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Tuesday, 1 February 1994
Page: 46

Mr CUNNINGHAM (5.37 p.m.) —I rise to speak in support of the Corporate Law Reform Bill 1993. Yesterday's Australian Financial Review and all of today's newspapers report that the share markets look poised to set more records. The public is again looking to invest in securities. Therefore, this bill is timely as it will address some of the poor practices that emerged in the 1980s in terms of inadequate disclosure of information by those who sought public investment in business enterprises. The bill is a further step in corporate law reform for Australia. By virtue of the introduction of the national Corporations Law in January 1991 and the earlier establishment of the Australian Securities Commission, the effect of the amendments contained in this bill will have an Australia-wide impact.

  The main purpose of this legislation is to introduce a statutory based system of continuous disclosure. The concept of continuous disclosure involves the provision of full, accurate and timely information by a business entity which has sought loans from creditors and investment from the public. The Australian Stock Exchange, the ASX, has listing rules which apply to members of the exchange. Listing rule 3A obliges a listed company to immediately notify the exchange of any information which is likely to materially affect the price of the securities of that listed company. This listing rule of the Australian Stock Exchange is there to avoid the establishment or the continuation of a false market.

  The generally accepted view of some of the corporate practices of the 1980s was that the level of disclosure of information was inadequate. Investor confidence was also damaged during this period by the difficulties encountered by non-listed entities. Estate Mortgage, for example, was an unlisted unit trust. This bill will provide a strong statutory basis to support the ASX in its important role of facilitating continuous disclosure through its listing and business rules. In addition, the bill will extend the principle of continuous disclosure to unlisted entities so that the same level of disclosure of information will be achieved by requiring those entities to lodge information with the Australian Securities Commission.

  During the lead-up to and the debate for the introduction of this legislation, a number of questions were asked. Is it appropriate to leave the ASX to regulate the continuous disclosure of information by listed companies? I believe so and so does the government. The bill requires listed entities to disclose information to the ASX rather than to the Australian Securities Commission but requires the Stock Exchange to give the information to the Australian Securities Commission in the same form that it releases that information to the market. We believe this avoids duplication and recognises the practical reality that the ASX is the body operating in the marketplace with the knowledge and the expertise.

  The role under the bill for the ASX is consistent with its role in regulating listed entities. It is the best way to achieve a cooperative, coordinated and cost-effective system of enforcement by both the Stock Exchange and the Australian Securities Commission. It is obvious that the Australian Securities Commission wants the ASX to play this role. It is consistent with the memorandums of understanding on cooperation already entered into between the two organisations. It is also consistent with the one relating to obligations on listed companies now being negotiated.

  If the Australian Stock Exchange does not perform satisfactorily the ASC will have the power and the role to take action against the defaulting companies and, if necessary, against the ASX itself. To ensure that the effectiveness of the proposed continuous disclosure and related enforcement provisions is examined, as has been mentioned by other speakers, the bill requires the Companies and Securities Advisory Committee to review the operation of the provisions 18 months after the provisions commence.

  The differences between the 1992 and 1993 bills should not be overstated. They go more to the point of lodgment of information and not to the information required to be disclosed or to the role of the Australian Securities Commission. The 1939 bill preserves and enhances the role of the ASX; it also enhances the role of the Australian Securities Commission.

  Another question that has been debated solemnly is whether the role of the ASC is to be diminished under this 1993 bill. We do not believe so. The role of the ASC is preserved and, indeed, enhanced under the 1993 bill. To back up the ASC and the ASX cooperation, the ASX will have a new statutory requirement to inform the Australian Securities Commission of serious contraventions of the Corporations Law, the listing rules and the business rules. There is no practical diminution of the role of the ASC in relation to the scheme.

  Under the 1992 bill, the ASC would have been empowered to investigate inadequate disclosures or omissions to disclose material information. The same position applies under the 1993 bill. In practice, the direct lodgment of material for inclusion on its database would not have put the ASC in a position to take action without market information, which the ASX is in the best position to provide. If the ASC does have information, whether from the ASX or from its own sources, it will be able to take its own enforcement action, whether it be criminal or civil action or seeking a court order.

  There will be close cooperation between the ASC and the ASX in this area of continuous disclosure. For example, schedule 6 to the bill contains amendments to the Australian Securities Commission Act 1989 to lift the existing restrictions on the release of confidential information by the ASC to a domestic stock exchange, futures exchange or a clearing house. Item 91 in schedule 1 of the bill will amend section 779 of the Corporations Law to make it clear that the ASX has the protection of qualified privilege in relation to the publication of information arising from the performance of its role, particularly in the area of continuous disclosure. Provided the information disclosed by the Stock Exchange is not tainted by malice, the ASX will be protected from legal action for defamation in relation to the information it releases.

  Two key provisions on continuous disclosure are found at item 92 in schedule 1. A new section 1001A is added to the Corporations Law to provide statutory support to the ASX listing rules on continuous disclosure. A new section 1001B is added to the Corporations Law to oblige unlisted disclosing entities to lodge equivalent information with the Australian Securities Commission. Failure to comply with these provisions invokes both criminal and civil sanctions.

  Basically, the information that is required to be disclosed is that which is not generally available and which a reasonable person would expect would have a material effect on the price or value of securities. In other words, it is designed to put confidence back into the system and to make the information as clear as possible to those who are either creditors or investors in the market situation. Creditors need to know whether the business enterprise will be able to repay its loans; investors need to know how well the investment is performing.

  The bill also supports the existing ASX listing rule requirements for half-yearly accounting reports from those entities required to make continuous disclosure. This requirement is in addition to the printed annual report of a company.

  Schedule 2 to the bill contains significant prospectus reforms. Penalties are imposed for the issue of any false or misleading statement in a prospectus and for a failure to correct such a statement. As a consequence of the introduction of statutory based continuous disclosure, the life of the prospectus will be extended from six to 12 months. Continuous disclosure affords the opportunity for some of the prospectus provisions to be streamlined, such as the incorporation of documents already lodged by referring to them in the prospectus thus avoiding duplication in publication.

  The bill also allows a company in specified circumstances to indemnify or insure an officer or an auditor of the company where that person obtains judgment in a civil matter or is acquitted in a criminal proceeding. These reforms will not override the common law principle that a company may not indemnify its officers against criminal liability. The reforms recognise that there can be circumstances when an officer of the company may face proceedings in a situation where there is no element of dishonesty involved. Where indemnities are made the company will be required to disclose the name of the officer, the nature of indemnity and the amount paid by the company. This requirement is set out in item 9 of schedule 3.

  These are sound and sensible reforms providing statutory support for the ASX so it can implement its regulation of the industry. The bill is a practical solution to a difficult problem. It adopts the approach of bolstering self-regulation within the industry. Where aspects of the securities industry are not directly covered by the ASX, those disclosing entities will provide the equivalent information to the Australian Securities Commission.

  I would like at this point to pay tribute to those Labor government Attorneys-General who over considerable years now have worked assiduously to introduce appropriate laws in relation to this matter. I have in my electorate the database establishment of the Australian Securities Commission. Its establishment has brought about a major change to the whole operation of Australian law in these areas and has been of enormous benefit to industry across Australia. Maybe the election of the Labor government in 1983 came 10 years too late. Our opponents in the previous years did nothing to bring about change in these areas. It has been Labor governments and Attorneys-General of Labor governments that have introduced these positive laws. At last Australia will have a system of continuous disclosure which, as far as practicable, will cover the whole of the industry. Small business—that is, those with fewer than 100 shareholders—will not be drawn into the new system of statutory based continuous disclosure.

  The laws of physics tell us that nothing travels faster than the speed of light. There is an exception to this and that is bad news. The problem of the 1980s was that some of the bad news was not disclosed in time and investors were the last to hear about it. This important bill will help to rectify some of the corporation problems encountered in that period and I strongly support the legislation.