The changes are designed to make it harder for shareholders to sue companies if the information they provide about their prospects is proven incorrect as the coronavirus pandemic makes financial forecasting difficult.
“The changes announced today will make it harder to bring such actions against companies and officers’ during the Coronavirus crisis and while allowing the market to continue to stay informed and function effectively,” Mr Frydenberg said in a statement.
A string of major ASX-listed companies have pulled their financial forecasts since the coronavirus pandemic took hold, forcing widespread business closures across various sectors.
Australian Institute of Company Directors chief executive Angus Armour welcomed the announcement.
“While we are strongly supportive of a robust continuous disclosure regime to maintain market integrity, practically the current environment does not allow the same confidence in making forward statements or providing guidance,” Mr Armour said.
“This measure allows directors to provide greater disclosure in this uncertain environment at the same time as it maintains measures to discipline irresponsible companies to protect the community.”
But a large number of major companies have raised emergency capital during the pandemic and shareholder activist Stephen Mayne warned there was a risk of companies exploiting small investors by using overly optimistic forecasts.
“I think the big risk is that capital will be raised under false pretences now, with no legal redress available,” Mr Mayne said.
“How do you stop a company making overly optimistic forecasts about recovery, and then raising a pile of cash from retail investors and blowing the lot? That’s the risk,” he said.
“My worry is we are in a deluge of capital raisings.”
Business Council of Australia chief executive Jennifer Westacott echoed Mr Armour’s view, saying the current regime was making it harder for businesses to operate.
“Left unchecked this issue would have hampered business confidence and performance which would have adversely impacted on the broader community at a time when business needs certainty to power the recovery, rehire workers and create more jobs,” Ms Westacott said.
“As a community our priority must be on keeping Australians in work and laying the groundwork to create new jobs, this announcement will help businesses do that,” she said.
The changes will last for six months and come into effect from Tuesday.
John Walker, chairman of the Association of Litigation Funders, an industry body, said there was little likelihood of shareholder class actions during the coronavirus period even without the rule change.
“At the end of the day, the laws governing our public markets are for the benefit of the Australian community and if there were no contraventions then there would be no funding [for class actions] to address the illegal conduct. Funding is a symptom, it isn’t the problem.”
Earlier this month Attorney-General Christian Porter announced an inquiry into the class action industry and the profits generated by the litigation funders that back them while Mr Frydenberg moved to subject funders to greater regulatory scrutiny.
Nick Bonyhady is industrial relations reporter for The Sydney Morning Herald and The Age, based between Sydney and Parliament House in Canberra.