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Wednesday, 30 November 1983
Page: 3034

Mr SPENDER(11.04) — When debate on this legislation concluded last night it concluded on a tone of some high emotion from both sides of the House. Companies and securities legislation can rarely be expected to evoke such emotions. Nevertheless, the Companies and Securities Legislation (Miscellaneous Amendments) Bill 1983 which is before the House, and which the Opposition does not oppose-although there are a number of reservations which I wish to express on it-is of great commercial importance. The Bill runs to some 151 clauses. As has been pointed out by Senator Durack in another place, because of the Bill's very nature it is almost impossible to examine it in this chamber or in the other chamber. The matters contained in the Bill are detailed, complex and technical. The ramifications of what is proposed would, in many cases, be understood only by those who specialise in companies and securities law, an area in which I practised very largely when I was a member of the practising bar.

It is of fundamental importance that laws should be assessable and that laws should be comprehensible so that citizens can know their rights and their duties . In a technical sense it may be said that the companies and securities laws of this country are assessable in that they are written down in the statute books and one can go to those books and read them. But that is in a technical sense only. Their comprehensibility is another question. The underlying approach to the present legislation-this legislation goes back, of course, to the previous Government's time-appears to be the same kind of approach as has been taken in the field of tax; that is, to seek to cover all possible contingencies, all combinations and permutations of human and commercial conduct. How this has happened and the development of the over-regulatory approach to securities and companies laws can well be illustrated by looking at the development in the field of takeovers.

When I was reporting for the New South Wales Attorney-General into the affairs of Gollin Holdings Ltd, as special investigator appointed by the Attorney- General to examine the affairs of that company, I wrote a number of reports. Thankfully, on 22 March 1979 I put in my eighth and final report. In it I noted the developments that had taken place up to that time regarding takeovers. In 1961 the position was that for the first time certain provisions were introduced into what was called the Uniform Companies Code to regulate the conduct of takeovers. There were two provisions only. One was section 184 of that code and the other was section 185 which had an ancillary operation. Those provisions were replaced in 1971 by a far more detailed code of 25 sections. At the time that I wrote my report of April 1979, those provisions were under review and the draft which was then proposed contained some 59 sections. When the Companies ( Acquisition of Shares) Act 1980 was enacted it contained 64 sections. Since then , it has been amended by Act No. 2 of 1981 which contains nine pages of amendments, by Act No. 94 of 1981 which contains another nine pages of amendments and by the Statute Law (Miscellaneous Amendments) Act (No. 1) of 1982 which contains three pages of amendments and by the present Bill which, by clauses 3 to 19, presents us with another nine pages of amendments.

The history of the takeover code since 1961 therefore raises very directly the question of the direction in which we are proceeding in this area and in other areas where it is thought that the public interest requires regulation. My view is that very clearly we have gone, and we are going, towards overregulation. We have certainly arrived at that point and we are going further down that track. We are going down that track by instituting systems which, as I say, seek to cover all possible situations, as does the Income Tax Assessment Act. We do that in preference to seeking to establish simpler and more flexible systems, particularly in areas of law which apply to commercial dealings and commercial transactions. I will quote from what I said in my final report to the New South Wales Attorney-General on this subject, as I think what I said has been borne out by events and is as good a criticism of the system as it now stands as I can make. I said:

There are some general comments I think worth making on the subject of takeovers. Without entering into a detailed discussion of how well a code modelled on the lines of, or taking its inspiration from, the London code, would work in Australia, the London code does have two obvious virtues which a statutory code lacks; speed and flexibility of operation. Conversely, a court- administered code has three major deficiencies.

First, a court-administered code is, by its very nature, fairly inflexible in operation. To take but one important instance: it is not possible under a court- administered code, as it is under the London code, to get within twenty-four hours a definitive answer as to whether a proposed course of conduct is permissible. And, whereas it is a requirement of the London code that both ''the spirit as well as the precise wording'' of the code be observed, a court- administered code is far more constrained in the way in which it operates. Courts deal in laws, not in abstract concepts of what is right or wrong or whether a particular kind of conduct infringes the ''spirit'' of an Act of Parliament, and a litigant who seeks a Court's assistance must establish that he has some legal interest recognised by the law and which the law protects.


this was my second criticism of court administered codes-

and consequently, a court-administered takeover code is bound to be more technical than a code such as operates in London. Takeovers are highly important commercial transactions and often involve large sums of money. Participants in takeovers seek the best of advice, including the best legal advice. In a free society a lawyer's task is to advise his client, not to moralise or to try to discern the ''spirit'' of a particular set of laws and to ensure that his client acts in accordance with the ''spirit''. Experience shows that as laws regulating takeovers are altered to give effect to changing social attitudes or to defeat practices which the legislature, whether rightly or wrongly, considers unfair or contrary to the public interest, so do lawyers change their advice and their clients change their tactics. Amendments are introduced to meet these changed tactics, fresh advice is taken and new tactics worked out, and another set of amendments becomes necessary. The present code comprises twenty-five sections-

I was speaking in 1979-

and I would be surprised if any amendments to it result in its becoming any shorter. I think it much more probable that if we persist with the court- administered statutory code we will end up with a set of rules which in technicality, complexity and obscurity will rival some of the more arcane provisions of the Income Tax Act.

I interpolate that that day most certainly appears to have arrived. My report continued:


this was the third criticism that I made of court administered codes in my final report on the Gollin inquiry-

there is the consideration of speed. In a takeover, events can move swiftly and one of the benefits the London code has demonstrated is the speed with which definitive answers on urgent and important questions can be obtained.

While, in urgent cases, courts can certainly move swiftly, I have no doubt that the structure, the rules, and the procedures of courts are such that in answering questions that arise in takeovers they would be unable to match the speed that could reasonably be expected under an efficiently administered code that was similar in essential respects to the London code.

I was referring to the City of London Takeover Code which in substantial respects stands now, I believe, as it was then. It is perhaps dangerous to make predictions as to the course that legislation is going to take in the future but the prediction that I made, that we would end up with a set of rules which in technicality, complexity and obscurity will rival some of the more arcane provisions of the Income Tax Act, has certainly been borne out by events. Whilst it is dangerous to make predictions, predictions based on the inherent propensity of the Public Service to regulate and the corresponding propensity of governments and responsible Ministers to accede to bureaucratic advice, especially in complex fields and in specialist fields, may make the task of predicting the future a somewhat easier one.

In passing I make two incidental references to the Gollin investigation. So far as I can see it had two concrete results. In the first case two men went to gaol for lengthy periods-the managing director and the financial director of the Gollin group. I believe one has now been allowed out. Secondly, I made a number of criticisms of provisions which then existed in what was called paragraph 23 of the Fifth Schedule of the Companies Act. The provisions of that paragraph concern reports which directors had to make for the purposes of, amongst other things, takeover offers. I am glad to say that those criticisms seem to have had some effect since they have ultimately been met by regulations that have been introduced in the present code. All one can say of that observation is that work does not always go in vain. I do not claim for a moment to be the only person who is critical of those provisions. I presume others were also critical.

I turn now to the major issue that this Bill throws up. As I have indicated, the issue that it throws up or puts sharply into focus, which is one of major importance, is the stifling tendency to overregulate and the need to search for fresh solutions. I say this fully conscious of the fact that the Bill which is before the House is no more than the progeny of what was put in place under the previous Government and under a system of co-operation with the States. There are two solutions that I would tentatively propose. Where possible provisions in Acts of Parliament should be stated in the form of general propositions or rules . We should seek to avoid the all pervasive tendency to encompass within an Act of Parliament all possible contingencies because events demonstrate that that is quite impossible and the history of the Income Tax Assessment Act is eloquent, if tedious, testimony to that fact.

If where possible we adopted the approach of stating the provisions of Acts of Parliament in the form of general propositions or rules, the interpretation of those propositions or rules could then be left to the courts. This would provide for very much greater flexibility and adaptability of rules, of general statements, to the infinite variety of circumstances which come before courts. It has been the genius of the Anglo-Australian system of common law to be able to adapt general rules and the relief which can be granted under general rules to fresh situations. An outstanding example of that can be witnessed in the development of the doctrine of reasonable care, just as the contrary may be exemplified by attempts to produce a statutory code of defamation laws which encompassed everything that was needed to be encompassed and which satisfied everyone. I believe that recent events have satisfied the Attorney-General ( Senator Gareth Evans) that the proposals he was going to put forward were simply not practicable. So, where possible, we should state the law generally and leave the interpretation to the judges.

The second proposition that I put as a tentative solution to the morass in which we find ourselves is this: In commercial areas we must look for extra- judicial procedures aimed at providing quick, cheap and flexible answers, and the field of takeovers is an example of such a field. I do not wish it to be thought that I do not think that the Bill contains desirable reforms; it certainly does. However, change, mass and detail do not necessarily equal reform . Let me touch upon two reforms in the Bill which are certainly of great value although in respect of one I have some reservations.

First of all, in clause 34 of the Bill it is provided, in effect, that subject to the Act a company is to have the rights of a natural person, although a company can, as it were, determine to restrict the powers that it should have. Now companies are to have the rights, powers and privileges of a natural person. That is an exceedingly sensible reform. The law regarding object clauses goes back to the nineteenth century when it was assumed in the case of limited companies that those who dealt with limited companies might go to the object clauses of that company for the purposes of finding out whether the dealing was within the powers of the company. This indicates that judges do not always have a close understanding of what takes place when people are dealing with each other in the market-place.

The second reform that I will touch on is that which is introduced in relation to cases where the affairs of a company are being managed in a way which is oppressive of a member of that company. It is pointed out in the explanatory memorandum to the Bill that the law, as it presently exists, is too limited. In effect it is necessary to show a continuing course of oppressive conduct in order to be granted relief; that is, if one is a shareholder who has been oppressed. That is a very real difficulty which one encounters, as I did when I was a practising barrister, when advising clients. One would be presented with a case where it was apparent that the powers of a company were being used in a way which was oppressive of an individual member of the company. That member did not wish to apply to have the company wound up because of the consequences that would have on his investment and, therefore, he sought other relief. It was always an anxious question as to whether or not the facts demonstrated what I could describe as a continuing course of conduct so as to form a sufficient basis for grounding a petition to claim relief.

Generally I commend what appears in the Bill to seek to overcome the deficiencies in the present law. But I would query the extent to which the Bill goes in defining the ambit of the various situations which can now attract the jurisdiction of the court in oppression cases. I echo, without repeating, the criticisms made by Senator Hill in another place of the extent to which the Bill goes in that area. But subject to the criticism that I think the Bill goes too far in that area and that I think it goes into too much detail, in principle, that is a reform which I would welcome.

There are other areas of the Bill, however, which are far more questionable. Let me take two. First of all, we have provision now for an Accounting Standards Review Board which is to be given legislative backing for the purposes of setting standards for financial reporting. The standards set by the Board, as I understand it, are only to be disallowable by the Ministerial Council for Companies and Securities which has been set up under the co-operative arrangements between the States and the Federal Government. Effectively, therefore, those provisions are put beyond Parliament's examination. I fully understand that the co-operative arrangements were made during the period of the Fraser Government, but that does not relieve me from anxiety in that area. I believe that, if we are setting standards which have to be observed in financial reporting, it is the parliament of the country which should set the standards, no matter how difficult it may be in a technical sense for us to examine those standards. These standards should not be set up by some other group in a manner which is effectively beyond Parliament's review. The second questionable area amongst a few, but I shall only touch upon one other, relates to the powers which are given to the National Companies and Securities Commission by clause 17 of the Bill to:

. . . declare acquisition of shares or other conduct to be unacceptable.

I quoted from the headnote to what will be section 60 of the Act when the Bill is passed. This is a power which the Commission can exercise when it is satisfied that an acquisition of shares took place in certain circumstances. It may act within 90 days after that acquisition. Provision is made for testing of the decision in the courts. But I raise two questions: First of all, the desirability of vesting this kind of power in the Commission and, secondly, the desirability of having a power which may be exercised up to 90 days after the acquisition in question has taken place. A lot can happen in 90 days. If the Commission is going to act it should act with great speed. This illustrates, I think, the problem of over-regulation and illustrates again the need to look for alternative and more flexible solutions. I should like to conclude by saying something about the financial impact statement and the whole question of overregulation. We have before us a financial impact statement. The Minister for Trade (Mr Lionel Bowen) in his second reading speech said:

Finally, I should make some references to the financial impact that this Bill will have on Government revenues.

He sets out some of the consequences which appear to be very minor. But what was put to this House on 7 September 1983 by the Minister for Finance (Mr Dawkins) went further than that. Not only was the Government going to state the impact on the revenue but also, and I quote from Hansard of 7 September 1983:

Ministers will include a brief explanation of the circumstances in their second reading speeches and outline in broad terms the expected financial impact of the legislation. Ministers will also attempt to assess the impact on industry and other sections of the community when formulating legislation. While such effects are often indirect and not easily quantifiable, Ministers will endeavour to include this information wherever possible.

No such attempt has been made in this legislation. Of one thing we can be perfectly confident and that is that the cost of the regulations which are being brought in will be high. It will be a cost which will be borne by the commercial community but ultimately by every Australian because costs borne by one major section of the community are always felt by others. Lastly, on the subject of over-regulation, I would like to quote very briefly from what was said by Mr John Elliott in his James Kirby Paper of 1983:

The Confederation of Australian Industry has compiled statistics that bear witness to this country's regulation build-up. In the last 20 years, 16,631 new Acts have been passed in Federal Parliament and 32,551 Statutory Regulations. In a 10-year comparison of the '70s and '60s the number of Acts passed rose by 40% . . .

We are and we have become over-regulated. This is a burden to the community. The costs are stifling and vast. They are a burden not only on the community at large but also to enterprise, to commercial growth, to commercial life and to the future prosperity of this country. It is time that we looked again very rigorously at the whole case for regulation and questioned the need in each case to regulate in what is always said to be the public interest.