The government has confirmed it will amend the Corporations Act 2001 for a period of six months so that companies and officers will only be liable if there has been “knowledge, recklessness or negligence” with respect to updates on price-sensitive information to the market.
This temporary change was made to accommodate the impact of the coronavirus crisis and the uncertainty it continues to generate, which has made it “considerably more difficult” for companies to release reliable forward-looking guidance to the market.
“These changes will be made under the instrument-making power that has been inserted into the act as part of our response to the coronavirus crisis,” Treasurer Josh Frydenberg said.
The Treasurer explained that due to a heightened level of uncertainty around future prospects, companies are exposed to the threat of opportunistic class actions for allegedly falling foul of their continuous disclosure obligations if their forecasts are found to be inaccurate.
“In response, companies may hold back from making forecasts of future earnings or other forward-looking estimates, limiting the amount of information available to investors during this period,” Mr Frydenberg said.
“The changes announced today will make it harder to bring such actions against companies and officers during the coronavirus crisis and while allowing the market to continue to stay informed and function effectively.”
Responding to the Treasurer’s announcement, Business Council chief executive Jennifer Westacott said that the temporary change gives company directors the space they need to more confidently provide guidance to the market during this uncertain period.
“Left unchecked, this issue would have hampered business confidence and performance which would have adversely impacted on the broader community at a time when business needs certainty to power the recovery, rehire workers and create more jobs,” Ms Westacott said.
“As a community, our priority must be on keeping Australians in work and laying the groundwork to create new jobs. This announcement will help businesses do that.”