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FINANCIAL SECTOR REFORM (AMENDMENTS AND TRANSITIONAL PROVISIONS) BILL 1998—SENATE[quot ]S AMENDMENTS

The order of the day having been read for the consideration of the amendments made by the Senate—

On the motion of Mr Miles (Parliamentary Secretary (Cabinet) to the Prime Minister), Senate amendments Nos. 1 to 4 and 6 to 30 were agreed to.

Mr Miles moved—That Senate amendment No. 5 be disagreed to.

Debate ensued.

Question—put.

The House divided (the Deputy Speaker, Mr Nehl, in the Chair)—

AYES, 81

Mr AbbottMr DownerDr KempMr Scott
Mr AndersonMrs DraperMr LiebermanMr Slipper*
Mr J. N. AndrewMrs ElsonMr LindsayMr W. L. Smith
Mr K. J. AndrewsMr EntschMr LloydMr Somlyay
Mr AnthonyMr R. D. C. EvansMr McArthur*Dr Southcott
Mrs BaileyMr FaheyMr McDougallMrs Stone
Mr R. C. BaldwinMr FischerMr McLachlanMrs Sullivan
Mr BarresiMr ForrestMr MarekMr Taylor
Mr BartlettMs GambaroMr MilesMr A. P. Thomson
Mr BillsonMrs GashMrs MoylanMr Truss
Mr BradfordMr GeorgiouMr MutchMr Tuckey
Mr BroadbentMrs E. J. GraceMr NairnMr M. A. J. Vaile
Mr BroughMr HalversonDr NelsonMrs D. S. Vale
Mr CadmanMr HardgraveMr NevilleMr Wakelin
Mr E. H. CameronMr Hicks*Mr NugentMrs West
Mr R. A. CameronMr HockeyMr ProsserMr Williams
Mr CausleyMs JeanesMr RandallDr Wooldridge
Mr CharlesMrs JohnstonMr ReidMs Worth
Mr CobbMr JullMr Reith
Mr CostelloMrs D. M. KellyMr Rocher
Mr DondasMiss J. M. KellyMr Ruddock

NOES, 45

Mr AdamsMr L. D. T. FergusonDr LawrenceMr Price
Mr AlbaneseMr M. J. FergusonMr LeeMr Quick
Mr P. J. BaldwinMr FitzgibbonMr McClellandMr Sawford*
Mr BeddallMr E. L. Grace*Ms MacklinMr Sercombe*
Mr BreretonMr GriffinMr McLeayDr Theophanous
Mr BrownMr HattonMr McMullanMr K. J. Thomson
Mr CreanMr HoldingMr MartinMr Willis
Mrs CrosioMr HollisMr MelhamMr Wilton
Mr DargavelMr JenkinsMr A. A. MorrisMr Zammit
Ms EllisMr JonesMr P. F. Morris
Mr G. J. EvansMr KerrMr Mossfield
Mr M. J. EvansMr LathamMr O[quot ]Connor

* Tellers

And so it was resolved in the affirmative.


Mr Miles moved—That Mr J. N. Andrew, Mr Hicks and the mover be appointed a committee to draw up reasons for the House of Representatives disagreeing to amendment No. 5 of the Senate.

Question—put and passed.

Mr Miles, on behalf of the committee, brought up reasons, which were circulated, and are as follows:

Reasons of the House of Representatives for disagreeing to amendment No. 5 of the Senate

The amendment proposes:

(a) the insertion of a new Division 6A into Part 3 of the Corporations Law to extend the liability of bodies corporate to cover the debts of related insolvent companies if the Court thinks "just"; and

(b) repealing section 1317HD of the Corporations Law which provides that corporations may recover compensation from persons contravening the civil penalty provisions of the Corporations Law for loss or damage suffered as a result of the breach, and reintroducing the section to include corporations, creditors and the Australian Securities Commission as allowable applicants for such action.

The House of Representatives does not accept the Senate amendments, which present very serious practical difficulties and far-reaching unintended consequences.

SYMBOL 183 \"Symbol" \10.5 The provisions give little guidance to parties and their advisers as to permitted and non-permitted conduct. The "just" test is applied by the Court in hindsight which dramatically increases uncertainty in business decision-making.

SYMBOL 183 \"Symbol" \10.5 The erosion of "firewalls" around entities may have very severe confidence effects on conglomerates, due to over reactions to news of potential claims.

 — In the case of financial institutions, depositors may over react to news of claims on a deposit-taking institution by creditors of a related member of the conglomerate. A run on the deposits of institutions could then spread to others.

 — The undermining of confidence in conglomerates is likely to unnecessarily adversely affect share prices.

SYMBOL 183 \"Symbol" \10.5 The likely increase in litigation arising from claims by a range of different creditors could frustrate the timely and cost-effective administration of an insolvent company, thereby prejudicing the claims of the main body of creditors.

SYMBOL 183 \"Symbol" \10.5 Allowing creditors to sue directors of financially healthy companies effectively gives them a statutory derivative action, something which even shareholders do not currently have. Further, the derivative right has no safeguards against abuse, in contrast to the Government[quot ]s proposed statutory derivative action for shareholders under the Corporate Law Economic Reform Program.


The House of Representatives believes that the issues should be considered in a comprehensive fashion and in a wider policy context than simply by amendments to the Corporations Law.

In addition, amendments to the Corporations Law generally require the approval of the Ministerial Council for Corporations ([quot ]MINCO[quot ]) under the Corporations Agreement that underpins the national regulation scheme for companies and securities. The issue of protection of employee entitlements and asset-stripping has already been placed on the agenda of the next meeting of MINCO by the New South Wales Attorney-General, the Hon. JW Shaw QC, MLC. The House of Representatives will not support any amendments prior to MINCO considering their full impact on the Corporations Law and policy.

On the motion of Mr Miles, the committee[quot ]s reasons were adopted.