The Protection of Investors and the Compensation for their Losses: Australia

Abstract

The concept of ‘investor protection’ has a long-standing legal pedigree in relation to the business corporation. Since the early 20th century, when Berle and Means famously highlighted shareholder vulnerability in the modern public corporation, investor protection has been an important ideal in corporate and securities law. In more recent times, the level of investor protection has been treated as a litmus test for a jurisdiction’s quality of corporate governance and, also, as directly contributing to capital market structure.

An array of legal strategies exists around the world to address the perceived problem of investor vulnerability. Some of these strategies focus on shareholder protection. Others focus on encouraging greater investor participation as a self-help mechanism. Disclosure constitutes an important regulatory technique from the perspective of both investor protection and investor participation in corporate governance. Its effectiveness depends, however, on enforcement.

This paper examines, from a comparative perspective, protection of investors in Australia in circumstances where the corporation has released inadequate, or false and misleading, information, on which investors rely to their detriment.

The paper analyzes Australia’s “twin peaks” regulatory framework, focusing on the performance of key regulators within that framework. It also considers the distinctive public and private enforcement mechanisms available to protect investors and the continuous disclosure regime, which applies under Australian law. The paper examines whether these mechanisms provide investors, who have relied on deficient corporate information, with adequate protection and relief. Finally, the paper considers the relatively recent advent of shareholder class actions in Australia, and their impact on private enforcement and the overall regulatory matrix.

Keywords: Australia, corporate governance, comparative corporate governance, corporate law, securities law, regulation, enforcement, directors’ duties, continuous disclosure, investor losses, misleading and deceptive conduct, class actions

JEL Classification: G18, G30, G32, G34, G38, K10, K20, K22, K30, K33, N20