Mr McCLELLAND(5.06 p.m.) —Firstly, I would like to address a number of issues raised by the member for Cowan (Mr Richard Evans), the previous speaker in this debate on the Corporations Law Amendment Bill 1996. The member expressed concern regarding the number of small businesses going into bankruptcy. Of course that is a matter for regret and it is indeed a matter for concern that that number is increasing.

The member for Cowan referred to factors which he believed played a role in that occurring. But what he did not refer to and did not acknowledge—and this is common to just about all government members—is the dramatic and drastic effect of the government ripping such a massive amount of money out of the economy. It is literally taking customers away from small business doorsteps and has really caused severe problems for not only small business but the economy generally.

In addition, the failure of the government to announce policies to address unemployment has caused fear and insecurity. Far from people feeling relaxed and comfortable, as was promised in the last election, there is real apprehension out there. It is a very bold person who is going to commit themselves to a major purchase such as a car or a house when there are such feelings of insecurity. Any car dealer and any real estate agent would tell you the consequences of that fear of unemployment. If you add to that an absence of any policy in relation to developing industry in this nation, you get a bleak picture.

The member for Cowan also suggested that the government had the means to address this small business decline and referred to the repeal of the former government's unfair dismissal laws. The facts of the matter are that, if that is the best the government has in their armoury, we are all in real trouble. We are all in big trouble because the government itself does not understand its own legislation and it certainly did not understand the former government's legislation.

For instance, on about four occasions the Minister for Industrial Relations (Mr Reith) has stood up and berated the former government for relying on International Labour Organisation convention No. 158, which dealt with the concept of unfair dismissal. It seems the minister does not appreciate that the relevant part of his legislation dealing with unfair dismissal specifically has, as one of its objects, furthering the International Labour Organisation Convention. That is defined in section 4 of the act as being set out in schedule 10. All the minister has to do is look at schedule 10 which is set out in the act itself to see ILO convention No. 158.

So, if the minister says departure from the former government's policies and departure from ILO convention No. 158 are going to resurrect small business and employment in this country, we all, as I said before, have real problems on our hands. The only repercussion that the government's legislation has had, by introducing a few hurdles and somersaults that applicants in unfair dismissal cases have to go through, is to shift unfair dismissal cases into the state sphere. My information is that in the last two months in New South Wales we have seen a 200 per cent increase, for instance, in unfair dismissal cases. If the government thinks it has created some sort of new order, it is sadly mistaken. I suggest with respect to the minister that he obtains a briefing from the experts in his own department.

I have spent my time so far addressing and replying to points raised by the member for Cowan. One final point that he raised which I would like to address is his praise of the concept of risk undertaken by business entrepreneurs. What I would like to emphasise is that risk is not only taken by business entrepreneurs. Every day workers get on the train or get in their car and go to work and face risk in industrial accidents. Any solicitor's office around this country is likely to have several—indeed, many will have scores of—quite serious, and in some cases, horrifying injuries sustained by workers.

In some industries, it is still the case that a spouse waiting at home does not know wheth er their partner is going to come home with a serious injury. Mining is one of those industries. Indeed, although they have been damned and condemned by this government, the waterfront is still a very dangerous industry. Workers who go along there face considerable risks. So my point in this matter is that the government should really appreciate that economic growth in this country is not solely generated by the activities of entrepreneurs. Rather, it is literally built from the sweat and, regrettably in many cases, the blood and flesh of Australian workers.

I want to move on to the topic of the bill itself. In 1992, the Corporate Law Reform Act introduced a new system for the voluntary administration of companies. It allowed a system whereby an independent administrator could be appointed to take over the charge of a company for a limited period of time. The thrust of that bill was significant because it was one based on mutual cooperation between the debtor company and the creditors and the independent administrator.

The scheme allowed the company to operate under a deed of company agreement. That deed was one that essentially bound all parties—that is, the company, the creditors and the administrators—as to the course of action to apply in dealing with the company's affairs. It specifically precluded another creditor from claiming some sort of priority over other creditors by acting inconsistently with that company deed of arrangement.

In many circumstances it was acknowledged that the best people to run the company were the directors themselves—obviously because of their contacts and their industry knowledge. The voluntary administration allowed in the 1992 act certainly facilitated that, providing that the administrator generally oversaw the operations. In other words, it enabled a company facing difficulty to request the appointment of an administrator as an alternative to the old sudden death system of appointing a receiver. That was a significant and welcome advance.

Indeed, that was a factual background in the now famous Crawford House case. The issue in that case was whether debts incurred by a company still under the control of the direc tors, but in a situation of voluntary administration, received the same priority as that which normally attaches to debts incurred by an administrator, where the administrator is left in control of the business.

Usually, it is that later case that is adopted whereby the administrator himself is in control and any debt incurred by his actions receives priority at the end of the winding up. But the situation in the Crawford House case where the directors were left in control is still not uncommon and in many cases desirable. Obviously, it is more likely to occur if the creditors regard the directors as reputable and competent. In many situations, if not most, they are going to be the most able to deal with the company's affairs because of their long history of commercial relationships and their knowledge of the industry generally.

In many instances, the creditors of the company will cooperate in that situation because they have a vested interest in the company's survival. Because of the interactions in commercial relationships, many creditors will be suppliers or purchasers of the particular business. If they lose a link in their trading network, obviously their businesses are going to be the worse for it. So there is often a vested interest in creditors cooperating and trying to save one of their trading partners. I think it is fundamentally important that creditors so cooperating to save one of their trading partners not be penalised. This bill, it must be said, substantially addresses that issue.

As I said before, normally, if the administrator was left in control of a company, the debts incurred by that administrator would get priority. This bill essentially ensures that debts incurred by the company under the ultimate control of the administrator, but through the actions of the directors, receive that same priority.

Justice Cohen in the Crawford House case itself indicated that his conclusions as to the direction that the law took him were regrettable. For instance, in his opening address in the judgment, he said:

The conclusion I have come to, if correct, can result in creditors of a number of companies which have entered into deeds of company arrangement having no fund upon which to claim for payment of their debts if the company should in due course be wound up. This would be a matter of serious consequence for the commercial community.

Unfortunately, he felt compelled to arrive at that conclusion. He summarises the effect of his conclusion later in the judgment with these words:

This results in the regrettable situation that there appears to be no right in those who became creditors of the company or whose debts were increased during the period of the operation of the deed, to prove for those debts or increased debts. This would not seem to be a result intended by the legislature.

Later on, he said:

It is not satisfactory that the position should be left as it is and it requires urgent legislative amendment.

In fact, the former government had proposed a bill very similar to this and the opposition hence supports the government's actions. It is probably desirable that the legislation moves in a direction which encourages administrators to leave directors under control. While most administrators are competent and honourable, the facts of the matter are that they charge their time at professional rates and often that hourly rate of somewhere between $200 and $400 an hour is the final straw which causes the company to go under.

I recall a recent speech by the member for Moreton (Mr Hardgrave) in which he gave an account of a business in his electorate which faced a very similar situation where an administrator took over control of that company. It seemed inevitable from that day forward that the company was going to die a slow death, whereas if the directors had been left in control there would have been every chance that the company would have survived.

It is highly desirable that the legislation does as this bill does: that is, it does not cause an impediment to directors being left in control of a company facing financial difficulties. If the company can survive, employees of the company are going to benefit—not to mention their families. As I have said, company insolvency is often contagious, so any arresting of the decline of a business partner can keep secure its trading partners.

In summary, there are very sound public policy reasons for justifying the legislation. I note the Parliamentary Secretary (Cabinet) to the Prime Minister (Mr Miles) in his second reading speech has expressed that the only reservation is one of addressing the question of priorities generally. We, in the opposition, would agree with that. It is appropriate that the issue of priorities in company receiverships and bankruptcy be addressed. I note the government is to refer that question to the companies and securities advisory committee. The opposition would most certainly endorse that occurring. From my own personal point of view, I think there should be some rewards attached to trading partners taking a risk to try to keep their associated company or trading partner alive.

I note that this bill is topical in another sense. It was addressed by the member for Werriwa (Mr Latham) in the context of announcements by the Treasurer (Mr Costello) the week before last. The Treasurer indicated the government's intention to review corporate law generally. He said that he intended to review the law to give it a stronger economic focus so that businesses could undertake their businesses with low transactional costs and that, as a starting point, he would be addressing the Australian accounting standards boards.

I also note the Treasurer's comments that he regarded the law as too proscriptive and too legalistic. In the Australian Financial Review on 20 November 1996, he is reported as favouring a system of self-regulation of a scheme of business ethics, which he believes will promote investor confidence. I must say that I have concerns about a voluntary code of ethics. I do not think, from my experience, that it will go anywhere near addressing a number of concerns that shareholders have. They still have concerns that there is inadequate reporting in respect of the foreign activities of companies. Even though they receive balance sheets regarding local activities, there is usually very scant information provided as to the foreign activities of companies of which they are shareholders.

Similarly, the procedures for the reporting of related party transactions are very inad equate. Equally, there is a generally inadequate methodology in the Corporations Law regarding the election or appointment of directors. While substantial work has been done since the days of Clyde Cameron in 1972 to ensure the democratic election of trade unions, very little of that seems to have been translated into the Corporations Law. It is one area where there is a severe lack of democratic control. That is something which is inevitably going to deter ordinary Australians from investing in the share market and buying shares.

News Corporation is a case in point. For instance, a recent article reported on the techniques of News Corporation in selecting its board members. That is achieved by one of News Corporation's in-house lawyers going around with another director and virtually head-hunting the board members. I should say that the board members are the government, as opposed to the chief executives of the company. If one anticipated that occurring in respect of a trade union, in which the members of the committee of management were not democratically elected, there would be a public outcry.

The government must be alive to the fact that the Australian public is becoming increasingly educated in the affairs of corporate investment and the activities of corporations. Much more information is being communicated to them through the general press, business papers and, of course, electronic communications. The Australian people are in a position to judge, and judge appropriately, the standard and quality of directors, and this government should urgently look at taking steps to encourage the democratic participation of shareholders in the composition of boards of companies.