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Monday, 27 June 1994
Page: 2041


Senator BOLKUS (Minister for Immigration and Ethnic Affairs and Minister Assisting the Prime Minister for Multicultural Affairs) (6.11 p.m.) —I table a revised explanatory memorandum and move:

  That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

  Leave granted.

  The speech read as follows

This bill proposes a number of amendments to improve the operation of the Corporations Law and to facilitate the operations of the Australian Securities Commission ("ASC") and the Corporations and Securities Panel ("the Panel").

The Attorney-General, the Hon Michael Lavarch, foreshadowed this legislation last year in introducing the Corporate Law Reform Bill 1993. At that time, and in the debate on that bill earlier this year, the Attorney-General also referred to the major long term process that has been established to simplify the Corporations Law.

While the Government is pleased to report that good progress is being made with simplification, that process will take time. In the meantime, the current law governs the corporate sector and some reform must continue to keep that law in tune with the rapidly changing commercial environment.

When deficiencies are revealed they need to be rectified. When new products, services and structures challenge the boundaries of the law, those boundaries have to be moved. That is why this bill is brought forward at this time. These amendments cannot wait for their turn for simplification.

Public exposure

As is the usual practice in relation to corporate legislation, this bill, or more accurately, most of this bill, was released for public comment in December 1993. The period of public exposure ended on 28 February 1994 and public submissions made during that period have been taken into account in finalising the bill for introduction.

I have qualified my comment on the extent of the bill's public exposure as there is one important proposal that was not, in fact, included in the exposure draft of the bill, but which has arisen subsequently and has been included in the bill prior to its introduction. The proposal in question is that to refine the law governing clients' segregated accounts maintained by futures brokers.

There is also a second proposal in the bill, as introduced, that did not appear in the exposure draft of the bill—namely the proposal to enable trading on stock and futures markets of new products which do not fall squarely within the current definitions of "securities" or a "futures contract". However, I wish to inform the Senate that the Government will not be proceeding with this proposal at this time.

The amendments to the definitions of "securities" and "futures contract" were intended to enable trading on stock and futures markets of certain new hybrid products. In particular, they were intended to facilitate the trading of a new product by the Australian Stock Exchange from 1 July 1994. The Government has now been informed that the Exchange will not be ready to trade this product until later in the year. In light of that it is preferable that the amendments have further exposure and to this end the bill has been amended in the House to omit this proposal.

To facilitate the public exposure process the Attorney-General's Department is to develop the proposed regulations that would govern the trading of these new products as a matter of priority. This will clarify the situation and provide adequate information for a more detailed consideration of the policy underlying the proposed amendments. It is the Government's intention, at this stage, to introduce a separate bill containing amendments following that exposure period.

Content of the bill

I will now mention a few of the most important amendments proposed by the bill.

Conferral of jurisdiction on lower courts

One of the most important reforms is the conferral of civil jurisdiction on lower courts (such as magistrates courts and district courts) to hear small civil claims arising under the Corporations Law.

This proposal has been developed in response to concerns from the business community and the legal profession about court judgments over the last year which have held that civil jurisdiction under the Corporations Law is confined to superior courts (ie, the Federal Court, the Family Courts and the Supreme Court in each State and Territory). Concern has been expressed that legitimate civil actions will not be able to be brought under the Corporations Law because of the cost and delay involved in bringing actions before the superior courts. For very small claims, it will often be that the cost of the filing fees alone would prevent the commencement of civil proceedings in a superior court.

This Government is committed to the principle that justice should be available to the community at an affordable cost and with the prospect of a speedy resolution. It is for this reason that it has moved to amend the corporations legislation to confer civil jurisdiction on lower courts in regard to those civil actions under the Corporations Law which are in the nature of debt recovery, monetary compensation or minor administrative remedies.

The legislative framework for the national scheme of corporate regulation means that effective jurisdiction can only be conferred on lower courts if complementary amendments are made by State and Northern Territory Governments to the Corporations Acts of the respective jurisdictions. The Ministerial Council for Corporations has already agreed that the necessary amendments should be made as soon as possible and the Government anticipates that a uniform date can be set for the operation of these amendments in each jurisdiction in Australia.

These amendments are expected to receive widespread support from the business community given that they will reduce the cost and delays associated with bringing small civil actions under the Corporations Law. It is important that these reforms be implemented as soon as possible.

Clearing house electronic subregister system ("CHESS")

The bill also proposes a number of amendments to support the introduction of the Clearing House Electronic Subregister System (commonly known as "CHESS") to be introduced by the Australian Stock Exchange. CHESS will bring the settlement procedures of the Stock Exchange to world best standards. The aim of CHESS is to have transactions settled and delivered within 3 days after trade and to replace the current paper document of transfer with electronic transfer.

The basic legislative framework for CHESS was established by the Corporate Law Reform Act 1992. Since the passage of that Act, and in progressing the CHESS project to its final stages of development, the Stock Exchange has sought a number of additional amendments to the legislative framework.

These amendments are basically refinements of the existing legislative scheme. They are essential to the smooth operation of CHESS. They deal with such matters as the cancellation of certificates by brokers; electronic acceptances; off market transfers before official quotation and establishment of record dates to determine entitlement to vote and receipt of dividends and other benefits.

The Stock Exchange presently envisages that CHESS will commence operation in September this year. In view of this imminent start-up date, it is important that these amendments proceed as a matter of urgency.

Application of the Corporations Law to financial institutions

Another important set of amendments proposed by the bill are the provisions dealing with the application of the Corporations Law to non-bank financial institutions (the collective term for such bodies as building societies and credit unions).

The enactment of the uniform Financial Institutions Code by the States and Territories in 1992 has highlighted the uneven and inconsistent application of the Corporations Law and State and Territory legislation to the activities of financial institutions. The resolution of the interface between the Corporations Law and State and Territory legislation was a matter left for future consideration at the time the Commonwealth, the States and the Northern Territory entered into the Heads of Agreement on Future Corporate Regulation in June 1990. This has resulted in doubts and uncertainties for financial institutions as to which law applies to their activities, as well as a degree of regulatory and administrative duplication.

Last year the Ministerial Council for Corporations and the Ministerial Council for Financial Institutions agreed to principles on which the interface between the two bodies of law could be rationalised.

A key aspect of this resolution was agreement that the fundraising activities of financial institutions, in their state of incorporation or elsewhere, should be governed by the Corporations Law. This reflects the Commonwealth's policy that there is significant public benefit in there being a single regulator and uniform regulation of public fundraising in Australia.

In other areas, such as the duties of officers and charges over the property of financial institutions, the Corporations Law will be displaced by the Financial Institutions Code as that is considered a more appropriate form of regulation for these bodies in those areas. In addition, the registration of financial institutions under the Corporations Law as registrable Australian bodies will no longer be required.

These amendments, together with complementary amendments to State and Territory Financial Institutions legislation, will not only reduce regulatory duplication and clarify which law applies to particular areas of activity, but will also promote investor protection and confidence.

The certainty that these amendments will bring to this area of the law is urgently needed.

Corporations and Securities Panel

Special mention should also be made of the proposed amendments to the operations of the Corporations and Securities Panel. The Panel was established as a peer review group body to examine conduct in takeover matters referred to it for review by the ASC. In particular, it was empowered to make declarations of unacceptable conduct and acquisitions in respect of a takeover and to make orders to remedy such conduct.

The Panel's legislative charter was to conduct hearings with as little formality and technicality, and with as much expedition, as possible. However, the very first matter to come before the Panel bogged down in legal argument over its procedures. Following consideration of this case, the Government has decided that the Panel should be restructured to remove the procedural difficulties that it has disclosed.

The bill provides for the extension of the jurisdiction of the Panel to takeover conduct generally, and specifies with greater precision what constitutes procedural fairness for the purpose of the Panel's inquiries. Procedural fairness does not require that the Panel behave like a Court. Likewise, cross-examination of parties and witnesses is not a requirement of procedural fairness. The emphasis will, instead, be on written submissions by parties and strict time limits for submissions. After examining those submissions, the Panel will decide whether a conference (or "oral inquiry") is necessary.

Given that the Panel's deliberations do not generally relate to technical legal matters, but rather to matters of market behaviour and market standards, it is more appropriate that the parties rather than their legal advisers, address the Panel. Legal advisers may, of course, be present to assist, but will not be entitled to address the Panel. This is the approach that has been successfully adopted in predetermination conferences by the Trade Practices Commission and should be equally successful here.

The amendments also provide for regulations to set out in a comprehensive form the procedures for the conduct of the Panel's inquiries. Draft regulations have been released for public comment and the Government intends to have the regulations in place at the same time as these provisions come into force.

It is the Government's intention that the requirements of procedural fairness will be met where the procedural requirements set out in Division 3 of Part 10 of the Australian Securities Commission Act and in the regulations are followed in the course of an inquiry. During the debate on the bill in the House, the Government moved an amendment to omit the express exclusion of the rules of natural justice that had been proposed by item number 20 of Schedule 4 of the bill as introduced, and substitute a statement of the Government's intention in this regard.

Screen based trading systems

The bill will also provide for the establishment of retail screen based trading markets for collective investment schemes which are not listed on a stock exchange. The establishment of such retail markets is a significant development in Australia. Investors are currently reliant on the liquidity of scheme assets and the ability of the manager of a collective investment scheme to buy-back their investment. The measures proposed by the bill will greatly enhance the liquidity of such investments.

As with stock exchanges, approved securities organisations and exempt stock markets, the establishment of any such market will require the approval of the Attorney-General. Each market will be operated in accordance with business rules, relevant agreements contemplated by those rules, and any conditions which are imposed on special market approval.

The powers of the ASC to supervise the special markets will be similar to those which it currently exercises in relation to the stock market of a securities exchange. The business rules will also require the appointment of an independent and appropriately qualified person to monitor compliance with the business rules and to report a contravention of those rules to the ASC.

Clients' Segregated Accounts

I return now to the first of the two amendments that I have already mentioned were not included in the public exposure draft of the bill. That is the proposal to refine the law governing clients' segregated accounts.

The segregation of client monies from that of brokers is a fundamental investor protection rule of the futures industry. Thus the Corporations Law requires that a broker maintain a clients' segregated account into which client funds are placed, and permits the withdrawal of funds from that account only in certain circumstances. Funds held in this way are immune from claims by creditors of the broker.

However, changes to the way the futures industry operates has highlighted the need for some refinement of the detail of the law governing such accounts, so that it keeps abreast of developments in the industry.

In particular, the bill recognises that in a futures transaction involving a chain of intermediaries, monies can be identified as client monies and continue to be treated as such. The result will be that client monies involved in such transactions will enjoy the full protection afforded by the Corporations Law.

Other reforms

Among other reforms proposed by the bill are the introduction of a modified regime for the notification of persons affected by ASC decisions of their rights of review under the Administrative Appeals Tribunal Act 1975; the introduction into the Corporations Law and the Australian Securities Commission Act 1989 of the penalty units system for the prescription of penalties; and the transfer of unclaimed money functions of the Attorney-General under the Corporations Law to the ASC.

A complete list of the reforms proposed by the bill is set out at the start of the Explanatory Memorandum

Financial impact

The bill is not expected to have any significant financial impact on Government or business as the majority of the proposed amendments clarify existing provisions of the Corporations Law and will not result in additional costs. The Explanatory Memorandum details the extent of the potential impact on business.

Future Reforms

Finally, I would like to return briefly to the simplification program.

It is now seven months since the Task Force first met. The Task Force consists of four experts, two of whom work in the private sector. It is responsible for developing proposals and draft legislation.

A private sector Consultative Group has also been established to provide expert advice and assistance to th Task Force. This group consists of representatives of large and small users of the law.

In December the Task Force released a plan of action which outlined how it proposed to go about the overall project.

That plan of action identified seven initial priority areas where early practical gains for business are possible. They include streamlining the corporate structure for small business, facilitating share buybacks, rationalising annual reporting requirements and reducing the burden of maintaining company registers.

The aim is for simplification to occur in manageable stages so that benefits can be achieved as quickly as possible.

The Task Force's first simplification proposal, concerning share buybacks, was released in early March. The law in this area is currently extremely complex, burdensome and expensive to comply with. Its cumbersome nature and complexity deters companies from using the provisions.

The Task Force's proposal on buybacks involves an emphasis on the basics. The aim is to discard the excessive detail and technicality in the current law. By the end of the consultation process we will have developed provisions that companies can actually use, consistent with the need for adequate safeguards for shareholders and creditors.

The same principles for simplification apply to small business structures. Our smallest companies are currently regulated under a scheme primarily designed to supervise our largest companies. Clearly this not only makes life difficult for small companies, but in many situations is simply illogical. A proposal to simplify the proprietary company structure to ease the burdens for existing and new small businesses was released for public comment in March.

The twin emphasis on clarity and elimination of unnecessary paperwork continues in the Task Force proposal, released at the end of April, to do away with many of the requirements for company register keeping. Where adequate information for investors and creditors is readily available through the Australian Stock Exchange or through access to the ASC database, unnecessary requirements to maintain registers can be removed. In other cases the information held is unnecessary. The proposal would also make the remaining obligations easier to use by bringing them together in the Law, streamlining the requirements and making them more uniform.

The latest Task Force proposal, released in May, deals with annual returns and financial reporting to shareholders. Under the proposal, the annual return would be streamlined by reducing the number of items of information it contains by around 75%. In addition, companies which are required to prepare annual accounts would have the option of sending concise financial reports to shareholders. This would have the dual benefit of cost savings for companies and easier to read financial reports for shareholders.

The Task Force is working towards a first draft bill for public exposure by about mid-year, but the process will not be rushed. In particular, the Task Force is determined to consult widely on its proposals before it drafts the legislation. This will provide an essential opportunity for business and other user groups to influence the basic policy as it is being developed. The first simplification bill will deal with buybacks, proprietary companies and company registers.

Conclusion

In conclusion, I confirm that, in accordance with the Heads of Agreement between the Commonwealth, the States and the Northern Territory on corporate regulation, the Ministerial Council on Corporations has been consulted and, to the extent necessary, given approval for the introduction of the bill into Parliament. In particular, the amendments proposed by Schedule 3 of the bill, rationalising the interface between the Corporations Law and State and Territory Financial Institutions legislation, have received the unanimous agreement of the Council.

I present the explanatory memorandum to this bill.

  Debate (on motion by Senator O'Chee) adjourned.

  Ordered that the resumption of the debate be made an order of the day for a later hour this day.