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Thursday, 5 March 1998
Page: 445


Senator IAN CAMPBELL (9:49 AM) —I move:

That these bills be now read a second time.

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

Leave granted.

The speeches read as follows

MANAGED INVESTMENTS BILL 1997

Managed investment schemes are any type of scheme where an investor purchases an interest from a professional manager who manages the funds received to produce a return. Schemes encompass a wide range of investment products and services including property, equities and cash management trusts as well as smaller schemes such as ostrich farms and pine plantations.

Managed investment schemes constitute a large, and rapidly growing, area of investment activity in Australia. In 1980, when the first retail cash management trust was launched in Australia, there was $2 billion under management. Today, approximately $85 billion is invested in managed investment schemes, and the amount invested continues to grow by around $20 billion a year. These figures demonstrate the significance of managed investments for savings and investment capital formation in Australia.

One factor which has made these schemes popular with investors is that they allow them to diversify their investments into areas which, traditionally, have required large sums to participate. Another is that they also allow investors, who might otherwise lack the skill or confidence to participate in direct investment opportunities, to rely on the expertise of professional investment managers.

This bill is not concerned with the superannuation segment of the managed funds industry, which includes products provided by superannuation funds and approved deposit funds. Those funds are regulated by the Insurance and Superannuation Commission under the Superannuation Industry (Supervision) Act 1993. The segment of the managed funds industry with which the bill is concerned is non-superannuation managed investments, which are at present regulated as prescribed interests under the Corporations Law.

Currently, the law requires each non-superannuation managed investment scheme to have a two party structure comprising a management company, which is responsible for the day-to-day operations and investment strategy of the scheme, and a trustee, which distributes scheme income and ensures investments conform with the trust deed. A trustee owes fiduciary obligations to scheme members to supervise the management company on their behalf and in their best interests.

It has become apparent that the law's requirements for these schemes need to be updated. A combination of the commercial property crash at the end of the 1980s, the reductions in asset values of a number of unlisted property trusts, the consequent loss of confidence by investors, and the need for legislation in 1991 imposing a standard 12 month notice period for redemptions from such trusts, focussed attention on the regulatory framework for managed investments. On 24 May 1991, the Law Reform Commission and the Companies and Securities Advisory Committee (`the Review') were asked to examine and report on the most efficient and effective legal framework for regulating managed investment schemes.

To assist its consideration of the role of superannuation in its retirement incomes policy, the Government of the day asked the Review to report separately on the regulation of superannuation. The Review published its report on this aspect, entitled Collective Investments: Superannuation (ALRC Report No. 59, 1992), in April 1992.

The Superannuation Industry (Supervision) Act, which was enacted to strengthen prudential supervision of the superannuation segment of the managed investments industry, requires that there be a single responsible entity (known as the trustee) in relation to each superannuation fund.

The report on the non-superannuation segment of the managed investments industry, entitled Collective Investments: Other People's Money (ALRC 65), was tabled on 30 September 1993. Briefly, the Review was critical of the current two party structure for schemes and recommended regulatory reform. The Review's fundamental recommendation was that, for each scheme, there be a single responsible entity in which the current responsibilities of both the trustee and management company are combined and vested.

The need for regulatory reform has, more recently, been supported by the final report of the Financial System Inquiry (the FSI), released on 9 April 1997. Recommendation 89 of the FSI recommends that the regulatory structure for managed investments be brought into line with that for superannuation funds, by introducing a requirement for a single responsible entity. The FSI noted that the introduction of the responsible entity concept would result in clear accountability to members, provide cost savings and be consistent with arrangements for superannuation funds.

The Government has given very careful consideration to the recommendations of the FSI and the Review. As part of that consideration, it has engaged in extensive consultations with key participants in the managed investments industry. The result of that work is the bill before the House today, the key features of which I now want to describe.

Single responsible entity

As I have mentioned, the current foundation of schemes is the two party structure of management company and trustee. The Review found that this structure was unsatisfactory and may substantially prejudice the interests of investors, giving rise to confusion—for the management company, the trustee and investors in a scheme—about who is ultimately responsible for the scheme's operation. The Review concluded that no re-working of the current two party structure could overcome its inherent problems of divided powers and responsibilities, and the attendant legal complexity and uncertainty. This conclusion was the basis for the Review's recommendation that the Law be changed to require a single responsible entity for each scheme.

As many investors would be aware, there have recently been cases before the courts which illustrate the confusion about the role and duties of those involved with the operation of schemes. The divided responsibility inherent in the current structure reduces the accountability of both trustee and management company, to investors, and allows a shuffling of blame in cases where something goes wrong.

The responsible entity concept will, by removing the current third party between investors and fund managers, improve investment decision-making, while at the same time making the corporate structure for managed investments consistent with other corporate structures. It will also make clear, not only to investors, but also to the responsible entity itself, the nature of the responsibilities owed to investors by those managing investment funds on their behalf. This will impose additional discipline on fund managers. The single responsible entity concept will clarify and simplify the legal duties and responsibilities of a manager by imposing clear statutory duties in relation to investors and the scheme it operates, and providing a right of civil action against the responsible entity by any member of the scheme who suffers loss or damage because of conduct contravening those duties and responsibilities. From the point of view of investor protection, it will ensure that the liability for any loss of investors' funds, through negligent or illegal activity, rests entirely with the responsible entity.

Custody of scheme assets

In developing the bill, the Government has been conscious of the need to afford a high level of protection to scheme assets, and the bill achieves this through several measures. First, the bill imposes certain statutory duties on the responsible entity with respect to the property of any scheme it manages. These duties are to ensure—

* that scheme property is clearly identified as such; and

* that the scheme property is held separately from the property of the responsible entity or of another scheme.

These duties are designed to ensure that scheme assets are not applied, either unintentionally or fraudulently, to the responsible entity's own purposes rather than those of the scheme. In the event of the failure of the responsible entity, the fact that scheme assets are identifiable as such and kept separate from the responsible entity's own assets will help to ensure that those assets are not applied to meet outstanding debts of the responsible entity, but are returned to the investors in the scheme.

Secondly, a scheme's compliance plan must set out arrangements for ensuring that scheme property is identifiable and kept separate from other property. The scheme's compliance plan is one of the documents that must accompany an application, submitted to the Australian Securities Commission (ASC), to register a scheme. The ASC will hence have an opportunity to consider the custodial arrangements a responsible entity proposes to put in place for a scheme. If the ASC believes that the compliance plan does not make adequate provision, among other things, for ensuring the responsible entity complies with the Law, including its duties with respect to scheme assets, it may refuse to register the scheme.

It is important to recall that the ASC from time to time issues practice notes and other guidance which puts members of the public on notice as to the way in which it intends to administer its functions under the Law. While it would be a matter for the ASC, the Government envisages that there will be guidance to the industry about the criteria by which the ASC will assess the adequacy of compliance plans, including the adequacy of custodial arrangements for the holding of scheme property proposed for schemes. Such guidance could require a scheme to have specified custodial arrangements that vary with the nature of the scheme, of the scheme property, or the size or characteristics of the responsible entity. These arrangements could contemplate a separate custodian where appropriate.

Thirdly, the bill requires that the responsible entity holds the scheme property on trust for scheme members. By this provision, the bill imposes trust-law obligations on the responsible entity in relation to its oversight of the scheme property. I want to stress that this provision will not prevent a responsible entity from appointing an agent to hold the scheme property separately from other property. Indeed, the Government believes that, in many cases, a responsible entity will find that the easiest way to discharge its duty to keep scheme assets separate from its own assets will be to engage another party to take custody of the assets.

Moreover, it may be appropriate in certain cases for a responsible entity to be required to engage a separate custodian of scheme assets. In this regard, the bill's provisions on the ASC's exemption and modification powers, set out in Part 5C.11, authorise the ASC, for all cases or on a case-by-case basis, to declare the bill's provisions to be modified or varied as specified in the declaration. By such a declaration, the ASC will be able to declare that custodial arrangements in relation to property of a particular scheme or class of scheme is to take a particular form, for example engaging a separate custodian of the scheme property.

The Government recognises that there has been concern in that the bill does not include a requirement that there be a custodian for all schemes. It has, however, decided not to impose such a requirement directly in the Law for a number of reasons. The Government takes the view that, having regard to the custodial arrangements that I have already detailed, a requirement for a separate custodian is not justified for regulatory purposes. The Government is also concerned that the inclusion of a statutory obligation for a custodian may lead to renewed confusion as to responsibility for a scheme's operation and assets. Certainly, the responsible entity concept means that any custodian of scheme assets would be a bare custodian, obliged to deal with scheme property in accordance with the responsible entity's instructions, and the Government does not believe that such a custodian should be the sole, or even primary, element of the bill's protection of scheme assets.

The Government considers that an across-the-board requirement for a custodian for all schemes would be inappropriate for many schemes and would impose costs that may well outweigh the benefits in terms of improved compliance.

Finally, I note that the bill's provisions on custody of assets are entirely consistent with the recommendations of the Review I referred to earlier. Indeed, the report of the Review states that imposing a requirement for all schemes to have a separate custodian was neither necessary nor appropriate, but would be unnecessarily rigid.

Compliance

The bill contains a number of elements to ensure a high level of compliance. A pre-condition to operating a scheme will be that the responsible entity hold a special licence issued by the ASC. Each scheme with more than 20 investors operated by a responsible entity will also be required to be registered by the ASC. As part of registration, applicants will need to lodge the scheme's compliance plan with the ASC.

In addition, the bill will require that a responsible entity have in place a compliance mechanism that takes one of the following forms: a board of directors with at least half of the directors being independent; or a compliance committee with at least half its membership being independent. A scheme will thus have some flexibility in meeting the obligation placed on it to ensure that it monitors its compliance with the compliance plan and the legal obligations on it.

The ASC will also play a role in ensuring a high level of compliance through its licensing, registration and surveillance activities in relation to schemes. Moreover, to provide the ASC with added enforcement flexibility, the bill will allow the ASC to enter into legally binding undertakings with the responsible entity of a scheme. The ASC may apply to a Court for appropriate orders if the undertaking is breached.

Transition to new regime

There will be a 2 year transitional period for existing schemes to comply with the new requirements. The transitional arrangements will be even-handed in allowing either the existing management company or trustee to become the scheme responsible entity.

The bill is not expected to have any significant financial impact on the Commonwealth.

In accordance with the Corporations Agreement between the Commonwealth, the States and the Northern Territory on corporate regulation, the Ministerial Council for Corporations has been consulted on the introduction of the bill into Parliament.

I commend the bill to the Senate.

SOCIAL SECURITY AND VETERANS' AFFAIRS LEGISLATION AMENDMENT (BUDGET AND OTHER MEASURES) BILL 1997

This bill gives effect to a number of measures announced in the Government's 1997-98 Budget, and to a number of non-Budget measures.

One of the measures announced in the 1997-98 Budget provided for the reform of the means test treatment of income streams under the Social Security Act 1991.

The reforms will give greater incentives and provide greater choices for retired people investing in longer term income streams. These amendments complement other Government policy initiatives aimed at encouraging the use of superannuation and other investments to provide income in retirement. The reforms will provide a more generous means test of long term pensions and annuities meeting specified criteria. In addition, they will ensure that very wealthy people will no longer be able to use loopholes to access social security payments through the use of short fixed term financial investments.

There will be no general savings provision, as this would generally benefit those utilising loopholes. However, people who have products purchased before the commencement of the reforms can request a Ministerial exemption from the new regime where significant financial disadvantage may result.

This Government has always ensured that the community is widely consulted when measures are being developed. Consistent with this approach, and following on from the extensive consultation with industry and community groups in the policy development process, an exposure draft of the income streams measure was circulated to the financial industry and other interested parties for comment. Responses to the exposure draft have generally been quite favourable.

This bill also includes measures that will help carers build on the extra assistance offered in last year's Budget, demonstrating the Government's determination to offer a better deal to those often unsung Australians looking after friends and relatives.

The Government recognises the stresses that a caring role can place on carers. In recognition of these stresses, this bill provides for an increase in the number of days a year that a carer can have a break from caring and still remain eligible for carer payment. While a carer may currently have a break for 52 calendar days per year, this measure will provide that the carer may take a break for 63 days. In addition, qualification for carer payment will be extended to those looking after a profoundly disabled child, who is aged under 16.

The Government has always made it clear it believes the vast majority of social security recipients are genuinely in need of assistance. This is why it is determined to protect the integrity of the social security system so that the limited welfare dollar goes only to those who need it most. To this end, reforms in this bill will ensure a better targeting of the welfare dollar by preventing high income seasonal, intermittent or contract workers and their partners from being able to go straight on to a social security benefit during the off season or between contracts. It will also exclude higher paid casual or contract workers and their partners, who have their leave entitlements cashed out in their salary payments, from receiving social security benefit over short lay-offs like Christmas shutdowns. There will be an exemption in cases of severe financial hardship.

This bill also includes measures that aim to make the social security system easier for people to access and understand. Simplification has been a key priority of this Government and we are committed to further reducing complexity in the future. In line with such an approach, this bill introduces a fairer and more consistent income and assets test treatment of lump sum amounts for pensions and allowances. This is done by aligning the allowance means test arrangements for lump sums with the pensions means test.

Finally, this bill includes a number of amendments that are consequential on various other measures. These include amendments to the Social Security Act 1991 to take account of the change of name of family payment to family allowance. In addition, the bill includes minor amendments to the debt recovery provisions of the Social Security Act 1991 to take account of the introduction in the Farm Household Support Act 1992 of the new "exceptional circumstances relief payment" and the "restart income support". Lastly, the bill makes a number of minor amendments consequential on the establishment of the Commonwealth Services Delivery Agency.

I commend the bill to the Senate.

WORKPLACE RELATIONS AMENDMENT BILL 1997 [No. 2]

This bill is intended to ensure that small businesses are exempted from the federal unfair dismissal provisions, in respect of new employees. This exemption is necessary and appropriate, given the special features of small business—and it is necessary, to maximise growth in employment in small business.

This bill is the same as the bill that was introduced into the House of Representatives on 26 June 1997 and passed by the House of Representatives on 27 August 1997, but rejected by the Senate on 21 October 1997, in the face of the majority report of the Senate Committee to which it was referred. The Government has reintroduced this bill, not because we want an election over it, but because we want to see this problem fixed.

Senators who spoke against the previous bill said there was insufficient evidence of the need for the bill, and its benefits. There was plenty of evidence, but they were not convinced. They were not convinced by Morgan and Banks' 1996 survey, which indicated that 16 per cent of businesses with less than 30 employees had been adversely affected in their hiring intentions by the previous Federal unfair dismissal laws. They were not convinced by the Recruitment Solutions survey, released in April 1997, which indicated that 32 per cent of businesses in metropolitan Sydney, Melbourne and Brisbane had been the subject of some sort of unfair dismissal claim in the 12 months covered by the survey. They were not convinced by the Bell Committee, which reported on the widespread feeling that the previous Government's unfair dismissal laws were `the final nail in the coffin' for small business.

When the Senate rejected the bill, small business made its view even clearer. Mr Rob Bastian of the Council of Small Business Organisations of Australia said that small business would create 50,000 jobs if this bill could go through the Senate. And the Chief Executive of the New South Wales Chamber of Commerce, Ms Katie Lahey, said that `For the Opposition to claim that there has been no independent research proving business concern on this issue is nonsense—it shows how little attention they have paid to the needs and concerns of the small business community'. She drew attention to the New South Wales Chamber's own survey, conducted jointly with the St George Bank in May this year, in which 56 per cent of businesses surveyed said that the prospect of unfair dismissal claims had discouraged them from recruiting additional staff to their businesses.

And to make it all completely clear for the Labor Party and the Democrats in the Senate, the Commonwealth Government commissioned further research, as part of the labour market research program being conducted under the auspices of the Labour Ministers' Council. Specific questions on unfair dismissal were included in the Yellow Pages Small Business Index Survey, which was conducted from 30 October 1997 to 12 November 1997. This is the largest economic survey of small businesses in Australia; it focuses specifically on small businesses with 19 or fewer employees. Approximately 1,200 randomly selected proprietors of small businesses were covered in the survey.

In this survey, 79 per cent of proprietors thought small businesses would be better off if they were exempted from unfair dismissal laws. 33 per cent of small businesses reported that they would have been more likely to recruit new employees if they had been exempted from unfair dismissal laws in 1996 and 1997. And 38 per cent of small businesses reported that they would be more likely to recruit new employees if they were exempted from the current unfair dismissal laws.

Madam President, helping small business to grow, employ, export and invest in Australia's future has been a top priority for the Government since its first day in office. The Government's economic and industrial relations policies are central to its agenda for the growth and development of the small business sector—and the Government is also committed to tackling the impediments to small business imposed by unnecessary government regulation and paperwork, as set out in the Government's small business statement, More Time for Business .

The Government has made substantial progress in labour market reform, which is and will be of particular benefit to small business. The Workplace Relations and Other Legislation Amendment Act 1996 changed both the federal industrial relations system, and the relationship between federal and state industrial relations systems. These changes provide small business with greater opportunities to develop industrial relations arrangements best suited to their individual circumstances. In particular, small business employers have new opportunities to make direct agreements with their employees. Small businesses that choose to remain in the award system are benefitting from a simplified and more flexible system; small businesses now have greater certainty with respect to industrial action within their business; and, the Employment Advocate has been given a specific charter to assist small business.

Unfair dismissal was one of the most important industrial relations issues for small business, prior to the last election. Our commitment, in Better Pay for Better Work , was to introduce a new unfair dismissal scheme, which would recognise the circumstances facing small business: and we have done this. The new system is more balanced and fair to both employers and employees. It is less legalistic and costly, with an emphasis on conciliation. Employers are protected from frivolous and malicious claims by the requirement for a filing fee and access to costs where a claim is vexatious. In considering unfair dismissal claims, the Australian Industrial Relations Commission has to consider a range of factors, including the possible effect of any order on the viability of the employer's business.

Madam President, these changes are important—but they have not gone far enough, for small business. It is an unavoidable fact that the defence of an unfair dismissal claim, however groundless, is especially burdensome for small businesses. In many larger businesses, expertise and resources can be put into recruitment and termination procedures. Small businesses have no such resources. Even attendance of witnesses at a hearing can bring a small business to a standstill.

The Government has been listening to the concerns of small businesses, their experiences of the impact of unfair dismissal claims (particularly under the previous Government's provisions), and their fears that the simple fact of employing someone makes them vulnerable to unfair dismissal claims. The Yellow Pages survey confirms the difficulties that even the Government's new provisions cause for those small businesses who experience an unfair dismissal claim: not just the cost of settlement, where that occurs, but the time and location of hearings, stress, costs to business in lost time, disruption to working relationships and the costs of defending the application. And the Yellow Pages confirms the terrible pall that the fear of those difficulties casts over small business employing intentions, even amongst businesses which may not have themselves experienced a claim. These are the reasons that this bill should be brought into law, as soon as possible.

I turn now to the terms of the bill itself.

The exemption is to commence on Royal Assent. However, it will not affect existing employees. As it is intended to encourage new employment, the exclusion will only apply to employees who are first engaged by the relevant employer after the commencement of the amendment.

The exemption is from the federal unfair dismissal provisions, only. Employees will still be protected by other provisions of the Workplace Relations Act. Section 170CK protects employees against dismissal because of any discriminatory reason. Sections 170MU and 170WE prohibit dismissal of an employee because the employee engages in protected industrial action, in seeking a certified agreement, or in AWA industrial action. Section 298K, in the freedom of association part of the act, prohibits dismissal on grounds contrary to the principle of freedom of association. And section 170CM prohibits dismissal without 1-5 weeks notice (depending on the employee's length of service and age), or pay in lieu, except in cases of serious misconduct.

The exemption also does not affect the rights of apprentices in small businesses. Apprentices have a particular need for protection, given the additional impact that any break in the continuity of their employment may have, in terms of attainment of qualifications. This bill will not affect existing rights in this regard.

The exemption applies only to businesses employing 15 or fewer employees. This size of small business was chosen because of the precedent provided by the Employment Protection Act 1982 (NSW), introduced by the Wran Government, and followed by the then Australian Conciliation and Arbitration Commission in the 1984 Termination, Change and Redundancy Test Case. An exemption for businesses of this size will benefit a substantial proportion of all businesses in the federal jurisdiction, but will not cover too many businesses of such a size and complexity that they are likely to have a separate management structure (which would facilitate defence of unfair dismissal claims).

The bill provides that, in counting the number of employees in a business, casual employees are only to be counted if they have been engaged on a regular and systematic basis for at least 12 months. The intention of this exclusion is to reflect the fact that a business which occasionally engages additional casual employees is not necessarily a large business.

This bill will have no significant impact on Commonwealth expenditure.

I commend the bill to the Senate.

COMPANY LAW REVIEW BILL 1997

Overview of the Bill

In March 1997 the Government commenced the Corporate Law Economic Reform Program as a comprehensive initiative to improve Australia's corporate law as part of the Coalition Government's drive to promote business and economic development. Proposals for reform of a number of key areas of the Corporations Law have been released for public comment with a view to the introduction of legislation early next year.

The Corporate Law Economic Reform Program also includes a commitment to rewriting the Corporations Law in order to simplify it. This bill will begin that work.

The Company Law Review Bill 1997 will also improve the efficiency of corporate regulation, and reduce the regulatory burdens on business and other users of the Corporations Law. It will bring substantial benefits for both small and large business, and has received strong support from the business community.

The bill rewrites and improves the core company law rules concerning registering companies, meetings, share capital, financial reporting, annual returns, deregistration of defunct companies and company names, with a view to facilitating business and investment. It will also introduce for managed investment schemes rules similar to those which will apply to companies in relation to meetings, financial reporting and annual returns.

History of the bill

The bill was exposed for public comment in June 1995. In June 1996 the Government referred the draft bill to the Parliamentary Joint Committee on Corporations and Securities. This provided an additional opportunity for input by users of the Law. The Committee's report was tabled in the Senate on 18 November 1996. In its report the Committee expressed its approval for the general content of the draft bill. The Committee also made 11 specific recommendations which the Government has addressed in a separate response to the Committee's report.

A number of significant changes have been made to the bill since it was considered by the Parliamentary Joint Committee. The bill will no longer require the annual directors' report to shareholders to include a management discussion and analysis component. While accurate and informative reporting to shareholders is essential to maintaining investor confidence, the detail of reporting requirements should usually be left to best practice in corporate governance, rather than through detailed black letter law. The Government considers that companies should be free to decide for themselves whether they should be preparing management discussion and analysis for shareholders, instead of being compelled to do so by law.

The bill has also been amended to retain the capacity to register new no liability companies. The retention of these companies recognises their continuing importance to the mining industry.

The bill will also allow greater use of communications technology in calling and holding meetings, as recommended by the Parliamentary Joint Committee on Corporations and Securities in its report on the bill. The assumptions that third parties may make about the internal management of a company have been strengthened. This should reduce the cost of doing business with small companies. Companies that are listed on an overseas stock exchange will be able to buy back their shares on the overseas stock exchange, if the ASC has approved the exchange.

Benefits the bill will deliver to business and investors

Simplified procedures for setting up and running a company

The bill will streamline the existing complicated procedure for setting up a company. Under the bill, the only formality will be lodgment of a completed application form. It will therefore be possible to register a company suitable for operating a typical small business by lodging a single form with the Australian Securities Commission (ASC), instead of the several that are currently required. This reform will reduce the cost of registering the approximately 80,000 new companies that are registered each year.

The basic rules that are available for the internal management of companies in Table A of the Law will be updated and moved into the main body of the Law as replaceable rules. As with Table A, companies will be able to adopt a constitution displacing some or all of these rules.

Proprietary companies will not have to keep their registered office open to the public. This measure will complete the Law's recognition of the 1 person company.

Facilitation of electronic meetings and shareholder communications

The rules on meetings in the bill recognise the use of communications technology in calling and holding meetings. For example, companies will be able to serve a notice of a meeting to an electronic address or fax number nominated by a shareholder. Shareholders will be able to send their proxy to the company by facsimile, or by email with the agreement of the company. This will reduce the administrative costs associated with company meetings.

The bill also facilitates the electronic lodgment of annual returns and other documents with the ASC.

Proprietary companies will be able to pass resolutions, except resolutions for the removal of an auditor, by arranging for every member to sign a statement setting out the terms of the resolution. Proprietary companies will therefore be able to conduct their business without having to regularly incur the cost of holding formal meetings.

Share capital transactions

The bill will abolish the concept of par value for shares, and court confirmation for capital reductions. These are long overdue reforms which have been a part of company law in the USA for some time, Canada since the 1970s, and New Zealand since 1993.

The abolition of court confirmation for capital reductions proposed by the bill will remove a significant constraint on companies seeking to adjust their debt and equity requirements to accommodate changes in the general economic environment.

The abolition of par value for shares will allow companies whose shares are valued at a price less than their par value to raise fresh capital without incurring the cost of convening a members' meeting, and without the delay and expense involved in seeking court approval for this. It will also remove an unnecessary complication to the financial affairs of most economically significant companies.

However, these measures will also make it easier for companies to stream capital to shareholders in circumstances where this would minimise tax. It is therefore proposed to amend the Income Tax Assessment Act 1936 to reduce these opportunities for tax minimisation. A separate announcement has been made outlining the proposed taxation measures. In general terms, it is proposed to introduce a new anti-avoidance rule for certain tax preferred capital returns. These measures will be included in a bill to be introduced next year.

The amendments made by the bill abolishing court confirmation and par value will commence at the same time as the associated taxation amendments. The share capital amendments have been moved into their own schedule in the bill for separate, and, if necessary, later commencement.

As a contingency against the possibility that the separate schedule will commence after the main body of the bill, the main body of the bill will rewrite the existing par value and court confirmation rules in plain English. The separate schedule will replace those rewritten provisions when it commences.

The existing rules in the Corporations Law concerning the acquisition by a company of an interest in its own shares frequently require companies to seek shareholder approval in a range of situations which do not threaten the interests of the company, its shareholders or its creditors. This imposes unnecessary costs on these transactions. The bill will address this by removing the need for shareholder approval for financial assistance transactions that do not materially prejudice the interests of the company, its shareholders or its creditors.

The existing legal and technical rules against a company controlling its own shares will be amended so that they are based on the concept of control in the accounting standards, rather than the formal legal holding company and subsidiary relationship. This change recognizes that it is possible for a company to exercise actual control over its own shares without there being a formal holding company and subsidiary relationship.

Reduced costs in relation to annual reports.

The bill will give members of companies and managed investment schemes the option of receiving a concise annual report, saving the company or scheme printing and distribution costs.

Longer notice periods for shareholder meetings

The Corporations Law currently obliges companies to give 14 days notice for ordinary resolutions, and 21 days for special resolutions. The bill will oblige companies to give at least 21 days notice of a shareholders meeting. The change to 21 days for all resolutions is designed to give investors, particularly institutional investors, more time to consider proposed resolutions.

Statutory recognition of members rights to ask questions at an annual general meeting.

The bill will recognise that the annual general meeting is an opportunity for shareholders to ask questions about the management of the company. It will oblige the chairman to give the shareholders as a whole a reasonable opportunity to ask questions. The new rules will not oblige the chairman to give every shareholder who wishes to speak the opportunity to do so, because the chairman's obligation is to give the shareholders as a whole the opportunity to ask questions, and not every shareholder.

Smaller annual returns.

Over half of the items currently required to be included in annual returns will be removed. This will result in annual returns being shorter and less expensive to prepare. This measure will reduce paperwork in this area by over 50 per cent for Australia's one million companies and will be of particular significance to small business.

Ministerial Council for Corporations

In accordance with the Corporations Agreement between the Commonwealth, the States and the Northern Territory on Corporate Regulation, the Ministerial Council for Corporations has been consulted and has approved the introduction of the bill into Parliament.

I commend the bill to the Senate.

INSURANCE LAWS AMENDMENT BILL 1997

The Insurance Laws Amendment Bill 1997 is an omnibus bill that amends three separate acts relating to the supervision of insurance activities. The most significant feature of this bill is that it will enhance the security arrangements applicable to the authorisation of Lloyd's of London underwriters in Australia and, as a consequence, significantly improve the regulatory protection for Lloyd's Australian policyholders. The Insurance Laws Amendment Bill 1997 also makes a number of other technical amendments to insurance legislation, some of which I will outline below.

Lloyd's of London

Lloyd's is a major international insurance market based and operated in London where individuals, known as `names', and corporate members form syndicates to accept insurance risks. Lloyd's is a significant participant in the global reinsurance market and an important participant in the Australian insurance industry.

Like all insurance underwriters in Australia, Lloyd's underwriters are subject to the Insurance Act 1973. However, in recognition of the unique structure of Lloyd's, provisions governing the authorisation and conduct of business of Lloyd's underwriters are specifically set down in Part VII of the act.

In the late 1980s and early 1990s, Lloyd's underwriters incurred large property and liability losses which threatened the future viability of the Lloyd's market. During the last four years, Lloyd's has responded to this problem by developing and implementing a major `reconstruction and renewal' plan which will enable Lloyd's to rebuild into a strong and viable market. The amendments set out in this bill will change the regulatory requirements for Lloyd's underwriters in Australia so as to accommodate the initiatives in Lloyd's `reconstruction and renewal' plan while at the same time substantially enhancing the regulatory protection for Lloyd's underwriters' Australian policyholders.

Currently, the key protection for Lloyd's underwriters' Australian policyholders is the requirement that Lloyd's lodge with the Treasurer a covenant given by a bank. The value of the covenant during any financial year is the amount of premium income sourced from Australia by Lloyd's underwriters. Some major shortcomings have been identified with this security. In the first place, Lloyd's underwriters are reliant on a third party, namely a bank, to continue to conduct business in Australia. In addition, while the covenant is intended to support outstanding claims liabilities in Australia, its value, based as it is on premiums, has no direct relationship to those liabilities. Given the strong potential for losses to far exceed the value of premiums written, there is a distinct possibility that at any point in time the amount available under the covenant may be insufficient to fully support the outstanding claims liabilities. Furthermore, in the event Lloyd's underwriters ceased business in Australia, Lloyd's would no longer receive premiums and, consequently, the value of the covenant would rapidly diminish. However, Lloyd's under writers would likely retain substantial outstanding claims liabilities in Australia for many subsequent years, and these claims would, under the present arrangement, be left with little or no asset security support.

The Insurance Laws Amendment Bill is designed to remedy these shortcomings in the current security arrangements for Lloyd's. The bill will replace the bank covenant with new security arrangements involving the creation of trust funds. The trust funds will hold secure, tangible assets in Australia to a value determined primarily by reference to outstanding claims liabilities of Lloyd's underwriters. The use of security trust funds in this way will ensure that at all times Lloyd's Australian liabilities have adequate financial support in Australia, thereby significantly improving the protection afforded to Lloyd's Australian policyholders.

The bill will also introduce new regulatory powers for Lloyd's similar to those already available in respect of body corporate insurers, such as the power to obtain additional information, to carry out an investigation, to give directions and to require actuarial assessments. These powers will both improve the ability to protect the interests of Lloyd's Australian policyholders and enhance competitive neutrality by bringing the supervision of Lloyd's more closely into line with that which applies to insurance companies in Australia.

Technical amendments to insurance legislation

The Insurance Laws Amendment Bill 1997 also makes a number of miscellaneous amendments to insurance legislation.

The bill amends the Insurance Act 1973 to streamline the processes for form setting and lodgement of accounts and statements with the Insurance and Superannuation Commissioner by authorised insurers in Australia. These reforms will produce considerable administrative and cost benefits for insurers, without compromising prudential requirements.

Various amendments are made to the Insurance (Agents and Brokers) Act 1984 to improve the operation of that act. The amendments will remove certain technical difficulties, clarify interpretation of the act by inserting additional definitions and increase consumer protection by strengthening broker disclosure notification requirements.

The bill also amends the Insurance Contracts Act 1984 to, among other things, increase the scope of that act to include non-commercial marine pleasure craft. Presently, marine pleasure craft are subject to the Marine Insurance Act 1909. The Marine Insurance Act 1909, however, is primarily designed for insurance relating to the international carriage of goods and does not contain many of the consumer protection provisions which are available under the Insurance Contracts Act 1984. This amendment will enable owners of non-commercial pleasure craft to receive the level of protection in insurance dealings which is available under the Insurance Contracts Act 1984. Other amendments to the Insurance Contracts Act 1984 set out in this bill will improve information flows between contracting parties and refine the insured's duty of disclosure.

Debate (on motion by Senator Chris Evans) adjourned.

Ordered that these bills be listed on the Notice Paper as separate orders of the day.