Laws – Josh Frydenberg