Teresa’s article examines how the severe social and economic disruption from a pandemic is likely to translate into increased scrutiny as investors ask how post-GFC boards and their advisers missed the risks of a pandemic and what else they may have missed.
"Those looking to recover value and shift loss will scrutinise the widespread withdrawal of financial guidance by listed companies, decisions by large retailers to close stores and stand down workforces while others remained open, landlord dealings with tenants, and reductions in pay, working hours and entitlements across the board. This may lead to questions about the adequacy of companies’ disclosures to the market more generally, particularly those already under stress as a result of significant debt or unsustainable cost structures or where shareholder equity has, in effect, been wiped out.
"Inevitably, these decisions will be examined in hindsight, when the risks seem obvious and the intense uncertainty around the rapidly shifting regulatory, financial and public health landscape is forgotten.
"Weighing directors' judgements is a difficult exercise and it may take courts and companies as long to resolve these questions as it does for Australia to recover from the wider socio-economic effects of the pandemic. For directors, the reality is that the decisions they make to balance the needs of investors, employees or creditors will be the subject of intense scrutiny and increased litigation appetite."
Since the article was written, the Treasurer has announced further temporary changes to continuous disclosure provisions, which may provide some additional relief for directors.
To read the full article, click here.