Australian Company Directors Complain of Legal Pressures

Australian directors are reluctant to inform the market on the prospects for their companies and instead allow ‘a mountain of lawyers’ to draft boilerplate statements that frustrate investors because of ‘enormous legalistic pressure’, according to the Australian Institute of Company Directors (AICD).

The AICD has lobbied for protection that would allow directors to make forward-looking statements about their companies, and warned there was a ‘massive incentive in Australia’ to withhold information.

“There is enormous legalistic pressure,” said AICD chief executive officer (CEO), John Colvin. “You’ve got disclosure rules, then you’ve got class actions, you’ve got the Australian Securities and Investment Commission [ASIC], you’ve got such an array of people to attack directors under various pieces of legislation that it’s really a difficult thing to do for directors to give what many of the investors want, which is greater disclosure of prospect.

“These days you would have to have a mountain of lawyers drafting it for you so that you wouldn’t get into too much trouble, which is ridiculous. It’s to the detriment of everybody.”

The AICD’s chief issued the warning as he released a new paper outlining the election priorities for company directors, which has been sent to Labor ministers and their Coalition counterparts.

In addition to its campaign pushing for protections for forward-looking disclosures, the AICD has used the prospect of Australia’s upcoming election to again call for the business judgment rule to be extended as part of a wider reform of the country’s insolvency laws that are ‘among the harshest in the world’, and for further reform of director liability.

It also wants the government to improve the way that it interacts with business, reduce red tape and overhaul the process of regulation-making.

The ruling Labor administration has been criticised for its handling of business measures including the resource super-profits tax, the carbon tax and the recent sudden change to the tax treatment of company cars.

The AICD said in its policy on Australia’s 2013 election that the business judgment rule should be extended to provide more legal protection from insolvent trading claims for directors trying to work their companies out of financial difficulties.

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