Boral hit by shareholder class action despite law change only days ago
Law firm Maurice Blackburn has launched a new shareholder class action, against building products supplier Boral, just days after the treasurer, Josh Frydenberg, used emergency coronavirus powers in an attempt to clamp down on the practice.
The move came as Frydenberg defended his decision to water down laws requiring companies and directors to keep the market informed about important changes in their businesses against attacks by investors concerned that the move will make Australia a less safe place to buy shares.
But the treasurer’s re-engineering of Australian corporate law could be short-lived, with Labor, which has expressed concerns about the move, saying it is considering asking parliament to knock down the determination that brought the change into force.
In a speech on Wednesday night, the head of the prudential regulator, Wayne Byres, also stressed the importance of transparency in the stock market, saying it would be a mistake to “switch the lights off in the mistaken view that it’d be better for everyone to operate in the dark”.
Maurice Blackburn’s lawsuit, to be filed in the federal court on Thursday, accuses Boral of making misleading or deceptive statements to the market about financial irregularities in its US windows business.
Boral’s share price fell in December and again in February when the company told the ASX that finance workers in the US windows division had artificially pumped up the unit’s profits.
However, Maurice Blackburn said the company knew about the irregularities more than two years earlier – the end of August 2017 – and should have told the market about them then.
The case has been mounted under the continuous disclosure regime that was in force on Monday, before Frydenberg suddenly changed the law.
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“A functioning class actions system is a deterrent to corporate malfeasance, and signals to both investors and consumers that wrongdoing comes at a price, bolstering confidence and ensuring the efficient allocation of capital in the market,” Maurice Blackburn principal Julian Schimmel said.
“It is incumbent on companies to inform the market of all relevant information relating to the operation of the business as soon as they arise.”
Labor believes Frydenberg’s Monday afternoon determination can be disallowed – effectively cancelled
– by parliament in the same way as regulations made during more normal times.
“We haven’t formed a view yet on whether we’ll disallow it,” the shadow assistant treasurer, Stephen Jones, told Guardian Australia.
Advisers to more than $2tn in capital have told Guardian Australia they are concerned about Frydenberg’s move, which changes the test of whether a director or company has failed to disclose information from an objective one to one that would require a judge to discern their state of mind at the time.
“We run a risk that the whole market gets stained if someone does pull off a heist,” Dean Paatsch, a cofounder of proxy adviser Ownership Matters, said.
Frydenberg told Guardian Australia the change was “intended to provide companies with the confidence to release more potentially price sensitive information to the market, not less”.
“Under the changes, companies continue to be required to comply with continuous disclosure obligations and remain liable for breaches of continuous disclosure laws,” he said.
“During this uncertain period, it is crucial that markets remain well informed and continue to function effectively.”
Byres, the chairman of the Australian Prudential Regulation Authority, said corporate transparency would “become even more important” in the post Covid-19 era.
“In times of uncertainty, timely, reliable and accurate information is especially highly valued,” he said.
“Moreover, we have learned from previous crises that if markets lose faith in any of those characteristics, they will tend to run first and ask questions later.
“We cannot afford that to happen. It is very important that we continue to promote transparency, and not be tempted to panic and switch the lights off in the mistaken view that it’d be better for everyone to operate in the dark.”