Treasurer Josh Frydenberg wants to reduce the disclosure obligations of ASX-listed companies.

Every day, companies fulfill their legal requirements by informing the stock exchange of significant plans and developments. These disclosures provide much of the news (good and bad) reported in financial media outlets. 

The continuous disclosure laws that govern this practice are designed to facilitate an informed, fair and efficient securities market, so that company share prices accurately reflecting all available information. 

They also help limit the opportunity for insider trading. 

But now, the Federal Government wants to relax those laws. 

A temporary measure was brought in during the COVID-19 pandemic that introduced what is colloquially known as “the honest idiot” defence, which limited the liability of directors. Treasurer Josh Frydenberg says this defence should be made permanent. 

“There is still a basis to bring civil actions for breach of the continuous disclosure laws, but there has to be fault,” Mr Frydenberg said this week.

“It has to be reckless, it has to be negligent or fraudulent.”

The Business Council of Australia wants less liability for directors too.

“These permanent changes mean business will continue to have a disclosure regime that gives them the confidence to keep the market better informed, without the risk of spurious legal action if circumstances change,” BCA chief executive Jennifer Westacott said.

Many others see it as a clear move against transparency and accountability. In fact, there is concern that the proposed changes will see Australia develop an international reputation as a jurisdiction that is soft on corporate misbehaviour, which could significantly dry up investment.

The Treasurer says that requiring a “fault element” for private legal actions against companies and directors for disclosure breaches would make Australia’s laws more similar to those of the UK and USA.

Australia's key corporate regulators, the Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC), have made submissions to recent inquiries calling for the disclosure laws to be returned to their pre-COVID state. 

“ASIC noted that the continuous disclosure obligations protect shareholders, promote market integrity and influence the reputation of Australia's financial markets,” a report from a recent Australian Law Reform Commission inquiry observed.

“ASIC noted that the economic significance of fair and efficient capital markets ($1.84 trillion market capitalisation) dwarfs any exposure to class action damages.

“The regime has provided significant benefits, including increased investor participation and investment, higher liquidity, and lower transaction costs.”

Experts say that ASIC's budget does not allow it to investigate the hundreds of potential cases of insider trading that arise each year, so private civil lawsuits are needed to shed light on the matters.