Regulatory reforms stalled: where to now for directors?

Crucial laws to update governance regulations suffer a setback in the Senate, writes AICD head of Advocacy Louise Petschler. Plus, a new sexual harassment resource for directors.

Members know that the AICD has been active in promoting the regulatory relief required to manage the impacts of COVID-19 disruption. Last year, the government provided legislative certainty on the ability to run virtual AGMs, execute key documents electronically, relief from insolvent trading personal liability and providing a “fault” component in providing civil breaches of continuous disclosure obligations. These relief measures were introduced with time limits under emergency powers awarded to the Treasurer to amend the Corporations Act temporarily. Most of these expired at the end of March.

The AICD has been a strong proponent for permanent reforms in each of these areas, to modernise our regulatory settings and support growth and recovery (see Regulatory Reset Priorities summary).

An important legislative package responding to these calls failed to pass the March sittings, and will be back before the Senate in May. The AICD is calling for the parliament to prioritise the passage of the Treasury Laws Amendment Bill (2021 Measures No.1), which would:

• Extend legislative certainty on running virtual AGMs for a further six months
• Extend legislative relief on electronic execution of key documents for six months, pending a permanent reform package
• Make permanent the requirement for civil breaches of continuous disclosure and misleading and deceptive laws to establish knowledge, recklessness or negligence.

What does this mean for directors, given the temporary relief has lapsed?

On virtual AGMs, the Australian Securities and Investments Commission has provided a formal “no action” position for companies relating to the convening and holding of virtual AGMs scheduled over the period to 31 October 2021 (or the date that any measures are passed by the parliament). ACNC-regulated charities can also access the AICD’s guidance on our website.

ASIC’s “no action” position will not remove the risk of legal action from third parties challenging the validity of a resolution passed at a virtual meeting, but the regulator has pointed to s1322 of the Corporations Act for companies to consider. However, ASIC’s stance is welcome and will give comfort to boards for planning. There is also an extension for holding AGMs for companies with a financial year-end to April 2021 of two months.

(Members can access the detail of the ASIC position here).

On electronic execution, the news isn’t as positive. With the lapse of the temporary relief and without the Bill passing, directors should speak to their company secretaries about governance signatures.

(Members can access the AICD update here).

On continuous disclosure, listed company directors should be mindful of Australia’s strict liability approach and increased risk of class actions when making forward-looking statements,particularly wheretheyarestill attempting to understand the impact of COVID-19. Permanent reforms to continuous disclosure obligations are the most contentious elements of the Bill — as they should be, given Australia’s strong disclosure rules are a strength of our market. But the changes in the Bill are sensible, and have the AICD’s strong support.

The same obligation for listed companies and their boards to disclose material information will continue to apply if the reforms pass.

The “mental” element for civil breaches sets the bar at knowledge, recklessness or negligence, meaning any company that deliberately, recklessly or negligently breaches its disclosure obligations or misleads the market can be held to account.

Importantly, the quality of disclosures during the period of the Treasurer’s temporary relief did not fall, and capital raisings continued to be strong. Making these changes rebalances the liability equation on these complex judgement calls to a reasonable standard.

As our economy rebuilds post-COVID-19, it is essential that the laws governing our companies are fit for the future, technology-neutral and foster innovation. The AICD will continue to engage with the parliament and stakeholders on these important reforms.

Workplace sexual harassment

The AICD has issued a new resource for directors on the important issue of preventing workplace sexual harassment — A director’s guide to preventing and responding to sexual harassment at work. We encourage all members to use the tool and introduce the questions at your board.

(Members can access the tool here).

AICD regulatory reset priorities

The AICD wants fair, fit-for-purpose modern regulations to assist directors governing for growth, including:

• Better-balanced director liability settings that support diligent directors in taking considered risks for the benefits of shareholders and stakeholders
• Modernised corporate laws that enable permanent virtual AGMs and e-communication
• Reduced risk of opportunistic securities class actions for Australian companies
• NFP funding reform and certainty to support sector sustainability and services.

Workplace sexual harassment is a serious and systemic issue in Australia. Boards have a key role to play in setting governance standards and oversight to drive real change in organisational responses. The new AICD resource outlines suggested areas of focus for boards and includes questions for directors to ask about their governance and organisational approach, including setting clear expectations on culture, modelling appropriate behaviour, policy review and reporting to the board.

In March 2020, the Australian Human Rights Commission released Respect@Work, a report that followed an 18-month national inquiry into workplace sexual harassment. The report made 55 recommendations on how to shift the dial on workplace sexual harassment and includes commentary on the role of boards and directors. It included a recommendation for a focus on governance education for directors on workplace sexual harassment.