Australian Top Business Group Calls for End to Shareholder Class Actions
The Australian Institute of Company Directors is asking the government to follow the lead of Hong Kong, where continuous disclosure laws are not linked to a class action regime.
June 15, 2020 at 05:27 PM
4 minute read
One of Australia's top business groups has called for regulators to pursue companies and directors for breaches of continuous disclosure laws rather than allowing securities class actions.
In a submission to the Australian Parliament's inquiry into class actions and litigation funding, the Australian Institute of Company Directors (AICD) urged Australia to follow the lead of Hong Kong, where continuous disclosure laws are not linked to a class action regime.
The directors' body cites data showing that in the first 14 years after Australia introduced class actions, eight securities class actions were filed. But over the next 14 years, 114 securities class actions were filed.
"Our concern in the context of securities class actions is the consequences of combining our strict disclosure laws (with low thresholds for liability and limited defenses) with a facilitative class action regime," the AICD said. "In practice, the interaction between the two means that there is the threat that a class action could be filed whenever there is a significant shift in the company's share price."
The result is higher insurance premiums, more risk aversion by companies and limitations on the information released to the market, the AICD said.
"The primary goal of securities litigation should be to promote market integrity, and to punish corporate conduct that deliberately misleads or manipulates the market," the submission reads.
"We believe it is clear that the current regime is not efficiently serving its purpose, and that securities class actions are now more about maximizing returns for for-profit entities, rather than facilitating access to justice for shareholders."
Rather than allowing shareholders to pursue class actions, the AICD would like to see the corporate watchdog take action against companies that breach continuous disclosure laws. "It would be preferable to ensure that the corporate regulator is properly empowered and resourced to take action where needed, rather than rely on private action to enforce the law," the AICD said.
The move to have the Australian Securities and Investments Commission responsible would not "water down" public disclosure, it said.
In its own submission to the inquiry, the Australian Securities and Investments Commission (ASIC) did not outline its view on whether it should be solely responsible for policing continuous disclosure obligations.
The government has already moved this year to regulate litigation funders to reduce the number of class actions. Litigation funders will be required to hold an Australian Financial Services License (AFSL), which are also required for financial advisers, sellers of financial products and the managers of investment schemes, and which are enforced by ASIC.
In a submission to an earlier inquiry, ASIC cast doubt on that approach. "We question whether licensing by ASIC is an effective mechanism to address the regulatory risks perceived to be associated with litigation funders, particularly the risk that a litigation funder has inadequate resources to meet an adverse costs order," ASIC said in its submission to 2018 Australian Law Reform Commission (ALRC) Inquiry into Class Action Proceedings and Third-Party Litigation Funders.
"The AFS licensing regime is focused on the conduct of financial services, and the activities of litigation funders do not sit neatly within the regime."
The parliamentary inquiry related to litigation funding and the regulation of the class action industry comes after calls by business leaders and business groups to regulate litigation funding and class actions amid claims businesses are being unfairly targeted. It is examining the impact of class actions on the economy and vulnerable businesses already suffering the impact of the COVID-19 pandemic, as well as fees, costs and commissions earned by litigation funders.
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