The substantial increase in shareholder class actions in Australia has led to insurance premiums for directors and officers increasing as much as 300 per cent. It is expected that premiums may continue to increase, and policies themselves will become a lot tougher to obtain – presenting a problem for new companies entering the market and to existing listed entities whose exposure to shareholder class actions often increases as they grow.
In late January 2019, the Australian Law Reform Commission (ALRC) tabled a report commenting on the increase in shareholder class actions. These class actions most often involve claims of breaches of director duties or continuous disclosure obligations, or misleading and deceptive conduct. The report includes comments from industry professionals on the impact of class action risks on board and company behaviour. A key concern is the impact shareholder class actions may have on companies’ willingness to provide future earnings guidance.
The report calls for a federal review of shareholder class actions as a whole and the legal and economic impact of the current continuous disclosure regime in Australia. This would include a review of the Corporations Act 2001 (Cth) and the ASX Listing Rules.
GRT Lawyers will continue to monitor consultation and discussion on this topic, particularly given the immediate impact it will have on directors and listed companies.