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Tuesday, 23 May 1972
Page: 1896

Senator GREENWOOD (VictoriaAttorneyGeneral) - by leave - For the information of honourable senators 1 present the Sixth Interim Report of the Company Law Advisory Committee. This report deals with the selling of shares by what is known as sharehawking

The Company Law Advisory Committee was appointed by the Standing Committee of Commonwealth and State AttorneysGeneral in August 1967 to inquire into and report on the extent of the protection afforded to the investing public by the existing provisions of the uniform Companies Acts and to recommend what additional provisions, if any, are reasonably necessary to increase that protection. The Committee consists of Mr Justice Eggleston, as Chairman, Mr J. M. Rodd, a Melbourne solicitor, and Mr P. C. E. Cox, a Sydney accountant. The terms of reference of the Company Law Advisory Committee cover a number of topics and the Advisory Committee has furnished interim reports on particular topics as it has completed its consideration of those topics. The first five reports have also been tabled. The first report dealt with accounts and audit; the second with substantial shareholdings and takeovers; the third with investigations; the fourth with insider trading, and the fifth with the control of fund raising, share capital and debentures.

An Ordinance to give effect to the recommendations contained in the second report, dealing with substantial shareholdings and takeovers, has already been made for the Australian Capital Territory. It is expected that a Bill for a similar Ordinance for the Northern Territory will be introduced in the Legislative Council of the Northern Territory shortly. The fifth report, dealing with the control of fund raising, share capital, and debentures, is still under consideration by the Standing Committee.

The Standing Committee has accepted the recommendations contained in the first, third, fourth, and sixth reports, subject to certain matters which I shall shortly mention. The Commonwealth Government has considered these reports and has decided to take action to have the Companies Ordinances of the Australian Capital Territory and the Northern Territory amended to give effect to those of the recommendations that have been accepted by the Standing Committee. I shall now briefly indicate the general nature of the recommendations made in these reports, and refer to those recommendations which the Government, in accordance with recommendations of the Standing Committee of Attorneys-General, has decided not to accept.

The first report made a number of recommendations to tighten the existing provisions relating to accounts and audit. Without canvassing the report in detail, I mention that it recommended that a subsidiary company should be required to disclose in the accounts, or in a note to them, the name of the corporation regarded by the directors as being the company's ultimate holding company, and, if it is known to them, the country in which it is incorporated. It also recommended that the position of auditors should be strengthened for the protection of investors, and that there should be provision for the disclosure of the aggregate of all emoluments of directors apart from, in the case of directors in the full-time employment of the company, the amount paid to them by way of fixed salary as an employee of the company. There were 2 recommendations in the first report that were not accepted by the Standing Committee. These recommendations related to the establishment of a companies commission and to the disclosure of turnover.

The companies commission proposed by the Committee was to be a body to grant dispensations from the requirements of the legislation where compliance with those requirements would operate harshly. I point out that the companies commission was in no way intended to operate as a securities and exchange commission. The Committee's recommendation gave rise to considerable constitutional and practical difficulties in the light of which the Standing Committee decided not to establish a commission of the kind proposed. Instead, the Standing Committee decided that necessary dispensing powers should be vested in the Registrars of Companies - or Commissioners for Corporate Affairs, where established - with statutory directions that those officers should consult with each other.

The first report also contained a recommendation that there should be a requirement to disclose turnover. In making that recommendation, the Company Law Advisory Committee stated that it did not regard such disclosure as a major weapon for the protection of investors and indicated that it considered that any such requirement should be accompanied by a power of dispensation which would be exercised by the companies commission it proposed and to which I have already made reference. Having regard to its decision not to establish such a companies commission and to the Company Law Advisory Committee's conclusion that the requirement would not, in any event, be a major weapon for the protection of investors, the Standing Committee decided against including the requirement.

The third report recommended that the existing provisions of the uniform companies legislation relating to inspections and special investigations should be integrated and that all company investigations should have to be authorised by the GovernorinCouncil, in the case of the Australian Capital Territory and the Northern Territory, the Governor-General. The various recommendations contained in this report were accepted by the Standing Committee except for two relating to the publication of reports and the payment of costs. One of these was that before publishing the report of an investigation, the responsible Minister should certify that he had considered the probable effect of the publication on the interests of the various persons who might be affected by the report and was satisfied that the public interest required that the report or that part of it should be published. The Standing Committee felt that under the ordinary doctrine of ministerial responsibility the Minister would have regard to these matters and to many others and that it was undesirable to attempt to prescribe the extent of his responsibility.

The other recommendation in the third report that was not accepted by the Standing Committee was that the costs of any investigation should be paid for out of public funds. The Standing Committee took into account that in some cases it is appropriate for the costs of the investigation, which may be substantial, to be paid for out of the company's own assets. The fourth report was a short one, and recommended that the uniform companies legislation should be amended to deal more effectively with the misuse of confidential information and what is known as 'insider trading'. As I mentioned earlier, the Government proposes to take action to implement the first, third, fourth and sixth reports except in relation to those recommendations that have not been accepted by the Standing Committee and to which I have already drawn the Senate's attention.

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