Monday, 9 August 2021
Treasury Laws Amendment (2021 Measures No. 1) Bill 2021; Second Reading
Before my contribution was so reasonably interrupted, I was reminding my colleagues in the LNP that John Howard made a commitment to Australia being 'the greatest shareholding democracy in the world', and this legislation crabwalks the Liberal Party away from that. It's important that people understand that, under the existing system of continuous disclosure, civil action can be taken either by ASIC or by private litigants where there is a failure to disclose material information, regardless of knowledge, recklessness or negligence. Schedule 2 of this bill relieves directors and CEOs of this burden. Instead, successful civil action will require proving that those running a company knew that they were in receipt of relevant information and that they should have disclosed it to the market. As the Law Council of Australia put it in their submission to the Senate inquiry:
Boards and senior executives will be able to say they were not negligent with respect to the information that should have been disclosed if they did not have it, whether or not they ought to have had it …
That is the distinction that I am referring to here. While ASIC would still be free, of course, to pursue criminal action against a company for a failure to disclose information, regardless of their state of mind, it would have to clear the much higher criminal hurdle of 'beyond reasonable doubt', rather than the civil hurdle of 'the balance of probabilities'.
So schedule 2 of this bill will pave the way for the insider traders to make hay. It will be a boon for private equity and the other large institutional investors who expect to be the first to know. This is going to be 'wink and a nod' stuff. The rich and the powerful will get the good oil. The well-connected will get the winks and the nods. 'Buy or sell ahead of the great unwashed,' they'll say to themselves, and the companies and their bosses who participate in or facilitate this will with a little cunning—and they've got plenty of that—be immune to any repercussions. Schedule 2 seeks to make permanent the changes introduced temporarily last year when the market was shocked by the pandemic. But newsflash for colleagues: that shock is now in the distant past. So now the government—
An honourable senator interjecting—
Absolutely—go and have a look at it. I'll take that injection. Absolutely it is. For the information of colleagues, some of Australia's billionaires doubled their wealth during the first year of the pandemic. When hundreds of thousands of Australians lost their jobs, the billionaires were making off like bandits, as they so often do.
So now the government, knowing that the argument for the temporary measures that they introduced last year no longer exists, have turned around and are trying to sell this bill with the argument that it will reduce the prospect of class action litigation being undertaken on behalf of investors. So apparently, according to the government's own argument, having shareholders exercise their rights collectively and hold companies to account is too much of a burden for those poor companies and their poor highly paid executives and directors. What a furphy the government's argument is! As ASIC pointed out recently:
The economic significance of fair and efficient capital markets dwarfs any exposure to class action damages.
Well, the Australian Greens could not agree more with ASIC. It's so disappointing to see that the Liberal Party, which was built on a foundation of the exercise of free markets and the importance of information being freely available for the exercise of free markets, does not agree with that comment by ASIC. Class actions and the prospect of them actually support ASIC's enforcement regime, and they help ensure that corporate Australia does the right thing. In turn, this improves investor trust in Australia and the functioning of Australian markets. I cannot believe I am having to educate the Liberal Party on this stuff, but here we all stand today.
I note reports that One Nation has once again folded in a screaming heap; it's abandoned the battlers of Australia and ordinary shareholders in companies and is now indicating that it supports schedule 2 of this legislation. Of all the almost innumerable sellouts that we've seen from One Nation in this place, this one is right up there. All of their rhetoric about being here for the battlers and the little guy is now out the window. Here they are, backing the forces of big capital at the expense of mum and dad investors. Senator Roberts likes to bang on about globalists running the world. Well, I'm not going to come at that particular conspiracy, but I can say to Senator Roberts that the forces of global capital will be extremely happy with One Nation voting for schedule 2. All of the big international players, the private equity firms, the index funds, the investment banks, the people who make off like bandits using the hard work of ordinary workers to massively increase their wealth—and are cooking the planet while they're doing it—are cheering on the LNP here and they are cheering on One Nation. Voting for schedule 2 is voting for those people. And for what? What does One Nation get in return? A review after two years. How absolutely cheap and pathetic.
In conclusion, this bill demonstrates that neoliberalism is a con and those who advance it are in on the ground floor. The real aim is not fair competition, efficient markets or a shareholder democracy; the real aim is to rig the game so the truly rich and the truly powerful can get even richer and more powerful. The real aim is to further entrench the financialised crony capitalism that now dominates our politics, our economy, our markets and our society.
I'd like to end by noting that of course the Greens do support schedule 1 of this bill, on the basis that the measures allowing for the holding of virtual AGMs are temporary. It is prudent in the middle of the pandemic that companies not be required to hold meetings in person for the time being, particularly given the very real prospect of further lockdowns and border closures. However, the Greens are concerned that continued temporary extensions of these measures will encourage the government to attempt to make these measures permanent without due consideration being given to their potential impact. The parliament must be given the opportunity to fully examine the merits of any proposal to permanently allow virtual AGMs. So that deals with schedule 1.
But back to schedule 2: the rigging of the game in favour of the very rich and the very powerful—the people who have profited from cooking the planet; the people who have profited from the war on nature; the people who have profited from the introduction of the sixth mass extinction event in the history of our planet. Those are the beneficiaries of schedule 2—those on the inside; those with market power that they ruthlessly exercise at the expense of millions of ordinary Australians who rely on timely and accurate information about their investments and who are being completely dudded by the LNP and One Nation in their support for schedule 2 of this bill.
That was a terrific speech by Senator McKim. It was a great speech to his base; absolutely terrific! It had all the metaphors and the grandiose flourishes of phrase that one would expect. It appealed directly to his base. Unfortunately, amongst all of that, to the extent that there was a kernel of a rational, reasonable argument, it was lost in the rhetoric. So, first, I'll put the argument in a reasonable way against this legislation and this recommendation, and I'll deal with that argument.
The best argument against this legislation is that, in some way, by changing the strict liability nature of the continuous disclosure obligation in the Corporations Act and introducing a fault element, companies are going to be less inclined to comply with their continuous disclosure obligations than they are today. That's the kernel of the reasonable argument that one could put against this legislation.
Senator McKim talked about the Law Council of Australia. In relation to the Class Actions Committee of the Law Council of Australia, the Bills Digest states:
… the Class Actions Committee of the LCA is of the view that the Bill's impact on the continuous disclosure regime and the prohibitions on misleading and deceptive conduct 'will dampen the ability of the regulators and of shareholders to enforce corporate accountability for wrongdoing'.
That's the reasonable argument against this legislation—not the rhetorical flourish about big business, those in the know and all of this that Senator McKim rolled out. That's the reasonable argument against this legislation, and I'll deal with it.
The Law Council of Australia actually made two submissions: one by the Class Actions Committee and one by the Corporations Committee. Who would have thought that lawyers would have different views on two sides of the argument, depending upon who their client base was? But there you go—my friends in the legal profession. I'm in the legal profession! Who would have thoughts lawyers would have different views on something? How profound. The Corporations Committee of the Law Council of Australia said:
… these reforms will not lead to a lower standard of conduct, more limited disclosure or an inability to successfully prosecute cases of significant concern. However, the Corporations Committee suggests that these reforms may redress the technical imbalance in continuous disclosure laws that has contributed to inflated insurance.
On the one hand, the Corporations Committee of the Law Council of Australia says it's not going to lead to a lower standard of conduct in practice but addresses the technical imbalance of strict liability plus class action litigation. On the other hand, the Class Actions Committee of the Law Council of Australia says it will dampen the ability of regulators and shareholders to enforce the continuous disclosure obligation. That's a reasonable starting point for this debate. So let's put to one side the hysterical rhetoric that we've just heard from Senator McKim, which I don't think does the argument justice.
There are a few preliminary points to note, and I make these preliminary points as someone who lived and breathed a continuous disclosure obligation as a company secretary for an ASX 200 listed company for 10 years. I was in the firing line in terms of advising boards and dealing with shareholders in terms of continuous disclosure obligations. Bear in mind, this is an obligation to make immediate disclosure of price-sensitive information to the market unless one of certain exceptions applies in terms of information not being complete or some sort of incomplete proposal et cetera. So this obligation is one of making immediate disclosure. It's a difficult obligation in practice to comply with. Reasonable people acting in good faith, highly trained professionals, can have disagreements with respect to the nature of disclosure, whether or not the continuous disclosure obligation is triggered and what disclosure should be made. And they've got to do that in real time because the obligation is immediate.
The first point to note in relation to this legislation is that the continuous disclosure obligation does not change. There is no change in the continuous disclosure obligation. This legislation only deals with the issue of class action litigation brought by a class of shareholders against the company. The continuous disclosure obligation does not change.
The second point is that there is no change to the criminal element in terms of continuous disclosure obligations and breaches. All those scenarios that Senator McKim outlined would fall foursquare within the criminal obligations that are attached to breaches of continuous disclosure obligations.
Third, ASIC's enforcement powers in relation to this are unchanged. Let me give you just one example of how onerous this can be. Rio Tinto were hit with a civil penalty of $100,000 from ASIC because they were one hour late in making a disclosure to the market in relation to a transaction that was occurring in the Americas. They were tripped up by the time difference and they were hit with a $100,000 penalty for being one hour late. That's how onerous the obligation is, and ASIC's enforcement powers are unchanged under this legislation.
The fourth point I want to make is that both the class action legislation and the continuous disclosure obligations were never intended, when they were introduced, to underwrite these litigation funder funded class actions against companies. It was an unintended consequence. Don't believe me on that, Madam Acting Deputy President. You might have faith in what I say in this forum but you don't have to believe me on this. All you need to do is look at the Australian Law Reform Commission's discussion paper on class action litigation. The Australian Law Reform Commission itself says that when the obligations we're talking about were introduced it was not in an environment where there were litigation funder funded class actions against companies in the continuous disclosure space. So we are dealing with the ramifications of an unintended consequence here.
The fifth point: there has been an increase in shareholder class actions. Senator Gallagher, in her contribution in this debate, actually gave us the figures. They're increasing over time. There has been an increase in class action litigation and there has also been an increase in premiums for directors and officers insurance. Let me tell you, I had to sit and negotiate those premiums with underwriters and arrangers in the context of increasing class action litigation, and it got harder and harder. And that was years ago, when I was company secretary of a listed public company. That was what was happening at the coalface.
Let's deal with the other side of the argument. Let's take, on one side of the argument, the Law Council of Australia's proposition: is this legislation going to dampen disclosure in our public capital markets? I say no for these reasons. First, I want to talk about the circularity problem. Senator McKim and others talked about holding directors and companies responsible. What happens in reality? What happens in reality from an economic point of view is that you have one class of shareholders effectively suing another class of shareholders. That's what happens. You have the class of shareholders who were investors in the company at the time there was a continuous disclosure breach effectively suing the class of shareholders who are shareholders of the company at the time the action is brought. The shareholders are the ones who pay, no-one else. At the end of the day, the shareholders are paying. Are the directors paying? No. Do you know why? The first thing a director of a listed public company does is to require that a deed of access, insurance and indemnity be entered into. That deed of access, insurance and indemnity will provide that they won't become a director of a listed public company unless there's D&O insurance in place. It will provide that they're indemnified against any civil liability arising from the discharge of their continuing disclosure obligations. And that's quite legal. So there's actually no circumstance in which the liability arising from these circumstances comes home to roost. The chickens don't come home to roost on the shoulders of the directors; they're suffered by the company. And who's the company? The company simply represents the economic interests of the shareholders. So it's shareholders effectively suing shareholders.
But you've got the D&O insurance provider. Typically, the first thing the class action litigation funder asks is: What's the D&O insurance? What's the maximum coverage? That's the starting point for any negotiation and settlement. What does that mean? It means that D&O insurance premiums get higher and higher. The regulatory impact statement, or the equivalent of it, attached to this bill talks about a five per cent year-on-year increase in insurance premiums that this legislation will avoid. Typically, they're the ones who are paying. It's the insurance companies who are paying, but who pays for the insurance companies? The company pays the premiums for the D&O insurance. Who pays for that economically? It's the shareholders. So it all comes back to the shareholders. It's one class of shareholders versus the other class of shareholders. All this nonsense about the big end of town and directors et cetera is just that—all nonsense. Effectively, economically, it's one class of shareholders against another.
Secondly, I want to make this point: what is so astounding about there having to be a fault element before you sue, before you can bring an action? What is so novel about someone having to be wilfully doing the wrong thing, so knowing they had information that should have been released to the market and wilfully not releasing it to the market, being reckless or negligent, before you can bring a legal action? How profound. What's the problem with that? Can someone explain that to me? I haven't heard an explanation for that yet. Strict liability is in particular inappropriate in the circumstance where the continuous disclosure obligation is immediate. I gave that example of Rio Tinto and one hour and a $100,000 fine—immediate disclosure. That's why strict liability is inappropriate.
What about other jurisdictions? What are they doing? Madam Acting Deputy President O'Neill, I know that you always have an interest in looking at what other jurisdictions are doing and making sure Australia's keeping pace. That is certainly a noble ambition which I agree with. Lets see what the position is in the UK, just as one example. UK law says:
There is no civil statutory liability of directors to shareholders. In relation to the statutory liability of a company to shareholders, in order to establish a claim for loss against the company for a misleading statement or omission to make a disclosure, a shareholder must show that a director knew that the statement was materially misleading or was reckless—
there's that word 'reckless'—
as to whether it was, or that a director dishonestly—
concealed a material fact, and that he acquired, continued to hold or disposed of the relevant securities in reliance on the misleading statement or omission …
That's the UK law. So all we're doing is trying to get some sort of alignment between our laws and obligations in Australia and what's happening in overseas jurisdictions. This isn't novel stuff. All it is trying to do is level the playing field in the market for capital.
I want to make this point about litigation funders. Senator McKim seems to think that the people behind these class actions aren't entrepreneurs. It is private equity and other capital that is funding the litigation funders. They are absolutely entrepreneurs. When I used to give lectures on continuous disclosure risk to my group of senior executives in the mining sphere, I used to say to them that, just as we had a pipeline of mining projects, litigation funders have a pipeline of litigation cases. It's a business to them. There isn't some broader civil rights motive underpinning this. It's a business, and that needs to be recognised.
Do we think this legislation will make any difference? Firstly, it should be recognised that the current strict liability regime actually has a chilling impact on disclosures made. If you're going to face strict liability and the class action litigators circling, waiting for an opportunity, as per their business model, you are more likely to refrain from making disclosures, from informing the market with respect to market conditions et cetera. We've been seeing that over the last few years, with companies saying that they simply can't give guidance to their shareholders. One of the reasons for that is this strict liability. So in fact shareholders are getting less information than they would if we didn't have this strict liability.
Lastly, there's the opportunity cost. We need our businesses, our publicly listed companies, to be spending time looking for opportunities to build their businesses and to provide more jobs and more opportunities for all Australians, rather than being concerned about looking at the dangers posed by this strict liability when it's attached to the entrepreneurs in a class action litigation funding space. There is the opportunity cost. That shouldn't be forgotten either.
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.
[by video link] I rise to speak on the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021. Let's be clear on what this legislation represents: changing the law to help businesses hammered by lockdowns. The destruction being caused by hair-trigger lockdowns is the only reason I can support this bill.
Schedule 1 of this legislation will make temporary amendments to the rules relating to meetings of company directors and shareholders to facilitate the use of electronic technology. This is so they can hold virtual meetings and allow documents to be provided and signed electronically. One Nation considers this is a sensible temporary measure for businesses and an economy plagued by the uncertainty of lockdowns.
Schedule 2 of the bill would make permanent the government's temporary measure, introduced and extended last year, to relax continuous disclosure rules. This would provide that all civil penalty proceedings commenced under the continuous disclosure and misleading and deceptive conduct provisions of the Corporations Act 2001 must prove that an entity or officer acted with knowledge, recklessness or negligence in respect of an alleged contravention. This places the burden of proof squarely onto litigants involving breaches of continuous disclosure.
The Treasurer has said that the uncertainty created by the pandemic has made it more difficult for companies to release reliable, forward-looking guidance to the market. He said it was recognised that companies may hold back from making forecasts of future earnings or other forward-looking estimates in the chaos. My concern is that in practice it would be very difficult to prove a breach of continuous disclosure rules was done with intent. All a director has to do or say is it wasn't intentional or they weren't aware. So this could potentially improve protection for the directors of big corporations at the expense of small mum-and-dad investors, but it won't be a free pass for the big corporations. Under the rules of the Australian Stock Exchange, listed companies will still be required to immediately disclose any information that a reasonable person would expect to have a material effect on the price or value of their securities.
Continuous disclosure laws exist for good reasons. They promote better informed and more efficient securities markets and they help limit opportunities for insider trading at the expense of small and medium mum-and-dad investors. That's who One Nation supports in this space—mum-and-dad investors seeking to invest their hard-earned money in an Australian company. Continuous disclosure helps to level the playing field for the small investor. We should be promoting and encouraging this sort of investment—Australians investing in Australian companies—ensuring that more profits and dividends stay here instead of going offshore. One way to encourage it is to give small investors the confidence they can make an informed investment decision and ensure companies aren't withholding information that could influence their decision. Continuous disclosure laws provide that confidence to the small investors who need it.
Naturally, the Business Council of Australia supports this measure being made permanent, as its members struggle with the uncertainty created by lockdowns. As the Australian Stock Exchange has noted in response to the pandemic, a listed company's continuous disclosure obligations don't extend to predicting the unpredictable. It's important to note that the Australian Securities and Investments Commission and the Australian Competition and Consumer Commission have cautioned against weakening continuous disclosure laws. But we are living in very different times, with businesses that employ millions of Australians reeling under sudden lockdowns that they have no way to predict or prevent. This climate of uncertainty has no end in sight.
One Nation considers the business community will need time for the current situation to return to something resembling normality, when the impact of these amendments can be determined. That's why I've asked the government to amend this legislation and insert a statutory review mechanism. The review will be conducted within six months after the second anniversary of the bill's commencement. The review will be conducted by an independent expert. The government must table the review and must make a response within three months of tabling it. This amendment will also insert a sunset clause. In the event the review does not take place or the report is not acted upon then the amendments to schedule 2 will lapse at the end of the review and implementation period. We must make sure small mum-and-dad investors are protected from the predations of insider trading. One Nation will support the bill with those important amendments.
[by video link] I want to speak this evening on the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021, currently before the chamber. As we all know, the COVID-19 pandemic has had a profound impact on Australia and its people. After arriving on our shores a little over 12 months ago, this deadly virus has cost the lives and livelihoods of many and has forced government to implement responsive measures that I think most of us would never have envisaged would be necessary. Some of these measures have been positive and have had an important role in lessening the impact of the pandemic on our communities. In particular, I think of JobKeeper, a measure long advocated by those on the opposition side of the chamber and in the labour movement generally. It was begrudgingly embraced by the government and put in place to great effect, as we always knew it would be.
Some measures have perhaps been less consequential to working Australians doing it tough, but were nonetheless necessary to ensure the smooth functioning of the economy. One of those measures is that which this bill would seek to extend. This measure, introduced on 5 May 2020, permits companies and registered schemes to use technology to satisfy the regulatory requirements in the Corporations Act to hold meetings, distribute relevant information and execute certain measures as required. This measure is regrettable but necessary. Certainly, it would be preferable that AGMs and other governance related activities be required to be held in person. Such an arrangement ensures that shareholders, including mum-and-dad investors, are able to hold company directors to account through questioning and voting in a physical setting. Such accountability is essential to good corporate governance. Sadly, with the failure of the government to effectively roll out the vaccine program, it seems likely that strict COVID-19 related restrictions on physical gatherings will continue for some time yet, making such measures necessary.
Labor supports this measure, contained in schedule 1 of the bill, as you would expect given its pragmatic response to government decision-making throughout this crisis. Labor has always been willing to cooperate with the government on matters that are of importance to effectively respond to the COVID-19 pandemic. The opposition has cooperated with the government because this situation is a serious one, and this is what Australians need from us all in this place—positive solutions to the problems.
On the second of the two schedules contained in this bill, however, as articulated by other Labor senators including our shadow minister for finance, we express some serious concerns about the impact that these measures would have on our community. There is no denying that schedule 2 of this bill seeks to permanently weaken Australia's continuous disclosure and misleading and deceptive conduct provisions. Prior to the COVID-19 pandemic wreaking havoc on our country, companies and their directors were legally obligated to disclose to the community any information that was not generally available and that a reasonable person would expect to have a material effect on the value of the company's stock. This is as it should be. It is an essential element of any well-functioning financial system that investors are able to make decisions on the basis of the true state of a business's financial circumstances. Just imagine a world where this wasn't so, where companies could forgo their obligations to be upfront with the market, where cash flow statements were seen as a nice-to-have thing rather than a must-have thing and where shareholder equity statements were a bonus. None of us would like to live in such a world.
While this bill might not seek to undermine international accounting standards in this manner, its flavour is nonetheless the same. Under the pre-COVID legal regime, should a company or a director of a company fail to comply with their obligations of continuous disclosure of material matters to the market, they risked facing civil action from either shareholders or ASIC as the regulator. However, it was the case that a company or a director was not liable for penalty provided that all reasonable steps were taken to ensure that the company complied with its disclosure obligations and, after taking such steps, that the company was of the genuine belief that it was complying with its obligations—a reasonable compromise.
As a temporary measure during the height of the pandemic—a measure which schedule 2 would seek to make permanent—companies and directors that fail to meet their disclosure obligations are only liable for penalty if the company or director acted with knowledge, recklessness or negligence. I am sure that, given the number of legal professionals we have in this place, the difficulty in meeting such a standard of proof is not lost on the Senate. What this bill seeks to do, if made law, is to significantly tip the balance of disclosure obligations in favour of management and to the detriment of investors—in particular our mum-and-dad investors.
The government's explanation in the explanatory memorandum for this bill states that schedule 2 would 'reduce the amount of time entities and officers must spend on assurance that they have complied'. Translated out of BCA corporate speak to plain English, what this actually means is that schedule 2 would drastically improve the odds that companies and their directors will get away with withholding essential company information from investors.
But it doesn't stop there. Schedule 2 would also seek changes to the 'misleading and deceptive conduct' provisions that currently apply to companies and their directors, setting the same standard of 'knowledge, recklessness or negligence'. This change would mean not only that it would be harder to hold company directors accountable where they withhold information from the market but also that it would be harder to hold them accountable in instances where they provide misleading information.
So why is it that the government would seek to disadvantage investors in this way? Why is it that they would seek to give dodgy directors a 'get out of jail free' card when it comes to hiding information or providing false information to the market? One can only speculate. For those listening in to the debate this evening, be in no doubt: schedule 2 of this bill would put the interests of company directors above you—above the interests of self-funded retirees or of your super fund or any other investment vehicle you may be part of.
Before I conclude, I say that any person seeking to participate in the market should be able to count on a strict regime of continuous disclosure to ensure that there is an even playing field between themselves and listed companies. Without this, how can any investor have faith that the information that is presented to them by the management is an accurate reflection of the company's true circumstances? It is an essential part of our financial system. It must be included, and it must not be just a nice thing. It has to happen.
[by video link] I'm pleased to speak on the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021. Labor supports schedule 1 of this bill, which seeks to make virtual AGMs an ongoing feature of our corporate landscape, because that is necessary in these extraordinary times. The Morrison government, as we all know, had two jobs this year: effectively roll out the vaccine and create purpose-built quarantine facilities. As we all know, they failed at both. It's 2020 all over again, and during these uncertain times businesses need to be able to function in socially distant ways and continue their work. That's why extension of virtual AGMs is an absolute no-brainer in the current environment. Virtual AGMs allow businesses to carry on with their work and still meet their obligations to shareholders.
It is really important, though, that these AGMs function as effectively as in-person AGMs, and shareholders and consumers must continue to be afforded transparency and the chance to voice their concerns, pandemic or not. But this government is using the pandemic as an excuse to try and make other permanent and damaging changes to Australian corporations law—changes that Labor just cannot support. Schedule 2 of this bill is the government's attempt at watering down the continuous disclosure obligations that absolutely underpin confidence and integrity in our markets.
In May 2020, the Treasurer used emergency COVID-19 powers to water down John Howard's continuous disclosure obligations. Those changes, which the government is seeking to make permanent today, make it easier for company directors to withhold price-sensitive information or to provide misleading information to shareholders by making it harder for shareholders to take action against dodgy directors. Australia's strong corporate disclosure laws are an absolute cornerstone of our investment framework in this country. These laws protect shareholders. That is what they are there to do, and they make Australian businesses stronger. The high integrity of and trust in Australia's markets are a direct result of the current regime, and it should not be watered down.
Australian markets are unique from others due to the high rate of retail investments, and it's women, particularly older women, who are participating in our markets with renewed confidence and greater financial literacy than ever before. The Senate inquiry heard evidence from Professor Peta Spender that there is a growing rate of direct investment from women and from young people, or 'millennials' as she called them. Professor Spender said:
… retail investors don't have the same access to information that the institutional investors have. They've got some hesitancy about information, and that's reflected through the ASX investor survey.
Strong continuous disclosure laws empower women and empower young people to invest. They underpin confidence. They underpin confidence that our markets are being held to high standards regarding timely and accurate information, so it is crucial that investors have as complete a picture as possible when they're making choices between different opportunities. When the exchange of information about a company's performance does not live up to the expectation of honesty and transparency then trust in our markets begins to erode.
This government has a history of backing the interests of certain market participants over an even-handed approach that would actually create and maintain the efficient markets that we have in Australia. Schedule 2 of this bill is the government's next step in the latest rebalancing of interests—a rebalancing that puts the interests of a small number of company directors above the interests of mum-and-dad investors and above the interests of those women and young people who are investing more than ever before in Australia's markets. It puts the interests of a small number of company directors above the interests of self-funded retirees as well.
There has also been a complete lack of consultation on this legislation. In December 2018, the Australian Law Reform Commission recommended a comprehensive review of the continuous disclosure laws. The recommendation was clear that any such review would need to undertake wide consultation. Not only did the government fail to act on that recommendation almost three years ago; today, with this legislation, they are ignoring it entirely. During the committee inquiry into this bill, the Treasury admitted that neither it nor the Treasurer had consulted with any external stakeholders in relation to schedule 2 of this bill. Bank Reform Now, another witness at the hearings, noted that the lack of consultation was, in their word, 'suspicious'. They said this government was pushing this agenda for various reasons which aren't in the interests of the community or shareholders. So, if these changes aren't in the interests of the community, why is the government pushing them through?
The main reason the Morrison government has offered for these changes is the supposed threat of opportunistic class actions by shareholders. The thing is that the Morrison government have completely failed to define or say what it is they mean by the term 'opportunistic shareholder class actions'. Our best guess is that this government thinks that all class actions are opportunistic, whether they're brought by shareholders or any other group of Australians. This government have a bit of experience with class actions, like the one brought against them by the victims of the Prime Minister's illegal robodebt scheme—a scheme that saw $1.5 billion in unlawful debt notices given to 600,000 vulnerable Australians. I wonder if they considered that class action opportunistic? Instead of learning the lesson and improving governance, the Morrison government has chosen to take revenge on all class action lawsuits. According to this government, class action litigants are the problem, and that includes investors in public companies.
Lets be clear: the Morrison's government's obsession with class actions has no basis in facts. Shareholder class actions make up well under one per cent of cases filed in the Federal Court. The CEO of Omni Bridgeway, Mr Andrew Saker, gave evidence at a committee hearing and quoted research which found that, from 1992 to 2019, only 63 companies or corporate groups had class actions filed against them on behalf of shareholders. When I asked him to comment further, he described this narrative from the government as a myth. He told us that there has been a downward trend over the last three years in regard to shareholder class actions. So it's not so much the worrying trend that this government has made it out to be.
However, there is one trend that we should all be worried about, and that is the dangerous trend emerging from the Morrison government—a trend towards secrecy, a trend against transparency that can be seen across a range of corporate law reforms. It is a trend that must be stopped. ASIC have referred to Australia's pre-COVID continuous disclosure laws as a 'fundamental tenet of our markets'. They say that these laws are 'particularly important during times of market uncertainty and volatility'. They say:
The economic significance of fair and efficient capital markets dwarfs any exposure to class action damages.
So, if we want a strong economic recovery, we need strong markets and we need consumer confidence. This government is using the pandemic as an excuse to make permanent and damaging changes to Australia's corporations laws—changes that would weaken our markets just as we are trying to recover, changes that would take away the rights of shareholders to hold companies and company directors to account, changes that would stifle the growth of women and young people investing in our markets. Those opposite have once again shown that they are not on the side of ordinary Australians: mum and dad investors, ordinary workers, Australians trying to save for their retirement. The Morrison government is not on their side.
I too rise to speak on the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021. With the indulgence of the Senate, I will briefly give a quick hello to my children, who I think are listening. Hi, Jonathan. Hi, Eleanor. Hi, Felicity. I will now get on with my speech. I first want to pay tribute to a previous speech in this place from my colleague Senator Scarr. It really goes to demonstrate the breadth of experience and talent on this side of the chamber. Senator Scarr was very much in his wheelhouse and could bring on-the-ground experience from previous roles to this place when discussing this very important issue. I certainly can't emulate that experience, but it's certainly great to have that voice of wisdom and knowledge in this place. That was an extraordinarily good contribution from my colleague.
However, I wish to speak on this bill in part because, as Chair of the Senate Economics Legislation Committee, we had two bites of the cherry on this bill. We looked at this one in the Senate Economics Legislation Committee, which is correctly where the bill was initially referred. It is a matter of some import. The government acknowledges that and, quite correctly, the Senate Economics Legislation Committee did look at it. Then, as is its right, admittedly, this place decided to refer it to the Senate Economics References Committee for a second look. While I question the worth of doing that, who did we hear from in the Senate references hearings? Who was it that those opposite were so keen to hear from about this bill? It was, of course, the class action litigators and the class action litigation funders, and you don't have to be a rocket scientist to work out why: they've got some interest in this matter because it undermines a business model, not because it fundamentally changes continuous disclosure in this country. And that is a very important thing for all those small investors out there to understand. Contrary to what is perhaps being propagated in this place by those opposite, this is not undoing continuous disclosure in this place. The continuous disclosure regime is strong. It's an extraordinarily positive part of our corporate regulatory environment and it continues to play an important part. As Senator Scarr pointed out and as was pointed out by many in the committee hearings on this matter, this removes a strict liability provision. It does not change the obligations of continuous disclosure under the Corporations Law.
I do wish to start, however, with schedule 1 of the bill, which reinstates the temporary relief which allowed companies to use technology to meet regulatory requirements to hold meetings, distribute meeting related materials and validly execute documents electronically. This expired on 21 March 2021. This relief was initially introduced in May 2020, using a temporary instrument making power, which was inserted into the Corporations Act as part of the government's response to the coronavirus crisis and was subsequently extended. The relief enables the continuation of businesses by allowing companies to hold meetings virtually and to send meeting related materials and execute documents electronically. The extension of this relief will allow businesses to continue to comply with their regulatory requirements as they continue to deal with coronavirus outbreaks as they occur. While this relief expired in March 2021, the rationale for introducing it remains: uncertainty remains due to coronavirus related public health orders that are introduced from time to time. To ensure companies and their officers have sufficient flexibility to comply with their regulatory requirements, parliamentary amendments are being made to schedule 1. So we're extending schedule 1 from 15 September 2021 to 31 March 2022, removing the requirements for companies and registered schemes to notify members of their right to elect to receive documents in hard copy and giving ASIC permanent powers to issue relief for requirements in respect of meetings and documents in exceptional circumstances, such as those caused by coronavirus.
The amendments address feedback from the Senate economics committee and stakeholder feedback received as part of the committee's inquiry. The extended relief will give certainty to many listed and unlisted companies that have 30 June and 30 September year ends and are expected to hold their AGMs in the second half of this year or early next year. The amendments remove the requirement for companies and registered schemes to notify members of their right to opt in to receive meeting related documents in hard copy—that is, they will not have to notify within two months of the bill passing and within two months of a person becoming a member. This addresses feedback received during various inquiries into the bill. Stakeholders noted that the notification requirements introduced unnecessary regulatory burden because they require companies to send a bespoke notification. However, this is mitigated by the following. Many members have already consented to receive electronic copies, and the company or registered scheme will only be able to send documents by electronic means if the company has the member's electronic communication details, and members who have not provided electronic communication details may receive a postcard on how to access documents online. Finally, the members who opted in to receive hard copy documents will continue to receive hard copy documents. In addition, alternative notification requirements are being explored for future permanent reforms.
Entities will also have greater certainty that, as exceptional circumstances arise from time to time, such as we are currently in, ASIC will have the permanent power to issue relief, including extending time frames within which AGMs must be held; allowing for meetings to be held virtually and for documents, whether or not meeting related, to be sent electronically and for standing elections to receive hard copies; and extending the time frame for an entity to provide documents to members. Overall, the amendments provide greater flexibility and certainty to businesses to meet their obligations during the disruptions caused by the coronavirus crisis or similar future disruptions.
I wish to speak briefly about schedule 2, which is obviously the area which has caused the most contention in this place. The government provided temporary relief to companies during the coronavirus crisis surrounding disclosure to the market. The instrument allowed them to make those disclosures with reduced concerns that they will be targeted by class actions in instances where they have acted without knowledge, recklessness or negligence. The first temporary instrument was made in May 2020 and was extended in September 2020 for an additional six months to March 2021. Schedule 2 makes permanent the introduction of a fault element following on from the two temporary instruments.
The reforms to these continuous disclosure laws were reviewed at length by two committees, or three different committees really—the Parliamentary Joint Committee on Corporations and Financial Services, the Economics Legislation Committee and the Economics References Committee. Schedule 2 actually implements recommendation 29 of the original Parliamentary Joint Committee on Corporations and Financial Services report. That committee conducted a number of public hearings over a seven-month period and received over 100 submissions. The changes to continuous disclosure reduced the threat to companies and their officers of being subject to opportunistic class action. The changes do not change the legal duty for companies to disclose information to the market that is material or price sensitive, and they do not, Senator McKim, amend the standard for criminal prosecution or the standard at which ASIC can issue an infringement notice or undertake non-civil penalty action.
Just briefly in winding up, I want to read a couple of statements from the Australian Institute of Company Directors to the Senate Standing Committees on Economics inquiry into this, because I think they do make a couple of really key points. I don't think anyone in this place would really make the argument that the AICD is a partisan organisation. The AICD, in submitting to that committee, said:
…the proposed amendments, in our view, do not change the obligations on continuous disclosure placed on companies and their officers. Directors who are reckless or negligent in respect of their disclosure obligations or who knowingly seek to breach them will continue, under the proposals, to be subject to the full force of the law, as they should be.
The AICD also pointed to the harm that is being caused by the strict liability basis in the current law, saying:
…in our view, the current class actions regime leads to adverse outcomes for Australian businesses and shareholders. On continuous disclosure, a strict liability approach is not appropriate for obligations that involve time-sensitive and complex judgement calls, and it is currently too easy to launch or to threaten securities class actions for alleged breaches of these strict liability provisions.
That is a very important point, because it's not just about launching class actions. We've heard quoted from those opposite in this place, a number of times, the number of class actions that were launched. It's not just about launching class actions; it is also about threatening class action. It goes to the point that Senator Scarr made so eloquently: the chilling effect that this can have on the positive operation of our continuous disclosure laws. I certainly commend the bill to the chamber.
[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.
As a servant to the people of Queensland and Australia, I speak today on the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021. The real problem this legislation claims to address is not COVID. The problem is the government's restrictions and the government's lack of a comprehensive plan for managing COVID. State and federal government restrictions and lack of a plan are causing enormous uncertainty. The exemptions and reporting rules that were rushed through parliament last year are a mess that this legislation is trying to correct. One Nation requested and received amendments to ensure the bill is reviewed promptly. If that review is not properly conducted then the provisions will sunset. They'll end.
Schedule 1 of the bill in its original form contained measures to legalise the most egregious behaviour by arrogant corporations seeking to avoid scrutiny by shareholders. Annual general meetings are where shareholders encourage the directors to make better decisions for the good of the company. It seemed that this government needed to be reminded of the most basic rule of proprietary companies: directors work for the shareholders, not the other way round. It appears the government did get that message. This bill now sunsets on 31 March 2022. From 1 April next year, new legislation will replace these temporary measures. The replacement legislation is the Corporations Amendment (Virtual. Meetings and Electronic Communications) Bill 2020. Having reviewed that legislation, it does appear to address the concerns One Nation had. The government is, however, on notice to bring that bill on as circulated. The other measures in schedule 1 around electronic filing of documents are long overdue and we support them. One Nation will be supporting schedules 1 and 2 as amended.
I thank all senators for their contributions to this debate. The government is supporting the continuation of business while the coronavirus crisis continues to cause uncertainty and public health orders are imposed from time to time. Schedule 1 to the bill extends temporary relief to 31 March 2022. This relief allows companies to use technology to do three things: (1) to meet the regulatory requirements in the Corporations Act 2001 to hold meetings such as annual general meetings; (2) to distribute meeting materials, such as notices of meetings; and (3) to validly execute documents. To provide for future flexibility, the reforms give ASIC permanent powers to issue relief for requirements in respect of meetings and sending documents where beyond the control of the company. The government will continue to evaluate and improve regulatory settings. A review of annual general meetings will be conducted during the main annual general meeting season later this year. This review will assess how technology is effectively being used by companies to support engagement with shareholders and to ensure that regulatory settings support Australia's economic recovery plan.
Schedule 2 of the bill will amend our continuous disclosure laws so that companies and their officers will only be liable for civil penalty proceedings where they acted with knowledge, recklessness or negligence with respect to updates on price-sensitive information to the market. A review of the continuous disclosure reforms by an independent expert must be commissioned within six months of the second anniversary of their commencement. This will ensure that there is a legislative process for considering the effect of continuous disclosure reforms. These have been considerably contentious reforms, but I think it's important to remind the chamber that this is not undoing continuous disclosure. In fact, continuous disclosure obligations remain. It simply removes that strict liability provision.
Importantly, ASIC can pursue administrative, civil or criminal action regarding continuous disclosure. The standards for administrative and criminal action are entirely unaffected by these reforms. It is only the civil penalty standard that is changing so that ASIC must prove knowledge, recklessness or negligence. In fact, civil action can seek damages of the greater of $10.5 million or 10 per cent of a company's turnover. So you can understand that, with penalties of that magnitude—quite huge penalties, potentially—for an inadvertent breach, under continuous disclosure regimes, that is an unsustainable burden on the effective operations of these companies. It's also important to understand that, under existing standards for administrative actions by ASIC, ASIC doesn't have to prove knowledge, recklessness or negligence in order to issue infringement notices. These are up to $100,000. ASIC can, at the same time, also use enforcement tools such as court orders to require information to be disclosed.
Let me return to schedule 1. The reforms that we have introduced with schedule 1 were originally introduced on 5 May 2020 using a temporary instrument-making power which was inserted into the Corporations Act 2001 as part of the government's response to the coronavirus. That relief was extended in September 2020 for a further six months. While this relief expired on 21 March 2021, the rationale for introducing it, of course, remains. Uncertainty remains, due to COVID-19 and public health orders that are introduced from time to time. The relief that we've introduced in schedule 1 enables the continuation of businesses by allowing companies to host meetings virtually and to send meeting related materials and execute documents electronically. The extension of the relief will allow businesses to continue to comply with their regulatory obligations as they continue to deal with the uncertainty caused by the coronavirus.
There are amendments that are being introduced by the government which will, as a result of the uncertainty caused by the coronavirus crisis, extend the relief for those companies and their officers, so that they can comply with the regulatory requirements in the Corporations Act in respect of meetings, meeting related materials and document executions. Those amendments will also provide certainty to the many listed and unlisted companies that have 30 June and 30 September year ends and are expected to hold their annual general meetings in the second half of this year or early next year.
Also, to provide future flexibility, amendments are being made to provide powers to ASIC to issue relief in respect of those meetings and the sending of documents in exceptional circumstances, such as those caused by the coronavirus crisis. Requirements to notify members of their right to opt in to receive hard copy meeting material are also being removed. This is in response to feedback that these requirements would introduce unnecessary regulatory burdens. Alternative notification requirements are also being considered in the permanent reforms. Importantly, the amendments extend the relief until 31 March 2022 and will cover the majority of listed companies and many more unlisted companies which have 30 June and 30 September year-end dates and which are expected to hold AGMs in the second half of the year. The government intends to implement permanent reforms that will continue to allow companies to electronically sign company documents and send meeting related materials electronically. ASIC's relief powers are permanent and do not sunset on 31 March 2022.
To ensure future flexibility, ASIC will also be provided with powers to provide temporary relief in relation to the time frame in which an AGM must be held; in relation to whether meetings are held virtually, even if this is not permitted in the entity's constitution; as to whether documents, whether or not meeting related, can be sent electronically, regardless of standing elections to receive hard copies; and to extend the time frame for an entity to provide documents to members. ASIC can exercise this power if it considers that it may be unreasonable to expect the entity or entities to comply with legal requirements because of a situation that is beyond the control of the entities. Any determination issued by ASIC under this power will apply for a maximum of 12 months.
The government acknowledges the recommendations of the Senate Economics Legislation Committee and the Senate Economics References Committee in their reports dated 12 March 2021 and 30 June 2021, respectively. Having considered both reports, the government supports the conclusions and the recommendation in the Senate Economics Legislation Committee majority report and the Senate Economics References Committee dissenting report to pass this bill. I commend the bill to the Senate.