WARNING:
This Digest is prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments.
This Digest was available from 29 May 1996
CONTENTS
Date Introduced: 8 May 1996
House: House of Representatives
Portfolio: Treasury
Commencement: Part 1 (Preliminary formalities of
the Bill), Part 2 (Transfer of assets of the Housing Loans
Insurance Corporation), Part 3 (Pre-transfer contracts), Part 4
(Transfer and rights of employees) and Part 5 (Miscellaneous)
commence on the day the Act receives the Royal Assent.
Part 6 (Abolition of Corporation) commences on a day to be fixed
by Proclamation (but not earlier than the 'transfer day', and in
any event 6 months after the 'transfer day').
The purpose of the Bill is to provide for the transfer of the
assets, and the abolition, of the Housing Loans Insurance
Corporation ('HLIC'). A new Government-owned company is to be
established. It is, for all practical purposes, identical to a Bill
of the same name passed by the House or Representatives on 24
October last year, but which did not make it through the Senate
before the Federal election.
HLIC was established by the Commonwealth Government in 1965 to
provide a Government-backed housing loan insurance scheme. The main
purpose for this scheme was to assist prospective home purchasers
to obtain a loan at a reasonable rate of interest. HLIC offered
insurance against the risk of loss by a lender to recover against a
home loan.
In more recent years, HLIC has extended its activities to
insuring loans for the purchase, construction or refinancing of
non-residential buildings. Under amendments to the Housing
Loans Insurance Act 1965, in 1985 and 1987, HLIC was empowered
to insure approved dealers in the secondary mortgage market, and to
enter into reinsurance contracts with lenders, respectively.
HLIC is the largest mortgage insurer in Australia and it
operates in competition with other insurers. Under the existing
legislation, HLIC is guaranteed by the Commonwealth but it is
self-financing. HLIC is liable for Commonwealth, State and
Territory taxes. HLIC operates on a national basis with offices in
each State capital. HLIC operates as a business undertaking.
Initially, the sale of HLIC as a going concern was announced in
the 1989 Budget. The Housing Loans Insurance Corporation (Sale
of Assets and Abolition) Act 1990 provided authority for the
Commonwealth to effect the sale of the HLIC franchise to the
private sector.
This Bill will complete the reorganisation of this Government
asset
- by restructuring HLIC into a new Government-owned company
('Company Limited');
- enabling the new restructured HLIC to be contracted to manage
the existing portfolio of HLIC's insurance policies;
- making available sufficient capital for the restructured HLIC
to satisfy the requirements of the Insurance and Superannuation
Commission;
- addressing the issues of the transfer of staff to the new
company; and
- winding-up of the 'old' HLIC body corporate.
Technically, this restructuring of HLIC into a Government-owned
company does not necessarily mean that this business enterprise
will be sold immediately to the private sector. It does, however,
release HLIC's capital and financial reserves to return to
Consolidated Revenue. Presumably, after a period of operating as a
Government-owned company, which will attract new business (as well
as managing the 'old book' policies), the Government would have the
option of selling this asset.
The estimated gain from the return to the Commonwealth of HLIC's
capital and financial reserves of this public asset is $100m in
1995-96. Expected budget outlays associated with the management of
existing (i.e. 'old book ') insurance policies in future years
are:
1996-97 1997-98 1998-99
$20m $15m $8m(1)
There is a view that the expected budget allocations, above, are
a relatively high estimate and that they reflect an anticipated
increase in home loan defaults, at least in the next two financial
years. This is, however, against a backdrop of a fairly low rate of
loan defaults in 1994.(2)
Clause 3 contains definitions of words and
terms used in the Bill. One significant definition is 'transfer
day' which is the day fixed by the Minister by notice published in
the Gazette. The 'transfer' refers to the transfer of
assets and liabilities from HLIC to the new Company Limited. Regard
should also be paid to the special definition of 'assets' in the
Bill at clause 3.
Clause 6 specifies that the newly restructured
body corporate, which is to be called the Housing Loans Insurance
Corporation Limited (the new 'Company Limited'), does not have the
shield of the Crown and it does not represent the Crown. The
Company Limited is simply a company registered under the
Corporations Law and owned by the Commonwealth.
Clause 7 is a key provision in the Bill and it
empowers the Minister to determine in writing what assets, capital
and money are to be transferred to the new Company Limited to
enable it to operate as an insurance company. The Clause also
specifies that any existing HLIC insurance contracts remain with
the Commonwealth. In essence, the clause contains the necessary
authority to transfer assets back to the Commonwealth or to the new
Company Limited.
Clauses 8 and 9 operate as saving provisions
for legal instruments (e.g. documents and agreements) and any
pending legal proceedings, respectively. These saving provisions
have the effect of substituting the Commonwealth or the new Company
Limited, whichever is applicable, in lieu of the HLIC which is to
be abolished.
Clauses 10 to 13 provide authority for all HLIC
insurance contracts which exist before the transfer of HLIC assets
and liabilities to the new Company Limited to be guaranteed by the
Commonwealth (Clause 11) but managed by the new
Company Limited. The Bill refers to these items as the
'pre-transfer contracts'. To facilitate this arrangement, a
management agreement between the Commonwealth and the new Company
Limited will be completed. Clause 12 appropriates
any necessary payments from the Consolidated Revenue Fund to an
Insurance Account to met any Commonwealth liabilities arising from
the pre-transfer contracts.
Comment: It is conceded that the Commonwealth's
liabilities under pre-transfer insurance contracts are amounts that
only become fixed from time to time as claims arise in the future.
Nevertheless, the Explanatory Memorandum to the Bill
provides an estimated of expected outlays (see table above). It is
suggested that consideration could be given to providing a
statutory cap (albeit with a reasonable margin) for this
appropriation.
Clauses 14 to 15 provide for the transfer of
HLIC employees to the new Company Limited on the same terms and
conditions of employment. Subclause 14(3)
specifies that the act of transfer does not create an entitlement
to, say, a redundancy payment. HLIC is audited by the Australian
National Audit Office ('ANAO').(3) Subclause 14(4)
relieves ANAO of audit responsibility for the new Company
Limited.
Clauses 16 to 22 provide portability for long
service leave credits for HLIC employees who transfer to the new
Company Limited.
Likewise, Clauses 23 to 25 provide transitional
and saving provisions for workers' compensation matters, while
Clauses 26 to 28 deal with maternity leave
entitlements.
Clauses 29 and 30 have the effect of
continuing, when applicable, the provisions of the Crimes
(Superannuation Benefits) Act 1989 and the Director of
Public Prosecutions Act 1983, respectively, to HLIC employees
in relation to any matters which may have arisen while they were
employed with HLIC, and who are now employed by the new Company
Limited. Likewise, any person employed by the new Company Limited
from the transfer day is subject to those Acts, as if the new
Company Limited was a Commonwealth authority.
Clause 31 removes any obligation upon the
Commonwealth to accord public service mobility rights, after
transfer day, to any employee of HLIC who has those rights at
present. Mobility rights would otherwise have allowed employees
who, after transfer day, relinquish employment with the new Company
Limited to seek reappointment to the Public Service.
Clause 32 proves an exemption from
Commonwealth, State and Territory taxes in relation to the transfer
of HLIC's assets and liabilities pursuant to Clause
7.
Clause 33 provides a mechanism for the
registration of title to assets divided between the Commonwealth
and the new Company Limited, as a result of the transfer of assets
and liabilities from HLIC.
Clause 34 provides that any transfer of assets
of HLIC which would result in the 'acquisition' of the property of
any person otherwise than on just terms, then the Commonwealth must
pay that person reasonable compensation.
Clause 35 stipulates that the financial
statements of the new Company Limited required to be sent to the
Commonwealth as a shareholder of the company must also be tabled by
the Minister in Parliament.
Clause 36 continues the obligations arising
from the Commonwealth Borrowing Levy Act 1987, which
applied to HLIC, to the new Company Limited.
Clause 39 repeals the Housing Loans
Insurance Act 1965 and the Housing Loans Insurance
Corporation (Sale of Assets and Abolition) Act 1990, and in
doing so abolishes the HLIC.
Comment: In Clause 39, the
reference to 'Housing Loans Insurance Act' without a year is not a
drafting oversight. The Act is defined in that form inthe
definitions (see Clause 3).
1. Explanatory Memorandum to the Housing Loans
Insurance Corporation (Transfer of Assets and Abolition) Bill
1995: 3.
2. See Rogers, Ian 'HLIC claims mark a big rise in defaults',
Australian Financial Review, 6 October 1995. See also,
Rogers, Ian. 'Third time lucky in $100m HLIC funding restructure',
Australian Financial Review, 6 October 1995.
3. See for example, 29th Annual Report & Financial
Statements: Year Ended 30 June 1993, Housing Loans Insurance
Corporation, December 1993.
Brendan Bailey, Ph. 06 277 2434
Bronwyn Young, Ph 06 277 2699
23 May 1996
Bills Digest Service
Parliamentary Research Service
This Digest does not have any official legal status. Other
sources should be consulted to determine whether the Bill has been
enacted and, if so, whether the subsequent Act reflects further
amendments.
PRS staff are available to discuss the paper's contents
with Senators and Members and their staff but not with members of
the public.
ISSN 1323-9032
© Commonwealth of Australia 1996
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Published by the Department of the Parliamentary Library,
1996.
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Last updated: 23 May 1996
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