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Thursday, 22 May 1975

Mr STEWART (Lang) (Minister for Tourism and Recreation and Minister Assisting the Treasurer) - I move:

That the Bill be now read a second time.

This Bill introduces legislation for the screening of foreign takeovers of Australian businesses and the prohibition of such takeovers determined by the Treasurer (Dr J. F. Cairns) to be against the national interest. Since foreign takeover controls were first introduced in 1972, they have operated on the basis of:

Interim legislation- the Companies (Foreign Take-overs) Act 1972-1974- which extends only to foreign takeovers of companies effected by means of acquisitions of voting shares.

Policy measures which, up to 10 December 1974 when the Government announced its comprehensive foreign takeover legislation proposals, extended to takeovers of:

(a)   incorporated or unincorporated businesses by means of acquisitions of assets; and

(b)   mineral rights.

The policy measures for the control of foreign takeovers have been operated on an administrative basis pending the introduction of comprehensive legislation. The measures have worked reasonably well with the voluntary co-operation of both Australian and foreign interests whose transactions have been affected by their administration. However, the lack of comprehensive foreign takeovers legislation has not been entirely satisfactory from the viewpoint of either the private sector or the Government.

The Bill provides for legislation which comprehends the whole of the Government's controls over foreign takeovers. An outline of the comprehensive legislative proposals was given in a statement made by the former Treasurer on 10 December 1974, a copy of which is attached to the explanatory memorandum that I have circulated on the Bill: The explanatory memorandum outlines in detail the operation of the scheme embodied in the Bill. Briefly, in addition to company takeovers effected by means of acquisitions of voting shares, the Bill will cover 3 other areas:

First, takeovers covered by the 1972 policy measures, that is, takeovers of businesses by means of asset acquisitions and takeovers of mineral rights.

Second, takeover methods which. have been used to evade the operation of the 1972 statutory and policy measures for the control of foreign takeovers. These comprise company takeovers effected by means of acquisitions of shares other than voting shares; company takeovers effected by means of splitting a large shareholding into small nominee groups where this has the effect of increasing the voting rights attached to the shareholding; business takeovers effected by means of leases or licences over the assets of a business; and business takeovers effected by agreements and arrangements relating to board representation rights and rights to participate in the management or profits of a business. (The main practical effect of these extensions will probably be to discourage use of such methods of evasion. It is expected that in practice these provisions of the Bill will not need to be used to any significant extent.)

Third, transfers of control of business from one foreign group to another.

In connection with the last-mentioned area, the Bill also provides for the screening of certain transactions in the shares of a company incorporated outside Australia. This provision is a logical consequence of the Bill's coverage of transfers of control from one foreign group to another. Effective control of an Australian business can pass from one foreigner to another without there being any change in the legal ownership of the Australian business concerned. For example, a change in the ownership of the shares of a holding corporation based overseas could change the beneficial (but not legal) ownership and control of any Australian subsidiaries of the overseas corporation.

The Government considers that it would not be feasible or desirable to attempt to examine all overseas transactions in the shares of a company incorporated outside Australia. The relevant provisions in the Bill are based on a recognition that, on rare occasions, such transactions could result in a change in the control of a major Australian business that would be against the national interest. The Bill accordingly provides that a share deal which results in a change in the control of a company incorporated outside Australia will be examinable where either 50 per cent or more of the assets of that company are held in Australia or where its Australian assets amount to more than $3m. The Bill does not provide for exemption from examination of any domestic takeover transactions. However, the Government will continue its existing administrative practice of not intervening in takeovers of businesses with total assets of $lm or less, except in special circumstances.

I come now to the question of criteria forjudging whether a foreign takeover proposal would be against the national interest. The criteria have not been incorporated into the Bill; this is because the criteria must be flexible in their interpretation and application and it has been found that it would be impracticable, consistent with the need for such flexibility, to express the criteria with the precision required by legislative form. The criteria that will be used are essentially the same as those which have been developed in the administration of the legislation and the measures that have operated since 1972 and which experience has shown to be both appropriate and effective.

The first criterion for judging a proposed foreign takeover under the Bill will be: Whether, against the background of existing circumstances in the industry concerned, the takeover would lead, either directly or indirectly, to net economic benefits in relation to such matters as competition, productive capacity, technological change, development of new markets, production, quality and range of products and services, level of prices and efficiency which would be sufficient to justify the change in foreign control of the business concerned. If the proposed takeover is judged not to be against the national interest on this basis, the following additional criteria will also be taken into account:

Whether, after the takeover, the business concerned could be expected to follow practices consistent with Australia's interest in matters such as exports, imports, local processing of materials produced, research and development and industrial relations; and

Whether the takeover would be consistent with the Government's objectives in relation to such matters as defence, the environment and conservation, urban and regional development and the preservation of Aboriginal land rights.

In making judgments as to whether particular foreign takeovers would be against the national interest on any of the foregoing grounds, due weight will be given to:

The extent of the Australian participation in ownership, control and management that would remain after the takeover; and The interests of employees, shareholders and creditors of the business subject to the takeover proposal.

In preparing the Bill the Government has had the benefit of more than 2 years' experience of the operation of foreign takeover controls. The Bill has been drafted with careful regard to that experience. It embodies a scheme of comprehensive and effective control of foreign takeover proposals. I commend the Bill to the House.

Debate (on motion by Mr Adermann) adjourned.

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