Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Hansard source

I also rise to take note briefly of the report of the Parliamentary Joint Committee on Corporations and Financial Services on the statutory oversight of the Australian Securities and Investments Commission. I want to make some short comments in relation to the business judgement rule issue that Senator Chapman referred to. Can I say at the outset that we on the opposition side also add our thanks to the officers of ASIC for their assistance and appearance before the committee and for the provision of information as requested by committee members.

One of the issues that was raised in this hearing and also in the estimates hearings which preceded it was the government’s floating of a proposed extension to the business judgement rule. It was of some concern to a number of committee members that it appeared that the government had not in fact asked ASIC, the regulator, for advice as to what the effect of extending the business judgement rule might be. The evidence of ASIC before this committee and also before the estimates committee, which is referred to in the report, was that ASIC retains substantial concerns as to the risks or difficulties that might be associated with enforcement should there be an extension to the business judgement rule.

What has been proposed by the parliamentary secretary—or floated by him—is an extension to the rule so that it would apply to a great range of duties in the Corporations Law, including the duty not to trade whilst insolvent. I do want to make the point that Labor is willing to have a discussion with ASIC, hopefully CAMAC—that is, if the government is actually going to ask CAMAC, which is supposed to be an advisory body, for its advice in relation to this proposed change to the Corporations Law—and also the business community about the merits of such a change.

However, we do note, as does the committee, the potential risks as to law enforcement difficulties which may arise from the proposed change. Some of these concerns have been raised not only by ASIC but also by the legal community. Clayton Utz is one law firm that has indicated some issues with this. It has stated that such a change would introduce a new defence to insolvent trading that could be significantly easier to establish than the defences currently available to directors, which could in turn lower the overall standard of company directors. The concern is being backed by the Corporations Committee of the Business Law Section of the Law Council, which has stated that such an extension of the business judgement rule to issues such as insolvent trading and the keeping of books and records is a significant policy change with potentially far-reaching consequences for the management of companies.

I am pleased that the committee members of the Joint Committee on Corporations and Financial Services have seen fit in this report to all agree to a recommendation that seeks that ASIC provide advice to the Australian government on any concerns regarding the enforcement effects of such a proposal. We welcome a discussion about these and other changes to the Corporations Law which have been floated by the government. However, I want to make this point: we ought to take a genuine cost-benefit analysis approach to consideration of these changes. I also point out that a reduction in the standards of behaviour, particularly as they would extend to insolvent trading, may have consequences for those, including other corporations and businesses, with whom a company transacts. So there is an argument, one would have thought, that it may in fact introduce a greater level of uncertainty for a great many businesses rather than simply alleviating the duties that apply to some.

I welcome the committee’s agreement to asking ASIC to explore and give advice to the Australian government on these enforcement related issues. I hope that the government will actually take that into account. I also place on record my hope that the government will actually refer this issue also to CAMAC, as a body that obviously has significant expertise in the area of Corporations Law, for advice so that this proposal can be properly considered.