Monday, 9 August 2021
Treasury Laws Amendment (2021 Measures No. 1) Bill 2021; Second Reading
I'm pleased to speak today on the government's Treasury Laws Amendment (2021 Measures No. 1) Bill 2021. This bill that goes through this place today, in its current form, is a direct attack on mum and dad investors right across Australia. It's an attack on your average retail investor. The attack comes in the form of a weakening of Australia's corporations law, to the detriment and disadvantage of the ordinary investor, because those parts of this bill that were originally intended to be pandemic-responsive temporary measures would become permanent fixtures of the Australian corporate landscape.
We see this very attack in the first schedule of the bill. It undermines and weakens fundamental transparency and accountability measures that many tens of thousands of Australian shareholders hold dear. The first schedule of this bill enshrines permanently the ability of listed companies to hold virtual annual general meetings, depriving shareholders of the ability to attend meetings and hold directors and executives to account face to face. This is a time-honoured tradition that has served investors large and small well, for generations. It is not something that should simply be cast aside on a whim because it suits certain players in the corporate landscape to the detriment of others.
Of course, Labor supports the enhanced use of technology where it improves accountability and transparency for investors. But we cannot support an approach that reduces the ability of shareholders to hold directors to account. It's a retrograde and regressive step when it comes to transparency in the Australian corporate landscape. The opposition is of the firm view that more, not less, needs to be done to ensure that virtual annual general meetings can function just as effectively as physical AGMs. But there is a lot of work to be done in this space. However, given the continued impact of ongoing lockdowns and border closures as a result of the ongoing COVID-19 pandemic, the opposition recognises that this measure needs to be retained for now, in a temporary capacity. Perhaps if we had a prime minister capable of doing his job by providing workable quarantine arrangements and rolling out a national vaccine strategy then the need for these measures would already be a thing of the past. But there you are. Alas, we have Mr Scott Morrison.
Let us turn to the second schedule of this bill. This schedule is indeed far more concerning to the opposition and to stakeholders. This schedule of the bill aims to make it easier for companies and company directors to get away with withholding information from or providing misleading information to shareholders. Anyone who is listening along may think they just misheard me. Sadly, you did not; it is indeed true that this bill, if passed in its current form, will make it easier for some unscrupulous directors and corporations to hoodwink shareholders. The bill does this by weakening what are currently strong corporate disclosure laws in Australia. These disclosure laws have functioned as the bedrock of our Australian investment framework and have stood this nation and our investors in good stead for a long time. Without the robust strength that we currently have in our corporate disclosure rules, it is likely that we will see dodgy directors getting away with failing to release timely, relevant and indeed crucial information to shareholders so that they can make informed decisions about their investments. It is fundamentally about fairness and a level playing field.
But the thing about these rules is that they're not just there to provide for institutional fairness. They do seek to protect retail shareholders—mum and dad investors—but they also do so much more. They make the entire Australian business sector stronger, not just listed entities but all Australian businesses, and therefore they make them more attractive to investors. The counterfactual, of course, is that these changes will make Australian businesses less attractive places for investors to park their money, because the implied risk will increase. That should be self-evident to those opposite on the government benches. Indeed, these changes would put the interests of a small number of company directors above the interests of Australian mum and dad investors, self-funded retirees and large institutional investors.
So, why on earth would the government pursue them? Well, it's a classic Liberal Party ethos writ large. The Liberal Party claim that the change in schedule 2 of this bill is necessary to protect company directors from what they term 'opportunistic class actions'. They're totally obsessed with class actions in the Liberal Party. It's an obsession that is both ridiculous and, indeed, trumped up and overblown. It may interest the Senate to know that shareholders class actions make up well under one per cent of cases filed in the Federal Court—fewer than one per cent. They affect a miniscule number of companies, and they are companies that have done the wrong thing. Let's not forget that.
The inverse proposition here that we must remember is that all Australian shareholders benefit from Australia's strong continuous disclosure laws. They act as a protection from harmful practices and wrongdoing, and it is all Australian shareholders who will be harmed by the government's proposed changes in schedule 2 of this bill. That is what the government is seeking to do by having this unnecessary and harmful schedule incorporated into this bill—to harm the interests of this nation's retail investors, the mums and dads and self-funded retirees. And all for what? To establish a protection racket for the small minority of company directors who deliberately seek to do the wrong thing at the expense of many hundreds of thousands of Australians who trust them to act responsibly with their hard-earned money. Let me illustrate this point by highlighting the remarks of Mr Allan Goldin, head of the Australian Shareholders Association. Mr Goldin has said:
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 … this is a real danger.
That sums it up just about right. It's nothing but an attempt to avoid the legal consequences that should follow from poor behaviour, and it absolutely is a danger to the interests of ordinary Australian retail investors as well as institutional investors. These changes don't help them either. That is why Labor sought to split the two schedules of this bill. We moved that way in the other place, to exclude the provisions of schedule 2 in this bill, but the government wouldn't have a bar of it. With these provisions remaining in the bill, Labor has no choice but to oppose the legislation before us today.
Let's just have a look at the history of this bill moving through the Senate and the government's attempt to stifle relevant stakeholders from having a say on the important and impactful provisions contained in this legislation, because, on 18 February this year, this bill was referred to the Senate Economics Legislation Committee. The government initially set a reporting date of 12 March. However, with the support of the crossbench, Labor senators successfully moved to extend the reporting date to 30 June this year. But that motion did not stop government senators on the Senate Economics Legislation Committee from ignoring the Senate's motion. They used their majority on the committee to finalise the report, as they had intended, on 12 March. This action ensured that many stakeholders did not have an opportunity to make submissions to the Senate inquiry, given the extremely short time frame. Most notably, even though the bill relates to shareholder rights, the Australian Shareholders Association was not able to prepare a submission to the inquiry within the truncated time frame enforced by government senators. Fortunately, on 16 March, the Senate voted to refer the provisions of this legislation to the Senate Economics References Committee for inquiry and report by 30 June 2021.
The references committee was able to undertake a more thorough examination of the bill. Through the course of its inquiry, the committee heard from a range of stakeholders opposed to the passage of schedule 2 of this bill. These ranged from the Australian Shareholders Association to law firms and, indeed, a number of academic experts. The committee found that the opponents of schedule 2 pointed to a number of strong reasons to oppose passage of these changes, namely, the effectiveness of the current continuous disclosure regime, as evidenced by Australia's strong markets; the confusion and uncertainty created by the provisions as currently drafted; the disproportionate and negative impact that the amendments in schedule 2 would have on retail investors, particularly women; the difficulties in establishing the state of mind of an entity and effective reversal of the burden of proof, severely curtailing the ability of investors to seek redress and recompense or hold company directors to account; and the impacts on ASIC enforcement.
The committee also heard and found that there was a high degree of trust in the rigour and effectiveness of Australia's current continuous disclosure regime. As the committee noted, the current provisions had their genesis in the financial markets collapse in 1987 and resulted from the inadequacies in disclosure that were demonstrated by the crash. Numerous submissions insisted that the high integrity and trust in Australian markets had been a direct result of Australia's strong continuous disclosure regime. Indeed, the Australian Securities and Investment Commission highlighted in evidence to the committee the importance of continuous disclosure obligations and misleading and deceptive conduct provisions in protecting investors. Their evidence to the committee said:
Australia's continuous disclosure obligations and misleading and deceptive conduct provisions are critical to protect market integrity and maintain the good reputation of Australia's financial markets. Confidence in the integrity of Australia's equity markets encourages investor participation; contributes to liquidity; stimulates more competitive pricing; and lowers the cost of capital.
They went on to say:
Markets cannot operate with a high degree of integrity unless the information critical to investment decisions is available and accessible to investors on an equal and timely basis. That is why market cleanliness and continuous disclosure are essential to investor confidence. Price discovery in a clean market is efficient. Asset prices react immediately after new information is released through appropriate channels and thereby more closely reflect underlying economic value.
In other words, weakening and undermining Australia's continuous disclosure rule obligations not only makes our corporate investment framework less fair but also undermines the confidence of investors, weakening capital allotment in Australia and inflow to Australia, and it distorts market prices to make them less reflective of their true economic value. That is what the regulator is telling us. They are basically saying: 'Don't do this. It's a stupid idea.' But since when do the Liberal Party like to listen to the experts on economic matters?
Let me quote to you what Professor Peta Spender, whose research passion deals heavily with corporations, financial markets and litigation, told the committee. In a private capacity she said:
… the CD regime—
continuous disclosure regime—
… has been in place for 30 years, and it's regarded as a world leader. The markets have prospered under this regime. Just to emphasise that point again, ASIC didn't consider it necessary for it to even be reviewed, because it's very highly regarded.
If ASIC didn't even believe that such a highly regarded and longstanding component of our corporate and financial market regulation landscape needed reviewing then why on earth are the government hell-bent on forcing through these unnecessary changes that water down our world-leading continuous disclosure laws? It comes down to a core component of Liberal Party DNA, to provide protection for the small minority of directors and executives who seek to do the wrong thing by investors in order to line their own pockets. Labor can't support that sort of thinking. We will back in the hundreds of thousands of ordinary Australian retail investors, mums and dads, self-funded retirees. We will oppose the weakening and watering down of these laws. I urge the Senate to reject this bill.