Report on the Draft Second Corporate Law Simplification Bill 1996
Table of Contents




3.1 The Second Bill concerns itself with specific matters as determined by the Corporate Law Simplification Program. Some suggestions were made to this Committee that other matters ought to be dealt with in the Bill, or in subsequent legislation. A number of these suggestions are canvassed below.


Mandatory disclosure

3.2 CGI expressed the view that it should be mandatory under Australian corporate law for disclosures made by Australian listed companies in overseas jurisdictions to be promptly and prominently announced via the ASX to investors in Australia. The Australian announcement should summarise the nature of the overseas disclosure and whether and (if so) how it may differ from any disclosure made by the company to the Australian market. The announcement should also state that the full text of the overseas disclosure would be supplied to Australian investors promptly and without charge by the company.

3.3 To demonstrate that this was a material issue, CGI mentioned the case of one major Australian listed company which had positively declined to make available in Australia the disclosure which it had provided in the US under SEC requirements. This company's justification for its refusal was that disclosure in Australia was not mandatory. CGI also pointed out that:

3.4 The Committee considers that there can be no real objection to the proposition that Australian investors in Australian listed companies should receive the same level of information as is provided to foreign investors. Such a provision should be included in the Corporations Law.

Recommendation No 9:


Class meetings

3.5 The Committee was told that the original proposal for simplification (though not the June 1995 Exposure Draft) included a provision giving the members of a class the right to request the directors to call a class meeting, and to call a class meeting themselves. The ASX drew the Committee's attention to the unexplained omission of this proposal from the Bill. [3]

3.6 In the absence of an explanation for the removal of this provision, the Committee cannot evaluate the need for its inclusion. The Committee notes the extensive protections that are given to class rights elsewhere in the Bill. It may be that such a provision would complement other provisions in the Bill relating to members' meetings.

Recommendation No 10:


Auditing of financial reporting by 'large' proprietary companies

3.7 Some submissions revisited the matter of financial reporting by 'large' proprietary companies [4] - a matter covered in the First Corporate Law Simplification Act 1995, and discussed in this Committee's report on the legislation tabled in March 1995.

3.8 The Committee is also aware of continuing expressions of concern regarding the exercise by the ASC of it's discretion to grant relief under section 313 of the Corporations Law from the requirement to prepare audited accounts. This discretion may be exercised in favour of an individual company or a class of companies, and was discussed in this Committee's August 1995 Report on Items 1-4 of Schedule 4 to the First Simplification Bill.

3.9 In that Report, the Committee recommended that section 313 should contain some criteria which should govern the exercise of the discretion. These recommendations were subsequently adopted in the Corporations Law.Under current section 313(11A), in deciding whether the audit requirements for a large proprietary company (or a class of such companies) would impose an unreasonable burden on that company or those companies, the ASC is to have regard to:

3.11 Under current section 313(11B), in assessing the expected benefits of compliance, the ASC is required to take account of the number of creditors and potential creditors, the position of these creditors - in particular their ability to independently obtain financial information about the company or companies - and the nature and extent of the liabilities of the company or companies.

3.12 This Committee also recommended that:

3.13 The AARF drew general attention to some problems that had been encountered with the application or interpretation of the small/large test by the Accounting Standards Board. The legislation had included a 'size' test for the purpose of determining which companies should be required to lodge accounts. The Accounting Standards Board had taken the view that the 'size' test should similarly be applied to determine which companies should be required to conform to accounting standards. AARF summarised its view as follows:

3.14 The Committee is aware of some general problems that have arisen with the application of the test to certain classes of 'large' proprietary companies.

3.15 The Committee is also aware of problems that have arisen with the application of the test by the ASC. In particular, correspondence from the Motor Trades Association of Australia (MTAA) has raised concern about a proposed ASC Draft Policy Statement for Audit Relief for Large Proprietary Companies and Draft Class Order.

3.16 The MTAA argued that the particular circumstances applying to the financial relationships of retail motor traders should result in their exemption from audit, despite being categorised as 'large'. The MTAA claimed that the Class Order negotiated with, and expected to be promulgated by, the ASC had recognised this, and would have relieved franchised motor dealers from the obligation to conduct an audit. The external and internal costs of an audit were estimated to be in the order of $25,000.

3.17 However, two last-minute additional qualifications included in the Class Order by the ASC will effectively deny some franchised motor dealers relief from this onerous expense. These qualifying elements are:

3.18 While the Draft Class Order has been announced, it seems that it has not yet been promulgated. In these circumstances, it is difficult to be definitive. However, there is much force in the argument put by the MTAA that these additional qualifications indicate a fundamental misunderstanding of how business operates, particularly in relation to cash flows. Their potential effect on other similar businesses is also unclear.

3.19 The Committee considers that these matters should be examined further, and intends clarifying the matter with the ASC at the next available opportunity. The Committee also intends discussing general concerns on this issue with the ASC and, subject to the outcome of those discussions, intends to review the effect and operation of the small/large test for proprietary companies in early 1997. In the interim, the criteria included in any Draft Class Order, when promulgated, should be reconsidered.

Recommendation No 11:


Senator Grant Chapman




[1] Submissions, p 274.

[2] Evidence, p CS 93 (Mr Wozniczka).

[3] Submissions, p 6.

[4] For example, Submissions, pp 22-3 (Ernst & Young); p 264 (VECCI); pp 312-13 (Group of 100 Inc).

[5] Parliamentary Joint Committee on Corporations and Securities, Report on Items 1-4, Schedule 4, of the First Corporate Law Simplification Bill 1995, (August 1995), paras 3.2 and 3.3.

[6] Evidence, pp CS 7-8 (Mr Boymal and Mr Reilly). See also Submissions, p 265 (VECCI).