Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Link to 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.

Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Link to this | Hansard source

Like my colleague Senator Wong I want to make a few comments about Audit report No. 18. As Senator Wong has noted, the findings in the ANAO report of a decline in investigations from 7.5 per cent to one per cent is, prima facie, of significant concern. This is a matter that I am sure ASIC are expecting that we will be subjecting to some attention. We will also direct some scrutiny to ASIC at estimates next week, and I am sure that will not come as a surprise to them. By way of background, we have in financial services generally what is known as twin peaks regulation: APRA and ASIC. They both provide in different capacities, but with some overlap, important safeguards to our financial services system. When we have a decline in evaluation of this significance, it raises alarm bells about the overall performance of ASIC and its role in protecting Australian consumers with regard to financial services.

We have seen recently the Westpoint financial scandal, with some $400 million lost as a result of Westpoint property schemes—the mezzanine property scandal. Between 2,000 and 3,000 Australians lost substantial amounts of money. ASIC in my view has been rightly criticised for failing to act earlier in this particular case. The Westpoint case was of such a significant size and so widespread that it rightly begs some fundamental questions about the role of ASIC and whether it should have acted earlier—and, I might say, acted earlier when there were complaints from no less than the Western Australian government and the Western Australian department of consumer affairs with respect to the activities of the Westpoint subsidiary property companies involved.

I will say, however, that while I have criticised ASIC for its lack of investigation and action in this regard, it is not just ASIC that I have concerns about. The substantial proportion of the assets—probably 30 or 40 per cent—in the case of Westpoint were invested through self-managed superannuation funds. They are regulated—or are supposed to be regulated—by the Australian Taxation Office. I have been very concerned about the lack of regulatory activity by the ATO with respect to self-managed superannuation funds. It has been an issue that I have raised constantly with the ATO for a number of years now. We are finally seeing the ATO target and focus more on the problems in the self-managed superannuation area. Self-managed superannuation funds are the fastest growing area of superannuation investment. There are more than 300,000 of them. That presents some difficulties regarding regulation. There has been significant focus on the growth of superannuation assets in Australia, assets which are a shade short of $1 trillion. The parliament will be dealing with some important changes to superannuation initiated by this government in the House of Representatives next week, and the Labor Party will be supporting that package of changes. There is a great deal more focus on superannuation, and there has been for the last 20 years.

When you are dealing with some $1 trillion in assets—and I think there will be a strong growth in those assets for the foreseeable future—it is very important that safety surrounding superannuation is maximised. As is well known, superannuation is compulsory in this country. It is long term. It is for retirement. It is complex. It is not easily understood by the majority of Australians; therefore, there needs to be a higher bar applied to regulation around superannuation. I have met some of the victims of Westpoint. It is pretty depressing when you hear the stories. I think it highlights the importance of regulatory activity by ASIC, the ATO and APRA in this area.

Debate interrupted.