Introduced in early 2020 to protect company directors during uncertain times when it was difficult to provide reliable guidance to financial markets, the changes were made permanent by Mr Frydenberg in August 2021.
Mr Frydenberg, backed by company directors and defence lawyers, pointed to a steady rise in securities class actions since 2016 and a corresponding surge in directors and officers liability insurance premiums as signs the system was broken and being taken advantage of by litigation funders.
Mr Dreyfus said it was about making it harder for shareholders to act against and seek remedy from dodgy directors.
At the same time it changed disclosure laws, the Coalition also removed a long-standing caveat that exempted litigation funders from holding Australian Financial Services Licenses (AFSLs) and registering funder-backed class actions as Managed Investment Schemes (MISs).
That decision had the effect of imposing a strict regulatory regime on funders overseen by the Australian Securities and Investment Commission.
The caveat was added by Labor in 2010 to stymie the Federal Courts judgment in a case known as Brookfield FC, which ruled litigation-funder backed class actions were MISs for the purposes of corporations law.
The Coalitions decision effectively reinstated the Brookfield FC judgment.
But the full bench of the Federal Court last week said Brookfield FC was plainly wrong and dismissed the Coalition claims there was not an adequate regulatory regime in place to oversee litigation funders.
The spectre of their operation in some sort of Bir Tawil zone [a reference to an uninhabited strip of land between Egypt and Sudan claimed by neither country] where no laws apply can be dismissed, Justice Lee said.
At all stages during the currency of such litigation, the Court is required to adopt a close protective and supervisory role, be alive to the interests of group members and to take steps to ensure that any class action is conducted in a way which best facilitates the just resolution of the disputes according to law and as quickly, inexpensively and efficiently as possible.
Echoing complaints from litigation funders and plaintiff lawyers, Justice Lee said: The characterisation of litigation funding arrangements as managed investment schemes is a case of placing a square peg into a round hole.
The decision means the Coalitions moves to force all litigation funder-backed class actions to operate as MISs is effectively killed off, with just the regulatory details to be sorted out.
Another push by Mr Frydenberg to impose a 30 per cent cap on the amount of money litigation funders could take from any class action judgments stalled in the Senate due to lack of support from the crossbench.
Labor has long backed a US-style scheme that allows law firms that fund claims to seek a percentage of any payout. Victoria introduced such as scheme in 2020 when it gave the Supreme Court the power to make group costs orders, but no other jurisdiction federal or state has followed suit.
The rest is here:
Labor to scrap class action funding regulation - The Australian Financial Review
