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Wednesday, 8 April 1998
Page: 2738


Mr MILES (10:46 AM) —I move:

That the bill be now read a second time.

The measures proposed by this bill will complement those proposed by the Payment Systems and Netting Bill 1998 to enhance the effectiveness of arrangements within Australia's payments system. Presently, cheques are cleared via a specialised paper clearing stream within that system. As part of those clearing arrangements, and in accordance with longstanding practice, financial institutions collecting cheques deposited by their customers provisionally credit their customers' accounts with the amounts of the cheques deposited. The collecting institutions do not, however, normally allow their customers to withdraw those deposited funds until they are confident that a cheque will not be dishonoured.

Having regard to the revocable nature of cheques, and the uncertainty that could arise in the event of the insolvency of a participant in the payments system as to whether cheques drawn on the insolvent participant had been paid or dishonoured, it is not clear that other participants in the system would have a clear and unambiguous right to reverse the provisional credits they had made to their customers' accounts.

If unsettled cheques could not be treated as dishonoured, and the provisional credits reversed, collecting institutions would be required to bear the loss so occasioned and would have to prove in the winding up of the insolvent participant the amount of that loss. In that event, collecting institutions would have to wait for the reconstruction of the affairs of the insolvent participant or for the payment of a dividend in its winding up.

To enhance the integrity of Australia's payments system, the bill will make it clear that, in the event of the insolvency of a participant in that system, other participants will have a clear and unambiguous right to treat unsettled cheques as `dishonoured'. This will allow them to reverse the provisional credits made to their customers' accounts and `turnback' the cheques to their customers. As a consequence, their customers will be required to seek payment in lieu of the dishonoured cheques from the drawers of the cheques—that is, the persons who wrote the cheques. The drawers will, in turn, be required to prove in the winding-up of the insolvent institution for the monies they had deposited in that institution to meet their cheques.

The enhanced stability of the payments system, and ultimately the entire financial system, that will result from the measures proposed by this bill, will be to the benefit of depositors at large. I present the explanatory memorandum to the bill and commend the bill to the House.

Debate (on motion by Dr Theophanous) adjourned.