On Monday, the parliamentary joint committee on corporations and financial services suggested that temporary amendments to continuous disclosure laws in 2020 be made permanent.
The committee tabled their final report on Monday, releasing 31 recommendations to improve the litigation funding industry.
The inquiry was referred to the committee on 13 May 2020 to investigate the regulation of Australia’s growing class actions industry.
They found the COVID-19 amendments to continuous disclosure effective at stemming the flow of “opportunistic class actions” and would also prevent litigation funders and lawyers from generating excessive profits.
“Courts and civil remedies were not established as novel investment vehicles to deliver handsome profits to innovative financiers or creative lawyers,” the committee wrote.
“Most Australians would be comfortable with the idea that profits may be made incidentally while delivering the core objective of access to justice. But they would be rightly horrified to learn that for some participants in our justice system, return on investment and profit from risk-taking has become their primary motivation.”
The government may use these recommendations for legislative changes in 2021.
COVID-19 amendments removing strict liability in continuous disclosure
On 25 May 2020, temporary changes were made to remove the strict liability requirement in continuous disclosure. This was intended to slow down class actions as businesses struggled during COVID-19.
Under these amendments, the entity must know, be reckless or negligent about disclosing material information in order to breach continuous disclosure requirements.
In September, Treasurer Josh Frydenberg noted that the amendments were working as intended.
“Importantly evidence to date shows that the temporary exemption has assisted companies to continue to update the market during this difficult and uncertain time,” wrote Mr Frydenberg.
“In fact, Treasury has identified that there has been an increase in the number of material announcements to the market during the period the relief has been in place, relative to the same period last year.
“So while this temporary measure has not detracted from information being provided to the market, it has made 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.”
However law firm Maurice Blackburn suggested that these amendments would be used to protect poor quality disclosure about matters that may be unrelated to COVID-19. This would be particularly deleterious at a time when the investment community needs reliable information.
The ACCC also supported a return to pre-COVID arrangements in order to deter businesses from harming consumers and small businesses.