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Continuous disclosure laws to stay

Treasurer Josh Frydenberg flagged that the temporary disclosure laws for public companies relaxed at the height of the coronavirus crisis will be made permanent.

In May 2020, the government announced the temporary measures, modifying provisions under Corporations Act section 674, relaxing a listed company's decision on continuous disclosures that will not attract liability unless there was "knowledge, recklessness or negligence with respect to updates on price sensitive information to the market".

This will discourage "opportunistic class actions" under continuous disclosure laws, he said, noting that during the temporary provision period (due to expire in March 2021), Treasury found an increase in the number of material announcements to the market, relative to the same period last year.

"These changes strike the right balance between ensuring shareholders and the market are appropriately informed while also allowing companies to more confidently make forecasts of future earnings or provide guidance updates without facing the undue risk of class actions."

At the time, Frydenberg used his emergency powers to allow public companies to confidently provide earnings guidance, and other forward-looking statements in light of COVID-19 without being exposed to the threat of "opportunistic class actions" if the guidance or other statements are found to be inaccurate, according to law firm Allens.

"While the modifications are welcome, in that they may provide a measure of protection in civil proceedings where a listed company decides against updating the market as to its earnings outlook because of the additional uncertainty inherent in its internal forecasts in the current business environment, the changes don't actually provide any protection where the company does decide to give guidance (or update existing guidance)," Allens said.

Class Actions Australia spokesperson Ben Hardwick commented the announcement "would advantage powerful company directors over mum and dad investors".

Hardwick labelled the proposal as "morally wrong" and unlikely to pass the senate.

"The last thing we should want is for Australia to develop an international reputation as a jurisdiction that's soft on corporate misbehaviour. That's a surefire way to dry up investment," he said.

Separately, the landmark Your Future, Your Super package of reforms were introduced in parliament today.

Treasury Laws Amendment (Your Future, Your Super) Bill 2021 is the culmination of about three years' work of the Productivity Commission and financial services Royal Commission attempting to address "structural flaws in the superannuation system", the explanatory memorandum reads.

The bill covers four key areas: stapling; addressing MySuper funds' underperformance; launching the YourSuper comparison tool; and the best financial interest duty.

Under the new stapling rules, the Australian Institute of Superannuation Trustees chief executive Eva Scheerlinck warned that consumers are at risk of being stuck in dud funds.

"If stapling occurs before underperformance is substantially addressed, members who are currently in underperforming funds will be stapled to those funds," she said.

A Financial Services Council analysis found stapling can save consumers up to $1.8 billion in fees in the first three years after implementation, chief executive Sally Loane said, but is concerned about the performance benchmarks.

"To be clear, the FSC supports weeding out underperforming funds. Duds need to go, we don't care if they are run by a profit-making company or a trade union and employer group," Loane said.

Scheerlinck is concerned about the lack details around expenditure, which gives the government power to ban super fund investment or expenditure regardless of whether it is in members' interests.

"This is an extraordinary overreach of power with no precedent in this country. his change removes the certainty needed for long-term investing and risks significant impact on investment outcomes for members," she said.

Read more: Josh FrydenbergAustralian Institute of Superannuation TrusteesBen HardwickEva ScheerlinckFinancial Services CouncilFSCMySuperProductivity CommissionRoyal CommissionSally Loane
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