House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Josh Frydenberg MP)

General outline and financial impact

Schedule 1 - Virtual meetings and electronic communication of documents

Schedule 1 to the Bill makes temporary amendments to the rules relating to meetings of directors, shareholders of companies and members of registered schemes to facilitate the use of electronic technology. The new rules allow meetings to be held virtually, provided that the members as a whole have a reasonable opportunity to participate. They also allow documents relating to the meetings to be provided and signed electronically and minutes to be kept electronically.

Amendments are also made to allow the electronic execution of company documents. Documents executed without a company seal may be signed electronically and the signatories do not need to sign the same copy. Documents executed with a seal may also be executed electronically and the witness may use alternative technology to observe the fixing of the seal.

These amendments have effect until 16 September 2021.

Date of effect: Schedule 1 to the Bill commences on the day after this Bill receives Royal Assent.

Proposal announced: This Schedule partially implements the measure, JobMaker Plan - Digital Business Plan from the 2020-21 Budget.

Financial impact: Nil

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 3.

Compliance cost impact: A Regulation Impact Statement was not prepared, as this Schedule falls under an exemption from regulatory impact analysis requirements as it extends an urgent and unforeseen measure made in response to COVID-19.

Schedule 2 - Continuous disclosure obligations

Schedule 2 to the Bill provides that all civil penalty proceedings commenced under the continuous disclosure and misleading and deceptive conduct provisions must prove that an entity or officer acted with 'knowledge, recklessness or negligence' in respect of an alleged contravention.

Date of effect: Schedule 2 to the Bill commences on the day after this Bill receives Royal Assent.

Proposal announced: Schedule 2 implements Recommendation 29 of the Parliamentary Joint Committee on Corporations and Financial Services Inquiry into Litigation Funding and the Regulation of the Class Action Industry.

Financial impact: Nil

Human rights implications: This Schedule does not raise any human rights issue. See Statement of Compatibility with Human Rights - Chapter 3.

Compliance cost impact: $912.5 million regulatory savings per annum.

Summary of regulation impact statement

Regulation impact on business

Impact: Entities and officers will face reduced regulatory costs in complying with the continuous disclosure regime. This will be because they do not face the same level of financial risk where they allegedly fail to comply with the continuous disclosure rules, unless they do so with 'knowledge, recklessness or negligence'. This will reduce the amount of time entities and officers must spend on assurance that they have complied, as well as the legal fees associated with assuring compliance. It will also lead to significant savings on the cost of directors and officers insurance.

Main points:

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On 25 May 2020 the Treasurer introduced a temporary instrument to amend the Corporations Act 2001 so that entities and officers would only be liable for a breach of the continuous disclosure provisions if they did so with a 'fault' element of 'knowledge, recklessness or negligence'. On 23 September 2020 the Treasurer introduced another instrument that extended this until 22 March 2021. These were in response to the difficulty of assessing what information is material to the value of an entity's securities during the economic uncertainty caused by the coronavirus pandemic.

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On 21 December 2020 the Parliamentary Joint Committee on Corporations and Financial Services completed its report on litigation funding and the regulation of the class action industry (PJC Report). Recommendation 29 of the PJC Report is that the Government permanently legislate changes to the continuous disclosure rules as were temporarily introduced by the above instruments.

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The PJC Report has been certified as an independent review which involved a process and analysis equivalent to a Regulation Impact Statement.

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The PJC Report can be accessed at this address:
https://www.aph.gov.au/Parliamentary_Business/Committees/Joint/Corporations_and_Financial_Services/Litigationfunding/Report

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The scope of the certified review covers the scope of the policy proposal with the exception of two policy options. The first of these is retaining the existing ability for the regulator to issue infringement notices and undertake non-penalty proceedings against entities and officers without having to prove knowledge, recklessness or negligence. The second of these is introducing a fault element to private actions for misleading and deceptive conduct in relation to alleged failures to keep the market fully informed.

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To address the gap in analysis between the PJC's inquiry and the Government's consideration of options for continuous disclosure reform, supplementary analysis on the costs, benefits and risks associated with the mandatory code was prepared, consistent with the Australian Government Guide to Regulatory Impact Analysis.

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The supplementary analysis is included at Attachment A.