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

I move:

That the Senate take note of the document.

I wish to speak briefly on the Auditor-General’s report on ASIC’s processes for receiving and referring for investigation statutory reports of suspected breaches of the Corporations Act. This report relates to the way in which ASIC investigates suspected or potential insolvency breaches of the Corporations Act. As senators may well be aware, in the context of a company going into administration or liquidation, the administrator or liquidator can provide a report to ASIC if, in his or her opinion, a possible issue that ought to be investigated has been uncovered in the context of the administration or liquidation. Obviously administrators and liquidators do this if they consider that some past transactions should be investigated and also if there are some technical issues associated with the administration or liquidation.

Of great concern are circumstances in which an avoidable transaction, for example—that is, a questionable transaction—may have been entered into that the liquidator or administrator is not pursuing but in their view ASIC needs to investigate. We in the opposition do not believe that ASIC has to investigate every one of these reports. We understand that not every one of these reports is judged by the corporate watchdog to be worthy of investigation. There may well be technical breaches or a risk audit in relation to the report from the administrator whereby ASIC determines that it is not necessary to continue further. But one would have thought that a reasonable percentage should be investigated.

What is concerning about the trend of ASIC investigations contained in this report is that there has been a substantial decrease in the proportion investigated. The report discloses that, whilst the number of complaints about potential insolvency breaches doubled in the period between 1997 and 2005, the proportion of total complaints investigated decreased from 7.5 per cent to less than one per cent in the same period. Essentially 99 per cent of complaints to ASIC by external administrators are being ignored. Under the Howard government 99 per cent of stones are being left unturned.

We recognise that the government has belatedly seen fit to increase the resources to ASIC, but there may well have been matters that ought to have been investigated and may possibly have led to further action if they had been investigated. There may well have been creditors whose rights and entitlements in an administration may have been enhanced by a further investigation that did not occur. It is extremely irresponsible of the government to have allowed a situation in which ASIC has been underresourced and you have had this dramatic decline in the number of statutory reports regarding potential insolvency breaches being investigated by the commission.

External administrators are a front-line source of information for ASIC. To have only one per cent of their complaints investigated is unreasonable. Creditors’ interests need to be protected, and the system relies on the assumption that ASIC will have the capacity to investigate an appropriate proportion of them.

It is not as if the Howard government has not been on notice on these issues. These issues were discussed by the Parliamentary Joint Committee on Corporations and Financial Services, which did an inquiry into insolvency. I was on that committee and a number of issues were raised. The whole committee asked the government to bring its attention to a number of matters relating to our insolvency regime. As I recall, the government took over a year to respond to that report. The government will need to explain to any creditors whose interests were not protected why that was the case.

We need to ensure that ASIC is resourced sufficiently so that an appropriate proportion of these statutory reports are investigated. Our system of solvency administration, which, by and large, is a good one, relies on the corporate watchdog being able to follow up a reasonable number of these statutory reports. If you do not have that possibility—if you do not have a reasonable number followed up—then essentially what you are saying is that you are allowing 99 per cent of these statutory reports to go uninvestigated. The government has never explained why it is justifiable to have the drop that I have described—a drop from 7.5 per cent to one per cent. Anybody who understands risk management would suggest that at one per cent you are not engaging in an appropriate risk management strategy and you are not appropriately ensuring that our insolvency framework is enforced.

I urge the government to consider this Auditor-General’s report very closely. Insolvency is a difficult issue. People are often left either without their entitlements or with much less than they would otherwise have had if the company had not failed. In the majority of cases that is the result of the market, the result of luck or the result of poor businesses practices. But there are occasions where there are untoward activities undertaken prior to a company going insolvent. People who invest in the company and people who deal with the company—small businesses and other creditors—as well as employees deserve to have some surety that our insolvency regime protects their interests.