OTHER ANNUAL REPORTS
1.59 In addition to the Australian Securities Commission, the Act requires
a number of other administrative bodies to report to the Parliament. These
bodies include the Companies and Securities Advisory Committee (CASAC),
the Australian Accounting Standards Board (AASB), the Companies Auditors
and Liquidators Disciplinary Board (CALDB) and the Corporations and Securities
Panel (the Panel).
1.60 The Committee has examined the annual reports of these bodies. These
reports do not raise issues requiring the urgent attention of the Parliament.
However, there are some matters contained in the reports to which attention
should be drawn.
Companies and Securities Advisory Committee
1.61 The CASAC 1995-96 Annual Report outlines its main activities for
the year. In fulfilling its functions under the Act, CASAC is assisted
by a Legal Committee that provides expert legal analysis and advice. During
the year CASAC's main areas of activity were:
- the publication, in June 1996, of the Draft Report Regulation of
On-exchange Derivatives Markets;
- a review of the voluntary administration provisions in Part 5.3A of
the Corporations Law - CASAC's Legal Committee intends to issue a paper
on Part 5.3A for public comment during 1996-97;
- regular meetings between the Legal Committee and the Simplification
Task Force to discuss reform proposals - CASAC wrote to the Parliamentary
Secretary to the Treasurer supporting the Simplification Task Force
proposals to confine the application of section 52 of the Trade Practices
Act and section 995 of the Corporations Law in relation to fundraising;
and
- the publication in January 1996 of a report on Compulsory Acquisitions,
which contains recommendations designed to simplify the compulsory acquisition
procedures in the Corporations Law. [69]
Compulsory acquisitions and "later issued" shares
1.62 The publication of the report on Compulsory Acquisitions by the
Legal Committee of CASAC followed public comment and submissions on its
1994 Issues Paper which identified areas for reform of the compulsory
acquisition and buy-out procedures. One of the report's major recommendations
deals with the compulsory acquisition of later issued shares. Specifically,
the Legal Committee recommended that:
An offeror under Part A offer or Part C announcement should have
the option to compulsorily acquire all later issued securities of the
bid class that are issued prior to the first s 701(2) notice, provided
that the compulsory acquisition threshold is satisfied for all issued
securities of that class, including those later issued securities. [70]
1.63 The Committee notes that this recommendation was supported by the
ASC (which submitted that successful bidders may not be able to obtain
full ownership of an acquired company without it), and has since been
reflected in the ASC's Policy Statement 126: Compulsory acquisition of
shares issued after the close of a takeover bid which was issued on 14
April 1997. The matter also arose in Committee correspondence with the
ASC in connection with the conversion of convertible notes during the
successful takeover of Ampolex by Mobil Exploration & Producing Australia
Pty Ltd. [71]
Australian Accounting Standards Board
1.64 In its report on 1994-95 Annual Reports, the Committee referred
to comments from the AASB regarding the inefficient and "circuitous"
procedures under section 332A of the Corporations Law. This section provides
that reports of non-compliance with accounting standards are to be sent
by auditors to the AASB, which then forwards them on to the ASC, which
has ultimate responsibility in this area.
1.65 The AASB's 1995-96 Annual Report refers to changes to this procedure
proposed by the Corporations Law Simplification Task Force. These changes
"would lead to auditors being required to notify the ASC directly
of non-compliance with accounting standards". [72]
The Committee notes this proposed change.
1.66 The AASB Annual Report also draws attention generally to the impact
of resource constraints on the work of the Board, and to the impact of
trends toward international harmonisation of accounting standards. With
regard to resources, the Report notes:
Demands on the AASB have increased during the year ... At the
same time, the AASB and AARF [Australian Accounting Research Foundation]
have been operating under severe resource constraints which hampered
the ability of the AASB to deal with all the matters which required
its attention, and the ability of the AARF to provide adequate and appropriate
technical support and efficient administrative support. The AASB and
AARF urgently require additional funding in order to secure additional
staff and information technology resources. The progress of many of
the AASB's current projects has been significantly slowed by the lack
of resources. [73]
1.67 With regard to the impact of international harmonisation, the Report
states:
More than ever before, international considerations are having
a significant impact on the work of the AASB. In particular, the need
to increase the extent to which Australian accounting standards are
harmonised with those of other major national standard-setters and of
the IASC is having a significant impact on both the projects being undertaken
by the AASB and the outcome of those projects. [74]
1.68 The Committee notes that the recently announced Corporate Law Economic
Reform Program proposes, as a matter of priority, the release of a paper
addressing the reform of Australian accounting standards. This reform
paper, which will be developed in consultation with the AASB and key interest
groups, will address a number of issues, specifically including:
- whether Australia should continue to develop its own set of accounting
standards or whether international standards should be used as a basis
and adapted to Australian conditions where necessary; and
- the composition and funding of the AASB and the need for greater industry
and user participation. [75]
1.69 The Committee anticipates that the proposed reform paper should
address both areas of concern as set out in the AASB Annual Report.
Companies Auditors and Liquidators Disciplinary Board
Relations between the Board and the ASC
1.70 In its 1994-95 report on Annual Reports, the Committee drew attention
to some comments made in the Annual Report of the Companies Auditors and
Liquidators Disciplinary Board. In general terms, CALDB observed that
its services were not being fully utilised by the ASC, and expressed concern
at the manner in which some matters were being presented to it by the
ASC. [76]
1.71 Criticisms are again made in the most recent Annual Report of the
Board. Specifically, CALDB notes that applications to it from the ASC
"tend to be of a minor administrative nature and more serious conduct
matters are not being pursued". [77]
1.72 The Committee raised this issue with the ASC at its March hearing.
In response, the Chairman of the ASC stated:
I think the assumption that underlies the comment is that there
are serious matters that we should be referring that we are not, and
I am not aware that that is so. I am not aware that the Board would
be in a position to be aware of that if we were not. So it is one of
the dilemmas, I suppose, of an enforcement agency. If you are accused
of not referring matters, it seems to me that that would only be a substantial
criticism if there were matters that we should be referring. I am not
aware that that is so, but I will have a look into the matter and let
the Committee know if there is some substantial cause for concern. [78]
1.73 The ASC provided some additional information as this report was
being finalised. The Committee proposes to seek some further comments
from the Board before it concludes its examination of this issue.
Legislative amendments
1.74 The Board's most recent Annual Report also refers to the release
by the Treasurer's Working Party of a draft report on the regulation of
auditors. The Board expresses its general agreement with many of the proposals
in that draft report which affect the Board's role. However, CALDB goes
on to note:
Of some concern to the Board is the failure, in the draft report, to
adopt a request for the Chairperson to have a Deputy, as is the case with
Members. Should the Chairperson because of possible conflict not be able
to sit on a particular application, the Board would not be able to function.
Consideration should be given to the possibility of an appropriate amendment.
[79]
1.75 The Committee also sees merit in an amendment which would enable
CALDB to hear an application in the absence of the Chairperson.
Recommendation No 3:
The Committee recommends that consideration be given to enabling the
Companies Auditors and Liquidators Disciplinary Board to hear an application
in the absence of the Chairperson.
Corporations and Securities Panel
1.76 As with the Disciplinary Board, the Corporations and Securities
Panel only considers applications from the ASC. The Panel's role is to
determine whether there has been unacceptable conduct in relation to acquisitions
of shares in companies, or in relation to the conduct of the affairs of
companies.
1.77 The Panel notes that it received no applications from the ASC in
1995-96. [80] Nevertheless the Panel
considers that it:
has had a significant deterrent effect on unacceptable conduct
in the Australian business community. The Panel is only one option available
to the ASC when there has been unacceptable market behaviour in takeovers.
In these cases the ASC actively considers a Panel reference as an enforcement
alternative and on many occasions the threat of a referral has had a
positive regulatory response. [81]
1.78 The significance of this 'deterrent effect' is endorsed by the ASC.
In answer to a question on notice, the ASC stated that:
- it regarded the Panel (with its procedural flexibility and commercial
experience) as a better venue to resolve time-sensitive commercial issues
than the traditional court system; and
- there had been at least eight takeover matters in the past two years
in which it had considered making a referral but had ultimately decided
not to for a number of reasons. [82]
1.79 In its Annual Report, the Panel refers to the need for a broad ranging
review of its role and function in the Australian business environment,
and the provisions of the Law which govern its activities. The Report
refers to proposals from the Simplification Task Force for major changes
to the takeovers provisions of the Law, including those provisions relating
to the jurisdiction and powers of the Panel. The Panel expresses it support
for this process, and its encouragement for "an even more broad ranging
review of the provisions that relate to its role and functions".
[83]
1.80 The ASC also provided some views on the Simplification Task Force's
proposals for the Panel. Specifically:
- the ASC agreed with a proposal that the definition of unacceptable
circumstances be expanded to cover shifts in control of a company, whether
or not an acquisition of a substantial interest in the company had occurred;
- however, the ASC saw difficulties with a proposal that those with
an interest in a takeover should have a right of direct access to the
Panel - it saw such a right leading to the likelihood of 'tactical'
references to the Panel by bidders and targets, and to considerable
uncertainty (for example, uncertainty in determining which parties had
an interest in a takeover, and lack of clarity in determining what the
size or nature of any interest would be). [84]
1.81 The work of the Corporations Law Simplification Task Force has now
largely been consolidated in the new Corporate Law Economic Reform Program.
The Committee notes that the Program's Action Plan promises the release
of a position paper on takeovers, specifically examining whether Australian
business is best served by current arrangements for the regulation of
changes in corporate control, and determining how regulation can best
achieve an appropriate balance between facilitating efficient management
and control of organisations while ensuring that shareholders are adequately
protected.
1.82 The Committee will consider the issue of the Panel's role following
the release of this position paper, and may make further comments at that
time.
Senator Grant Chapman
Chairman
Footnotes:
[69] Companies and Securities Advisory Committee,
Annual Report 1995-96, AGPS (Canberra) pp 4-5.
[70] Legal Committee of the Companies and Securities
Advisory Committee, Compulsory Acquisitions, January 1996, p 16.
[71] Australian Securities Commission, Answers
to Questions on Notice. See Appendix 1, pp 81-82.
[72] Australian Accounting Standards Board,
Annual Report 1995-96, AGPS (Melbourne) p 4. See, generally, proposed
section 313 of the Draft Second Corporate Law Simplification Bill 1996.
[73] Australian Accounting Standards Board,
Annual Report 1995-96, AGPS (Melbourne) p 12.
[74] Australian Accounting Standards Board,
Annual Report 1995-96, AGPS (Melbourne) p 9.
[75] Treasury, Corporate Law Economic Reform
Program, (1997) p 5.
[76] Companies Auditors and Liquidators Disciplinary
Board, Annual report for the year ended 30 June 1995, AGPS, (Canberra)
pp 8-9.
[77] Companies Auditors and Liquidators Disciplinary
Board, Annual report for the year ended 30 June 1996, AGPS, (Canberra)
p 8.
[78] Corporations and Securities Committee,
Committee Hansard, 21 March 1997, p CS 199.
[79] Companies Auditors and Liquidators Disciplinary
Board, Annual report for the year ended 30 June 1996, AGPS, (Canberra)
pp 10-11.
[80] Corporations and Securities Panel, Annual
Report 1995-96, (Sydney) p 2.
[81] Corporations and Securities Panel, Annual
Report 1995-96, (Sydney) p 2.
[82] Australian Securities Commission, Answers
to Questions on Notice. See Appendix 1, p 37.
[83] Corporations and Securities Panel, Annual
Report 1995-96, (Sydney) p 2,
[84] Australian Securities Commission, Answers
to Questions on Notice. See Appendix 1, pp 37-38.
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