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Wednesday, 30 November 1983
Page: 3108

Mr CADMAN(7.52) —I move:

Clause 3, page 2, omit proposed sub-section 4 (9), substitute the following sub -section:

'(9) For the purposes of this Act, the question whether companies are related to each other shall be determined in the same manner as the question whether corporations, within the meaning of the Companies Act 1981, are related to each other would be determined under that Act if, in section 7 of that Act-

(a) the reference to a corporation controlling more than half of the voting power of another corporation were a reference to a corporation controlling more than one-quarter of the voting power of another corporation; and

(b) the reference to a corporation holding more than half of the issued share capital of another corporation were a reference to a corporation holding more than one-quarter of the issued share capital of another corporations.'

The amendment seeks to pick up some of the definitional deficiencies of the Life Insurance Amendment Bill. Under the current legislation the Life Insurance Commissioner is the protector of the public interest. That is a perfectly satisfactory circumstance under most conditions but in recent weeks it has been necessary for me to gain information concerning an insurance company called Skandia-Preservatice. That company had some difficulties and I sought to establish the details of those difficulties and what had been done to rectify the problems. It was not possible, in a direct approach to the Commissioner, to gather information to assure investors and former employees. I inform the Minister Assisting the Treasurer (Mr Hurford) that I do not wish to name in this house individuals whom I consider may not be following their responsibilities in regard to that company or who have not in the past followed their responsibilities in relation to the company, but unless I get some assurances I will do so. I do not think any honourable member wishes to name individuals in the House if he is unsure of the information that he possesses. However, unless I have a response I will be forced into that position. It is something that I would deeply regret.

The Commissioner is the public protector and we have two options in regard to the way in which insurance and the activities of insurance companies are handled . We can place complete reliance in the Commissioner or we can say that there should be greater public disclosure and the public should be the watchdog. Those are the alternatives. If we allow the Commissioner complete trust we must provide sufficient regulation to ensure that he can operate effectively. If there is greater disclosure, perhaps the same amount of regulation will not be necessary. I have views about that matter but will not debate the process at this stage except to bring to the notice of the House the case involving Bishopsgate Insurance Australia Ltd. The Commissioner had been involved with that company for five weeks. I would have thought that that was sufficient time in which to make a fair assessment of what was going on in Bishopsgate. The fact that in that period the Commissioner had not been able to warn the public or take action under the Act in a way that prevented the syphoning off of funds and the absconding of the principal of that company indicates that there may be deficiencies with the current process. There is a move within the legislation that the House has just debated for the Commissioner to have greater access to documents. It is proper that the Commissioner should have access to documents. That is an extension of the regulatory process.

The amendment which is before the House seeks to deal with the relationship between companies. The provision that the Government introduced in this Bill relies upon the Companies Act and the relationships between organisations under that Act. The Companies Act is fine when it comes to definition of control of one organisation by another, defining what a subsidiary corporation is, a holding company, an ultimate holding company and a wholly owned subsidiary. Those definitions are extremely good; they are sound. However the shortfall in the Companies Act is that in dealing with subsidiary holding companies and related corporations under section 7.1 (a) (ii) it defines the relationship of voting powers as the control of 50 per cent of the votes which indicates that there is a relationship between the organisaions. Perhaps that is normal under the Companies Act.

However, one has to refer only to the Insurance Act to find different provisions. The Life Insurance Act does not have the same provisions. The Life Insurance Act should have the same provisons as the Insurance Act. This amendment takes the definitions of related companies from the Companies Act but refuses to accept the voting control which the Companies Act outlines. Instead it takes up the voting control as defined in the Insurance Act. It is a simple matter of defining what are subsidiaries, holdings, ultimate holdings or wholly owned subsidiaries and indicating in the legislation that a related situation between companies occurs when a corporation controls more than one-quarter of the voting power of another corporation. That would tighten the definitions and give the Commissioner a greater capacity to look at the relationship between related companies. It would assist in such matters as the Bishopsgate case. Of course it would not do that completely because the Bishopsgate case involved a relationship between individuals within companies rather than between related companies.

The Bishopsgate case was a problem because P and O Australia Ltd sold Bishopsgate to a company that continued to trade as an insurance company but its investment portfolio was picked up by a related company which had a common directorship. It was by that common directorship that some funds from the holding company, the investment company, were syphoned overseas with the approval of the Reserve Bank of Australia. Some $19m was unaccounted for. I hope the Minister will give very close attention to that matter when he examines the details of the Act and the review that has been concluded. I congratulate the Minister on the fact that the review is finally concluded. As I understand it the review commenced in 1978. At last we have the result of that review. The Minister said so. He will act on that review to produce further amendments.

I draw the attention of the House to the fact that the Life Insurance Commissioner, in his report of 1978, instanced exactly the circumstances of the Bishopsgate case. I believe that, both in the Life Insurance Act and in the Insurance Act, changes must be made. That was a matter that was identified as far back as 1978 by the Life Insurance Commissioner as a possible problem. He put his finger right on it. An individual could have read his annual report and said: 'There is an option that I will use'. Bishopsgate is a classic example of what the Commissioner said could occur.

I think this matter has been well canvassed in the House. I seek the support of the Government to the amendment which I have moved in the direction which I think is necessary. However, I hope that the Minister gives consideration to the greater prospect of disclosure for insurance companies. I do not think the Commissioner alone is the proper person to safeguard the community interest. There should be greater public access and knowledge about the activities of insurance companies as there are about banks. If the banking industry has to present annual reports and proper reports so should insurance companies. There should be more disclosure. The quality of directors must be taken into account and also the capacity of the Commissioner to execute his duties in a way that will give full encouragement to the community to trust him with the authority that he is given.