Business Law Reforms to Boost Jobs and Economic Development

The Federal Government will introduce legislation in the Budget session to implement the most wide ranging reform of Australia’s corporate law to boost economic activity, small business and jobs.

Launching the reform package today, The Treasurer, Mr Peter Costello said the overhaul of the Corporations Law would make it easier for new businesses to be established and established businesses to expand.

Mr Costello said the reforms would streamline business practices and reduce red tape delivering on commitments made by the Government to the business sector. The CLERP proposals give legislative effect to a number of the recommendations of the Financial System Inquiry.

Key policy reforms under the reform program to be implemented include:

The Government will shortly release draft legislation for public comment to implement its policy proposals.

The Treasurer and the Parliamentary Secretary to the Treasurer, Senator the Hon. Ian Campbell, have consulted widely with business and consumer groups to ensure that the redrafted Corporations Law will be cost effective and provide a sound regime for the protection of investors.

To assist the Government in its deliberations, a Business Regulation Advisory Group (BRAG) was established consisting of representatives from peak business groups.

"Their input has been invaluable and the Government has greatly appreciated their contribution," the Treasurer said.

Further details of the Government’s policy initiatives will be included with the release of legislation for public comment.

CANBERRA

17 March, 1998

ATTACHMENT A: Policy Summary

ATTACHMENT B: Business Regulation Advisory Group Membership

The Government today announced that it would proceed with legislation to implement the Corporate Law Economic Reform program along the following lines:

1. Directors’ Duties:
   1. introduce a business judgment rule which would offer a safe harbour from personal liability for breaches of the duty of care and diligence in relation to honest, informed and rational business judgments; and
   2. introduce a statutory derivative action to enable shareholders or directors to bring an action on behalf of the company for a wrong done to the company where the company is unwilling to do so.
2. Accounting Standards:
   1. improve the institutional arrangements for the making of accounting standards by establishing a peak council of stakeholder organisations, the Financial Reporting Council (FRC), to oversee the accounting standard setting process and make our accounting standard setting body accountable to the FRC;
   2. modernise and update the development of accounting standards by giving priority to the harmonisation of Australian standards with International Accounting Standards Committee (IASC) standards with a view to their ultimate adoption in Australia. The timing of the adoption will be determined following a report from the FRC on the acceptance of international accounting standards in overseas markets, and on the progress that the International Organisation of Securities Commissions (IOSCO) is making on a core set of international standards; and
   3. improve the funding for the making of accounting standards by providing greater certainty for future funding, a greater spread of the cost burden among users and increased stakeholder commitment. Funding will be provided by the accounting profession, the users of standards (corporations) and government.
3. Fundraising:
   1. remove impediments to efficient raising of capital by facilitating the use of shorter prospectuses for retail investors, allowing the use of profile or key features statements for certain investments, removing the legal uncertainty for persons engaged in fundraising as to their liability by allowing due diligence defences to apply to the exclusion of the strict liability provisions of the Trade Practices Act, and providing a uniform defence to the corporation and persons involved in fundraising where they made reasonable inquiries and took reasonable care in preparing the prospectus;
   2. facilitate fundraising by small and medium sized enterprises (SMEs) by enabling an issuer to:
      1. raise up to $5m with an offer information statement without preparing a prospectus. The issuer would only disclose material information known to it and would not be required to undertake due diligence. Investors would be warned of the risks and the desirability of obtaining professional investment advice;
      2. raise up to $2m each year from up to 20 personal offers without issuing a prospectus;
      3. raise funds without a prospectus or other disclosure document from persons regarded as sophisticated investors ie those investing at least $500,000 or with net assets of $2.5m or gross income in previous 2 years of at least $250,000 or who a securities dealer considers to be an experienced and knowledgeable investor; and
   3. improve competition in capital markets by ensuring that sales of Federal government business enterprises (GBEs) are subject to the fundraising provisions.
4. Takeovers:
   1. To facilitate a more competitive market for corporate control, a bidder will be able to exceed the takeover threshold (more than 20 per cent of the total voting rights in a company) before being obliged to make a general takeover offer. To take advantage of this rule, certain conditions that reflect the equal opportunity principle underlying the takeover provisions must be met. These conditions include:
      • the bidder must start from below the 20 per cent threshold with only 1 acquisition being allowed before the mandatory bid requirement is triggered;
      • the bidder must disclose to the selling shareholder that the mandatory bid requirement will be triggered by an agreement to sell;
      • a bid for all the outstanding shares in the target must be announced immediately following the pre-bid agreement;
      • the bid must be for an amount at least equivalent to the highest price paid by the bidder in the last 4 months; and
      • target shareholders must be provided with an independent expert’s report.

      In addition, a bidder must not exercise control of the target until the mandatory bid is made; the bidder must demonstrate in their statement that they have the capacity to pay for the full bid to minimise credit risk; the bid must be for cash only and be unconditional; and no shares may be issued for a certain period after the announcement of a takeover without shareholder approval.

   2. modifying the compulsory acquisition rules for shareholders holding an overwhelming interest in a company, to allow the more efficient use of investment capital;
   3. improving takeover dispute resolution by a reconstituted Corporations and Securities Panel replacing the courts as the primary forum for resolving takeover disputes under the Corporations Law, with the exception of civil claims after the takeover has occurred and criminal prosecutions. The courts would only be able to grant an injunction having the effect of delaying or stopping a bid on the application of the Australian Securities Commission (ASC); and
   4. applying the takeovers code to listed managed funds schemes and Federal GBEs.

5. Financial markets and investment products:
   The Government has approved in principle the following proposals and will undertake extensive consultation with business and industry in developing legislation to implement these proposals:
   1. provide efficiencies and greater competition for financial markets by:
      1. having uniform regulation of financial instruments ie securities, derivatives, futures, foreign exchange, general and life insurance, superannuation and deposit accounts;
         introducing a new system of licensing for markets, financial dealers/advisers to protect investors and a consistent and comparable disclosure regime for all financial instruments including introducing due diligence defences for mandatory disclosures of information;
      2. introducing revised accountability mechanisms for the regulation of financial markets. The Treasurer would be responsible for licensing markets, clearing and settlement facilities and considering amendments to market rules. The Treasurer will be empowered to delegate certain responsibilities for these matters to the ASC; and
      3. updating regulation to take account of technological change by giving legislative recognition to close-out and market netting arrangements.

ATTACHMENT B

MEMBERS OF THE BUSINESS REGULATION ADVISORY GROUP

Mrs Catherine Walter (Chairman) Australian Institute of Company Directors

Mr Peter Barnett Business Council of Australia

Mr Leigh Hall Australian Investment Managers’ Association

Mr Rohan Jeffs Australian Chamber of Commerce and Industry

Mr Jeffrey Lucy Accounting bodies

Mr John Murray Small Business Coalition

Mr Robert Nottle Australian Stock Exchange

Mr Malcolm Starr Sydney Futures Exchange

Mr Les Taylor Australian Corporate Lawyers Association