09 August 2021
[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.