Senator IAN CAMPBELL (10:01 AM) —I 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—

Madam President, it is with pleasure that I introduce this bill to the Senate.

The privatisation of Wool International concludes the Government's involvement in the management of the wool stockpile as it passes responsibility to a private sector board who will manage the stockpile in the interest of its shareholders.

Now is the right time to privatise Wool International. Equity in the stockpile is now significantly higher than the wool debt, so there is little justification for the ongoing involvement of the Government in its management.

Madam President, the new commercial structure provided for in the bill is simple, and meets the Government's objective to protect, and indeed enhance, the rights of Wool International entitlement holders while providing commercial flexibility for the sale of the stockpile.

The most important issue is that ownership of the stockpile is to be formally transferred to the unit holders, and its management to a commercial Board answerable directly and only to its shareholders.

Wool International will be converted by this legislation into a company operating under Corporations Law. It will be a new company, with a new name—WoolStock Australia Limited—a new Board, new management structures and a new commercial way of doing business.

Shares in the new company will be issued to all Wool International entitlement holders—one share will be "stapled" to each unit of entitlement.

Madam President, the units of entitlement remain in place, and remain valid. Cash distributions will be able to be made to the entitlement holders. The amount and frequency of distributions will be a matter for the Board of the new company.

If the commercial price obtained by WoolStock Australia for the stockpile is higher than the book value of the stockpile at conversion—which will hopefully prove to be the case, the extra equity will be available for distribution as dividends to be paid to shareholders.

Protecting and enhancing the rights of entitlement holders

Madam President, the benefits of privatisation include

. value of equity could be enhanced by the commercial management of the stockpile;

. no legislated selling schedules; and

. equity holders' rights have been enhanced in that they now have the right to vote on the management of their asset.

Madam President, there will be considerable interest in the arrangements for appointment of the commercial Board to run the new company. An initial Board will be established to ensure essential preliminary work on a business plan and the transition of staff and resources to the new commercial arrangements happens smoothly. To that end the Government will appoint three members of the Board at the outset, with further directors to be appointed later. The actual size of the Board will be determined after further consultation, including with the Interim Advisory Board.

It is intended that two of the additional directors, who would be appointed by the new Board, would need to be endorsed by shareholders at the first meeting of the company. The inaugural shareholder meeting will be called as soon as practicable, possibly within two months from the start up date of 1 July 1999. This meeting would also have the opportunity of endorsing the future direction of the new company.

After that, composition of the Board will be chosen in the normal manner under Corporations Law.

Madam President, a trust company is to be established to hold units and shares of unit holders whose legal status has not been established and cannot, for a number of reasons, have their units and shares transferred to them immediately. The trust will be charged with actively working to transfer units and shares to the unit holders, beneficiaries or creditors, as soon as their legal status has been established.

Tax issues

In relation to tax treatment of unit holders, the Government worked on the simple principle of seeking to maintain arrangements for the commercial company which would be similar to those relating to the statutory authority.

I am happy to say that in the main, this has been achieved.

. Most importantly, the Government is prepared to exempt WoolStock Australia from income tax on its stockpile activities.

. Distributions in the hand of equity holders will be taxable, but will be able to be considered as Primary Producer Income for eligible unit holders.

. Proceeds from the sale of units by eligible unit holders will still qualify for small business Capital Gains Tax roll-over relief.

. Madam President, dividends paid to shareholders will be taxable in the normal way in the hands of shareholders. There will, however, be the normal access to Primary Producer Income arrangements for those who qualify. Shareholders should seek their own financial advice on this.

Continuation of government guarantee

Madam President, one of the primary objectives of privatisation is to bring the way the stockpile is managed into line with normal commercial practice. This includes financing its debt.

While the intent is that the new Board moves promptly to normal private borrowing arrangements, the Government is prepared to consider some flexibility in timing of the withdrawal of the government guarantee to allow the new Board time to negotiate the appropriate arrangements after 1 July 1999.

Lending institutions

The interests of lending institutions have been recognised, by including a provision that any charges or liens attached to current entitlements will remain in place after privatisation, and will apply to both the entitlement and the share stapled to it.

Trading of units and shares

Madam President, the ability to trade units and shares, or to borrow against them, will provide an important opportunity and benefit to many unit holders. Macquarie Bank has been operating a market in Wool International units and, while there has been relatively limited trading to date, there will clearly be scope for a substantial increase in this market over time.

WoolStock Australia will not start life as a listed company—but the shares and units will be tradeable. There is the prospect that interest in development of exempt markets for this security will grow rapidly.

Madam President, further work will need to be done by the Board of the new company to improve liquidity of the market for units and shares—this will benefit both the unit holders and those who want to be involved in these markets.

New business directions

Madam President, the Government appointed an Interim Advisory Board, headed by Mr Donald McGauchie, to develop a draft business plan for the new business.

This work is not yet complete, but good progress has been made on developing a business plan and Mr McGauchie and this Board have been consulting widely with all sectors of the wool industry in the development of this plan.

The opportunity for investment in new wool business activities is clearly desired by some Wool International equity holders. Both the Government and the Interim Advisory Board understand that while some wool growers simply want to get their share of the money from the sale of the stockpile, others would like to see an opportunity to invest their equity in developing a broader wool business.

While the principal activities of WoolStock Australia will be selling down the stockpile and distributing available proceeds to the unit holders, it will also be able to spend up to $3 million to investigate and possibly support new business activities.

Shareholders who might wish to invest in these new business activities will be able to do so, after proper "due diligence" processes and in response to a prospectus.

Employees of Wool International

The rights of the existing employees of Wool International have been maintained. There will be no loss of entitlements by staff, as Wool International will itself be transformed into a Corporations Law company, and existing staff contracts will continue.

Role of OASITO

The Office of Asset Sales and IT Outsourcing, and its professional commercial advisers, and officers of my Department, have done a commendable job in working through the complexities of this privatisation.

I believe the package of proposals is simple and workable, and one that provides a balance between the various competing interests.

The cost of the process—a total of $4.5 million—will prove to have been a very prudent investment

Conclusion

Madam President, this bill fulfils the Government's commitment to the wool industry, to return the stockpile to its owners under fully commercial management.

This action will be welcomed by the wool industry.

This is a good outcome to a very difficult and long standing issue which had become the Achilles heel of the industry. The industry can now look forward to dealing with the challenges it faces in the world textile market and focus on the issues which it will need to address to rebuild its future.

I commend the bill to the Senate.

Ordered that further consideration of the second reading of this bill be adjourned till the first day of sitting in the winter sittings 1999, in accordance with standing order 111.