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CORPORATIONS (COMMONWEALTH POWERS) BILL
Received from the Legislative Council and read a first time.

The Hon. R.G. KERIN (Deputy Premier): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

The Corporations (Commonwealth Powers) Bill 2001 forms part of a package of corporations law Bills which follows historic negotiations between the Commonwealth and the States to place the national scheme for corporate regulation on a secure constitutional foundation. The Bill reflects the commitment of the South Australian government to achieving an effective, uniform system of corporate regulation across Australia.

To understand this Bill and the package of corporations law Bills it accompanies, it is necessary to consider the history of corporate regulation in Australia over the last 20 years.

In Australia the development of an effective system of corporate regulation has been complicated by our federal system of government. The States and Territories are sovereign entities, possessing the powers and ability to make their own laws, and despite attempts to standardise the relevant legislation, different requirements relating to corporate regulation existed in each State and Territory for many years.

From July 1982 corporate regulation in Australia was based on a cooperative scheme between the States, the Northern Territory and the Commonwealth, where substantially uniform legislation applied in all jurisdictions.

Towards the end of 1980s emerging problems in the operation of the cooperative scheme, caused largely by the then Commonwealth Government's refusal to contribute its share to properly fund the operations of the joint State/Commonwealth regulator, meant that the scheme was no longer an effective means of ensuring corporate regulation in a uniform and consistent manner suitable for a changing commercial environment.

Following an attempt by the Commonwealth to unilaterally enact its own Corporations legislation, the Commonwealth, the States and the Northern Territory agreed to establish a new national scheme for the regulation of corporations, companies and securities.

This new scheme commenced operation on 1 January 1991. It is based on the substantive Commonwealth law which applies in the Australian Capital Territory, known as the Corporations Law. This law, as in force from time to time, is applied in each State and the Northern Territory. In South Australia the relevant legislation is the Corporations (South Australia) Act 1990.

In order to create a national scheme certain Commonwealth features were incorporated into the arrangements. These include the enforcement of Corporations Law offences by the Australian Securities and Investments Commission (ASIC), the Australian Federal Police and the Commonwealth Director of Public Prosecutions. In addition, the Federal Court was given power to hear matters arising under the Corporations Law of each State through a cross-vesting scheme contained in the Corporations legislation of the Commonwealth and the States. The national scheme is underpinned by Heads of Agreement, which were agreed on 29 June 1990, and the Corporations Agreement, an intergovernmental agreement signed by the States, the Northern Territory and the Commonwealth, in September 1997.

The Corporations Agreement sets out the functions, objectives and voting arrangements relating to the administration of the Corporations Law. It establishes the Ministerial Council for Corporations which is constituted by the relevant Commonwealth, State and Territory Ministers responsible for the national scheme law. The Ministerial Council is the primary forum where matters relating to corporations, securities and corporate governance are discussed and voted on.

The current scheme, to all intent and purposes, operates on a seamless, national footing. ASIC administers the Corporations Law through regional offices in each jurisdiction. The scheme has worked remarkably well. The parties to the Corporations Agreement have, in general, complied with its spirit and letter, and, apart from issues relating to the resources allocated to ASIC Regional Offices, there has been little discord between the States and the Commonwealth about the operation of the Corporations Law in Australia.

However, difficulties associated with the current system of corporate regulation have been identified by the High Court in two significant cases. The first case was decided in June 1999. In re Wakim: ex parte McNally the High Court held by majority that Chapter III of the Commonwealth Constitution does not permit State jurisdiction to be conferred on Federal courts. Effectively, this decision removed the jurisdiction of the Federal Court in most States and Territories to resolve Corporations Law matters, unless cases fell within the court's accrued jurisdiction or in certain other circumstances, and it denied litigants a choice of forum for the resolution of such disputes.

The second case was the Queen v. Hughes , decided in May 2000. There the High Court held that the conferral of a power coupled with a duty on a Commonwealth officer or authority by a State law must be referable to a Commonwealth head of power. This means that, in certain circumstances, where a Commonwealth authority, such as the Director of Public Prosecutions or ASIC, has a duty under the Corporations Law, that duty must be supported by a head of power in the Commonwealth Constitution .

The effect of the Hughes decision on the administration of the Corporations Law scheme is questionable. It is the view of this Government that the administrative and enforcement activities of the relevant Commonwealth agencies, in particular ASIC and the DPP, are supported by valid heads of Commonwealth power. However, the decision has created uncertainty in some sections of the media and the business community as to whether the Corporations Law can be effectively enforced. This uncertainty has been relied upon to bring about delays in regulatory and enforcement processes and to provide a basis for challenging ASIC's power to administer the Corporations Law.

This uncertainty, and the subsequent legal challenges, prompted the Standing Committee of Attorneys-General and the Ministerial Council for Corporations to consider alternative constitutional arrangements to place the Corporations Law scheme on a more secure footing.

On 25 August 2000 Commonwealth, State and Territory Ministers reached an historic `in principle' agreement for the States to refer to the Commonwealth Parliament the power to enact the Corporations Law as a Commonwealth law and to make amendments to that law subject to the terms of the Corporations Agreement.

Following this agreement, considerable negotiation over the terms on which the States would refer power occurred. While both the States and the Commonwealth agreed on the matters to be referred, the States were concerned that appropriate protection against misuse of the referred power by the Commonwealth was incorporated into the referral agreement.

On 28 November at a special joint meeting of the Ministerial Council for Corporations and Standing Committee of Attorneys-General, State Ministers agreed on the terms of a referral Bill, and supported the Bill's introduction into the New South Wales Parliament.

On 30 November 2000, the Honourable Attorney-General for New South Wales introduced the Corporations (Commonwealth Powers) Bill 2000 .

Following the introduction of the Bill in New South Wales, further negotiations took place, and, on 21 December 2000, representatives of the Victorian, New South Wales and Commonwealth Governments met to resolve outstanding issues. It was unfortunate that no other State was invited to attend this meeting as these discussions resulted in agreement on the terms on which all States would be asked to refer power.

Ultimately, the Commonwealth, New South Wales and Victorian Governments agreed on a amended form of the New South Wales Bill which is largely replicated in the Bill now introduced into this Parliament. The amended New South Wales Bill, was introduced into that State's Legislative Assembly on 7 March this year.

Subsequent discussions involving the remaining States has resulted in an agreement that all States would refer corporations power on the terms agreed by the Commonwealth, New South Wales and Victoria. The central component of this agreement is the enactment, by all States, of legislation substantially in the form of the Corporations (Commonwealth Powers) Bill 2001 .

The Bill reflects the commitment of the South Australian government to ensure that the uncertainty that now prevails in the business community over the future of corporate regulation in Australia is resolved as quickly as possible. The Corporations (Commonwealth Powers) Bill 2001 firstly enables the Commonwealth Parliament to enact, as Commonwealth laws, the proposed Corporations Bill 2001 and the Australian Securities and Investments Commission Bill 2001 in the form of the Bills that were tabled in the New South Wales Parliament on 7 March 2001. A copy of the Commonwealth Bills, which constitute the tabled text for the purposes of this Bill, is available in the Parliamentary library for use by Members.

Secondly, the Bill enables the Commonwealth to amend the laws, or regulations made under them, in the future, as long as the amendments are confined to the matters of corporate regulation, the formation of corporations, and the regulation of financial products and services, but only to the extent of making express amendments to the Bills referred to the Commonwealth Parliament.

The Bill provides in clause 1(3) that the Act is not intended to allow for laws to be made pursuant to the amendment reference with the sole or main underlying purpose or object of regulating industrial relations matters. This exclusion is to ensure that the Commonwealth cannot use the referred powers to legislate in the area of industrial relations or to override State laws dealing with industrial relations.

The Bill provides that the reference of power is to terminate five years after the Commonwealth corporations legislation commences, or at an earlier time by proclamation. The States have agreed to give the referral for only five years because the referral of power by the States to the Commonwealth is not a permanent solution to the problems undermining the current scheme. At the request of the States, the Commonwealth has given a firm undertaking to examine long-term solutions to address the problems arising from the decisions of the High Court in Wakim and Hughes , including constitutional change. Those problems affect a number of intergovernmental legislative schemes. The States now look to the Commonwealth to explore options for constitutional amendment thoroughly and expeditiously, through the Standing Committee of Attorneys-General. It is anticipated that a decision will be made well before the expiry of the five-year period about the holding of a referendum on this matter.

The States can terminate the referral earlier, by proclamation, if, for example, the Commonwealth Parliament makes amendments to the new Corporations Act which go beyond what was envisaged when the referral was made, such as for the purpose of regulating the environment. The Bill also provides for the termination of the power of the Commonwealth to amend the referred laws, by proclamation. However, if the amendment reference only is terminated, the effect of the Commonwealth Corporations Bill is that the State would cease to be part of the new scheme unless all of the States also revoke the reference, giving six months notice of their intention to do so.

This underlines the importance of the Corporations Agreement, which will govern the scope of the referral. The Corporations Agreement is an intergovernmental agreement and in formal terms is not legally binding. However, the States place great weight on it, and have agreed to refer powers in the terms of the Bill before the House on the understanding that the Commonwealth will abide by both the spirit and the letter of the agreement.

The agreement will contain specific provisions to prevent the use of the referred powers for the purpose of regulating industrial relations, the environment or any other subject unanimously determined by the referring States. Subject to certain limitations, the Commonwealth will be prohibited from using referred power to require persons or bodies to incorporate or operate through corporate structures. The agreement will also ensure that the States are consulted about any amendments made to the Commonwealth Corporations Act, and where the Commonwealth does not have existing constitutional power, that the States must vote on whether to approve or oppose the amendments. In addition, the agreement preserves the rights of the States to make laws that modify the operation of the Corporations Act in relation to their own activities, such as, for example, the regulation of State bodies corporate. The terms of the agreement are still being negotiated among governments, but it is anticipated that the remaining matters will be resolved in the near future.

South Australia has agreed to refer power on the terms negotiated by the Commonwealth, New South Wales and Victoria on condition that the Commonwealth be unable to use the amendment reference to require persons or bodies to incorporate except where this is necessary for the regulation of companies, securities or financial products and markets. This limitation on Commonwealth power is, at present, secured by the Corporations Agreement supported by the right to terminate the references as provided for in the Bill. It is the Government's view, however, that the Commonwealth's power in this regard should also be limited by legislation. To this end the Government is negotiating with the Commonwealth and the other States on an amendment to the Bill, to be made at a convenient time once the legislation has commenced, to so limit the Commonwealth's power with respect to incorporation.

It is understood that Bills in similar terms to this Bill will be introduced into all State Parliaments around Australia. It is then envisaged that the Commonwealth Parliament will enact the Corporations Bill 2001 and the Australian Securities and Investments Commission Bill 2001 using the powers conferred on it by this Bill and its counterparts in other States, so that the new scheme can commence as soon as possible.

Honourable members will appreciate that a number of consequential and transitional amendments to State legislation will need to be dealt with before the new scheme commences. Consequentially, separate Bills for this purpose will be introduced before the commencement of the new scheme.

The Corporations (Commonwealth Powers) Bill 2001 , related State legislation and the enactment by the commonwealth Parliament of the Corporations Bill (Commonwealth) and the Australian Securities and Investments Commission Bill (Commonwealth) will, with the enactment of similar legislation in all other states, ensure that our national system of corporate regulation is placed on a sound constitutional foundation and reinforce Australia's reputation as a dynamic commercial centre in the Asia-Pacific region.

I commend the bill to the House.

Explanation of clauses

Clause 1: Short title and purpose of Act

Clause 1 sets out the short title and the purpose of the proposed Act. Clause 1(3) provides that nothing in the proposed Act is intended to enable the making of a law pursuant to the amendment reference with the sole or a main underlying purpose or object of regulating industrial relations matters.

Clause 2: Commencement

Clause 2 provides that the measure will be brought into operation by proclamation.

Clause 3: Definitions

Clause 3 defines certain words and expressions used in the proposed Act.

Clause 4: Reference of matters

Clause 4 deals with the references to the Commonwealth Parliament. Clause 4(1) makes the references.

Clause 4(1) (a) in effect refers the text of the current Corporations Law (with appropriate amendments) to the Commonwealth Parliament, and provides for the inclusion of the referred provisions in Acts enacted in the terms, or substantially in the terms, of the tabled text (ie the text of the Corporations Bill 2001 and the Australian Securities and Investments Commission Act 2001) . The expression `substantially in the terms' of the tabled text will enable minor adjustments to be made to the tabled text.

Clause 4(1) (b) in effect refers matters to the Commonwealth Parliament in connection with the future amendment of the Corporations legislation.

Clause 4(2) makes it clear that the reference of a matter has effect only to the extent that the matter is not otherwise within the legislative power of the Commonwealth Parliament and to the extent that the matter is within the legislative power of the State Parliament.

Clause 4(3) removes a possible argument that one of the references might be limited by the other.

Clause 4(4) makes it clear that the State Parliament envisages that the Corporations legislation can be amended or affected by Commonwealth legislation enacted in reliance on other powers (though this may be the subject of provisions in the Corporations Agreement), that instruments under the Corporations legislation may affect the operation of that legislation otherwise than by express amendment, and that the references are not subject to any condition relating to either of those matters.

Clause 4(5) specifies the period during which a reference has effect.

Clause 5: Termination of references

Clause 5 provides that the references terminate on the fifth anniversary of the commencement of the proposed Corporations legislation, unless a proclamation is made that fixes an earlier or a later date of termination. Clause 5(4) makes it clear that the separate termination of the amendment reference does not affect laws already in place or the making of instruments under laws already in place.

Clause 6: Earlier termination of reference by proclamation

Clause 6 empowers the making of one or more proclamations to reduce the term of the references. Such a proclamation must be published at least six months in advance of the date of termination.

Clause 7: Evidence

Clause 7 provides for the accuracy of a copy of the tabled text containing the proposed Corporations legislation to be certified by the Clerk of the Legislative Assembly of New South Wales. Such a certificate is evidence of the accuracy of the tabled text and that the text was in fact tabled as contemplated by the Bill.

Clause 8: Operation of Act

Clause 8 provides that the proposed Act has effect despite any provision of the Corporations (South Australia) Act 1990 or of the laws applied by that Act, and avoids a possible argument that section 5 of that Act would otherwise prevent the Bill from affecting the operation of that Act.

Ms HURLEY secured the adjournment of the debate.

(Continued from 5 June. Page 1764.)

Mr FOLEY (Hart): These are bills that I understand have been dealt with in another place by the Attorney-General and have been extensively debated and questioned in the upper house. While the Deputy Premier is clearly a man of great breadth of knowledge on many things, given that he does not have his adviser next to him, I will not put him under the pump. The opposition is happy for this bill to move to the third reading stage, given that the bill, I understand, has been extensively debated and considered in another place. At the end of the day, it simply brings South Australia into line with other states in terms of the national code for Corporations Law. It has been agreed amongst other states and the commonwealth, and the opposition will support it and its passage through to the third reading.

The Hon. R.G. KERIN (Deputy Premier): I thank the member for Hart for his cooperation, as always. As he says, this bill reflects the commitment of the South Australian government and, obviously, the opposition to achieving what is in effect a uniform treatment of Corporations Law across Australia.

Bill read a second time and taken through its remaining stages.