AUSTRALIA Trends and Developments Contributed by: Michael Polorotoff, Jeremy Peck, Emily Daffy and Scott Cowell, Moray & Agnew
only a handful of new Side C claims being filed in 2025, and this trend should continue in 2026. However, these developments are likely to cause plaintiff law firms and litigation funders to pursue representative actions in other fields. Side A/B Directors and officers remain under scrutiny from ASIC given the public’s expectation that boards and senior executives will be held to account for misconduct and governance failures of companies. There is no question that ASIC’s enforcement priorities are translating into more regulatory investigations and, therefore, more inquiry costs being incurred by D&Os. Of note, cybersecurity and resilience is a core focus of ASIC, and it is only a question of when (and not if) ASIC brings a prosecution against individuals for fail- ing to ensure that their organisations have adequate cybersecurity measures in place, in breach of their directors’ duties. Other subject matter risks such as financial reporting, insider trading and greenwashing will remain on ASIC’s radar. Insolvency risk remains a pressure point for many companies and their boards/executives, with the Aus- tralian economy at a crossroads due to stubbornly high inflation and patchy economic growth. ASIC’s statistical analysis indicates that the construction and hospitality sectors have sustained the most insolven- cies in recent years, following the end of the govern- ment pandemic-related relief. Relatedly, the Australian Taxation Office is using its powers to recover compa- nies’ unpaid debts from directors by issuing director penalty notices. Professional Indemnity Throughout 2024, ASIC commenced several inves- tigations into the operation of two investment funds: Shield Master Trust and First Guardian. These investi- gations exposed the most significant scandal in finan- cial services since the global financial crisis (GFC). The ensuing collapse of these funds triggered losses estimated at AUD1.2 billion and has given rise to pros- ecutions all along the chain of involvement, including the funds themselves, lead generators, financial advi- sors and their licensees, ratings agencies, auditors and the superannuation trustees responsible for offer-
ing these funds on their investment platforms. Many of these proceedings will be the first time ASIC has taken such action, and most will set precedents for the scope of liability for providers of financial services, with obvious implications for their insurers. In addition to the Shield and First Guardian investi- gations, ASIC conducted a review into private credit markets, with a particular focus on funds in the market targeting retail investors and wholesale investors using the “sophisticated investor” exemption. Real estate- focused funds are highlighted for specific scrutiny as ASIC estimates they constitute approximately half of Australia’s private credit market. Conflicts of interest, fee disclosure, valuation and inconsistent terminol- ogy have been identified as operational concerns. Around the time of the release of the report, ASIC acted to freeze a number of credit funds for compli- ance breaches, the majority of which have now been rectified. Further policy response is expected immi- nently. As a result of these developments, at least one super- annuation trustee has reduced the funds on offer on its platform by almost half. It is expected that other trustees will be conducting similar reviews of their offerings. It remains to be seen whether these actions create liquidity concerns for the affected fund manag- ers. All of this creates an epicentre of claim activity around any professionals with a connection to the financial services industry. This has coincided with a sub- stantial increase in professional indemnity insurance capacity over the last 12–24 months. It is anticipated that this sector will remain a significant hot spot for professional indemnity claims activity for the foresee- able future. The construction industry remains a significant area of concern. Insolvency is still prevalent, as the long- standing effects of inflation on fixed price construction contracts continue to cause trouble. Anticipated latent problems arising from these unprofitable projects are a cause for concern. Building defects claims continue to be expensive to defend and tend to implicate most construction professionals involved with the underly- ing projects.
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