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Thursday, 18 November 1976

Mr LIONEL BOWEN (Kingsford) (Smith) -I move:

That the Bill be now read a second time.

The purpose of this important Bill is to provide Australia with a national companies law. The Bill recognises that the formation and operation of companies are matters of national significance to which State boundaries are largely irrelevant. A great deal of frustration has been caused to the business community by the necessity to comply with 8 different pieces of legislation- one in each State as well as those of the Australian Capital Territory and the Northern Territory. This Bill will remove the source of that irritation. No one would deny the importance of company legislation today. Increasingly business is conducted through companies whose activities affect not only their shareholders but also the public in general. At the time of Federation the law of bankruptcy was thought to be of such national importance that it should be within the powers of the Commonwealth Parliament. It is important that the same Parliament should, to the extent of its powers legislatively, recognise the enormous increase in the importance of companies.

This Bill has 2 great aims, the first uniformity and the other the recognition of the need for legislation to keep abreast of constant developments in the area of company law. At present company law reflects neither of these aims. It is neither uniform nor capable of reflecting constant development and the need for change. The uniform Companies Act was a product of several years of consultation between Attorneys-General of the Australian Government and of the States. Iti 1961 substantial uniform legislation was passed in each separate jurisdiction. However, it was soon evident that the uniform legislation could be administered differently from one jurisdiction to another and that it was unable to cope with the constant need for amendment. This Bill recognises that the goal of uniformity through State legislation is largely illusory. There is only one method of achieving both uniformity and the ability to adapt speedily to ever changing circumstances; that is by the Commonwealth fully utilising its constitutional powers in order to enact a unilateral national companies Act.

While the constitutional position is not wholly certain it is fairly clear that section 5 1 placitum (xx.) of the Constitution does allow the Commonwealth to enact a national companies Act. A whole new era of interpretation of that placitum began with the decision of the High Court in what is known as the concrete pipes case in 1971. In overruling the earlier case of Huddart Parker v. Moorehead, the High Court made it abundantly clear that section 5 1 placitum (xx.) was to be interpreted liberally in line with the basic tenet of constitutional interpretation spelt out in the engineers case. The general point to be made at the outset in dealing with the corporation power must now be seen in the light of the concrete pipes instruction by the court to read its terms 'broadly and not narrowly'- as Mr Justice Menzies said at page 5 1 1 of the Commonwealth Law Reports of 1971- and not 'in any narrow or pedantic manner'- as the Chief Justice, Sir Garfield Barwick, said at page 490. Section S 1 states:

The Parliament shall . . . have power to make laws for the peace, order, and good government of the Commonwealth with respect to: (xx.) Foreign corporations, and trading or financial corporations formed within the limit of the Commonwealth:

Some might argue that the words 'formed within the limits of the Commonwealth' denote an anterior existence precluding the Commonwealth from making laws with respect to the incorporation of companies unless the incorporation is incidental to some other power. That is, they would say that corporations must be formed under State or Territory laws and not under the Commonwealth corporations power. In this they would derive some judicial support from statements made as far back as the Huddart Parker case and in the bank nationalisation case. However, these statements were not in any sense part of the basis for the decisions in those cases and they preceded the important recent decisions in the concrete pipes case and what is known as the St George County Council case.

The Opposition concedes that this argument cannot simply be dismissed. However, it does not appear to be a widely accepted view. The better view seems to be that the words 'formed within the limits of the Commonwealth' are used merely to distinguish home grown corporations from foreign corporations. Sir Garfield Barwick suggested as much in the St George County Council case. The word 'formed' does not necessarily import the past tense. Mr Justice Stephen in the case Mikasa v. Festival Stores stated that the past participle often applies equally to the future as to the past. This has been contended also in an article by Frankel and John L. Taylor in volume 47 of the Australian Law Journal. Honourable members will note also from clause 22 that in drafting this Bill reference has not been placed solely on the corporation's power. Full utilisation has also been made of the trade and commerce power, the banking power, the insurance power and the territories power.

There is no basis for denying the Commonwealth Parliament the power to provide for the incorporation of companies under these powers. The High Court case of O'sullivan v. Noarlunga Meat Ltd, the second New South Wales airlines case and Redfern v. Dunlop Rubber gave the Commonwealth wide powers over trade and commerce. That power extends to matters preparatory to such trade as is specified in section SI, placitum (i.) of the Constitution and to matters where interstate and intra-State trade are not clearly separated. A National Companies Act would not be susceptible to challenge under section 92 of the Constitution. It can thus be seen that the Commonwealth has wide powers to enact a comprehensive National Companies Act, including provisions for incorporation. There is no need for equivocation or timidity. This Parliament has the power to enact a National Companies Act. It has the duty to use those powers in the interests of the people of Australia to ensure that we have the best possible companies legislation.

Of course, the Bill does far more than provide for the incorporation of companies. It is a Bill concerned with the structure of companies and with matters of internal management. It deals not only with the incorporation of companies, but also with the rights, inter se, of their shareholders and with the liquidation of companies. It is complementary to the Corporations and Securities Industry Bill 1976 which deals with the external conduct of public companies affecting the interests of the investing public. There is a close interdependence between those 2 Bills. That other Bill is still before the House. I turn now to deal with some of the provisions of the Bill. I should stress once again that its main provisions deal with uniformity and the capacity to meet changing circumstances. The aim of this Bill is not wholesale reform of company law. Many of the provisions under the existing law are sound. They have been developed in the light of experience. It is not our intention to discard any of the provisions in the existing law without good reason.

The existing law in the form in which it appears in the Companies Ordinance of the Australian Capital Territory has been adapted so as to make it suitable as a piece of national legislation. The changes which have been made in the process are as a result of our own and overseas experience. The Bill also takes account of the provisions of the Corporations and Securities Industry Bill 1976 and the recommendations of the Eggleston Committee which have not yet been implemented. The essential differences between this Bill and existing legislation are that the provisions in this Bill will operate nationally on an Australia-wide basis. All companies, other than those incorporated in another country, will be deemed to be incorporated in Australia instead of in a particular State or Territory. State boundaries will be irrelevant. Companies will not need to register as foreign companies or to lodge documents with a separate administration. There will be an end to the jurisdictional problems which have bedevilled investigations and prosecutions and in this regard one can only advert to the recommendations of the Rae Committee which clearly showed that there was a necessity for uniformity in company legislation because it was impossible to have adequate investigations when those investigations were limited to State boundaries and subject to State investigatory procedures. The Rae Committee said that there was an essential need to have an ability to investigate across State boundaries, to have uniformity of experience and facilities and that there should be a national investigatory power.

Most companies in Australia, both existing and future, will be covered by this proposed legislation. The small minority of companies beyond the constitutional reach of this Parliament will continue to fall under State and Territory company legislation. Of course, the State Parliaments will be able to make these companies subject to national legislation should they wish to do so but in any case the national legislation will effectively control practically all companies of commercial significance. The responsibility for administering the proposed legislation is to be vested in a Corporations and Exchange Commission and provision has been made for this in the Corporations and Securities Industry Bill. Proprietary companies, all of which are outside the scope of the Corporations and Securities Industry Bill, will be covered by the present Bill. The accounting requirements in the National Companies Bill are specifically directed to such companies and they are not as stringent in some respects as the corresponding requirements for public companies in the Corporations and Securities Industry Bill.

The distinction that has long existed between a company's memorandum of association and its articles of association is to be abolished. Under this Bill there will be a single document for a company and it will be the company's rules. This change, which will make for brevity and simplicity, recognises that much of the reason for having separate memoranda and articles of association has ceased to exist. Of course, some rules will be alterable only in certain ways.

Another change relates to the powers of a company. At present the powers are limited to those set out in detail in a schedule subject to any modifications in the memorandum of articles. This causes inconvenience when a company finds that it needs a power that is not listed and, to avoid difficulties, companies tend to spell out long lists of powers in memoranda and articles. The Bill removes the need for this by providing that a new company will have in the furtherance of its objects all the powers of a natural person.

Corporate directors will not be permitted. The practice of having such directors has not been common but it has been resorted to on occasions such as when one company is a subsidiary of another and the holding company appoints itself managing director of the subsidiary as a method of maintaining complete control over it. The trend in other countries is to require all directors to be natural persons.

Another change of importance requires a prescribed minimum paid up capital to be held by a company before it is able to commence carrying on business. This should help prevent the proliferation of under-capitalised companies which are prone to get into financial difficulties. The standards of integrity and care required of a director are indicated with more precision and in an objective manner. Directors will need the approval of a general meeting before disposing of the business undertaking of a company. There are provisions which recognise that companies have a social responsibility. These provisions authorise directors to have regard to the interests of employees, the effects of the company's activities on the environment and the interests of the community. The existing law is unsatisfactory in that it permits directors to have regard to those matters only to the extent that it coincides with the interests of the shareholders to do so. A reduction of capital will be possible without the costly procedures of obtaining the confirmation of the court where the company has no creditors or all the creditors have consented to the reduction. This is a sensible reform which will facilitate greater freedom of action for companies while maintaining the protection of creditors.

Winding up provisions have been clarified and brought into line with corresponding provisions in the Bankruptcy Act. Among other changes provided for in the Bill are: Firstly, the circumstances in which remedies are available to minority interests are widened and extended to debenture holders; secondly, a share in a company which is held in trust for that company will not carry voting rights; thirdly, a company will be required to keep a register of options to acquire securities in a company; fourthly, a company will be required to keep a register which will enable a check to be made on multiple directorships.

The Bill is of great importance. It recognises that business in this country is increasingly being conducted by companies on a national basis. It recognises that Australia cannot afford the cost of having 8 different company laws. It is a Bill which fully utilises the powers of this Parliament in a most important area of law. I am well aware that the Minister for Business and Consumer

Affairs (Mr Howard) is having discussions with the States in this important field. I am also well aware that the Labor States would willingly give powers to the Commonwealth in this field. They would refer those powers. However the Minister is in the very difficult situation of finding that States such as Queensland and obviously Western Australia will not give him those powers. I know that the Minister is hoping that he can get some uniformity in this field but I very much doubt whether he can. As one who attended the recent Constitutional Convention in Hobart I would be surprised if the Queensland delegation of the National Country Party would agree to any change at all. In fact, its view would be that Queensland is an independent State and is not subject to any national surveillance. I also very much doubt whether the Minister would get cooperation from Western Australia.

The business community these days, as is highlighted by the many problems which have arisen and was highlighted by the Rae report, does not have to worry about crossing State boundaries when dealing in trade and commerce. It does not have to worry about it when dealing in communications, banking procedures and the like, but it does have to worry about it technically when it comes to the law. As I said during the course of my submission in support of this Bill, how contradictory it is to think that we have to deal with a person who is bankrupt on a national basis but cannot deal with a company in a similar position in the same way. Look at the difficulties which have arisen because of people virtually being denied opportunities when they find that a company which has defrauded them is in another State. This is the tenor of what is happening. The intelligence of the High Court is now coming strongly to our aid as a result of the concrete pipes case clearly indicating that we must not be too narrow and confined in our interpretation of those words drawn by the founders of the Constitution. It is important that we give them a broad interpretation when dealing with corporations and not be placed in this pedantic and stupid situation of saying that we cannot cover this particular matter.

The Opposition encourages the Government to be bold and ambitious in this area and to enter the field because if it is going to rely on State agreement, and I have said that I do not see any chance of this, it will get the lowest common denominator of agreement. The Minister and the Government will have to accept the lowest mean that the States would agree to an I do not think that they would get even to that very low level. The States are very conservative and may never agree at all. The Minister is anxious to say: 'I have a very good proposition in mind. I have a piece of legislation which will guarantee that if I alter the law here it will be deemed to alter the law in the States'. However, that is only if the States agree in the first place to the Minister introducing such a law. We can foreshadow many constitutional difficulties as to whether such an alteration would be deemed to apply when there has been no reference of powers. Why should we get into those difficulties when people could take the point that what the Minister is talking about is still subject to a State power in respect of which he has no right to legislate and there has been no reference of power?

As the Minister knows from dealing with this sort of matter, when we involve ourselves in interstate and intrastate interpretations we can get into what is called an impossible dichotomy between State and State and States and the Commonwealth, and the High Court has been trying to work out what finer points can develop from such a dichotomy. We want this position clear. If the Minister wants to rely on the States he will have to rely on some rigid provision that the States will agree to and may well rescind from time to time depending on changes of government. I think the Minister would welcome the opportunity to have a reference of powers because he could then legislate in this field.

It is quite fair for the States to say that they can take them back at some time. I know that Queensland again would say that one must never refer any powers because one may never be able to take them back. That was Queensland's conventional stance a few weeks ago on another matter. I point out to the Minister that there was no matter at the Constitutional Convention in Hobart to which the Queensland Government's delegation agreed- not one. Queensland even said no to the first item on the agenda, which related to giving a vote to people of the Northern Territory in any referendum. With that sort of stance, I doubt very much whether the Federal Government is going to get any assistance. Queensland seems to think that the Federal Government has all the money and all the power and that it is not going to give anything to Queensland. Queensland conveniently forgets, of course, that it gets more than its fair share of the tax revenue. The same situation applies in respect of Western Australia. We are now seeing Press reports that Queensland is even thinking of seceding. As Quebec has been so successful in a referendum, I can well envisage Mr BjelkePetersen being encouraged to do the same thing in Queensland.

What about trade and commerce in Australia? What about national development? What about all the problems that were highlighted by the report of the Rae Committee. Effective legislation is needed in the field of commerce in this country. I am encouraging the Federal Government to get into that field. I think companies would do the same. They do not want to have shysters and crooks manipulating companies and using State boundaries to do it- and that has happened. They do not want to have stock exchanges which will not properly regulate the securities industry. Is it any wonder that investment is so scarce these days when there is not the continuity or integrity that is necessary to guarantee to the people who do invest that justice will be done.

Look at the investigatory powers of the States. I am not being critical of them as such; I am being critical of the time factor involved in looking at the operations of companies. Years go by and nothing happens. States are still wondering about certain companies that have carried on activities within their borders. Shareholders are still waiting for reports and are still trying to work out what sort of action can be taken. This would not happen in the national field. There would be too much pressure to ensure that there was more experience and more expedition. There would be less political influence. The whole spectrum would be wider. Shareholders would be encouraged to move across the State boundaries in relation to companies and would not try to limit their activities, as they do now. We would then have directors who are more attuned to their national responsibilities. We could then have, if you like, delegation back in a branch structure, but certainly controlled on a national companies basis.

As we have said, this is part and parcel of an effective control of the national securities and exchange activities. If it is fair enough for banking it ought to be fair enough for insurance which is developing in that way and certainly ought to be under this corporate structure power. The founding fathers felt the need to refer to this power. I am fortified in this endeavour by the more recent decisions of the High Court on how we can effectively deal with corporate legislation.

This is a Bill of major importance. It is a Bill that would have been introduced by the previous Labor Government. It was ready for introduction at the time of that Government's dismissal. It will be recalled that prior to 1 1 November we had already introduced a proposition in relation to a national companies and securities and exchange industry, which was, of course, delayed and then rejected. It never became law. We tried again earlier this year. I think that we gave notice at the first meeting of this Parliament in February that we would introduce these measures. The procedures of this House are such that we have to do this seriatim over a period of time. Now, after almost one year, we find ourselves getting to this Bill. It shows how difficult it can be if we have to rely upon an Opposition to prod a Government into action.

I know that the Minister for Business and Consumer Affairs has been doing good work in trying to encourage the State governments to help him. I advert again to the fact that that is not going to be the solution. He can certainly try as hard as he likes but it would be far better for him to take the reference of powers that are now being offered to him by some States. There are three of them at least. That would be a breakthrough. I think that might encourage more activity than now obtains from having frequent meetings.

The Minister will have noticed that people engaged in the field of security investment are concerned. The intelligent directors of companies are concerned and the intelligent managers of stock exchanges are concerned. They can see that it would not be some centralist bureaucracy, that it would not be something that intervened in private matters, that it would not be something that detracted from State administration. It would be something that would give them added strength. It would guarantee that stock exchanges had a national standing. It would guarantee that companies had a national standing. As I have said, it would facilitate the form of registration and there would not be the suggestion that because a company is incorporated in one State and has to be in another it is deemed to be a foreign corporation there.

No matter how one tries and no matter how much rhetoric is used one does not get continual uniformity in State legislation. The position changes from time to time. Some of the issues even become issues at election time. It follows, then, that incoming governments are prone to change legislation. Therefore the uniformity is lost. If it is left to the national parliament that parliament can change in the course of its powers only one set of rules. If one puts the situation on the basis that the Minister hopes to put it, that is, change the rules here and have them adopted or accepted elsewhere, one runs into the difficulties that I have mentioned. Firstly, the States may not agree. Secondly, there could be a lot of doubt as to their constitutional validity. For those reasons

I strongly urge the Government to accept this legislation and I commend the Bill to the House.

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