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Tuesday, 1 February 1994
Page: 59

Mr CADMAN (8.20 p.m.) —I am indebted to the previous speaker, the honourable member for Curtin (Mr Rocher), for giving the House a clear explanation as to some of the avenues that the government has explored in considering changes to the Corporations Law. The Corporate Law Reform Bill 1993 flows from a consideration that has been of concern to both the government and the opposition for some time. The extravagances of the 1980s focused public attention on the need for Australia to adopt a more comprehensive approach to the way in which public bodies, public companies and financial institutions relate to the Australian community.

  Honourable members will remember the rorts and havoc of VEDC in Victoria and the Tricontinental scam. These things that happened during the middle to late 1980s are starting to lose focus in the minds of the Australian public. That does not mean those days cannot return: for example, the former Wran government in New South Wales, through its imaginative accounting processes and unusual arrangements with the business community; and the grand-daddy of them all was the way in which the former Premier of Western Australia, Mr Burke, developed all of these processes to an art form. Those matters are still before royal commissions and under examination by legal processes and by tribunals as well as being under the scrutiny of the Australian people through the Western Australian parliament. All of those things took place during a period when the federal government appeared to be incapable of coming to grips with the difficulties that confronted the whole of the corporate community in Australia.

  Some of the reasons are obvious. There was a mates problem in that the association and close link between the then Prime Minister, Mr Hawke, and the current Prime Minister (Mr Keating) with particular high flying Australian individuals did impose limitations as to what they could do and what they thought they should do. However, a parliamentary committee—of which the Attorney-General (Mr Lavarch) is well aware—was working diligently to prepare reports in some of these complex and difficult areas. I refer the House to the report of the House of Representatives Standing Committee on Legal and Constitutional Affairs dated May 1989 entitled Mergers, takeovers and monopolies: profiting from competition?. The Attorney-General was sitting in the background while the government, of which he was a member, was trying to deal with these issues but failing dismally to do so. He was also chairman of the House of Representatives Standing Committee on Legal and Constitutional Affairs which produced the report entitled Corporate practices and the rights of shareholders dated November 1991. I want to pay a tribute to the Attorney-General not only for his work as chairman of that committee but also for the fact that as Attorney-General he has been able to move forward with this legislation. I do not know what is in his mind. In my view, this current legislation is far from what most members of the House would desire but it is an interim measure.

  The problem is that the delay has stifled Australia's corporate environment so that we are at a disadvantage when compared with other similar nations. I refer the House to some decisions of both the New Zealand government and the United States government where they have moved to a less definitive approach to corporate law. Whilst there is a softening of the prescriptive or black-letter law in this legislation, it will probably be another three or four years before this House comes up with a proper expression of law that is workable, efficient and capable of being understood by the Australian corporate sector and is a protection for shareholders and investors. Legislation is needed which is not so heavily imposed on corporations that their time is spent in nothing but reporting, note keeping and record taking, but acknowledges that corporations have a responsibility and can deal with the factors that are raised and dealt with in this legislation in a more satisfactory way.

  I guess that is a criticism of the government for failing to take action at an earlier point. I have outlined the inhibitions on the government at that time to take the action that was needed. I can remember the criticisms made of the Fraser government in the latter 1970s and early 1980s for failing to take action in certain areas of corporate crime. The fact is that this government has not sought to carry through the wishes of the majority of Australians so that people, such as the Laurie Connells of this world, could and should be dealt with properly. Here in 1994 we are coming to a way of dealing with the problems of the 1980s.

  This legislation in part flows from the report entitled Corporate practices and the rights of shareholders of the House of Representatives Standing Committee on Legal and Constitutional Affairs that I referred to earlier. It also draws on other reports, including a report issued in September 1991 by the Companies and Securities Advisory Committee.

  This bill amends the Corporations Law: firstly, to require enhanced and continuous disclosure by certain listed and unlisted entities; secondly, to reform prospectus provisions—something that allows people to believe what they read and have certain confidence in the prospectus of a company or a corporation—to provide for continuous disclosures and to also facilitate fundraising; thirdly, to relax the present restrictions on companies indemnifying and insuring their officers and auditors; and, fourthly, to facilitate the use of print-outs from the Australian Securities Commission national database as evidence in court proceedings. Those are the four main grounds contained in this legislation.

  This legislation has become increasingly complex. Whilst the government has proposed a program to simplify the Corporations Law, in the last three years the government has added 1,500 pages to that legislation. This is a Sir Humphrey approach of simplification by expansion and complication. I know that the Attorney-General will seek to rectify that matter. I expect that, when he winds up this second reading debate, he will lay out a bit of a program for the way in which he intends to approach that process.

  I am pleased to note that the consultative group may shortly be announced because there has been a considerable delay. Major institutions and business organisations around Australia are waiting for the announcement. They wish to establish the balance in the membership of that consultative group. They want to be assured that he has listened to and taken into account their submissions on the composition of that body and that the consultative group will be given a direction that will not only achieve the objective of simplification but also the other objective of proper accountability to the Australian community.

  The three- or four-year delay, created by the government's failure to act, cannot ever be recaptured, but I know that with some vigour and some enthusiasm we can recapture some of the ground. That is a dark page of Australian history where both the investor and those who were responsible for the funds had attitudes which were far from their own best interests and the best interests of Australia. It was a period when greed and avarice seemed to reign across Australia. We have learnt from that and the process of rectification is in train.

  Rights of the shareholders have not been dealt with in this legislation. That is something which we also await. I refer the House to a submission to the House of Representatives Standing Committee on Legal and Constitutional Affairs from the Institute of Chartered Accountants in Australia. That submission was put before the committee on or about 16 November 1990. The words of that submission show the sense of responsibility of accountants and their concern for the way in which these matters should be handled. That submission, in part, states:

As the number of failed and ailing companies has increased examples of allegedly questionable reporting and accounting practices has been raised. Questions have been asked in relation to the roles of directors, who approve the form and content of company reports and accounts, auditors who audit the accounts, and regulators who monitor the corporate sector generally. Directors are responsible for the form and content of financial accounts and must fully accept this responsibility. As regards the auditor, this phenomenon is not new and again demonstrates the wide gap between what the community expects of auditors and what auditors are required to do by legislation.

There are two components of the audit expectation gap. First, there is the occasionally inadequate performance of audits through deficient standards and individual performance, and secondly, there are often unrealistic expectations of the public.

The second complaint can be approached through public education, such as by more adequately informing the users of financial statements of the objectives of an audit.

I think that is a pretty clear statement of the professional concern that arose in the late 1980s which the government and the House seeks to address. We believe that this process is too slow, too cumbersome and creates further complexity. In my view, the sooner we move towards a less definitional approach than the one which has been adopted by the government the better the Australian corporate community will be.

  This is a revamped bill of one previously rejected as being absolutely impossible and unworkable. In that sense, this bill deserves to be supported and is being supported by the House. One of the difficult matters in the original legislation was that companies were required to provide similar information to both the Australian Securities Commission and the Australian Stock Exchange under its existing listing rules.

  A second problem was that it created a discrepancy in time frames, which meant that companies had to report similar information at different times, thereby imposing considerable cost and inconvenience on companies that were by that stage in a state of shell shock in the recession. The original bill allowed for three days in which to make a disclosure to the Australian Securities Commission. The practical effect was likely to result in a lesser standard of disclosure than we would require. I am indebted to the shadow Attorney-General, the honourable member for Tangney (Mr Williams), for raising some of these specifics where difficulties were identified with that earlier legislation.

  Thirdly, the bill specifically allowed withholding of disclosure of confidential or commercially sensitive information—the `carve out' process that has already been referred to. The Attorney-General is aware of these factors. It is a revamped bill, it is a desirable consolidation, but it does really increase complexity.

  Business really does not like the further overlay of regulation, and it has said as much. But, at the same time, there is widespread recognition that the consultative processes entered into to establish this legislation have been sound and there is community expectation that there should be further and increased accountability. So there is little protest or comment from the business community. This legislation, by the way, only applies to those organisations, those corporations, with 100 shareholders or more. So small business is basically untouched by the legislation before the House tonight. There has been a general recognition of the need to have business behaviour put beyond any criticism. But the slow approach, and the slow approach to a less prescriptive process, does deserve immediate attention.

  One can but wonder why it has been necessary for this slow approach. I attach no blame to the previous Attorney-General, the honourable member for Holt (Mr Duffy). He was wrapped up in the processes of the then government. Very difficult things were going on in Western Australia with the Treasurer denying any knowledge of Reserve Bank decisions or notifications. People in Victoria, with the huge and massive deficit piled up there, were under constant defence from the then Premier, John Cain, seeking to have the public gaze averted from the disaster that he had brought on that state. Mr Burke in Western Australia was doing similar things.

  I remind the Australian community that, although this government is moving ahead in this area with the general agreement of the coalition and of the Australian people, it should have taken the issue in those areas very strongly and firmly. No matter who was involved, the government should have held itself up to the Australian community and the small investors and savers—people who understood the threats to their livelihood and the disasters that were being imposed on them in boardrooms over which they had no control. Instead of standing up for those people, the government did the easy thing and let the thing slide. That is where the government is condemned. It was easier to stick with its mates and fudge the issue than come to grips with it.