Senate debates

Monday, 9 August 2021


Treasury Laws Amendment (2021 Measures No. 1) Bill 2021; Second Reading

1:16 pm

Photo of Katy GallagherKaty Gallagher (ACT, Australian Labor Party, Shadow Minister for Finance) Share this | | Hansard source

The Treasury Laws Amendment (2021 Measures No. 1) Bill contains two measures, one that Labor will support and one that we strongly oppose. Schedule 1 of the bill allows companies to hold virtual annual general meetings and conduct a range of other governance activities using electronic means. This measure was originally put in place at the height of the pandemic last year. With millions of Australians currently in lockdown and the realisation that lockdowns are going to be around until we get vaccinations to a much higher level than currently, this measure is sensible and Labor will support it. The other measure in this bill is a completely different matter. Originally introduced, like the measure in schedule 1, at the height of the pandemic last year, what it does is permanently weaken the continuous disclosure laws.

Let's be clear about what the changes in schedule 2 are about. The continuous disclosure regime was put in place by the Howard government in 2001. It requires companies and directors to disclose publicly any information that was not generally available and that a reasonable person would expect to have a material effect on the price or value of a company's share price. If a company or company director failed to comply with these obligations, they could face a civil penalty action either by shareholders or by the corporate regulator, the Australian Securities and Investments Commission. However, a director was not liable for a civil penalty proceeding from breaching those obligations if he or she took all reasonable steps to ensure that the company complied with its disclosure obligations and, after taking those reasonable steps, believed that the company was complying with its obligations. As the Australian Shareholders Association put it, this regime meant that if there was any failure to keep the market informed, it was simple: 'Don't tell shareholders something material, and the company and its directors were liable.' This gave shareholders more power, because they generally lack 'insider or special interest knowledge'.

COVID has changed a lot of things. Unfortunately, one of the detrimental changes was a watering down of these continuous disclosure obligations. In May last year the Treasurer used—or, maybe more accurately, misused—emergency COVID-19 powers to temporarily weaken these rules. Note the contrast of the Treasurer using the emergency powers to do this but not using them to broaden JobKeeper to cover certain sectors that missed out. As a result of those temporary changes, shareholders who suffer a loss as a result of listed companies or company directors withholding information from them now have to prove that a company or company director had knowledge of, or was reckless or negligent in respect of, whether the information they did not disclose to shareholders would have had a material effect on the price or value of the company's shares. As the explanatory memorandum to the bill states:

Entities and officers will face reduced regulatory costs in complying with the continuous disclosure regime. This will be because they do not face the same level of financial risk where they allegedly fail to comply with the continuous disclosure rules, unless they do so with 'knowledge, recklessness or negligence'. This will reduce the amount of time entities and officers must spend on assurance that they have complied, as well as the legal fees associated with assuring compliance.

In other words, the Treasurer's temporary changes make it easier for company directors to withhold important information from shareholders and harder for shareholders to take action against dodgy directors, and this bill would make that permanent.

This is a serious issue. The continuous disclosure regime protects shareholders, promotes market integrity and, by extension, makes it easier for Australian companies to raise capital. As ASIC has advised the Treasurer, the continuous disclosure regime is:

… a fundamental tenet of our markets and is particularly important during times of market uncertainty and volatility.

It shouldn't be something that is messed around with or treated like an ideological plaything, but that's exactly what is happening here. It's a direct attack on the rights and interests of every shareholder in Australia. From mum-and-dad investors and self-funded retirees to large institutional investors, every single Australian shareholder should be concerned about these changes. Make no mistake: the government is choosing the interests of directors over the interests of shareholders in a company, and Labor won't stand for that.

We know the government backbenchers have been agitating for this change for some time, in some mistaken belief that there is somehow a whole bunch of invalid, vexatious claims being made via class actions. The phrase used is 'opportunistic class actions'. What are these so-called opportunistic or vexatious class actions? According to the large commercial law firm Allens, in 2019 there were 10 shareholder class actions filed in Australia. In 2018 there were about 20 shareholder class actions filed in Australia. In 2017 there were 15, and in 2016 there were fewer than five. These numbers are small, especially when you consider the many tens of thousands of cases that are filed in Australian courts each year. It couldn't be the number of class actions, and surely the government wouldn't be judging the quality of some of the class actions that have taken place under its watch. Surely it doesn't think that the property owners across Australia who got together to sue the government because the Department of Defence allegedly allowed PFAS to contaminate local environments are engaging in these types of class actions, or the victims of the Prime Minister's illegal robodebt scheme, who launched a class action to vindicate their rights, which led to a $1.8 billion settlement, in what Justice Bernard Murphy described as a 'massive failure'.

I'm sure those on the other side will say, 'This is supported by the business community, so why should'—

Photo of Paul ScarrPaul Scarr (Queensland, Liberal Party) Share this | | Hansard source

Hear, hear!

Photo of Katy GallagherKaty Gallagher (ACT, Australian Labor Party, Shadow Minister for Finance) Share this | | Hansard source

Exactly—a 'hear, hear!' from Senator Scarr, making my point. Big business, through the BCA, does support it, and the Australian Institute of Company Directors do as well—no surprises there. But we know that not all business organisations support it. A 2020 survey of 195 senior company executives, conducted by Mallesons, found that only 21.5 per cent thought the temporary changes should be made permanent. In other words, nearly 80 per cent thought the measure we're debating was a bad idea.

Another argument put forward is that the changes will result in a reduction in premiums paid for directors liability insurance, with the explanatory memorandum to the bill saying that would lead to 'significant savings on the cost of directors and officers insurance'. Evidence at the Senate inquiry into the bill suggested otherwise, with the Insurance Council of Australia saying that, in the industry's view, the statement about significant savings overstates the likely effect of this particular reform. No 'hear, hear!' there, Senator Scarr? Their submission goes on to say:

Industry's expectation is that on its own the proposed legislative change will:

      While, admittedly, the Insurance Council does not say that the proposed changes are without merit, they do say that it's not the only thing that will change the premiums. Essentially, they blew a hole through one of the government's key arguments with that evidence.

      The proposed changes in schedule 2 are lacking good evidence and broad support. That is why, when we get to the committee stage of the bill, we will be moving amendments to remove schedule 2 from the bill. I also move the second reading amendment that goes to the points that I've made about schedule 2 that has been circulated in my name:

      At the end of the motion, add ", but the Senate:

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

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

      I note the government have moved some amendments to their own bill. We will have more to say about this in the committee stage, but I will flag now that putting in a review two years after these changes to the continuous disclosure obligations take effect will make no difference to what is happening here. Labor have been and will continue to be constructive through the pandemic and we will support good ideas when they are put forward, but we also won't stand by and let such a terrible idea as what is being proposed here with continuous disclosure obligations go through.

      1:24 pm

      Photo of Nick McKimNick McKim (Tasmania, Australian Greens) Share this | | Hansard source

      This bill, the Treasury Laws Amendment (2021 Measures No. 1) Bill 2021, contains the latest example of the government using a global pandemic as cover to wind back protections for consumers and workers for the benefit of big corporations and the superwealthy. They did it when they watered down workplace protections for casual workers earlier this year. They're trying to do it with the proposed repeal of responsible lending obligations and, with schedule 2 of this bill, the government are at it again. This time they're trying to water down the requirement for companies to continuously disclose information that is material to their valuation. It's a cynical ploy. If Australians want to understand why the government seem to find it so difficult to get on top of the pandemic then the likes of this bill help to explain why. Instead of a shoulders-to the-wheel effort to get the vaccine into peoples' arms, instead of properly managing our country's quarantine system to try and stop the virus coming in and spreading in the first place and instead of developing an off-the-shelf program of income support payments for the rolling series of lockdowns that government themselves predicted in the last budget, instead of doing those things which are absolutely critical to our management of the pandemic and to our economic recovery, the government have been focusing their efforts on using the pandemic as a cover to try to give their big corporate donors a bigger slice of the pie.

      Markets are meant to work on the basis of equal access to information. I could barely credit that I have to give this lecture to the Liberal and National parties, but I do. Markets are meant to work on the basis of equal access to information. This is given effect in Australia by laws, amongst other things, requiring continuous disclosure of information that is material to the valuation of a company, good or bad.

      Senator Scarr interjecting

      I will take that interjection. A lot is changing. In theory, laws requiring continuous disclosure of information that's material to the valuation of a company creates a level playing field that benefits investors and businesses alike. I can barely credit having to give this lecture to the Liberal and National parties, but here we all are.

      This is based on the principle, as I said, that markets work best when everyone has equal access to information. It's the kind of thing the Liberal Party was built on. That's how core this is to the Liberal and National parties. Free and fair markets are supposedly a foundational principle of the Liberal Party, and it's such a foundational principle of the Liberal Party this they've spent the best part of the last 40 years trying to convince themselves and the Australian people that markets are the answer to every problem.

      Those of us in the Australian Greens understand that markets are not the answer to every problem. In fact, to go even further, we understand that markets have created many of the massive challenges that we are facing today, including the breakdown of our climate and including the destruction of biodiversity and nature. But, despite all their rhetoric, the Liberal and National parties have come in here today with a bill that is a direct assault on the integrity of the Australian equities market and the wealth of ordinary Australians, who depend on the fair and efficient functioning of that market. So keen is the government to cosy up to big finance and the forces of global capital that they are willing to sell out the mum and dad investors who bought in on John Howard's promise of Australia being 'The greatest shareholding democracy in the world.' How times have changed.

      Photo of James McGrathJames McGrath (Queensland, Liberal National Party) Share this | | Hansard source

      Senator McKim, it being 1.30, the debate is interrupted. You will be in continuation. I shall now proceed to two-minute statements.