This opinion article by the Business Council's corporate governance working group chair Robert Johanson, Herbert Smith Freehills immediate past global CEO Mark Rigotti, and Ashurst partner Michael Sloan was published in the Australian Financial Review on 6 October 2020.

Since its inception 19 years ago, the CorporationsAct has been subjected to ad hoc changes and regulatory overlay. It has not kept pace with the digitalisation of the economy and international best practice.

This pandemic has demonstrated an urgent need to update the law. We need to make it easier to adopt new technologies to do business; remove unwarranted regulatory costs and distractions from directors and boards; and keep more businesses alive where we can but efficiently deal with those that are destined to fail. 

Better targeting of our existing laws should be considered to deter wrongdoing but avoid penalising inadvertent errors or genuine attempts to stay in business. 

Legislative reforms can protect jobs, reduce costs on business and facilitate new activity. They will give companies greater scope and assurance to make decisions to innovate, invest, and create the jobs of the future.

Building on announcements already made by the government, some necessary reforms can be done quickly, and then there are more difficult, longer-term reforms that require careful deliberation.

First, as foreshadowed in the JobMaker Digital Business Plan, deregulation initiatives to allow the use of electronic technologies for document authorisation, communications and the conduct of shareholder meetings are relatively uncontroversial. The use of electronic
signatures to authorise documents has helped overcome the challenges of restricted movement. These reforms need to be made permanent and standard. 

Electronic dissemination of meeting documents should be the default position. This will deliver significant cost, time and environmental benefits. Any shareholders who wish to continue to receive a hard copy in the mail should be able to opt for it. A meeting of members should be able to be held in part or in full through technology, so long as all members have a reasonable opportunity to participate.

The Treasurer has already made temporary determinations in these areas and they should be made permanent, with additional safeguards as necessary. 

Second, temporary relief from shareholder class actions should be made permanent, with additional protections. 

Class actions play an important role in providing access to justice to consumers and customers. But their current use by unlicensed litigation founders and plaintiff law firms serves the economic interests of funders and dilutes the crucial objectives of the continuous disclosure system.

We need to encourage disclosure. Directors and officers of listed companies who decide to provide information to the market, often under uncertain conditions, should have appropriate protections from liability when they have applied diligence and provided information in good faith. This would strengthen the disclosure system. 

Third, there are changes to insolvency and restructuring laws that ill keep otherwise viable businesses alive. The government has extended the temporary protections for personal liability of directors and statutory demands until the end of the year. This will help with a gradual return to normality and allow otherwise viable businesses to continue to operate. A heightened threshold for personal liability to include a fault-based element should be considered as a permanent reform. 

The government’s plan to reform restructuring processes for small business is welcome. It will provide a pathway for small businesses that wish to continue to trade and save jobs, rather than going directly into voluntary administration or liquidation. The streamlined liquidation
processes are also an improvement on our current burdensome and expensive regulatory system.

The government should consider suspending the unfair preferences regime other than with respect to payments to related parties, so companies can support their customers without fear of clawback. 

Fourth, the current threshold for shareholder requisitioned resolutions should be increased to a 5 per cent minimum shareholding requirement.

Presently, resolutions can be put on the AGM notice by 100 shareholders. This is very low by international standards and open to misuse.

Lifting the threshold would help to ensure that resolutions are only requisitioned by those seriously involved with the company.

A longer-term process should also be established for modernising the corporation laws and making them fit for purpose.

This would be an ongoing framework for government and industry to discuss issues that arise in corporations and financial markets law and practice, and which would support a continuous legislative reform program to strengthen our economy.

It would deal with the more difficult challenges that need more time and consideration but are essential for driving a more innovative economy. One such area of the law is the broader insolvency and restructuring regime. Australia’s insolvent trading rules are among the strictest in the world and work against directors being prepared to be innovative and risk-taking. 

The Turnbull ‘‘safe harbour’’ reforms have helped but we need to go further. We bemoan the lack of entrepreneurial capital and innovation. A review should consider adopting successful practices in other jurisdictions, for example, Britain, Singapore and the US.The better the
restructuring regime, the faster Australia will move out of the recession.