Report of Continuous Disclosure Review tabled in Parliament

In a long-awaited development, a report from Dr Kevin Lewis, formerly ASX’s chief compliance officer, was quietly tabled in Parliament last week, some three months after it was delivered to the Federal Government.

The report relates to the fault elements introduced into the continuous disclosure provisions in the Corporations Act 2001 (Cth) by the previous Government through amending legislation in 2021. The amending legislation required the review to be undertaken. The amendments meant that disclosing entities could not be sued for civil claims for compensation (including class actions) or civil penalty proceedings by ASIC, unless knowledge, recklessness or negligence on the part of the entity could be established.

Under the amendments, directors and officers could be personally liable as accessories, but this required knowledge, recklessness or negligence on the part of the entity to be established, plus that the relevant person had knowledge of all the essential elements of the contravention (including those relating to fault) and participated in some way in the contravention.

Importantly, Dr Lewis did not recommend removal of the fault elements for civil claims arising out of continuous disclosure breaches by disclosing entities. Dr Lewis found there was no evidence that meritorious class actions had been hampered by the new regime requiring proof of fault for a civil claim to succeed.

However, he did recommend removal of the fault elements for civil penalty proceedings undertaken by ASIC, finding that the requirement to show fault may have hampered ASIC’s enforcement activity.

Dr Lewis also made welcome recommendations to reform the continuous disclosure provisions to “address more fully” how the fault requirements of “knowledge, recklessness or negligence” should be attributed to a disclosing entity.

Following the 2021 amendments to introduce a fault requirement for civil claims and civil penalties, the continuous disclosure provisions do not make clear how fault on the part of officers and employees is to be attributed to the entity and this lacuna does give rise to some difficult questions. This is because a breach of the continuous disclosure provisions involves an omission to make disclosure rather than a positive act, and attributing corporate fault for an omission can be anything but straightforward. Read Damian Reichel’s Insight, ‘Crowley v Worley – is a company liable for not disclosing information it doesn't know?’ for a discussion of the potential application of the fault elements to a disclosure failure.

Dr Lewis also noted that the existence of fault requirements in the continuous disclosure provisions was referred to in Treasury’s second consultation paper on climate-related financial disclosures in the context of updating climate-related financial disclosures if underlying assumptions changed. Dr Lewis recommended that the Government should consider the Treasury statements if it was minded to remove the fault requirement for civil claims or civil penalties.

There is, as yet, no indication whether or when the Government intends to legislate to give effect to any or all of Dr Lewis’ recommendations.