Mr KERR (12:11 PM) —There are a number of welcome suggestions in the government's proposed legislation, the Corporate Law Economic Reform Program Bill 1998 , but also a number which should raise this parliament's concern. As is inevitable in the way in which our parliament is currently structured, regrettably the disposition of the disagreements will not come in this place but rather by discussion and further debate in the Senate. I think that we do need to have some serious consideration of the detail. I recall being a member of the first joint committee looking at the Corporations Law when the national scheme was put in place. There was substantial debate then on a number of the matters which are currently the subject of this legislation, most importantly in relation to the takeover arrangements and the way in which minority shareholders could be properly protected and dealt with.

Since that time there has been a bipartisan concern to review the whole of the Corporations Law and to express it in as simple terms as possible. The Corporations Law simplification project was established by the former Attorney-General, Michael Lavarch. I was engaged in that process as Minister for Justice and worked closely with him. I must say that, unlike some other areas of the law, simplification remains somewhat elusive. Whilst the work of those involved in the drafting process and the revision process has been largely technical and undertaken in a cooperative and largely bipartisan way, unfortunately the language of the now-simplified draft still remains quite impenetrable to the lay person. I think that is a matter of some regret but I suppose successive governments have found it more than difficult to express some of the concepts that are in this area of the law in a form which is more readily accessible to the average investor. The aim, however, should be to try and achieve that.

I turn to a couple of the points which the opposition has concerns about. Firstly, there is takeovers. Economic theory in relation to efficiency tends to come in cyclical fashions. At the time at which we first looked at the Corporations Law there was a significant debate about whether or not Australia needed to build strong, large corporations capable of holding their own on an internationalised playing field. The general view taken by the then Hawke government was that we should accept broadly that there was no merit in keeping Australian companies small. It was felt that therefore we should be willing to facilitate, both in the Corporations Law and in the trade practices law relating to competition policy, measures which would facilitate the aggregation of corporate structures under the takeover provisions and, through the trade practices law, measures which reviewed—for competition reasons—proposed amalgamations but which broadly allowed those, where there was no clear failure of public interest to be involved, to proceed.

I think that is a view which has prevailed generally through to the current administration. But fashions in economic theory do change. The facts as they have emerged seem to suggest that more than a few of the spate of amalgamations, corporate takeovers and structures which were designed to take advantage of scale have in fact proved to be economically less than successful. There is a new body of economic literature coming through which focuses on core business and efficiency, and which suggests that economic policy should not be designed to facilitate takeovers except where there is more than the simple seeming market advantage of swallowing up a competitor and perhaps taking advantage of a store of capital that may be made available by the process.

The record does seem to suggest that the mergers and acquisitions that have occurred have often been quite indigestible for the company which has set them up. And there is some dispute that the long-term social and economic consequences to the community have been at all beneficial. Certainly we know that most of these acquisitions and mergers have led to loss of employment. If it is true that there has been no net economic benefit—and in fact there has been a net economic detriment—as a result, perhaps we need to have a second look at how enthusiastic we should be about further facilitating the process of takeovers and mergers.

That is not to say that takeovers and mergers should be regarded as inherently evil. Where there are synchronicities of economic activity or where there are gains to be had by the two entities merging, there is no reason to set your face against that. As a matter of common business practice, many organisations do gain benefits from joining their enterprises together and building a more integrated framework for progressing into the future. Where that is self-evident to both parties, provisions of the nature of these Corporations Law measures are not necessary because they are agreed mergers. The sorts of mergers we are talking about facilitating in this bill are mergers which are preceded with by way of compulsion—either by on-market acquisition of shares or, as proposed in these measures, a compulsory acquisition procedure which would allow takeover offers to proceed by a person who acquires the `full beneficial interests in at least 90 per cent of the securities' in a company so that they can facilitate the total ownership of the company.

There are also provisions which go to making it much easier to proceed with takeovers and mergers and which are designed to allow, I suppose, surprise attacks. Presently, a company which seeks to make a takeover offer on another corporation has to make a bid fully revealing its takeover intentions to the market. This allows both those who would be placed in a minority position and those who wish to take advantage of any offer to do so on transparent, level playing field terms. The bill, however, enables a corporation or a person who acquires a substantial holding in another entity to proceed to a takeover offer before fully revealing its takeover—to effectively take control of a company before fully revealing its takeover intention to the market.

That loss of competitive bidding is likely to deprive particularly minority shareholders of an opportunity to obtain the best possible price and other terms and conditions that would come from an open auction process. The opposition has quite significant concerns about this. There seems to be no internal public interest in the corporations field in facilitating this. It could be advanced only on the grounds that there is some larger facilitative national economic interest in allowing such secretive arrangements to come into play—surprise takeovers. The government argues that it would prevent green mail, the holding out of minority parcels of shares and the like. That is a difficult argument to sustain in terms of the takeovers and mergers provisions.

More importantly, we need to be serious about whether we do hold the view that you do get overall economic gain. If we do not get overall economic gain in the majority of these takeovers then it is hardly in the community interest to proceed in a way which does not fully recognise the entitlements of those who would be minority shareholders in a takeover proposal. If there is no national interest, why subject their personal economic interests to any detriment? Why not allow them to take the full market advantage that they can in a competitive marketplace? It is strikingly difficult to conceive of an argument to justify this particular proposal.

There are already provisions to deal with circumstances where only a handful of minority shareholders remain extant and refuse to sell. There are compulsory arrangements that can mop up a couple of reluctant holders of minority interests, small minority holders, and those provisions seem to be quite adequate. So I am puzzled about the reasons for these particular takeover and merger provisions. After all, compulsory acquisitions, whatever their intention, do involve the expropriation of the property of the shareholders whose property is sought to be acquired. I think you really do need to demonstrate a public interest case of a substantial nature to justify that course being pursued.

There are a number of other provisions which concern the opposition. One of these is the attempt to limit the capacity of the courts to intervene or to be applied to after the Corporations and Securities Panel dispute process has been completed. I want to commend the government for the measures it has put forward to enhance the role of the Corporations and Securities Panel. They are good measures and well thought through, but the case for restricting access to the courts to only the ASC, subsequent to that process, has been little set out. It may well be, on fuller examination, that it has some merit, but on its face it does not seem to be a good case. Certainly, the Australian Institute of Company Directors is concerned about it and has expressed its concerns. So, too, have a number of leading commercial law firms.

There is no advantage in having protracted litigation. I do not think anyone argues that there is. Nonetheless, even if this bill proceeds and purports to exclude the jurisdiction of the courts from reviewing the Corporations and Securities Panel takeover mechanisms, I think it is almost certain that collateral court proceedings will be devised by which any error, in terms of procedure or internal fault in the process, could be brought before the court. It seems highly unlikely that the courts would allow processes to remain incapable of scrutiny if they could be shown to have proceeded in a way which is contrary to the legal interests of a participant in one of these processes.

So it is almost inevitable that collateral attack will survive, but all it will do is make the process rather more complex. That is just as likely to give rise to a whole range of ancillary but less direct legal mechanisms to address an issue which is still a subject of dispute between the parties, as it is to simply allow a proper straightforward approach to the courts. However, that is a matter on which we would like to hear more from the government in terms of its rationale and its legal advice as to whether or not collateral attack would be available. Certainly I am operating on the basis that it would be impossible to exclude that.

I should mention a couple of other points. There are concerns about the provisions in relation to capital raising. This is no criticism of the provisions which try to assist small capital raisings. They are intelligent and crafted to help small entrepreneurs and smaller companies raise the necessary cash to begin their operations. Australia has had a problem in raising entrepreneurial capital and attracting venture capitalists to make those commitments. There are a range of measures—not just in Corporations Law—that need to be advanced towards that objective, but there is a bit of worry about some of the prospectus arrangements, particularly in relation to the capacity of licensed security dealers, to in a sense define some of their clients as sophisticated investors.

It may well be that somebody possesses a substantial amount of capital—for example, as a result of a superannuation payout or some such matter—but not be particularly sophisticated. The test does seem to need some improvement. After all, if we were to find a circumstance where there were a number of people who lost money as a result of this, I do not think the government would be in a strong position. So that particular issue needs to be addressed—and it may be in the amendments that the government is going to propose. I have not sighted those yet, but the government has given a notice of intention that there will be some amendments and perhaps that will be one of the issues picked up as a result of the comments of the minority report on this bill and the opposition's comments in the Senate.

Finally, on company directors' duties, I am not persuaded that it is necessary to provide some sort of safe harbour view about providing a comfort zone for directors. Existing court decisions already define directors' duties and responsibilities. The government in its own explanatory memorandum to the bill says that, under the existing common law, the courts rarely review bona fide business decisions. I think that is true. Given this, there seems little merit in the proposed changes. In fact, one suspects that, if you put in a provision that in a sense looks on its face to provide room for slippage as to directors' duties, people will be tempted to explore the limits of it. Rather than providing any comfort to people holding positions of responsibility in corporate governance, they will be forced to explore those limits and place themselves in greater risk.

At the moment the legal framework is relatively clear. There are some grey areas but the broad road is known, and so, whilst there are liabilities that directors operating in that field may incur if they breach their responsibilities, at least they know where those responsibilities are defined. Greying it out, softening those edges, is just as likely to place more and more pressure on people to explore the edges. As they seek to maximise returns to their shareholders, they would be under pressure to see how far that grey area could be pushed. As a result, it is likely that more and more people would find themselves coming to the notice of courts to explore whether or not they have exceeded a limit which is not as clearly defined and understood as the present rules. So I think there is a degree of concern that we should have about this. We understand why the government has proposed it. It seems superficially an intelligent approach, but in practice it is likely to misfire. (Time expired)