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Tuesday, 1 February 1994
Page: 53

Mr REID (6.09 p.m.) —The Corporate Law Reform Bill has had a rather chequered career in terms of political life. The current Attorney-General (Mr Lavarch) is obviously aware of that chequered history. It is interesting to see that he has been in the chamber during the progress of this debate. It has been a very complex issue and one which was addressed by the Companies and Securities Advisory Committee set up by the government which reported back in September 1991. It reported on an enhanced statutory disclosure system.

  I think it is worthy to recognise the work of the people on that advisory committee at the time. The members of the committee at the date of its report in September 1991 were: Mr Mark Burrows, the convenor; Mr Don Argus, who is well known to everyone in financial circles; Mr Tim Besley; Mr Kevin Driscoll; Mr William Gurry; Mr Leigh Hall; Mr Tony Hartnell; Mr Dick Lester; Mr Wayne Lonergan; and Mr John McIntosh.

  The people appointed to that advisory committee were given some fairly broad terms of reference to enable them to fully investigate what would be required to have this enhanced statutory disclosure system put in place by way of regulation. The functions of the committee were spelt out in its report to the government. It states:

The Advisory Committee's functions are, on its own initiative or when requested by the Minister, to advise the Minister, and to make to the Minister such recommendations as it thinks fit, about any matter connected with:

(a)a proposal to make a national scheme law, or to make amendments of a national scheme law;

(b)the operation or administration of a national scheme law;

(c)law reform in relation to a national scheme law;

(d)companies, securities or the futures industry; or

(e)a proposal for improving the efficiency of the securities markets or futures markets.

The committee came up with some very interesting recommendations. The recommendations brought forward by the advisory committee set the agenda for the government to introduce legislation, which it did, but the original bill had a number of significant problems.

  Now that the new Attorney-General is in place and has had the opportunity to look at the history of this bill and the lack of progress made with it over the years, he should recognise the difficulties that have been experienced in trying to ensure that a national code, one that could be properly addressed, can be put in place. The recommendations went so far as to define whom the disclosing entities should be. The committee recommended that disclosing entities should comprise:

.all listed companies/trusts;

.all other public companies with 50 or more members and/or holders of debentures (as defined in s9 of the Corporations Law). In determining the number of members or debenture holders, beneficial holdings are to be excluded . . . ;

.all companies with total (gross) assets in excess of $10 million—

that was its recommendation in September 1991—

  (or such other figure as may be prescribed);

.prescribed interests with total (gross) assets in excess of $10 million (or such other figure as may be prescribed); and

.public sector corporations that carry on a business . . .

The above categories are not mutually exclusive.

"Total assets" for the purpose of this Recommendation includes assets that are held by the disclosing entity in the capacity of trustee.

In the case of any trust/prescribed interest arrangement involving a trustee and a management company, the disclosing entity is the management company.

After that report was prepared and became a public document and the government had the opportunity to respond to it, three significant criticisms were levelled at the original bill. First, the bill would require companies to provide similar information to both the Australian Securities Commission and the Australian Stock Exchange under its existing listing rules.

  Secondly, it would create a discrepancy in the time frame in which information was required. Under the Australian Stock Exchange listing rules, immediate disclosure is required. The original bill allowed three days in which to make disclosure to the Australian Securities Commission. The practical effect was likely to be a lesser standard of disclosure than had existed. That was one of the major concerns about the original bill.

  Thirdly, the original bill specifically allowed withholding of disclosure of confidential or commercially sensitive information. The so-called carve-out provisions of the original bill provided significant scope to circumvent the continuous disclosure requirements.

  If we want to examine what has happened in corporate Australia through the 1980s boom and bust sequence, I think we need look no further than what has happened in some states of Australia, for example with WA Inc. We need only look at some of the boom-bust mentality which existed in the states of Victoria and South Australia. The boom-bust cycle and the need for proper corporate control and regulation at that time were maybe not sufficient to deter some of the practices which occurred during that period.

  There is no doubt in my mind upon reflection that what happened during the 1980s was a bit of a throwback to things that have occurred in Australia's history, probably on a fairly regular basis. My colleague the honourable member for O'Connor (Mr Tuckey) mentioned some of the practices which occurred on the goldfields in places such as Bendigo, Ballarat and in the Western Australian goldfields and some of the practices in corporate law which were flouted at the time of the goldmining boom and also during the 1880s. I presume that in those days the corporate law was very much more lax than it has been in recent years and that much of the early legislation would have been framed as a result of what occurred during that mining boom and as a result of some of the practices which occurred in relation to the stock exchange during the boom of that era.

  Obviously, people in the legal field at that time recognised that if we were going to go through a boom-bust cycle on a continuous and ongoing basis there needed to be proper disclosure and proper management of corporate law in this rapidly expanding nation of Australia, particularly from the 1850s gold rush onwards with the burst of mining companies that sprung up in not only my own city of Bendigo but also other areas of Australia. That really was the genesis for the development of some of the corporate law in Australia today.

  When we look at the recommendations of the advisory committee of the companies and securities organisations that made this report it becomes evident that obviously a lot of time and thought was put into the 1991 report. Much of it has been encompassed in this latest bill. I know that the Attorney-General has probably had the opportunity to overview the whole process, wrestle with the difficulty of the complexity of the legislation and try to cover all the avenues that may well spring into some of the fairly active entrepreneurial minds that are in the corporate sector at the moment.

  On page 7 of this morning's Australian Financial Review there is an article by Rowan Callick entitled `Corporate crime "swept under carpet"'. He quotes Detective Chief Inspector Bob Michell of the Victorian fraud squad. There are some pretty alarming statements in this article. Chief Inspector Bob Michell has said:

Business leaders in Victoria are sweeping corporate crime under the carpet to protect their own personal reputations and the shareholder perceptions of their companies . . .

He went on to state:

  The fraud squad considers that the business community, which has often condoned unprofessional conduct by some leaders, needs to take a more active role in fraud prevention and detection . . .

It is very alarming for someone in that position to come up with the suggestion that some of the leaders of the business community are guilty of and are condoning unprofessional conduct in the detection and prevention of fraud in our corporate system.

  I do not know whether the Attorney-General has seen the article. Perhaps the issue is worthy of further pursuit with the Victorian police force to find out what sort of evidence it has of that type of attitude. The article went on to state:

  The squad believes that only a third of white collar crime in Victoria is reported to police—

only one-third of it—

and that the unreported crimes cost the community about $1 billion in 1993.

That is of concern to shareholders particularly. We saw the 1987 stock market crash and its results in terms of the fallout and the damage that it did to people who lost their life savings. If the statement can be substantiated that only a third of white-collar crime in Victoria alone is reported and that it cost the community, including investors, $1 billion in 1993, it makes one realise the seriousness of what is happening in the corporate sector.

  I understand that the fraud squad has sought the assistance of the business community. This week it is surveying 1,000 Victorian businesses and government agencies to find out why those white-collar crimes go unreported. It is a very relevant question to be asking, particularly as there is a boom in the stock market at the moment. The boom-bust mentality that we experienced in the 1980s is likely to spring up again.

  It is an appropriate time to find out whether another avenue of unreported crime is going on within companies, perhaps to the extent of the $1 billion worth of white-collar crime that occurred during last year. Who knows what it might escalate to in the current cycle of massive buying and everyday increases in the share market. In the 1980s people thought there would be no end to it. Regrettably, there was an end to it in September 1987 when the stock market crashed. Many people in the community were hurt.

  The police force will be conducting that survey with assistance from Deakin University. It believes that a substantial response will enable it to profile the attitude of employers to fraud, white-collar crime, for the first time. The article continued:

  Inspector Michell said that the survey had been generated "as a result of my and other senior police members' deep concern as to the ethical values of certain business leaders".

That causes investors in companies to be very wary. It will be interesting to see what the results of that survey demonstrate as to the ethical standards of business communities and whether they are meeting the corporate requirements of Australia today. The article concluded by referring to Detective Chief Inspector Bob Michell:

  He hoped that one of the outcomes of the survey (the results will be released in March) would be the incorporation of units directly relating to fraud detection and prevention, in business courses at educational institutions.

The legislation which the government has brought forward in the disclosures aspect of this bill will be important for the whole corporate sector. I do not know whether the Attorney-General proposes to make any comments at the conclusion of this debate, but obviously I will be interested to hear his response to the remarks that are being made about the business community. I will also be interested to know what measures he has put in place in this bill to ensure that corporate law in this country, without putting handcuffs on people and making it too constricted and narrow for business to operate, is simplified and harmonised with the economic objectives of Australia.

  It is important that the Attorney-General takes those comments on board in this most difficult area and ensures that the Corporate Law Reform Bill, which is before the House, starts appropriate debate and discussion in the business community as well as among members of the public who have invested in corporations for a long time. We want them to be able to invest with confidence in this current boom in the stock market. I put those remarks in the debate on this bill to the Attorney-General for his consideration.

  Debate interrupted.