Early Warner Continuous disclosure regime Law Reporter

  • Date:01 Dec 2003
  • Type:CompanyDirectorMagazine
Unfortunately, as noted in the previous issue of Law Reporter the Government has persisted in the amendments to the Corporations Act contained in the CLERP 9 Bill over ASIC’s infringement notice power for breaches of the continuous disclosure regime. And, as we noted then, there is no justification for the inclusion of this power.

Continuous disclosure regime

An update on why there is no need for infringement notices

Unfortunately, as noted in the previous issue of Law Reporter the Government has persisted in the amendments to the Corporations Act contained in the CLERP 9 Bill over ASIC's infringement notice power for breaches of the continuous disclosure regime. And, as we noted then, there is no justification for the inclusion of this power.

At that time the Government still not had produced reasons why it had ignored Australian Law Reform Commission Report No 95 which dealt with this particular issue (among others). Since last month there have been two developments which enhance the arguments against the infringement powers being given to ASIC.

In the first place, the Companies and Market Advisory Committee (CAMAC) in its important Final Report on Insider Trading, released in November, has categorically rejected the suggestion that the infringement notice powers should be given to ASIC in relation to insider trading. In recommendation (33) of its report, CAMAC makes it clear that this is a matter that should be further considered especially in light of the recommendations of the Australian Law Reform Commission (referred to above), and in light of other issues.

But, what is even more persuasive is the fact that ASIC has now had a significant success in a case involving alleged breaches of the continuous disclosure regime. On November 27 ASIC chairman David Knott announced that orders had been made in the Federal Court settling ASIC's civil penalty proceedings against Southcorp in relation to alleged breaches of the continuous disclosure regime. Justice Lindgren, with the consent of the parties, ordered that Southcorp pay a pecuniary penalty of $100,000 plus ASIC's costs.

In announcing the settlement, David Knott noted:

"Today's court order's provide an effective and strong regulatory outcome in an area that ASIC has highlighted over the past four years."

Such an outcome is of course exactly what ASIC should be trying to achieve when there are alleged breaches of the continuous disclosure regime. It certainly does not need any further powers such as the ability to issue a penalty notice, in this context. Perhaps what needs to be done, in this context, is to ensure that the rules of the court, and rules of evidence, etc in matters of this kind, are reassessed.

There has been a strong move in the business community of Australia, led by AICD and the Business Council of Australia to persuade the Government to back down on the infringement notice power. What is so ironic is that Knott, who has been pushing for this infringement notice power, is leaving ASIC mid-December. Suggestions have been made to the author that perhaps other members of ASIC are not so keen on the infringement notice power.

Hopefully, the Government will listen to suggestions made by AICD and others, so that the power, if it is included in the final legislation, will be reviewed during the next parliamentary term.

Indeed, there is strong argument for a sunset clause to be introduced as existed in relation to the powers given to the Australian Competition and Consumer Commission with respect to administration of the GST regime (a three year sunset clause applied). During this period of review other issues such as the rules of court, etc and the recommendations of the Australian Law Reform Commission (as suggested by CAMAC) can be considered.

In conclusion, however, it is interesting to note that the CAMAC Report on Insider Trading, apart from rejecting ASIC's request for wider powers, adopted a fairly conservative approach to most of the proposals for change.

It rejected the introduction of more rules of law which reversed the onus of proof. But its most significant recommendation for change which will impact on the company directors in particular, is recommendation (1) which provides that the disclosure rules in relation to the acquisition of shares in companies, etc. should apply to all listed companies, and that in particular, it should apply "to all directors and senior executives including the chief executive officer. The disclosure obligation on these persons should cover any direct trading and any trading through related parties".

This particular recommendation, when coupled by the proposal that the disclosure period be reduced from 14 days to two business days (with some exceptions) will create significant administrative burdens, if not burdens of another kind, on directors and others. Government will responded to the report in the New Year.

Disclaimer

The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.