Second Reading SpeechMr Sukkar (Assistant Treasurer, Minister for Housing and Minister for Homelessness, Social and Community Housing)
That this bill be now read a second time.
This bill makes two suites of changes to the Corporations Act:
- schedule 1 extends from 21 March 2021 to 15 September 2021 the expiry date of the temporary relief allowing companies to use technology to meet regulatory requirements to hold meetings, such as AGMs, distribute meeting related materials and validly execute documents; and
- schedule 2 of the bill permanently introduces a 'fault' element to our continuous disclosure laws so that companies and their officers will only be liable for civil penalty proceedings where they have acted with 'knowledge, recklessness or negligence' in failing to update the market with price sensitive information.
In relation to the temporary relief in Schedule 1, the government originally introduced this relief on 5 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 subsequently extended it.
While this relief expires on 21 March 2021, the rationale for its introduction remains. COVID-19 continues to cause uncertainty and associated public health orders are introduced from time to time. It's necessary for the continuation of business that companies be able to host meetings and execute documents without having to physically meet. This relief ensures that companies can get on with business, while cooperating with public health orders made to deal with COVID-19 outbreaks as and when they occur.
At the same time, the government continues to progress its Digital Business Plan, in which the government is investing almost $800 million to enable businesses to take advantage of digital technologies to grow their businesses and create jobs as part of our economic recovery plan. As part of this plan, the government's committed to consulting on making permanent this temporary relief - consistent with its agenda to modernise business communications and improve the technology neutrality of legislation, which it had made a priority of its Deregulation Taskforce.
Schedule 1 contains enhancements to the temporary relief previously introduced, in response to feedback that we received during consultation. These enhancements ensure that companies are required to meet the same substantive regulatory standards regardless of whether a physical, virtual or hybrid meeting is held. They allow shareholders to opt in to receive hard copies of meeting related materials. They also ensure that, whether company officers physically or electronically execute documents, including deeds, via signature or witnessing the application of the company seal, such execution will be valid. This means that rights and obligations contained in those documents will be enforceable. They also improve the technology neutrality of other regulatory requirements related to meetings and document execution. These improvements are consistent with the recommendations of the interim report of the Senate select committee inquiry on financial technology and regulatory technology.
In response to the positive feedback from consultation, the government proposes permanent reforms that will continue to allow companies to electronically sign documents and send meeting related materials electronically, to be in place when this temporary extension ends.
The government also proposes to conduct an opt-in pilot for hybrid annual general meetings in which shareholders can choose whether to attend meetings in person or virtually. This pilot will commence when the extension to the temporary relief ends. The aim of the pilot will be to encourage companies and shareholders to engage with technology with a view to considering whether future permanent reforms are needed to further support companies to effectively use technology to positively engage with their shareholders.
The government will continue to work to ensure that regulatory settings are fit-for-purpose as we continue to deal with, and emerge from, the COVID-19 pandemic as part of Australia's Economic Recovery Plan to create jobs, rebuild our economy and secure Australia's future.
Schedule 2 to the bill will amend our continuous disclosure laws so that companies and their officers will only be liable for civil penalty proceedings where they have acted with knowledge, recklessness or negligence with respect to updates on price-sensitive information to the market.
Schedule 2 makes permanent the temporary relief introduced by the government in response to the coronavirus crisis on 25 May 2020 and extended until 22 March 2021.
These reforms also respond to the Parliamentary Joint Committee on Corporations and Financial Services report entitled Litigation funding and the regulation of the class action industry handed down on 21 December 2020 and are part of the government's commitment to provide regulatory relief for businesses and will safeguard the capacity of business to drive Australia's economic recovery without the prospect of opportunistic class actions.
The threat of these actions makes it considerably more difficult for companies to release reliable forward-looking guidance to the market. Without a higher level of protection, companies may choose to withhold forecasts of future earnings or other forward-looking estimates, thereby limiting the amount of information available to investors.
Raising the liability standard so that companies only face civil penalty actions where they have acted with knowledge, recklessness or negligence allows companies and their officers to more confidently provide guidance to the market without exposing themselves to the risk of opportunistic class actions.
Reforming continuous disclosure obligations will allow business to reallocate resources towards improving efficiency and output. This will make it easier for businesses to invest, create jobs and ultimately grow the economy.
Schedule 2 also introduces the same standard of liability for misleading and deceptive conduct where an entity or officer has allegedly failed to provide an update with price-sensitive information to the market. This ensures that those who bring class actions for an alleged failure to update the market must prove the company or officer has acted with knowledge, recklessness or negligence, whether they bring the action under continuous disclosure or misleading and deceptive conduct.
Schedule 2 retains the existing standard for administrative penalties issued by ASIC so that they can continue to issue infringement notices without proving knowledge, recklessness or negligence. Infringement notices are used for less-serious breaches as a fast and effective regulatory response that is proportionate and proximate in time to the alleged breach. It also retains this standard for ASIC's other non-pecuniary enforcement tools such as requiring the disclosure of information to the market by obtaining a court order. This ensures that the regulator can continue to enforce compliance with the law but without entities facing the threat of class actions where they have acted honestly and without negligence.
The introduction of the fault element for private actions also more closely aligns Australia's continuous disclosure regime with the approach already taken in both the United States and the United Kingdom.
These reforms are part of the government's broader deregulation policy objectives. The government is always seeking to remove regulatory barriers and spur economic growth. Businesses should be able to pursue commercial growth without being impeded by legal actions that undermine their capacity to focus on their core operations.
The Legislative and Governance Forum on Corporations was consulted on the legislative amendments in this bill and has approved them as required under the Corporations Agreement.
Full details of the measures are contained in the explanatory memorandum.