Monday, 9 August 2021
Treasury Laws Amendment (2021 Measures No. 1) Bill 2021; Second Reading
[by video link] I too rise to speak on the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021. There are two parts to this bill. The first deals with electronic company documents and virtual meetings. These measures are uncontroversial, so I won't address them, except to say that Centre Alliance supports the changes, believes them to be well overdue and would support their permanent extension.
The second part of the bill deals with the changes to the continuous disclosure obligations of listed companies. This has become contentious, and I feel it is important to explain our position. I was sceptical of this bill when I first heard about it. My initial impression was that company directors were in a fight with class action lawyers, and the government had decided to throw its weight behind the directors. Labor threw its own weight behind the lawyers, so it was left to the crossbench to determine who should really prevail.
I recognise that directors play an important role in our society by ensuring companies are well run and accountable to their shareholders. Class action lawyers also play an important role in our society. When big businesses engage in wrongdoing, class actions provide a means for redress, a way for an ordinary person to be compensated for any harm that they suffer. This creates a powerful incentive for businesses to treat their customers and stakeholders fairly.
Directors and lawyers are both powerful, well-funded interest groups, and I'm not surprised that they have friends in this place. But Centre Alliance is not a friend of either group. We're not here to serve any special interest; we're here to serve the public interest. So I was indifferent to this bill, because I thought the public interest was not served either way. As I worked through the bill, through multiple inquiries, many submissions and a number of meetings with stakeholders through my office, it became very clear that there was much more to this issue.
The things I learned have influenced my views. One important point is that class actions can proceed on the basis of a purely technical, even trivial, breach of the disclosure obligations. A litigant does not need to demonstrate any wrongdoing by the company or its officers. There doesn't even need to be any incompetence or negligence. Similarly, class actions can proceed even where the litigant has not suffered any real financial harm. Now, it's difficult to see how the public interest is served by class actions that proceed on the basis of technical breaches where shareholders are not harmed.
Another important point is that there is a public interest here. Every working Australian is a shareholder by virtue of their superannuation, and it is clear the current continuous disclosure regime is hurting those Australians. They are hurt by having to pay for insurance against spurious class actions, they are hurt by having to pay the legal fees to defend class actions, and they are hurt by having to pay any settlements that result. Treasury estimates that these changes will save shareholders more than $900 million every year in reduced legal and insurance costs. That is hundreds of millions of dollars a year currently going to lawyers and insurers, rather than shareholders, and those costs are increasing rapidly.
The loopholes in our continuous disclosure laws have been exploited by third-party litigant funders, investors who fund speculative litigation in order to secure settlement payouts. As the number of speculative class actions rises, so do the costs of insuring against them. Data provided to the inquiry shows D&O insurance premiums doubled between 2005 and 2018 and then doubled again in 2019. Shareholders bear the costs in the form of lower returns on their investments, which means Australians have less money saved for buying a home, for investing in a business and for their retirement. None of it—absolutely none of it—is contributing towards a better society or a better economy.
Clearly there is a problem with the continuous disclosure regime. It's a problem which has been exploited by lawyers and litigation investors. Something needs to be done, and this bill is a reasonable response to the problem. It does not prohibit class actions; it simply requires a class action to demonstrate some wrongdoing by the company. The disclosure breach must be done knowingly, recklessly or negligently. This change will prevent many spurious class actions from proceeding, which will reduce the legal risk and the insurance cost. It will do so without compromising the essential function of class actions in ensuring companies meet their disclosure obligations and provide redress where they fail to do so. And it will not compromise the regulators' role in bringing criminal proceedings for serious breaches. It is a sensible and reasonable change that will serve the public interest and it is one that Centre Alliance will be supporting.