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Thursday, 21 June 2001
Page: 28276


FRAN BAILEY (10:42 AM) —The Appropriation (HIH Assistance) Bill 2001 will provide for the federal government to fund a scheme to assist people who have experienced hardship as a result of the HIH collapse. The bill will also provide for the formation of a non-profit company, HIH Claims Support Pty Ltd, to process the claims of those HIH policyholders suffering hardship as a result of HIH being unable to honour its commitments.

In particular, the government has identified HIH salary continuance policyholders as deserving the quickest assistance possible. It will pay to Australian citizens and permanent residents who previously received benefits from HIH under salary continuance policies 100 per cent of the amount that HIH would have been obliged to pay under the policy. People with salary continuance policies have already received cheques, including people in my electorate. They have requested that I express their relief at receiving this payment. In some instances, payments received have been for as far back as three months salary continuance. Understandably, prior to the government taking action, the non-payment of these salary continuance policies by HIH was causing considerable strain and concern among many people whom I represent. The restoration of these benefits means that people can start to get on with their lives without worrying about whether or not they are going to receive their salary and be able to meet mortgage payments and day-to-day living expenses.

Importantly, the government is assisting those people who are most in need—people who were facing ruin by the HIH disaster. The government is fulfilling what I believe to be its humane obligation to ensure that those most in need do not fall through the net and suffer hardship. As the Minister for Financial Services and Regulation has said, this is a very generous and very compassionate package. This package is not about setting a precedent for the rescue of corporate financial services collapses; rather it is quite rightly dealing with and responding to exceptional circumstances. Government should not stand idly by when people, through no fault of their own, suffer hardship that adversely impacts on their ability to support themselves.

The upgrading of the government's assistance package to $640 million will help about 30,000 of the hardest hit policyholders. The package will also cover small businesses with fewer than 50 employees, who will be eligible to receive 90 per cent of the value of their claims. The government will also meet the full cost of personal injury policies.

The collapse of HIH Insurance has had a far reaching impact across Australia, causing hardship for many Australians, including HIH policyholders, shareholders and those people who, through no fault of their own, have been inextricably caught up in this corporate disaster. The HIH collapse raises many serious questions about corporate responsibility, in particular the responsibility of company directors and the moral, social and economic obligations that they have to their shareholders and consumers. According to the HIH 2000 annual report, the company had gross premium revenue of $2.8 billion, total assets of $8 billion, total liabilities of $7.1 billion and net assets of $900 million. Yet, despite this balance sheet, HIH was placed into liquidation only months later, with losses of $800 million. The provisional liquidator warned that it could take up to 10 years before some creditors were paid.

The HIH collapse has led to ASIC launching its biggest ever investigation. In the 2001-02 federal budget, ASIC was provided with additional funding of $5 million over two years to assist with its investigation of HIH. Many people are now asking how this happened. How could a company that purported—on paper at least—to have a healthy balance sheet just a few months later be placed into liquidation? Shareholders and policyholders could quite rightly ask, `What were the company directors and APRA doing?' There appears to have been little in the way of corporate responsibility, because HIH was insolvent with a shortfall of up to $4 billion when it collapsed in March. A year before the collapse, HIH's actuarial adviser had warned HIH management that its accounting practices could have `disastrous consequences'. According to the provisional liquidator, the financial position of each of the three main licence holding companies within the HIH group was worse than the stated balance sheet position by a very significant margin in each case.

ASIC expanded its investigation in early May to include looking at whether HIH was solvent as early as July 1998, which was months before HIH bought the FAI Insurance Group for $300 million. APRA gave the green light to HIH to buy FAI in early 1999, because it believed the takeover did not harm HIH's financial position. Indeed, the Australian Stock Exchange revealed that its concerns about HIH went back to September 1998 when, before its takeover of FAI Insurance, HIH conducted an on-market purchase of the 14 per cent stake in FAI owned by then FAI managing director, Mr Rodney Adler. The Australian Stock Exchange referred the matter to ASIC, which took no action.

Reports in the media have suggested that APRA did not make full use of its regulatory powers prior to the collapse of HIH. APRA's role is to monitor insurance companies under the Insurance Act. In the case of HIH, it is unclear whether APRA made full use of its regulatory powers prior to the collapse of HIH. However, the Insurance Act does not prevent company failure. APRA may appoint an inspector to examine the company's affairs where it is considered to be in the public interest. APRA has no power to ensure that all policyholders have their claims met in the event of insolvency. It may be that APRA's regulatory powers need to be strengthened.

Company directors and management must not be allowed to use public companies as their personal cash cows. In our modern capitalist society, it is certainly important that people be rewarded for their efforts, and I do not believe that anyone in this place would deny that. However, there has to be accountability to the shareholders and consumers. There must be in place at all times sufficient checks and balances to ensure that public companies are run prudently and are at all times solvent. It is becoming increasingly clear in the case of HIH that company directors and management were not diligent or accountable in carrying out their duties. Many Australians, and I am certainly one, find it absolutely abhorrent that executive company directors could and did continue to receive large bonuses even when their company was struggling financially and they were clearly not performing to a level that justified the level of such bonuses.

I am not suggesting that the answer to this is to impose draconian regulations on the operation of public companies and their directors, but I do strongly believe that regulations do need to be tightened and strenuously enforced, that there must be the highest prudential standards of responsibility for company directors and that these company directors must be held accountable for their decisions. These responsibilities must not only take into account the economic consequences of their decision making and actions but also acknowledge both the moral and social consequences of their decisions. At the end of the day, the decisions that these people make can have a profound influence on the livelihoods of innocent third parties. The effects of the HIH collapse have been devastating for individuals, families and small businesses, many from the areas that I represent.

The government's decision to hold a royal commission is a significant step in the right direction. The federal government is committed to getting to the bottom of the HIH collapse and will cooperate fully with the royal commission. I hope the state governments will also give their unequivocal backing to the royal commission. In the case of HIH, I believe that government does have an obligation to act and implement this assistance package to ensure that HIH policyholders are not simply left as victims of such a disgraced company that abrogated its responsibilities to its policyholders. I commend this bill to the House.