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Tuesday, 1 February 1994
Page: 43

Mr SLIPPER (5.17 p.m.) —The Corporate Law Reform Bill 1993 is a revised bill and replaces the Corporate Law Reform Bill (No. 2) 1992. Its purpose is basically to provide for the ongoing disclosure of certain financial information to the Australian Securities Commission by certain entities. The bill amends the Corporations Law to require better and ongoing disclosure by certain listed and unlisted entities and to reform prospectus provisions to take into account continuous disclosure and to facilitate fundraising. It also relaxes the present restrictions on companies indemnifying and insuring their officers and auditors and it enables the use of print-outs from the Australian Securities Commission national database as evidence in court proceedings.

  One aim of the bill is to go some way towards improving Australia's reputation as a reliable country in which to invest. Honourable members will recall that our reputation nationally and internationally during the 1980s suffered heavily as a result of the corporate excesses of that period. It also ought to be remembered that the Labor Party at that time became the party of big business. There was also financial mismanagement at state Labor level. State Labor governments became involved in big business and tried to become entrepreneurs. As a result, Australia's reputation suffered severely and the reputations of Labor states suffered severely financially. Consequently, this legislation is before the House somewhat belatedly, but it is certainly better late than never.

  It is true that the timely disclosure of information is necessary for investor confidence. However, if Australia is to attract an increasing proportion of the investment funds available domestically and internationally, we should be looking seriously at making the Corporations Law more simple and harmonising it to our economic objectives. The Attorney-General (Mr Lavarch) in his second reading speech in December 1993, in reference to the government proposal to simplify the Corporations Law, said:

We cannot be satisfied only with a regulatory regime that protects investors. It must also be designed to be clearly understood by all those who must comply with it, with cost and other impositions on commercial activity kept to the minimum necessary to adequately safeguard investors. The aim will be a user-friendly law.

Unfortunately, in reality the Corporations Law continues to grow in size and complexity—like the tax act—creating new, continuing and ongoing headaches for business, the legal fraternity and the community at large. It is like the tax act in many respects.

  Over the last three years, the government has added well over 1,500 pages to corporations legislation. Despite the government's claim to simplify the Corporations Law, this bill just grows and grows and the magnitude and complexity of the number of pages is an ongoing problem. Bills such as this seem to have a life of their own; they seem to grow like Topsy. The government should be looking seriously at simplifying the law, while making sure that the objectives of the bill are brought into effect.

  The original bill of 1992, which was largely based on recommendations of a Companies and Securities Advisory Committee report, was subjected to three main criticisms: firstly, it required companies to provide similar information to the Australian Securities Commission and the Australian Stock Exchange under its existing listing rules; secondly, it created a discrepancy in the time frame in which information was required—the original bill allowing three days in which to make a disclosure to the ASC, while under the ASX listing rules immediate disclosure was required; and, thirdly, it allowed the withholding of confidential or commercially sensitive information. These so-called carve-out provisions provided scope to circumvent the continuous disclosure requirements. Obviously, the 1992 bill was considered to be an overreaction to the corporate excesses of the 1980s, and many people considered it to be bureaucracy gone mad.

  The new Attorney-General politically rolled his predecessor on these matters as he had done earlier with respect to his job. I have an empathy with the honourable member for Holt (Mr Duffy), having narrowly suffered the same fate politically at the hands of the Attorney-General at the 1987 election.

  On 17 December 1993 in the Australian, Brian Frith labelled the revamped continuous disclosure legislation as a `triumph for commonsense' as it put the responsibility for the administration of the regime back with the ASX. His criticisms of the original legislation included giving primary responsibility to the ASC. He said:

That would have created an overlapping system for disclosure of the same or similar information, and would have undermined the ASX requirement for immediate disclosure because the proposed statutory regime allowed three days in which to make disclosure.

It is pleasing to note that the government has taken on board some matters of concern raised by the coalition when the original bill was introduced and that they have been incorporated into the current bill. For example, the coalition pushed the view that continuous disclosure should be enforced through the ASX listing rules and that the ASX should be given greater powers. The ASX should be exempt from providing undertakings as to damages and be able to claim qualified privilege.

  I would like to address some major provisions of the bill. The enhanced and continuous disclosure provisions in the bill apply to disclosing entities, which include both listed entities and prescribed interest schemes as well as a range of defined non-listed entities. It should be noted that small business will be exempt as the requirements will not apply to bodies with less than 100 shareholders. With employment at crisis level—with one million people out of work and probably two million people unable to obtain adequate work—it is very important that small business be given every opportunity to expand. I am pleased that small business has escaped this net.

  Small business is a vital and significant sector of the Australian economy. The Australian Bureau of Statistics has estimated that in 1991-92 around 859,000 small businesses in Australia were employing 2.8 million people. Small businesses account for approximately 95 per cent of all private sector business and 52 per cent of all private sector employment, including self-employment. It is important that small businesses be given the opportunity to grow and expand so that the economy will make a sustained recovery.

  The bill provides that a listed entity which intentionally or recklessly contravenes the continuous disclosure requirements of the ASX listing rules by failing to provide information which could have a material effect on the price or value of the entity's securities will be guilty of a criminal offence, and appropriately so. If the conduct is merely negligent, the entity will be civilly liable to any person who has suffered damage as a result of the non-disclosure. This strengthens the ASX's enforcement powers, as advanced by the coalition, in two respects: firstly, the ASX need not give an undertaking as to damages when seeking a court order concerning a breach of its rules; and, secondly, the bill will confer on securities exchanges the protection of qualified privilege when they publish information provided to them under the disclosure regime. The Australian Securities Commission will be the body dealing with disclosure requirements by unlisted entities.

  There is no specific provision in the bill for carve-outs. The ASX is believed to be considering adopting an express confidentiality provision, while the bill allows for the ASC to exempt specified persons. It is clearly important that the government and the legislation do not make it easy for businesses and individuals to opt out of the legislation. On the other hand, the coalition, and I believe the Attorney-General, will be monitoring closely the way in which the ASX and ASC develop carve-out principles in relation to the enhanced and continuous disclosure provisions.

  The bill's approach to carve-outs relies largely on the judgment of the ASX and, to some extent, that of the ASC. The effectiveness of this approach will need to be monitored carefully as it does require close cooperation between the two bodies. One hopes that that close cooperation will be forthcoming.

  As the Attorney-General said in his second reading speech, the bill requires a review by the Companies and Securities Advisory Committee 18 months after the introduction of the continuous disclosure and related enforcement provisions. The review must be completed within a further six months. However, the legislation gives little indication as to the nature of the review. It must be a serious review, and I believe that the Attorney-General is serious about it. There must be a proper monitoring of the legislation. There will be hiccups, as there always will be with very complicated legislation. The review must include consultation with the ASC, ASX, entities subjected to the new laws, investors—most importantly—and the wider community. The government must quite genuinely determine their reaction to these very major changes.

  Another reform to the Corporations Law includes relaxing the current restrictions on companies wishing to indemnify or insure their officers and auditors. A company or related company will not be prohibited from indemnifying an officer or auditor of the company against liability incurred by the person provided the liability arises to a third party and does not involve a lack of good faith—it is important to note those provisions—nor will a company be prohibited from taking out insurance to benefit an officer or auditor provided the liability does not involve a wilful breach of duty to the company or the gaining of an improper advantage, as defined in the Corporations Law.

  The legislation is becoming more and more onerous and, quite frankly, it is often difficult to find people who are prepared to accept the very heavy responsibilities. The amendments that I have just referred to are very important and favourable and they enable someone who has tried to do the right thing to be insured. On the other hand, someone who has tried to rort the system or whose motives are wrong will not be able to obtain any benefit from these amendments.

  I have concerns about fuzzy law and I have expressed those concerns in the past. I really believe that, in the Corporations Law in particular, it is important, wherever possible, to outline very clearly, unequivocally and plainly the obligations of company directors and company officers because the sanctions now included in the legislation are very strong. In many cases people can be sent to gaol, so it is important that they know clearly what is required of them. I get worried with moves towards fuzzy law as people will not know exactly what the law means until it is interpreted. Quite often a court can say retrospectively that a person's conduct at the time was inadequate and falls short of community standards, although the person's conduct at the time may well have been honest and open. Indeed, in his or her view the actions could have been quite proper.

  Another main provision of the bill is the use of the Australian Securities Commission's records as evidence. This is a very sensible provision. This reform enables a document from the ASC's database to be admissible in court proceedings as prima facie evidence of the matters stated in it, without the need for certification of the document.

  The shadow Attorney-General, the honourable member for Tangney (Mr Williams), in his speech a little while ago pointed out that the coalition would not be opposing this bill. It is important to strike a balance. I suppose people in the community might have differing opinions on just what is the appropriate balance between protecting and regulating, on the one hand, and allowing business to operate freely and easily without a lot of red tape, on the other.

  The revised bill incorporates some of the views put forward by the coalition when the original bill was introduced. Fortunately, the major criticisms levelled at the original bill have been taken on board by the government. While I have an empathy and indeed a sympathy for the honourable member for Holt, I think the legislation the Attorney-General has brought before the House is better than that supported by his predecessor.

  I reiterate for those listening that the coalition will be closely monitoring the way in which the ASX and ASC develop carve-out principles pursuant to their discretionary and regulatory powers. Clearly, if their approach is not satisfactory to this parliament and to the community, then there will be a need for further intervention by the Attorney-General to make the operation of carve-out provisions more acceptable.

  I think the government also ought to give priority to simplifying the Corporations Law and harmonising it to economic objectives. While the government has brought forward voluminous bills and explanatory memoranda and there has been a lot written on this legislation, unfortunately it is becoming more and more complicated. I do not for a moment doubt the sincerity of the Attorney-General but I really think that the government has to approach the people who draft this legislation to try to obtain simpler and shorter legislation. In saying that, I also accept that sometimes we have to have copious wording in a bill to make sure that the bill represents the intentions of the government.

  In his second reading speech the Attorney-General promised to simplify the Corporations Law. We look forward with optimism and confidence to seeing some evidence of that in the future. I wonder how long this process will take. Will we see further bills which will add 1,500 pages to the corporations legislation during the remainder of this government's term in office or will we see a genuine attempt to simplify the law?

  The bill we are debating relates to a complicated area of the law. It is a very complicated piece of legislation. It does not reflect the government's perceived aim of simplifying the law. I only hope that it achieves the purposes outlined by the Attorney-General in his second reading speech. Australia needed to take on board the fairly disgraceful situation we saw in the corporate world in the 1980s. I believe this legislation is an honest attempt to confront that problem.

  I hope the Attorney-General has been successful and I wish the government well in achieving the desired effects of this important legislation. The coalition will be monitoring the results of the legislation. The House can rest assured that if the implementation of the legislation and the flow-on effects of it are not what the government intends and what the community demands then we will come back before this House requiring further amendments.