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Wednesday, 13 May 1981
Page: 2342


Mr JACOBI(9.9) —Clause 360 deals with the liabilities of contributors of present or past members. In dealing with corporate malfeasance I am reminded of that old dictum my old father used to tell me. He said: 'As you go through life, lad, you will find plenty Sheriffs of Nottingham and very few Robin Hoods. To the former they give knighthoods and the latter they hang'. I note that the Minister agrees with that. Section 391 of the South Australian Companies Act provides that any transfer of shares made within a period of two years before the commencement of the winding up of the company to any person known by the transferor to be unable to pay the liability on those shares shall not relieve the transferor of that liability. It was considered that section 391 was sound in principle and should be retained in future legislation. That provision was subsequently incorporated in the South Australian Act.

The Minister may recall the headline 'Garretty group creditors meet again today'. This head line referred to one of the most disgraceful episodes in Australian corporate history, and there have been enough of them. This episode concerned the Garretty group of companies and in particular the mutual trust Dividend Fund Inc. In this case not only did a group of mainly small investors lose the value of their shares but also they were personally liable for a $125,000 deficiency in the company.


Mr Barry Jones —Unlike the Garrettys.


Mr JACOBI —Unlike the Garrettys. Much of the fund's money was lent to other companies in the group of Garretty companies. In most Western countries this would not have been allowed. It could not happen under the South Australian Act. However, Dividend Fund was inhibited only by its articles of association, which were no inhibition whatsoever. It is essential that a provision such as section 391 of the South Australian Companies Act dealing with transfers to avoid liability be inserted into the national Act. There ought to be proper regulation of mutual funds. It is an indictment of the Government that there is an absence of such a provision in this legislation. There is no excuse for this. To add insult to injury, the Victorian Government was obliged to bail out a number of elderly people each to the tune of $4,500. These pensioners had put their life savings into this shonky group. I regret to say it, but it is true, that under this Government equality before the law means the right to rich men to sleep under bridges.

I sincerely ask the Minister to take section 391 of the South Australian Act to the Ministerial Council as a means of ensuring that no more shonky deals like the Garretty situation are allowed to take place. Unless this provision is put in the federal legislation this situation will occur again. I will read to the Committee section 391 of the South Australian Act, which is concerned with transfer to avoid liability. Sub-section (1) is not pertinent to this legislation, but I will read it nonetheless. It states:

Any transfer of a share in any company to an infant for the purpose of avoiding or evading liability with regard to such share, shall not relieve the transferor of any such liability.

I will now read sub-section (2), which is relevant to the legislation before the Committee. Sub-section (2) states:

No transfer of a share in any company made for the purpose of avoiding or evading liability with regard to such share shall relieve the transferor of any such liability, if the transfer is made to any person for a nominal consideration, or for no consideration, or for valuable consideration expressed, but not paid to the transferor, or for a consideration paid to the transferee, or with a trust or reservation expressed, or implied, for the benefit of the transferor, or to a person know to the transferor to be unable to pay the liability on such share, unless such transfer has been made and registered two years before the company is wound up.

It is appalling that there is a complete absence of such a provision from this Bill. This is an indictment of the Federal Government's advisers. Unless that loophole is plugged the same position will be exploited ad infinitum. I ask the Minister to insert in the national Companies Bill the provision in the South Australian Companies Act.