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A great outcome D&O affordability - easing continuous disclosure laws for Australian corporations

Earlier this week, a permanent change to continuous disclosure obligations was passed through parliament. The Treasury Laws Amendment (2021 Measures No. 1) Bill amends the Corporations Act 2001 so companies and their officers will only be liable for civil penalty proceedings in respect of continuous disclosure obligations where they have acted with “knowledge, recklessness or negligence” with respect to market-sensitive updates.

Introducing a fault element will more closely align Australia’s continuous disclosure regime with that of the United States and the United Kingdom.

As Josh Frydenberg reflected - the legislation will provide company directors with certainty and strikes the right balance between keeping the market informed and allowing companies to provide forecasts and public guidance without facing the undue risk of class actions. Under previous legislation, lawsuits only needed to prove companies and their officers failed to disclose information to the market, regardless of intention

It's important to note that, despite these new laws, directors duties and shareholder rights remain in place.

The important role Marsh plays in advocating for our clients

Proactive advocacy is an important part of our role in the industry and service our clients. Advocating for this change started with the Marsh submission to the Law Reform Commission inquiry into litigation funding back in 2018. Since then we have represented the needs of our clients at the Parliamentary Joint Committee on Corporations and Financial Services to further advocate for these changes, arguing that continuous disclosure requirements which were misaligned with other parts of the world were making this a very attractive market for litigation funders. The result was the escalating cost of D&O insurance premiums and the risk to corporate governance frameworks and the availability of willing directors to take up board roles.

Marsh’s sustained campaign on behalf of our clients again demonstrates our role as the leading broker on this important advocacy with relevant associations, industry groups and government.

Impact on the insurance market and in particular D&O affordability

Our expectation from the insurance market is for D&O premiums to start to come down as a result of this change, however it’s not unreasonable for insurers to look for a period of ‘clear air’ to demonstrate that the environment has changed and that their claims costs will reduce. As such it may take a little time before we see premium reductions being applied. Marsh will be engaging directly with the key D&O insurers post this change, presenting information that will support requests for premium relief.

We are pleased with the outcome of these changes and proud of the role our Marsh team has played in educating key stakeholders (including legislators) and advocating for our clients.

Please reach out to a member of our team or contact us here if you want to learn more.

The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy. This publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Statements concerning legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal advice, which we are not authorised to provide. All such matters should be reviewed with  your own qualified legal advisors.

Copyright 2021 Marsh Pty Ltd (ABN 86 004 651 512)

Craig Claughton

Head of Financial and Professional Services - Marsh Speciality Pacific

61288647788

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