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Tuesday, 9 May 1989
Page: 2090

Senator ALSTON(5.48) —I welcome this opportunity to speak on what is certainly a very important package of legislation. Despite the fact that the Opposition disagrees with the ultimate position adopted by the Government in pursuing a national companies scheme, it is fair to say that the work undertaken by the Joint Select Committee on Corporations Legislation was of great value in identifying a number of important areas for reform. Ultimately the effectiveness of that work in the daily commercial operations of the market will be a reflection of the very assiduous work undertaken by the members of the Committee.

I would like to commence by saying that I certainly appreciated the opportunity to serve on the Committee. I appreciated the cut and thrust of the many non-partisan discussions that Senator McMullan has mentioned. I certainly thought that between us we were able to identify a number of areas for improvement. However, in respect of the fundamental need for a national companies scheme, I think that a lot of propaganda has been put around to justify what I think is ultimately a quite dangerous course of events. One of the virtues of the cooperative scheme was that there was a diffusion of responsibility.

I noted that Senator McMullan talked about accountability, and I suppose that, in one sense, this could be a sophisticated rerun of arguments about centralism because, quite clearly, one wants to know where power resides. But, in an area as sensitive as this, where there is a great capacity for people to intervene, improperly at times, and where the stakes are enormously high, there are overwhelming temptations to bring political pressures to bear. We saw that in relation to the Rothwells matter where the Commonwealth Attorney-General, Mr Lionel Bowen, declined to intervene on the spurious basis that it was a matter for the Western Australian State Government-although he well knew that a State election was imminent and, of course, nothing was done until afterwards. We know also that, because the National Companies and Securities Commission does not have an office in Western Australia, its delegate was the local Corporate Affairs Commission, and that there were certainly instances of even the Chairman of the NCSC being prevailed upon not to disclose the name of Mr Laurie Connell, to approve the rescue package without publicising all the details, and in many ways, I think, to provide preferential treatment to one who would have been best brought undone much earlier. That should ring alarm bells for us because it means that we should be vigilant in the extreme. If there are virtues deriving from having a cooperative scheme with a diffusion of power and responsibility, then that may well be a very important safeguard. But what is proposed by the Government in this centralised scheme is effectively a concentration of power which will enable both the Attorney-General's Department and ultimately the Commonwealth Attorney-General to exercise what could well be unhealthy influence.

I noted that Senator McMullan and others have said that transparency now derives from the fact that one can require the tabling of a ministerial direction. But I am sure that we are all aware that influence can be brought to bear in many subtle ways, and certainly where it is possible for a Minister to give a formal direction it is equally possible for him to indicate in advance that that is his intention, and in such a situation it is not hard to envisage that people might well back off. Certainly, I think that is a matter for concern.

I think the way in which commercial settlements have been achieved in a number of instances leaves a lot to be desired. I am one who is less inclined to favour plea bargaining in this area. I think there is a very significant demonstration effect, and ultimately a deterrent, when corporate players know that the watchdog has the necessary powers and is prepared to exercise them. But if the NCSC is starved of funds and is under great pressure not to waste money on expensive litigation, the temptation for it to seek to achieve a so-called commercial settlement can often be at the expense of either a conviction or an investigation being taken to its proper conclusion. The Bell-Bond-State Government Insurance Corporation (SGIC) saga was probably the classic example of that. The difficulties were compounded by the fact that the shield of the Crown hovered like a sword of Damocles over all of the litigants and ultimately was able to be exercised to the benefit of not only the SGIC but also the Bond Corporation itself. I think one can say that there were very good grounds for suspecting that if the shield of the Crown had not been a factor, the NCSC may well have gone much further than its tentative view that Bond and the SGIC had been guilty of unacceptable conduct. Nonetheless, I think it is necessary to have that ultimate power to achieve a commercial settlement, and we should support the recommendation of the Committee that any obstacles that might inhibit that should be removed.

In respect of the panel system, I must say that, as I understand it, at present the Government is accepting the minority report which proposes that there be a separation between the Australian Securities Commission (ASC), as the investigator, and the panel as the adjudicator. As one with some legal training, I am very much aware of the need to achieve that separation of powers; it can indeed be an overwhelming temptation at times for an over-zealous prosecutor to seek to intimidate those whom the prosecutor believes have been guilty of some wrongdoing. In many ways it is a fundamentally important part of the legal process to have this separation of powers-to have a safety valve and not simply a regulator which is able to threaten that its preliminary view will be confirmed by itself unless certain action is taken.

The concept of natural justice is certainly very fashionable these days, but the essential ingredients of the principles of natural justice are that one has a right to be heard, and to be heard by a tribunal free of bias. It is very difficult, where the prosecutor is the judge and jury, for a litigant to get a fair hearing. I think there is a very real danger-although there is not very much evidence of it to date-that where the NCSC or its successor body is out to make its mark and where it believes there has been some reprehensible conduct, it will in effect use its powers in terrorem and will seek to achieve commercial settlements and various other arrangements that should not properly be its province but should ultimately be decided upon by an independent body such as the panel. For my part, I must say that I am still attracted to the virtues of a panel that is separate and distinct from the investigating body.

There was some considerable concern and constitutional doubt about the legitimacy of the Commonwealth approach. As time went by, the legal opinion of Sir Maurice Byers assumed the status of holy writ, and there were very few who were prepared seriously to take issue with it. In fact, it was very late in the day that the Committee received a submission from the Law Institute of Victoria which I thought raised some very serious doubts about matters which went to the heart of the opinion. For example, the question of whether a company is a trading corporation or a financial corporation needs to be determined on a case by case basis. Byers himself concedes that the ambit of `companies' would not extend to recreational, scientific, educational or charitable companies, and clearly there would be doubts surrounding listed companies which were merely holding companies. Similarly, there would be other unincorporated associations, building societies and friendly societies which would not be susceptible to even this extended definition of the corporations power. So the notion that somehow a national scheme will encompass all of these bodies is quite misguided. The fact is that there will continue to be a need for State legislation to regulate the activities of a whole range of corporate and semi-corporate bodies and, of course, there will need to be transitional arrangements to ensure that those that are properly amenable are dealt with fairly. There is a conspicuous absence in the legislation of any such transitional provisions.

As I think I said earlier, we have heard quite a deal of hyperbole. I recall Senator Macklin claiming that the principal justification for this national approach what that, as the Business Council of Australia would argue, it is unrealistic to have a cooperative scheme when we are aspiring to operate in an international business environment. In the evidence before us we did not come across any examples of Australian corporations that experienced difficulties in the international arena as a result of any failings in the cooperative scheme. Certainly Elders might complain about the United Kingdom Monopolies Commission or Bond might blame a range of other factors but no-one at any stage suggested that our ability to operate internationally is impeded by the form of companies and securities legislation in this country. So the minority on the Committee found talk of that type of internationalisation of the financial community as essentially sloganistic and misleading in this context. We all recognise the need to have an international and export-oriented approach, but that is not the same thing as saying that we need to have national companies legislation. In many ways that proposition is a red herring.

The second major argument that is often advanced to justify a national scheme is that it is necessary to have accountability to parliament and to ensure that there is direct responsibility for the action of regulators and others. The Committee did not have provided to it any examples of actual or proposed changes in Commonwealth power which were necessary in that regard. Indeed, I do not think one can really point to any examples of why parliaments currently are not fulfilling their role.

There are a number of constitutional traditionalists, I think, who express concerns that somehow the Parliament is being frozen out of the process, but I think that is a little precious. The primary concern should be whether the community at large is agitated about the speed of the process, about the accountability and administration of companies and securities law. We simply did not get any submissions that expressed concern on that basis. It was really a lawyer's point. I do not think that is sufficient reason for saying that somehow the ability of the Commonwealth is non-existent and that the States are rubber stamps. The Ministerial Council constitutes a diffusion of responsibility. If it wants to seek amendments to the legislation then it must bring them before both Commonwealth and State parliament. In that instance I think there is the capacity for legislative intervention and, ultimately, parliamentary supervision.

The notion of a joint standing committee on corporations is very valuable. It predates Senator Macklin's recommendation, as I recall it. I do not know whether it goes back to the Rae Committee, but I seem to have read about that suggestion some years back. Nonetheless, it was well picked up by Senator Macklin. It will go a long way towards allaying some of the concerns people might have about the way in which the Ministerial Council might have operated in the past or the way in which the Department or the Minister might operate in the future. There will be opportunities to voice concerns without too great a period of delay because, after all, time is often of the essence in these matters.

The third area of supposed justification for having a national scheme was that somehow there is currently administrative duplication and general inefficiency. I thought that concern was greatly overstated. The examples that were given to us were essentially trivial. Again, I could not see how it could be said that the efficient operations of companies and securities law in this country is currently impeded.

In this day and age, with fax machines able to operate around the world and certainly interstate, there is no reason why people cannot get all that they require from the State corporate affairs commissions. Certainly, with a computerisation of their corporate data bases there should not be any difficulties in obtaining all the information that might be required by way of company and business name searches. Again, I think that concern was overstated. Since these were, I thought, tendentious propositions that did not really address the way in which the system operates at the moment, taking the range of submissions into account I think one could say that by and large the system works pretty well.

I will say a few words about takeovers. I find myself in a minority of two with Senator McMullan in respect of the requirement for the prevetting of takeover documents.

Senator Richardson —You were in a majority this morning.

Senator ALSTON —I presume that Senator Richardson is an expert in this field. It depends on what one regards as important. At the moment all we are concerned about is corporations. The discussion about the virtues or prevetting was very interesting. It is probably a classic case of the Government going to water. It has a number of analogies in the current drive for micro-economic reform where the Government holds itself out as the big deregulator but where all it is doing is reregulating. We will be debating the telecommunications Bill shortly-a classic example of setting up a structure that has all sorts of unnecessary licensing provisions and regulatory arrangements, all designed to protect Telecom's monopoly rather than to promote competition. I think it comes through again very much here.

The Government's initial proposal was that there was no need for prevetting in relation to either prospectuses or takeover documents, simply because there is a capacity in others to do the work that is currently done by administrative officials. I ended up thinking that there was something to be said for an independent review of prospectus documents. Quite often there are fly by night operators who do not operate under the same constraints as publicly listed companies which might engage in takeover operations and which want to be around for the next game.

Prospectuses are in a slightly different position. People can make overblown claims in the hope of making a quick quid and disappearing. So there is a justification for retaining prevetting in that area, but when it comes to takeover documents the Government started out with the right approach, and that was that the target company is the one that is perfectly equipped to find fault with the part A statement. If it is motivated to dispute the matter it will take it to court. It should have the carriage of the action and it should decide the extent to which it wants to disagree with it. But there should ultimately be an ability in the regulator, in this instance, I suppose, the ASC, to intervene if necessary in the public interest. If minority shareholders' rights are not being protected then clearly there is a need for a watchdog to intervene.

But there is no need at all in my view for it to be necessary to have every document scrutinised. All that does is give lawyers a parachute ultimately to pass the buck but still charge vast amounts of money. I think that is unnecessary. It does not really add much to the process. It certainly slows matters down a bit because someone else has to plough through the document, and as with all bureaucrats there is often an irresistible temptation to justify one's existence by coming up with some matters that need attention. Ultimately, as I say, it is regrettable that the Government went to water on this issue because it involves a bit of intestinal fortitude to throw the matter open and to remove the shackles. Ultimately, I suppose the Government was afraid that one mistake might be made and someone would squeal that there should have been government supervision. That then becomes the justification for doing it in every instance. That is the height of inefficiency.

I will say a few more words on shield of the crown, which I think is still a very important issue. I am very pleased that Senator Cooney's committee, the Senate Standing Committee on Legal and Constitutional Affairs, will be investigating it. In an era of increasingly commercial activities by government business enterprises it becomes imperative when they get into the marketplace and engage in takeovers, joint ventures and other commercial operations that they be subject to the same benefits and disbenefits as other players. That is manifestly not the case at present. The Government has a strange reluctance to do anything about it. Certainly the States have been paranoid about any suggestions of removing the shield and, hopefully, when the Senate Committee has had the opportunity to demonstrate why there does need to be reform in the area, the Government will be prepared to bite the bullet. But I am sure that it will have to be driven to do so.

Ultimately, therefore, I conclude by saying that I think there are quite a number of areas where sensible reform can be achieved, where an enhanced cooperative scheme can be made to work even better and to accommodate the concerns of not just State administrations but State corporations that have voiced very real objections. The opportunity was there for the Government to have accommodated all those concerns, but instead it chose to adopt this centralist approach. Whether it is a monument to the Attorney-General or simply a desire to accumulate more power in the hands of a Minister or a department we will never know, but the end result I think is one that is unnecessary. It may well throw up some very real concerns about concentration of power and influence. I think it is certainly unnecessary on the evidence before the Committee. I join with my Opposition colleagues in opposing the Government amendments.