Mr Frydenberg said the changes would shield companies from"opportunistic"class action lawsuits which could arise if company forecasts made during the highly uncertain backdrop of the pandemic turned out to be wrong.
While company directors have supported the changes,critics on Tuesday warned the move was unnecessary and said it could raise corporate funding costs by hurting the Australian sharemarket's reputation overseas.
Dean Paatsch,co-founder of corporate governance advisory group Ownership Matters,said that in the worst case,the changes gave companies an"honest idiot defence". This is because firms would be immune from lawsuits as long as they believed their forecasts were plausible,he said.
"The nightmare scenario is you've got capital raised or risked on the basis of bullish forecasts that are defensible under the honest idiot defence,which is what the government has introduced,"he said.
Under the government's proposed changes,companies and directors will now only be liable if they had"knowledge,recklessness or negligence"that the information they share is wrong.
Mr Paatsch said even the perception Australia was watering down continuous disclosure laws could potentially affect the cost of capital for companies,and the reputations of directors.
"We took a long time to get to this point where if investors are going to risk their capital they've got a right to be able to trust the word of directors,"Mr Paatsch said.