Stephen Jones (Whitlam, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

This bill, the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021, extends the operation of certain measures that were put in place at the height of the COVID-19 economic recession, changes that concern the Corporations Law. Schedule 1 of the bill allows companies to hold virtual annual general meetings and to execute a range of other governance activities using electronic means until 16 September 2021. Without the passage of this bill, this measure would otherwise expire on 21 March 2021. This measure and other measures reduce the ability of shareholders to hold company directors to account through questions and votes at physical AGMs; however, as COVID-19 border restrictions may continue through 2021—though we all hope that will not be the case—Labor sees the sense in this measure continuing.

Schedule 2 is an entirely different matter. Schedule 2 extends a COVID-19 measure which will permanently weaken Australia's continuous disclosure laws and the misleading-and-deceptive-conduct provisions. We opposed that provision, which was put into place by regulation during the height of the COVID-19 recession, and we will be opposing it again. Under the pre-COVID continuous disclosure regime, which was introduced by the Howard government in 2001, companies and directors were required to disclose publicly any information that was not generally available and that a reasonable person would expect to have a material effect on the price or value of a company's share price. If a company or company director failed to comply with these obligations, they could face a civil penalty action either by shareholders or by the corporate regulator, the Australian Securities and Investments Commission. However, a director was not liable for a civil penalty proceeding for breaching those obligations if he or she took all reasonable steps to ensure that the company complied with its disclosure obligations and, after taking those reasonable steps, believed that the company was complying with its obligations.

Under the temporary COVID-19 regime, which schedule 2 would make permanent, companies and directors that fail to disclose price-sensitive information, either at all or in a timely fashion, are only liable to shareholders for that failure if the company or director acted with knowledge, recklessness or negligence. That means these changes would make it easier for companies and directors to get away with failing to provide price-sensitive information to the market. As the government's explanatory memorandum puts it, they would reduce the amount of time entities and officers must spend on assurance that they have complied with the continuous disclosure and misleading and deceptive conduct laws. In other words, the changes at schedule 2 would make it easier for companies and directors to get away with withholding information from, or providing misleading information to, the market and shareholders.

The only reason the government has given for making the changes in schedule 2 is the asserted need to protect Australian companies and directors from the risk of opportunistic class actions. The changes in schedule 2 would put the interests of individual company directors above the interests of mum-and-dad investors. This is an important point. Every member of this House would remember the campaign that the coalition waged in the lead-up to the last election, where they alleged that they were championing the interests of mum-and-dad investors. It now appears that the very government that purported to champion these interests has dropped mum-and-dad investors like a hot, mouldy potato. These measures are anti shareholder—or, more accurately, anti small shareholders—and pro director. Large institutional investors always have an advantage. They have many means at their disposal, such as large research units and ongoing investor briefings, to interrogate company directors and hold them and their companies to account. Small mum-and-dad investors don't. It is for this very reason that small mum-and-dad investors are reliant on these continuous disclosure obligations. Our great concern is that these proposed changes will ensure that we have, built into our company law, a 'don't ask, don't tell' culture. It is absolutely against the interests of small mum-and-dad investors, and this schedule to the bill should be rejected.

By way of background, both of these measures were introduced by the government as temporary measures. We were deeply concerned by this second measure in schedule 2, and we opposed it at the time. If ever there was an argument for putting this in place as a temporary measure, there is certainly no argument for making it permanent. The government is quite simply choosing the interests of directors over the interests of shareholders in a company. That is untenable, and we will not be supporting it. We know the government backbenchers have been agitating for this change for some time, in some mistaken belief that there is somehow a whole bunch of invalid, vexatious claims being made via class actions. There is no evidence at all to substantiate this claim. What there is evidence of is that this change will harm small mum-and-dad investors. The government, I'm sure, will say in its contributions that it has the support of the business community. That is simply not true. It is true that the Business Council of Australia—that is, big business—is going to support it. Of course the Australian Institute of Company Directors is going to support it because the government is choosing the interests of directors over shareholders. But not all business organisations are supporting it. A 2020 survey of 195 senior company executives, conducted by the law firm King & Wood Mallesons, found that only 21.5 per cent of executives thought that the temporary changes to continuous disclosure laws should be made permanent. That is to say that nearly 80 per cent of company executives said that it was a bad idea. That was only one year ago. I'm sure that, if asked today, those same company directors would say it's still a bad idea and that it should be rejected.

There is also strong opposition from the Australian Shareholders Association, who described this new bill as 'a curate's egg'. They have concerns but understand that there is some merit in the virtual AGMs. The chair of the Australian Shareholders Association, Mr Alan Goldin, had this to say:

I personally dislike the virtual AGM that allows chairmen to effectively dodge any real questions and offer any answer they like as there is no comeback… Until 15 September …

Then we return to the real world of directors and management being held accountable once a year to their owners—

the shareholders. He personally dislikes them but can understand that there is perhaps an argument in favour of them, but he does not support changes to director liabilities and describes them as a 'bad' change, saying:

BAD is the change in continuous disclosure regulations. "Previously if there was any failure to keep the market informed under the current 'Continuous Disclosure' rule, it was a simple black and white situation, don't tell shareholders something material and the Company and its Directors were liable. This was great for shareholders because they do not have insider or special interest knowledge and all they know is what they are told and what they read."

What Mr Goldin is saying, quite simply, is that the existing arrangements are pro shareholders; the government's changes are against the interests of shareholders and they should be rejected. He says—his words, not mine:

So the new instruction to management from Boards could be, if you want to keep some information to yourself or exaggerate a bit just make sure you don't tell me so no one can sue me—

that is, don't ask, don't tell. That is the culture which is going to be legislated for if this bill passes the House. It should be opposed.

Another argument that has been put forward by the government is that, somehow, if this bill passes the House, there will be a reduction in premiums paid for director liability insurance. That was put to the test by the Senate committee which inquired into this bill. The Insurance Council of Australia punted that out of the park. It said there can be no hope that there will be a significant reduction or any significant change in insurance premiums as a result of this change. Evidence from the Insurance Council indicated that a best-case scenario would result in little or no change to the price of directors and officers insurance. In the short to medium term, at best, there would be no change. The government's arguments for doing this, when held up to scrutiny, quite simply dissolve, and for these reasons they should be rejected.

For these reasons, we are moving a second reading amendment in the form that has been circulated in my name. I move:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading, the House:

(1) notes that the Government's measures in Schedule 2 of the bill would strip shareholders of their rights to be adequately informed, damage Australia's corporate governance regime, and allow company directors to get away with failing to disclose important information; and

(2) further notes these measures could damage Australian investment and hurt Australian investors and retirees."

I foreshadow that at the third reading stage we will be moving a substantive amendment to separate schedules 1 and 2 of the bill. As we've said, we can support and are willing to support the provisions for extending the arrangements for virtual AGMs; we can see the case for that. But we do not support and will not support the provisions for dissolving or reducing the director liability requirements. With those remarks, I thank the House.

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