Australian government clamps down on class actions

The Morrison government has suspended the continuous disclosure provisions of the Corporations Act for six months, in a bid to protect businesses against opportunistic class actions alleging breaches of disclosure law.

”Given the impact of the Coronavirus crisis and the uncertainty it continues to generate, it has been considerably more difficult for companies to release reliable forward-looking guidance to the market,” said treasurer Josh Frydenberg MP in a statement. “Therefore, the Government will temporarily amend the Corporations Act 2001 (the Act) so that companies and officers’ will only be liable if there has been ’knowledge, recklessness or negligence’ with respect to updates on price sensitive information to the market.  

”These changes will be made under the instrument-making power that has been inserted into the Act as part of our response to the Coronavirus crisis.

”The heightened level of uncertainty around companies’ future prospects as a result of the crisis also exposes companies to the threat of opportunistic class actions for allegedly falling foul of their continuous disclosure obligations if their forecasts are found to be inaccurate.

”In response, companies may hold back from making forecasts of future earnings or other forward-looking estimates, limiting the amount of information available to investors during this period.

”The changes announced today will make 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. 

“The changes will be in effect for six months from tomorrow.”