We recommend that consideration is given to urgently reviewing your current insurance arrangements as it is essential that cover is updated in conjunction with changes in risk profile.
Celebrations were on the horizon, after permanent changes to company directors’ and officers’ (D&Os) continuous disclosure obligations were announced. The Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 (Cth) amends the Corporations Act 2001 (Cth) so that D&Os 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. The amendments align Australia more closely with the United Kingdom and United States regimes.
Federal Treasurer Josh Frydenberg stated: ‘the legislation … would provide certainty to company directors’, with the amendments ‘[striking] the right balance between keeping the market informed and allowing companies to provide forecasts and public guidance without facing undue risk of class actions’.
Australia is a hotspot for class action litigation by shareholders who allege D&Os breach their continuous disclosure obligations. They were emboldened by the pre-amendment provisions which did not require any allegation that D&Os acts or omissions were intentional, negligent, reckless or otherwise when bringing a claim. Now, D&Os will only be civilly liable for failures to disclose market sensitive information when they knew, or were negligent or reckless, as to whether that information would materially affect the share price. This is a higher bar for class action lawyers to demonstrate, and should dissuade vexatious litigation. The flow on effects of any reduced class action activity should benefit insureds.
However, insurers are likely to be cautious to accept that there will be a reduction in class actions. It seems that insurers want to see a decline in shareholder class action claims, and in claim costs, before they will consider reducing D&O insurance premiums. Notwithstanding, increased protection from class actions should, in time, improve the availability of D&O insurance and encourage a reduction in premiums. Specifically, this should have positive flow on effects for the availability of Side C insurance. We still expect some time before insureds feel any positive effects of the amendments.
Our job, as your advocate, is to demonstrate to the insurers what makes you different. We always present insurers with information that supports your requests for premium relief and the broadening of coverage. We will continue to do so, making use of the positive impact of these amendments for the insurance marketplace.
Sonya McCall
Senior Account Manager
T +61 7 3914 8307 E smccall@allegiantirs.com.au