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Tuesday, 1 February 1994
Page: 49


Mr TUCKEY (5.49 p.m.) —The Corporate Law Reform Bill is not opposed by the opposition, but it raises quite a few matters, particularly for me in my portfolio responsibility of small business. It has been pointed out, as it was by the previous speaker, the honourable member for McMillan (Mr Cunningham), that smaller companies are not subject to this particular requirement of continuous disclosure, which is the principal aspect of this legislation. Nevertheless, I am going to take the opportunity to raise some issues relative to these aspects of the national security and corporate law as they apply to small business.

  We have some very interesting statistics. I was just reading something I wrote quite some years ago. The figures in it are somewhat dated. I pointed out that there were 800,000 incorporated businesses registered with offices of corporate affairs around Australia and only 40,000 of them employed more than 10 people. Those figures would have changed somewhat, but not dramatically. I guess the ratio is still basically the same.

  Thousands of small businesses which for many reasons would be better off incorporated have been unable to incorporate or have found it not practical to incorporate because of the present-day requirements of the Corporations Law. As a businessman I have experienced the cost and complexity involved in it. If a company becomes redundant, there is a cost to just get rid of it. Many of the notorious bottom-of-the-harbour schemes were just people taking the opportunity to get rid of some companies at what appeared to be a rather cheap price because of the complexity in liquidating them. For this reason, many small businesses simply do not get involved.

  In 1989 the government attempted to address this problem with its closed corporations legislation. At the time it was very clear to me that it was far too complex and it did not achieve its primary requirement. To this day it has never been gazetted. In fact, it has been the subject of a joint parliamentary statutory committee inquiry, with members from both houses.

  The committee reported that there was general agreement on the desirable features of a form of incorporation for small business; that establishment should be simple and cheap; that reporting obligations should be kept to a minimum; and that the internal administration should be uncomplicated. It also said that a simple process for dispute resolution between members should be available and that the corporate form should offer the normal benefits of incorporation and be readily understood both by its owners and by third parties. It went on to say that transition to more complex corporate structures should be simple to accommodate the growth of the business and that the structure should be tax effective. I do not think anyone would disagree with those requirements.

  The problem for this government seems to have been in finding the practical solution. I believe that it is available and that it must be addressed in some hurry. Now, again because of the complex requirements, small businesses will have more difficulty than their large competitors in negotiating enterprise agreements because they are not geared for it. For instance, we do not want to give them the further disadvantage of not being able to access the present company tax rate and not being able to deal with superannuation for themselves as employees of their own corporate structures.

  These are the issues. They cannot be resolved by telling people—even as the committee did—that, for instance, we need another chapter of the Corporations Law. I do not believe that the Australian Securities Commission, in its present form or in any serious form to which it could be adjusted, is suitable to deal with the corporate requirements of small business. I believe that the tax office is. I think this is where legislators have got themselves lost.

  Every business must deal with and report to the tax office. It is not very difficult—provided that we are not too demanding in the sort of public information we require—to say that, if we want to have a small business corporate structure, then we can expand our tax return somewhat so that it provides some of the information that would be on the public record. Whether the tax office, for reasons of convenience, faxes that over to the Securities Commission so that all such public information is in one place or it provides a viewing platform so that people interested in certain aspects of some small business corporation are in the position to go to a counter of the tax office and get it is not of great concern to me. What is of concern to me, as a representative in this House of the small business constituency, is that we can say to small business people that they cannot avoid the tax office, so why not make that their one-stop shop.

  Parts of these thoughts were put to me by the Institute of Company Directors. When I previously held this portfolio, the institute told me that it wanted to have the ultimate in simplicity. It just wanted people to be able to go into a reputable stationer and buy something like a will form, with all the little blocks to fill in. After they had filled in the form and signed it, they could put it in a bottom drawer and they had a company.

  Clearly that is oversimplifying the problem. People have to take their form somewhere and register what they are. Why not the tax office? Why not let it issue a tax file number with the prefix `SB' for `small business'? We would have a one-stop shop and a simple registration procedure. Maybe people would take along $50 with their initial return, but from there on in their tax return, possibly with an additional page of information—something for the public record—is all they would need. After they lodge it, the information that should be available to the general public in the form of disclosure, which is the subject of this bill, is available either at the tax office or by the tax office transferring it to the Australian Securities Commission.

  I welcome the fact that the Attorney-General (Mr Lavarch) is in the chamber. I hope he takes those remarks on board. If he does not, I promise him that I will present him with a private member's bill to this effect in the near future. I think that too frequently in this place we let conventions muddy the water and we do not get the simple solution we need.

  I can still see the stack of documents that was the Australian securities legislation that went through this parliament some years ago. I think Lionel Bowen put the original documentation through. It was beyond the resources of small business people. What is more, it is not necessary. One of the strong arguments for this type of company, put forward by the company directors, was a recommendation that this type of small business corporation did not have to give total limited liability. It is interesting that, apparently, Australia was the home of limited liability.

  In my travels I have taken to reading Geoffrey Blainey's book on the history of the mining industry. If you read it, Mr Deputy Speaker Snow, you will find that parts of your electorate get a mention, as does most of Australia. It only goes to prove what a highly mineralised country we are. Originally, when people bought shares on the Stock Exchange, they did not have limited liability; the limited liability company apparently did not exist. Some rather wealthy gentlemen found themselves holding all the liabilities of some pretty shonky companies when they fell over. I was quite astounded that such a fundamental of a corporation—limited liability—was established in Victoria to accommodate the needs of investing in the mining industry.


Mr Reid —It started in Bendigo.


Mr TUCKEY —I do not know whether the honourable member for Bendigo has read Mr Blainey's book; if he has not, I recommend it to him because it is a great book. I am giving it a plug. I just read it in bits. It is that sort of book.

  I come back to the issue of liability. The company directors argued to me that these small business corporations need not have total limited liability; in fact, the directors could have a form of liability. For instance, say a plumber wants to go into business as a specialist in building construction. Nobody builds houses today; people all build bits of them. He and his wife need the opportunity to form one of these companies, and they can do it simply. In the process, he and his wife become the directors and, as such, they have liability, joint and several, just as if they were in partnership. If the parents of one member of that couple put in some capital, they are shareholders and they have the normal limited liability that would apply in any other corporate structure.

  That gives all sorts of people the opportunity to invest in a corporation without liability or without, for instance, putting the family home on the line. Some retired parents certainly would not do that, but they would be willing to assist with some of their spare cash the younger ones in their family to get into business.

  I am not offended with the concept of the `directors' having liability because, in most cases, they end up with it anyway. There is practically no opportunity today through banking—bar one classic case that was brought to my attention the other day—or through trade to do business as a company without the directors having to sign a guarantee, so why not just put it there, particularly with businesses at this level?

  I do not think that the needs of small business corporations include the need to defeat their creditors. I do not think that we as legislators should be creating entities that give people that protection. But, as I point out, the issue here is that other business has got pretty wise to that. It would save a hell of a lot of time messing around and filling out forms if that were the basic function. For example, the creditor would know that he did not have to get all those forms filled in because Mrs Smith and Mr Smith, the directors of company XYZ, were, by the nature of that company, liable anyway. The other investors—it might even be a bank that is seeking to take some equity—would have the normal limited liability.

  It is time that the parliament addressed this matter. The first attempt to address the problem was a farce; a joint parliamentary committee has said so. I think it is accepted by everybody that it was never going to happen. We can have in place a practice that is as simple as the one that I have just outlined. Of course, the people entering into this arrangement should have the right to be taxed at the company tax rate. That gives them no great privilege. If they are making profits they will pay themselves salaries and things of that nature and they will consequently pay higher taxation when they do so. The major difference with this approach is that they have the benefits of a corporate structure which are available to their larger business competitors and they can access many other areas, such as superannuation, in the process. In many ways, they are at arms length in negotiating contracts.

  Today we have a situation brought about by various other tax requirements and other measures where people literally cannot get work as building tradesmen without being incorporated in some way; the major contractors just will not take them on as individuals. There are just too many problems brought about through the industrial system and through liability, et cetera. To tell these people to go out and establish an existing company as a small business is just far too draconian and it is silly. It is all right to have the sorts of measures we are discussing today for very large corporations. When businesses get big enough they have their own corporate section in their business structure; they have their own industrial relations section, now known as human resources. But when does the little guy—say, the bloke behind the counter in the delicatessen—pull the apron off to do all these extra things? He does not.

  It is interesting that even the accountancy profession is now saying, `Under the present tax laws, with the present corporate requirements, we are too expensive for small business. They cannot afford us'. Some of the accountants are small business accountants; it is a silly situation. We have to get rid of some of that complexity so that people can have more opportunities.

  I intend to pursue this issue because I think it is one area—there are a number—where small business gets a very raw deal. Day after day in this place, small business is held up as the engine of employment. As I point out to people, it will continue to be so. Small business generally hires another staff member where big business buys another machine. That is simply because small business gets the efforts of an individual on time payment. It does not have the capital to invest in machinery; it will continue to employ people. That is something we all desire, although it is not something that is coming out of the present so-called economic recovery that was vaunted here today. We welcome it to a degree, although if a managing director were to sit down in a corporate boardroom and tell the directors, `This year I have borrowed 4 per cent of your turnover and I have had an increase in turnover of 3 1/2 per cent', I am not sure that the corporate board members would be very impressed. That is exactly the situation in Australia today; the government has borrowed a greater percentage of GDP than the economy has grown. When I say that it has borrowed it, I mean that it has put it straight back into the Australian economy; that is the kick-start. But I am digressing a bit from corporate law.

  I thank you, Mr Deputy Speaker, for giving me the opportunity to digress somewhat from the very specific aspects of this legislation in raising the problems for small business in the overall legislation. I hope that the Attorney-General has taken on board some of the thoughts that I have put forward. In the interests of the small business community, I would be quite willing to co-operate with him to get the benefits small business needs now.

  In 1989 this issue was recognised and an attempt was made to legislate for it. The fact that the legislation is so bad that it cannot be gazetted in 1994 and that it has been criticised by a joint parliamentary committee makes it very clear that we need a new start. When we stop and think about it, it is a relatively simple procedure. If some of the suggestions I have made were followed, I am sure that we could reach a suitable conclusion.

  I ask that the government get on with this job. The Attorney-General might do a better job than the Minister for Science and Small Business (Senator Schacht) who, as far as I can see, has not managed to achieve anything. His background does not give him the experience that is so necessary. It is funny that some people seem to be able to get into business and get into strife. I am delighted to have contact with the business community from time to time; one finds out just how difficult it is to do business in this day and age.


Mr Cobb —It's a hard slog.


Mr TUCKEY —It is hard enough just making a quid, but when we want to create some employment, as I did recently, by building new premises and it takes six months to get it through the local council, it is pretty upsetting. A lot of people in that situation just do not go on with it. These are the sorts of issues that small business is fed up with. Company law is certainly too complex. It is grossly unfair because small business needs it as much as the big guys do.