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Speech by the Attorney-General to the business council of Australia's directors' forum critical changes for 1992 and beyond



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SPEECH BY THE ATTORNEY-GENERAL

TO

THE BUSINESS COUNCIL OF AUSTRALIA’S DIRECTORS’ FORUM

CRITICAL CHANGES FOR 1992 AND BEYOND

10 MARCH 1992

MELBOURNE HILTON (CHECK AGAINST DELIVERY)

COMMONWEALTH PARLIAMENTARY LIBRARY Mi CAM

SPEECH BY THE ATTORNEY-GENERAL

TO

THE BUSINESS COUNCIL OF AUSTRALIA'S DIRECTORS' FORUM

CRITICAL CHANGES FOR 1992 AN D BEYOND

10 MARCH 1992

THANK YOU FOR THE INVITATION TO SPEAK TO YOU THIS AFTERNOON

ABOUT THE GOVERNMENT'S CORPORATE LAW REFORM PROPOSALS FOR

1992 AND BEYOND.

IT COMES AT AN OPPORTUNE TIME, FOR TWO REASONS. IT IS NOW ABOUT ONE MONTH SINCE I RELEASED A MAJOR CORPORATE LAW REFORM BILL

FOR PUBLIC EXPOSURE, AND THIS FORUM PROVIDES AN OPPORTUNITY FOR THE DETAIL OF THAT EXPOSURE DRAFT TO BE ANALYSED AND

DISCUSSED, SO THAT YOU CAN GIVE ME SOME CONSTRUCTIVE FEEDBACK.

I AM ALSO FORTUNATE TO ADDRESS YOU TODAY IN LIGHT OF COMMENTS

ON CONTINUOUS DISCLOSURE RELEASED YESTERDAY BY THE BUSINESS COUNCIL OF AUSTRALIA. I'D LIKE TO GIVE YOU MY REACTION TO THOSE

COMMENTS A LITTLE LATER.

THE CORPORATE AND REGULATION CHALLENGE

I AM SURE YOU WOULD AGREE THAT, AS A NATION, WE HAD TO RESPOND

TO THE CORPORATE COLLAPSES OF THE 1980'S.

WE ARE NOT THE ONLY COUNTRY W HICH HAS HAD MAJOR PROBLEMS

WITH CORPORATE COLLAPSES (WITNESS THE US SAVINGS AND LOANS

AFFAIR, A N D THE MAXWELL EMPIRE COLLAPSE, TO TAKE TWO EXAMPLES). BUT THE EXTENT TO W H ICH OUR COLLAPSES HAVE

AFFECTED OVERSEAS INVESTORS, COUPLED W ITH OUR TRADITIONAL

2.

RELIANCE O N FOREIGN INVESTMENT TO FINANCE OUR NATIONAL

DEVELOPM ENT, HAS MADE CORPORATE REG U LA TIO N A MAJOR

ECONOMIC ISSUE FOR AUSTRALIA.

TOWARDS THE END OF THE 1980'S, THERE WAS A MARKED FALL IN FOREIGN CAPITAL INVESTED IN AUSTRALIA, FALLING BY ALMOST HALF

FROM $31 BILLION IN 1989/90 TO $16 BILLION IN 1990/91. CLEARLY, THE FAILURE OF OUR CORPORATE REGULATORY SYSTEM SERIOUSLY

DAMAGED OUR INTERNATIONAL REPUTATION, AN D SIGNIFICANTLY

CONTRIBUTED TO THE DECLINE IN AUSTRALIA'S ATTRACTIVENESS AS A HOST FOR FOREIGN INVESTMENT.

THE STRATEGY - ENFORCEMENT AND LAW REFORMS

ENFORCEMENT

THE GOVERNMENT HAS SHOW N ITS COMMITMENT TO THE TASK OF

RESTORING AUSTRALIA'S INTERNATIONAL REPUTATION FOR SOUND CORPORATE REGULATION WITH THE ESTABLISHMENT OF THE ASC, AND W ITH THE HUGE AMOUNTS OF EXTRA FUNDING (SOME $210 MILLION

OVER 4 YEARS) W HICH IT HAS SET ASIDE TO ENSURE THAT THE ASC WILL

BE ABLE TO DO ITS JOB. IT TOOK US 90 YEARS, BUT WE DO NOW HAVE A PROPERLY-RESOURCED NATIONAL REGULATOR, AND THAT COUNTS FOR A LOT IN THE EYES OF THE INTERNATIONAL INVESTMENT COMMUNITY.

THE ASC HAS MADE SIGNIFICANT ACHIEVEMENTS IN THE ENFORCEMENT OF CORPORATE LAW. IN ITS 1990-91 ANNUA L REPORT, W HICH WAS

REALLY ONLY IN RESPECT OF THE FIRST 6 MONTHS OF ITS OPERATIONS,

THE ASC REPORTED INVOLVEMENT IN THE LITIGATION OF MORE THAN

200 SERIOUS CASES, OVER 130 OF THOSE BEING CRIMINAL PROSECUTIONS.

MANY MORE ACTIONS HAVE BEEN COMMENCED SINCE THEN.

LAW REFORM

TO BACKUP ENFORCEMENT, WE MUST ALSO LOOK AT THE CONTENT OF

THE LAW. THE MOST ABIDING AND DESTRUCTIVE IMPRESSION THAT

3.

INVESTORS HAVE OF AUSTRALIA IS OF THE DISHONEST FEW TREATING COMPANY FUNDS AS IF THEY WERE IN THEIR PERSONAL BANK ACCOUNT.

TO THE EXTENT THAT DEFICIENCIES IN THE LAW, AS DISTINCT FROM LAW

ENFORCEMENT, MAY HAVE CONTRIBUTED TO THAT IMPRESSION, THOSE

LAWS MUST BE CHANGED.

IT IS FOR THIS REASON THAT WE HAVE SEEN, SINCE THE ESTABLISHMENT OF THE ASC, A CONCERTED EFFORT ON THE PART OF THIS GOVERNMENT TO REVAMP OUR COMPANIES AND SECURITIES LEGISLATION. LAST YEAR WE SECURED THE PASSAGE OF THREE SUBSTANTIAL REFORM BILLS, D EA LIN G W IT H , A M O N G OTHER T H IN G S , IN SID ER T R A D IN G ,

CONSOLIDATION OF GROUP ACCOUNTS, RESTRUCTURING OF UNLISTED

PROPERTY TRUSTS, A N D A MORE EFFICIENT CLEA RANCE AND

SETTLEMENT SYSTEM FOR STOCK EXCHANGE TRANSACTIONS. IN EACH CASE THE LEGISLATION FOLLOWED A PERIOD OF CONSULTATION WITH BUSINESS AND INDUSTRY. IN EACH CASE DEBATE ON THESE BILLS IN THE

PARLIAM ENT WAS NOTABLE BY THE ABSENCE OF ANY SERIOUS ARGUMENT ABOUT THE ABSOLUTE NECESSITY OF THESE REFORMS.

ALL OF THESE MATTERS REQUIRED URGENT ATTENTION, AND NO-ONE HAS SERIOUSLY SUGGESTED THAT THEY DID NOT. IT IS A REFLECTION ON

THE COLLAPSE OF THE FORMER CO-OPERATIVE SCHEME THAT SO MUCH

ATTENTION TO CORPORATE LAW REFORM HAS BEEN NECESSARY OVER

THE LAST 12 MONTHS.

I HAVE NOTICED IN RECENT WEEKS SOME ARTICLES APPEARING IN THE NATIONAL PRESS W HICH OBLIQUELY CRITICISE THE PROGRAM OF LAW

REFORM WE HAVE UNDERTAKEN. AS WE HAVE HAD THREE MAJOR

REFORM BILLS LAST YEAR AND ANOTHER IS CURRENTLY BEING EXPOSED,

THE ARGUMENT RUNS THAT THE GOVERNMENT IS BURDENING BUSINESS WITH A WHOLE RAFT OF COMPLEX NEW LAWS, THAT THE GOVERNMENT

LAW REFORM PROGRAM HAS DEGENERATED IN TO 'REGULATORY

OVERKILL' TO QUOTE YESTERDAY'S FINANCIAL REVIEW. YESTERDAY'S SYDNEY MORNING HERALD EVEN SUGGESTED THAT, IF THE CURRENT

BILL IS PASSED, THE LEGISLATION WILL BE TWICE ITS ORIGINAL SIZE!

4.

THIS TYPE OF ARGUMENT, W HICH IS HARDLY EVER ATTRIBUTED TO A PARTICULAR SOURCE, COMPLETELY IGNORES THE DETAILS OF THE PROGRAM WE HAVE UNDERTAKEN. IS IT OVERLY BURDENING BUSINESS

TO OUTLAW INSIDER TRADING, TO REQUIRE GROUP ACCOUNTS TO BE

PREPARED SO THAT GROUPS CAN N O T HIDE THEIR TRUE FINANCIAL

POSITION BEHIND PRIVATE COMPANIES AND TRUSTS? DOES ANYONE

DISPUTE THAT THE G O V ERN M EN T ACTED APPRO PRIATELY TO RESTRUCTURE THE UNLISTED PROPERTY TRUST INDUSTRY? I HAVE TO SAY THAT THIS TYPE OF GENERALISED COMMENT W HICH ONLY REFLECTS A POLITICAL OR PHILOSOPHICAL ATTITUDE TO REGULATION DOES NOT ADVANCE THE DEBATE AND DOES N O CREDIT TO THOSE W HO ADVANCE IT. W HAT IS REQUIRED IS DETAILED COMMENT O N THE PARTICULAR PROPOSALS BEING CONSIDERED, AND I AM PLEASED TO SAY THAT MOST

OF THE SUBMISSIONS WE RECEIVE NOW FALL INTO THAT CATEGORY.

LAW REFORM PROGRAM - IMPACT ON DIRECTORS

IN THE TIME REMAINING, I WANT TO FOCUS UPON WHERE I SEE THE LAW REFORM PROGRAM GOING FOR THE REST OF THIS YEAR AND BEYOND.

COONEY COMMITTEE REPORT ON DIRECTOR'S DUTIES

CURRENTLY, BREACHES OF KEY DIRECTORS' DUTIES ARE CRIM INAL OFFENCES. THE SENATE STANDING COMMITTEE O N LEGAL A N D

CONSTITUTIONAL AFFAIRS, IN A KEY REPORT W HICH IS ADDRESSED IN

THE CURRENT EXPOSURE DRAFT BILL, SAID THAT CRIMINAL SANCTIONS

SHOULD ONLY APPLY TO BREACHES OF DIRECTORS' DUTIES WHERE

"CRIMINALITY" IS PRESENT.

THE SENATE COMMITTEE PROPOSED THAT CIVIL PENALTIES SHOULD

APPLY IN OTHER CASES, AN D SHOULD BE APPLIED O N THE CIVIL

STA N D A RD OF PROOF. THE G O V ERN M EN T SU PPO RTS T H IS

RECOMM ENDATION. NEGLIGENCE AND CARELESSNESS ARE N O T

CRIMINAL MATTERS AND SHOULD NOT BE TREATED AS SUCH. THE BILL

ACCORDINGLY CO N FIN ES CRIM IN A L SANCTIONS TO BREACHES COMMITTED WITH A DISHONEST INTENT. TPLAT MEANS THAT DIRECTORS

W HO BREACH THEIR DUTIES THROUGH NEGLIGENCE, EVEN GROSS

5.

NEGLIGENCE, ARE NO LONGER LIABLE TO PROSECUTION, CANNOT BE THE

SUBJECT OF A CRIMINAL CONVICTION, AND CANNOT GO TO GAOL.

I KNOW THAT THE INSTITUTE OF DIRECTORS HAS EXPRESSED CONCERN ABOUT THE CIVIL STANDARD OF PROOF BEING USED, BUT I HAVE TO TELL

YOU THAT I THINK THE SENATE COMMITTEE HAD A POINT. IF THERE IS

N O PROSECUTION, NO CHA NCE O F CO N V IC TIO N , N O POTENTIAL

CRIMINAL RECORD AND NO POSSIBILITY OF GOING TO GAOL, THE ACTION

IS A CIVIL ONE AND THE CIVIL STANDARD OUGHT TO APPLY.

THE EXPOSURE BILL SETS THE CIVIL PENALTIES AT A LEVEL INTENDED TO PROTECT SHAREHOLDERS AS MUCH AS POSSIBLE AGAINST THE WORST POSSIBLE NON-CRIMINAL BREACH. BEAR IN MIND THAT W HEN WE SPEAK

OF THE "WORST POSSIBLE NON-CRIM INAL BREACH", WE ARE TALKING ABOUT GROSS, INEXCUSABLE DERELICTION OF DUTY THAT LEADS TO

LOSSES OF MILLIONS OF DOLLARS. THE BILL SAYS THE MAXIMUM PENALTY, FOR THAT WORST POSSIBLE CASE, IS $200,000. CLEARLY, CASES OF LESSER SEVERITY WILL ATTRACT A LESSER PENALTY, AND IT IS UP TO

THE COURTS TO ASSESS THE APPROPRIATE PENALTY HAVING REGARD TO ALL THE CIRCUMSTANCES OF THE CASE.

AS IS THE CASE UNDER CURRENT LAW , A DIRECTOR CAN ALSO BE DISQUALIFIED WHERE HE OR SHE IS SHOW N, ON THE CIVIL BURDEN OF

PROOF, TO HAVE BREACHED KEY DIRECTORS' DUTIES. UNLIKE THE

CURRENT LEGISLATION, H O W EV ER, A D IRECTO R C A N N O T BE

DISQUALIFIED IF THE COURT IS SATISFIED THAT, DESPITE THE BREACH,

THE DIRECTOR REMAINS A FIT AND PROPER PERSON TO M ANAGE A

CORPORATION. THE EMPHASIS IN THE NEW PROVISIONS IS O N

EN CO U RA G IN G THOU GHTFU L BEHAV IOUR A N D D ISCOURAGING CARELESS, ILL-CONSIDERED BEHAVIOUR, NOT ON PUNISHING INNOCENT

EMPLOYEES AND OTHERS W HO MAY BE DEPEN D EN T FOR THEIR

LIVELIHOOD ON A SKILLED DIRECTOR REMAINING IN OFFICE.

AS WITH THE CURRENT LAW, THE COM PANY CA N ALSO RECOVER

COMPENSATION IN RESPECT OF DAMAGE CAUSED TO THE COMPANY BY

THE DIRECTOR'S BREACH.

6.

I'M VERY INTERESTED TO LISTEN TO THE BUSINESS COMMUNITY'S VIEWS ON THIS ISSUE. BUT YOU NEED TO KNOW THAT BOTH THE SENATE COMMITTEE AND THE GOVERNMENT SEE THE CONCEPT OF A CIVIL

PENALTY AS A USEFUL AND APPROPRIATE WAY OF DISCOURAGING NEGLIGENCE AND PROTECTING INVESTORS, WHILE LIFTING THE BURDEN OF THE CRIM INAL PROCESS FROM THE SHOULDERS OF HONEST

DIRECTORS.

THIS IS A GENUINE OPPORTUNITY FOR THE BUSINESS COMMUNITY TO HAVE A SAY IN THE LAW REFORM PROCESS. IT IS NO T, HOWEVER, AN

OPPORTUNITY TO SAY THAT THE GOVERNMENT SHOULD DO NOTHING.

THE ISSUES HAVE ALREADY BEEN IDENTIFIED. THE TASK BEFORE US IS TO FIND APPROPRIATE RESPONSES TO THESE ISSUES. LET'S HAVE SOME CONSTRUCTIVE SUGGESTIONS.

ADVISORY CO M M ITTEE REPORT O N C O R PO R A TE F IN A N C IA L

TRANSACTIONS

THE NEXT AREA I WANT TO TALK ABOUT IS THE LOANS TO DIRECTORS

PROPOSAL DEVELOPED BY THE COMPANIES AND SECURITIES ADVISORY COMMITTEE. THESE ARE ALSO INCLUDED IN THE CURRENT EXPOSURE

DRAFT BILL.

THAT AREA OF THE LAW IS ONE WHERE SELF-INTEREST CAN CLOUD, AND

IN MANY CASES H A S CLOUDED, THE JUDGMENT OF DIRECTORS (EVEN

BASICALLY HONEST DIRECTORS), AND I BELIEVE WE MUST TACKLE THE

ISSUE HEAD ON. WE MUST SHOW SHAREHOLDERS THAT NO-ONE HAS THE RIGHT TO USE COMPANY FUNDS FOR PERSONAL PURPOSES.

THE COMPANIES AND SECURITIES ADVISORY COMMITTEE TARGETED THIS

AREA AS ITS FIRST MAJOR PRIORITY. IT IS ESSENTIAL, IF WE ARE TO

RESTORE INVESTOR CONFIDENCE IN AUSTRALIA, THAT LOANS TO

DIRECTORS AND RELATED COMPANIES BE MORE CLOSELY REGULATED. ABUSES IN THIS AREA WERE ALSO A FEATURE OF THE CORPORATE

COLLAPSES OF THE LATE 1980'S. IT IS FOR THESE REASONS THAT THE

GOVERNMENT HAS INCLUDED THE ADVISORY COMMITTEE'S PROVISIONS

IN THE EXPOSURE BILL.

7.

I KNOW THESE PROVISIONS ARE DETAILED. THAT IS A DIRECT RESPONSE

TO THE TECHNIQUES USED TO EVADE THE CURRENT RULES IN THIS AREA.

THE TACTICS OF THE DISHONEST FEW, IN USING FAMILY COMPANIES AND TRUSTS, BACK-TO-BACK TRANSACTIONS, AND ANY NUMBER OF OTHER

"CREATIVE" DEVICES, HAVE HAD TO BE COUNTERED BY ADDING TO THE

LENGTH OF THE CORPORATIONS LAW IN THIS AREA. THERE IS N O OTHER WAY. INVESTORS MUST KNOW THAT THE LAW DOES NO T ALLOW ABUSES

IN THIS AREA.

AT THE SAME TIME, I DON'T THINK THE PATH THROUGH IS QUITE AS

DIFFICULT AS SOME CO M M EN TA TO RS HAVE SUGGESTED. THE

PROVISIONS RESULT FROM A N EXTENSIVE PROCESS OF PUBLIC CONSULTATION ENGAGED IN BY THE COMMITTEE PRIOR TO REPORTING TO THE GOVERNMENT. IN THE LIGHT OF COMMENTS RECEIVED DURING

THAT PROCESS, THE COMMITTEE HAS MODIFIED ITS ORIGINAL PROPOSALS TO FACILITATE GENUINE COMMERCIAL PRACTICES (SUCH AS IN THE AREA

OF GROUP TREASURY OPERATIONS). N O ONE IS SUGGESTING THAT THE PROVISIONS ARE NOT CAPABLE OF FURTHER IMPROVEMENT, BUT I HOPE THAT YOU RECOGNISE THE NEED FOR SOME TOUGHENING UP IN THIS AREA, A N D A PPRO A CH THE ADVISORY COM M ITTEE'S PROPOSALS

CONSTRUCTIVELY AND IN A CREATIVE FASHION. THAT'S WHAT THE EXPOSURE PROCESS IS ALL ABOUT.

I'D LIKE NOW TO SAY A FEW WORDS ABOUT THE OTHER MAJOR REFORM I

HAVE FORESHADOWED, W HICH RELATES TO CONTINUOUS DISCLOSURE.

CONTINUOUS DISCLOSURE

I AM TAKING A CLOSE PERSONAL INTEREST IN THE PROPOSALS FOR THE

INTRODUCTION OF A STATUTORY CONTINUOUS DISCLOSURE REGIME. I

DO NOT NEED TO TRAVERSE W ITH THIS AUDIENCE THE DEFICIENCIES

WITH THE PREVIOUS LAW IN THIS AREA. IT IS SUFFICIENT TO NOTE THAT

MANY OF THE PROBLEMS IN THE AREA OF CORPORATE REGULATION IN

THE 1980'S MAY WELL HAVE BEEN AVOIDED H A D A N EFFICIENT

DISCLOSURE REGIME EXISTED.

8.

THE RATIONALE FOR C O N TIN U O U S DISCLOSURE IS SIMPLE, BUT

FUNDAMENTAL. THOSE W HO HAVE FUNDS TO INVEST OR LEND IN THE

CORPORATE SECTOR CA N MAKE THE BEST DECISIONS O N THE

ALLOCATION OF THOSE FUNDS IF ALL RELEVANT INFORMATION ON

POTENTIAL INVESTMENTS IS DISCLOSED IN A TIMELY AND EFFECTIVE

MANNER. PUT ANOTHER WAY, A N APPROPRIATE DISCLOSURE REGIME IS ESSENTIAL TO ACHIEVE TRANSPARENCY A N D EFFICIENCY OF THE

MARKET FOR THE BENEFIT OF ALL PARTICIPANTS.

IT WAS FOR THIS REASON THAT I ASKED THE COMPANIES AND SECURITIES

ADVISORY COMMITTEE TO PRODUCE AS A MATTER OF URGENCY ITS REPORT O N AN ENHA N CED STATUTORY DISCLOSURE SYSTEM. IN

WELCOMING THAT REPORT LAST OCTOBER, THE PRIORITY I ATTACH TO THIS REFORM WAS REFLECTED IN MY ANNOUNCEMENT THAT I EXPECTED

LEGISLATION TO BE RELEASED FOR PUBLIC COMMENT BY AUGUST THIS YEAR.

INTERESTINGLY, THE SECURITIES INSTITUTE OF AUSTRALIA RELEASED LATE LAST MONTH A SURVEY OF MEMBERS W HICH REVEALS CURRENT, W IDESPREAD CONCERN AT THE PRESENT QUALITY OF FINANCIAL REPORTING IN AUSTRALIA. THE RESULTS OF THIS SURVEY HIGHLIGHT

THE NEED TO INTRODUCE AN APPROPRIATE LEGISLATIVE FRAMEWORK FOR DISCLOSURE OF RELEVANT FIN A N C IA L INFORM ATIO N AND EFFECTIVE ENFORCEMENT.

HOWEVER, SOME OF THE ADVISORY COMMITTEE'S RECOMMENDATIONS WOULD HAVE COST IMPLICATIONS FOR THE BUSINESS COMMUNITY. FOR THIS REASON I ASKED MY DEPARTMENT TO CONSULT CLOSELY WITH THE

BUSINESS COMMUNITY TO ENABLE AN ASSESSMENT TO BE MADE OF THE IMPACT OF THE PROPOSALS ON BUSINESS. THE REQUESTED TIME PERIOD

FOR COMMENT PASSED LAST M ONTH. HOWEVER, ANY INTERESTED

ORGANISATIONS W HICH HAVE NOT DONE SO CAN STILL MAKE THEIR

VIEWS AND THEIR ASSESSMENT OF THE COSTS INVOLVED KNOWN TO MY

DEPARTMENT IF THIS IS DONE AS A MATTER OF URGENCY.

9.

IT MAY BE HELPFUL IF I WERE TO MAKE SOME OBSERVATIONS, BASED ON THE WORK CARRIED OUT TO DATE AND THE COMMENTS FROM BUSINESS

RECEIVED SO FAR.

FIRSTLY, I SEE CONSIDERABLE MERIT IN THE VIEW OF THE COMPANIES

AND SECURITIES ADVISORY COMMITTEE THAT LISTED COMPANIES AND THEIR DIRECTORS SHOULD HAVE A STATUTORY OBLIGATION TO

DISCLOSE "MATERIAL MATTERS" WITHIN 24 HOURS. IN MY VIEW THERE

ARE REASONS OF PRINCIPLE AND PRACTICAL LEGAL CONSIDERATIONS

W HICH SUGGEST THAT THIS OBLIGATION SHOULD BE DIRECTLY IMPOSED

BY STATUTE AN D NOT LEFT SOLELY TO THE RULES OF THE STOCK EXCHANGE. O N THE OTHER H A N D , THE FACT THAT A SIMILAR REQUIREMENT NOW EXISTS IN THE ASX RULES SUGGESTS THAT THE COST IMPLICATIONS OF THE PROPOSAL NEED NOT BE SIGNIFICANT, AT LEAST IN

RESPECT OF LISTED ENTITIES.

WHATEVER THE FINAL SCOPE OF THE STATUTORY SCHEME, I ENVISAGE CLOSE CONSULTATION W ITH THE STOCK EXCHANGE TO ENSURE

MAXIMUM CO-ORDINATION AND CONSISTENCY IN THE OPERATION OF THE STATUTORY SCHEME AND THE ASX RULES.

THE QUESTION OF HOW FAR THE DISCLOSURE REGIME SHOULD EXTEND

BEYOND LISTED COM PANIES AND THE PRECISE NATURE OF THE

OBLIGATIONS TO BE IMPOSED ARE ALSO MAJOR ISSUES ON W HICH A

RANGE OF VIEWS HAVE BEEN EXPRESSED. VARIOUS TESTS HAVE BEEN

PROPOSED TO IDENTIFY THOSE ENTITIES W H ICH ARE OF SUFFICIENT IMPORTANCE TO JUSTIFY THE IMPOSITION OF DISCLOSURE OBLIGATIONS.

THESE REQUIRE CAREFUL EVALUATION TO ENSURE THAT COSTS ARE NOT

IMPOSED ON COMPANIES IN RESPECT OF W HICH THE PUBLIC INTEREST

DOES N O T JUSTIFY M ANDATORY DISCLOSURE. I AM AWARE OF

CONCERNS IN THE BUSINESS COMMUNITY AS TO THE SCOPE OF THE

COMMITTEE'S PROPOSALS AND WILL BE LOOKING CLOSELY AT THE

NATURE OF THESE CONCERNS.

THE COMMITTEE'S RECOMMENDATION THAT ALL EXEMPT PROPRIETARY

COMPANIES SHOULD HAVE TO LODGE THEIR ACCOUNTS HAS BEEN A

CONTENTIOUS ONE. THERE IS OF COURSE ALREADY A STATUTORY

10.

OBLIGATION ON ALL COMPANIES TO PREPARE ACCOUNTS AND PROVIDE

THEM TO THEIR ANNUAL GENERAL MEETING. THE ISSUE IS NOT THEREFORE ONE OF COST. RATHER, IT IS SUGGESTED BY SOME THAT

EXEMPT PROPRIETARY COMPANIES OUGHT TO BE ABLE TO KEEP THEIR FINANCIAL AFFAIRS CONFIDENTIAL.

THESE ARE SOME OF THE MAJOR ISSUES ON W HICH COMMENTS HAVE BEEN PROVIDED AND W HICH I WILL SHORTLY BE CONSIDERING. I AM

GRATEFUL TO THOSE W HO HAVE MADE CONSTRUCTIVE COMMENTS AND

SUBMISSIONS TO DATE AND WELCOME YOUR ONGOING INVOLVEMENT AS

WE MOVE TOWARD THE NEXT PHASE OF PREPARING AND EXPOSING FOR

COMMENT A DRAFT BILL.

IN THIS CONTEXT I'D LIKE TO COMMENT BRIEFLY ON THE COMMENTS RELEASED BY THE BUSINESS COUNCIL OVER THE WEEKEND. THE

BUSINESS COUNCIL'S SUBMISSION IS TIMELY AS MY DEPARTMENT IS CURRENTLY IN THE FINAL STAGES OF PREPARING RECOMMENDATIONS TO ME ABOUT CONTINUOUS DISCLOSURE. THE SUBMISSION WILL BE CONSIDERED IN THAT CONTEXT. WHILE I MAY NOT AGREE W ITH THE

CONCLUSIONS REACHED, THE SUBMISSION IS USEFUL IN THAT IT ADVANCES SOME OF THE ARGUMENTS AGAINST A STATUTORY REGIME.

HOWEVER, I MUST SAY THAT IT IS A MATTER OF SOME CURIOSITY THAT THE BUSINESS C O U N C IL'S ASSISTANT DIRECTOR IS Q U O TED AS

LAMBASTING THE ADVISORY COMMITTEE FOR TAILORING ITS ADVICE TO

POLITICAL PRESSURE, AN D PRODUCING ADVICE AT ODDS W ITH THE

BUSINESS COMMUNITY. THE FACT IS THAT THE MOST CURSORY GLANCE

AT THE MEMBERSHIP OF THE COMMITTEE CONFIRMS THE VERY HIGH

CALIBRE, AND CLEAR BUSINESS FOCUS, OF THE COMMITTEE. YOU MAY

NO T AGREE W ITH THE COM MITTEE'S RECOMMENDATIONS. BUT TO CRITICISE A HARD-WORKING AND HIGHLY-QUALIFIED COMMITTEE AS BEING CAPTIVE TO THE GOVERNMENT'S POLITICAL AGENDA IS OFFENSIVE

AND ABSOLUTELY LAUGHABLE.

LET ME CONCLUDE BY MAKING TWO COMMENTS IN RELATION TO THE

PROSPECTUS PROVISIONS. FIRST, THE ESTABLISHMENT OF A STATUTORY

CONTINUOUS DISCLOSURE REGIME SHOULD ENABLE SUBSTANTIAL

11.

STREAMLINING AND RATIONALIZATION OF THE CURRENT PROSPECTUS

REQUIREMENTS IN THE CORPORATIONS LAW.

IN THIS REGARD I HAVE ASKED MY DEPARTMENT TO THOROUGHLY EXAMINE ALL POSSIBILITIES, INCLUDING IN PARTICULAR W HETHER

PROSPECTUSES SHOULD CONTINUE TO BE REQUIRED FOR RIGHTS ISSUES BY LISTED COMPANIES. IT SEEMS TO ME THAT WHERE ALL MATERIAL

IN FO R M A TIO N ABOUT A CO M PA N Y H A S BEEN DISCLOSED IN

COMPLIANCE WITH A STATUTORY DISCLOSURE REGIME AND THERE IS AN ACTIVE MARKET FOR ITS SECURITIES, THEN THE OFFER OF ADDITIONAL SECURITIES TO EXISTING MEMBERS WITHOUT A PROSPECTUS WILL NOT INVOLVE ANY MATERIAL DIM IN U TIO N OF INVESTOR PROTECTION

PROVIDED UNDER THE CORPORATIONS LAW.

IN ADDITION, IT SHOULD BE POSSIBLE TO MODIFY THE PROSPECTUS

REQUIREMENTS FOR AT LEAST SOME COMPANIES W HICH ARE SUBJECT TO THE CONTINUOUS DISCLOSURE REGIME BY PERMITTING THE USE OF ABBREVIATED PROSPECTUSES. A PRIME EXAMPLE IN THIS REGARD

WOULD BE THOSE UNLISTED COMPANIES AND UNIT TRUSTS WHICH RAISE

FUNDS ON A CONTINUOUS BASIS.

I W OULD STRESS THAT ANY C H A N G ES TO THE PROSPECTUS REQUIREMENTS WILL NOT INVOLVE ANY OVERALL DEPARTURE FROM THE PRESENT RIGOROUS DISCLOSURE STAN DARD S. ALL THE

INFORMATION NEEDED BY INVESTORS TO MAKE INFORMED INVESTMENT

DECISIONS WILL BE REQUIRED TO BE DISCLOSED UNDER EITHER THE

CONTINUOUS DISCLOSURE OBLIGATIONS OR IN A PROSPECTUS.

SECONDLY, I SHOULD MAKE IT CLEAR THAT THE GOVERNMENT IS NOT

CONTEMPLATING A RETURN TO THE FORMER SYSTEM OF CHECKLISTS FOR PROSPECTUS CONTENTS AND PRE-VETTING. UNDER THE CO-OPERATIVE

SCHEM E, CHECKLISTS A N D PRE-VETTING O FTEN RESULTED IN RITUALISTIC COM PLIANCE W ITH THE STATUTORY REQUIREMENTS, W ITHO UT REGARD TO W HETHER THE RESULTANT PROSPECTUS

ACTUALLY PROVIDED INVESTORS WITH THE MATERIAL NECESSARY TO

MAKE AN INFORMED INVESTMENT DECISION. FURTHERMORE, THE PRE-

12.

VETTING OF PROSPECTUSES WAS COSTLY FOR BOTH BUSINESS A N D THE

REGULATORY AGENCY.

THE APPROACH TAKEN IN THE CORPORATIONS LAW HAS BEEN TO SHIFT

TO ISSUERS THE RESPONSIBILITY FOR DETERMINING WHAT INFORMATION

NEEDS TO BE PROVIDED TO INVESTORS. THESE PROVISIONS PLACE THE BURDEN AND INCENTIVE FOR PROPER DISCLOSURE ON THE PEOPLE W HO CAN BEST UNDERTAKE IT. FAR FROM RITUALISTIC COMPLIANCE, THEY

ENCOURAGE DISCLOSURE OF MORE RELEVANT INFORMATION, TO THE ULTIMATE BENEFIT OF BUSINESS AND INVESTORS. THERE MAY REMAIN SOME W HO WOULD LIKE A RETURN TO THE OLD SYSTEM - INDEED I HAVE

SEEN SOME RECENT PUBLICITY TO THIS EFFECT. HOW EVER, I

UNDERSTAND FROM MY DEPARTMENT'S CONSULTATIONS W ITH THE

BUSINESS COMMUNITY THAT THE GENERAL PROSPECTUS CONTENTS REQUIREMENT IN THE CORPORATIONS LAW IS WIDELY ACCEPTED AS AN IM PROVEM ENT U PO N THE C O -O PER A TIV E SCHEM E CHECKLIST APPROACH.

COMPLEXITY AND FREQUENCY OF AMENDMENTS TO THE CORPORATIONS

LAW

I'VE NOTICED RECENT COMMENTS THAT THE CORPORATIONS LAW IS TOO LONG, TOO COMPLEX AND AM ENDED TOO FREQUENTLY. BEFORE I FINISH, I'D LIKE TO TAKE A MOMENT TO FOCUS SQUARELY UPON THIS

ISSUE.

THE PEOPLE W HO TAKE THIS LINE OFTEN OVERLOOK THE FACT THAT

MANY OF THE AMENDMENTS CODIFY AN D CLARIFY THE COM MON LAW,

OR ADDRESS TODAY'S ISSUES WHERE THE COM M ON LAW HAS MOVED

TOO SLOWLY OR IN THE WRONG DIRECTION. THE RECENTLY RELEASED EXPOSURE DRAFT BILL, FOR EXAMPLE, WILL PUT THE LAW CONCERNING

RELATED PARTY TRANSACTIONS IN TO THE CORPORATIONS LAW,

INSTEAD OF LEAVING IT SCATTERED THROUGH A NUMBER OF LENGTHY AND CONFUSING DECISIONS O N EQUITY A N D FIDUCIARY DUTIES. SIMILARLY, A NUMBER OF PROVISIONS CON CERN ING ANTECEDENT

TRANSACTIONS ON THE WINDING UP OF A COMPANY WILL BE MOVED

FROM THE BANKRUPTCY ACT TO THE CORPORATIONS LAW, AND

13.

AMENDED TO MAKE IT CLEAR HOW THEY APPLY TO CORPORATE

INSOLVENCY AND NOT PERSONAL BANKRUPTCY. THE RATIONALISATION

OF THE CURRENT DIFFICULT AND CONFUSING CROSS-REFERENCES TO

THE BANKRUPTCY ACT WILL MAKE THIS AREA OF THE LAW MUCH

CLEARER AND EASIER TO DEAL WITH, AND IT W OULD BE ABSURD TO

SUGGEST THAT THESE PROVISIONS ADD TO THE COMPLEXITY OF

AUSTRALIA'S CORPORATE LAW.

IT IS THEREFORE QUITE INAPPROPRIATE TO SIMPLY COUNT THE NUMBER OF PAGES IN THE BILL IN ORDER TO DETERMINE W HETHER THERE IS A TREND TOWARDS MORE OR LESS COMPLEXITY. THE GOVERNMENT IS, OF

COURSE, WILLING TO CONSIDER WHETHER THE CORPORATIONS LAW

CONTAINS ANY REDUNDANCY W HICH CAN BE REMOVED WITHOUT

ALTERING THE SUBSTANCE. THE GOVERNMENT VERY M UCH WANTS TO MAKE THE CORPORATIONS LAW AS SIMPLE AS IS POSSIBLE, GIVEN THE CONSTRAINT OF THE INHERENT COMPLEXITY OF MODERN FINANCIAL

MARKETS.

AS REGARDS THE FREQUENCY OF AM ENDMENTS, I HAVE ALREADY COMMENTED ON THE FACT THAT THERE WAS A CRYING NEED FOR

SUBSTANTIAL LAW REFORM, AS THE CO-OPERATIVE SCHEME HAD FAILED

AS A MECHANISM FOR UPDATING THE LAW. THAT SAID, I BELIEVE THAT

AS A RESULT OF THE PROGRAM WE HAVE FOLLOWED LAST YEAR AND

OUTLINED FOR THIS YEAR, WE HAVE ELIMINATED THE BACKLOG. ONCE THE CURRENT REFORM BILL HAS BEEN DEALT W ITH, AND THE ISSUE OF

CONTINUOUS DISCLOSURE HAS BEEN RESOLVED, I BELIEVE THE

LEGISLATIVE FRAM EW ORK WILL APPROPRIATELY BALANCE THE INTERESTS OF BUSINESS AND INVESTORS. MORE TH A N THAT, I THINK THE

FRAMEWORK WILL BE THE EQUAL OF ANY OF OUR COMPETITORS, IN

TERMS OF ENHANCING INVESTOR CONFIDENCE IN OUR MARKETS AND

PROVIDING AN EFFICIENT FUNDRAISING ENVIRO NM ENT FOR OUR

COMPANIES.

I THINK THAT THE POSITION WILL THEN HAVE BEEN REACHED W HEN WE

CAN TAKE A STEP BACK AND TAKE STOCK OF THE NEW REGULATORY

REGIME. THIS IS NOT TO SAY THAT I WILL BE REFUSING TO CONSIDER

ANY AMENDMENTS, N O MATTER HOW LOGICAL THEY MAY BE. BUT

14.

W HAT I AM SAYING IS THAT I AM SATISFIED THAT WE WILL HAVE LARGELY CAUGHT UP W ITH THE MATTERS THAT NEEDED URGENT ATTENTION, AND IT WILL BE TIME FOR THE LAW REFORM PROCESS TO SLOW.

FOR THIS REASON, I AM KEEN TO ALLOW THE GREATEST OPPORTUNITY

FOR EVALUATION OF PUBLIC CO M M EN T O N THE BILL W H IC H IS CURRENTLY EXPOSED. THAT BILL DEALS WITH A NUMBER OF COMPLEX

ISSUES, AN D I HAVE N O IN T EN TIO N OF RUSHING IT IN TO THE PARLIAMENT. RATHER, I PLAN TO HAVE THAT BILL DEALT W ITH BY THE PARLIAMENT DURING THE BUDGET SITTINGS THIS YEAR.

CONCLUSION

AS YOU CAN SEE, THE AGENDA IS A CROWDED ONE AND ONE W ITH

W HICH THE GOVERNMENT NEEDS YOUR HELP. THE GOVERNMENT IS

RESPONSIBLE FOR BRINGING FORWARD PROPOSALS. BUT ONLY YOU CAN ENHANCE THE PARTNERSHIP BETWEEN GOVERNMENT AND BUSINESS BY PROVIDING CONSTRUCTIVE FEEDBACK ON THESE PROPOSALS.