What would the ALRC’s recommendations mean for securities class actions?

The Australian Law Reform Commission recently released its report into class action proceedings and litigation funding. Although the report looks at class actions in general, we take a look at what the recommendations (if implemented) would mean for the stakeholders in securities actions.

Class action group members are the big winners

By our analysis, the ALRC’s 24 recommendations are most beneficial to class action group members. The recommendations:

  • give group members greater opportunity to participate in actions
  • seek to reduce costs through increased competition and court oversight
  • protect group members from adverse costs.

Greater competition and transparency in the administration of settlements should see group members receiving a greater portion of settlement funds. 

Contingency fees would be a boost for plaintiff firms

The implementation of recommendation 17 means plaintiff firms with balance sheets big enough to carry the WIP will compete with litigation funders. Conversely, the ALRC’s recommendations for consolidating competing actions is likely to increase competition.

More competition and greater oversight for litigation funders 

While open classes and common fund orders would be advantageous to litigation funders, if implemented, the recommendations would see litigation funders subject to:

  • increased competition, arising from:
    • plaintiff law firms operating on a contingency basis
    • fewer actions through the Court's resolution of completing class actions
  • greater oversight, from:
    • the Court in respect of fees and the fairness of funding agreements
    • ASIC

No real changes for defendant firms 

Save for the introduction of the class actions specialisation, few of the recommendations have direct impact on defendant firms.

Uncertainty remains for listed entities, their directors and insurers

There is a clear calling from directors, companies and insurers for greater clarity around continuous disclosure requirements and the damages payable for contraventions. The ALRC recommends a review of securities class actions, continuous disclosure rules and related topics, but until (and unless) that review is performed, that uncertainty remains. 
 
With parliament having only ten sitting days before the election, it’s unlikely we’ll see any of the recommendations implemented in the near term. But when and if they are, it’s group members who’ll benefit most.

Watch our summary video here: 

ALRC video

How we can help

Our dispute advisory experts have extensive experience in class action proceedings. We bring a deep understanding of the financial issues relevant to liability and pride ourselves on making technical, complex accounting issues like impairment easy for our clients to understand. Our loss quantification skills, including event studies, ‘true value’ assessments and volume analysis, mean our clients are always clear on what’s at stake. 

 

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