Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)1 Outline
1.1 This Bill will legislatively implement key elements of the Governments Corporate Law Economic Reform Program (CLERP) in the areas of Fundraising, Directors Duties and Corporate Governance, Accounting Standards and Takeovers.
1.2 The Bill implements proposals to improve the operation of the Corporations Law (the Law) contained in CLERP Paper No. 1 (Accounting Standards Building international opportunities for Australian business), CLERP Paper No. 2 (Fundraising Capital raising initiatives to build enterprise and employment), CLERP Paper No. 3 (Directors Duties and Corporate Governance Facilitating innovation and protecting investors) and CLERP Paper No. 4 (Takeovers Corporate control: a better environment for productive investment). Some proposals have been slightly modified in the light of public comment on draft provisions released for public exposure.
1.3 In relation to Directors Duties and Corporate Governance, the Bill contains reforms designed to promote optimal corporate governance structures without compromising flexibility and innovation. A statutory form of business judgment rule is intended to protect the authority of directors in the exercise of their duties and to clarify their liability. The introduction of a statutory derivative action provides a new avenue of enforcement and action by shareholders where previously there has been a gap. It is not intended to impose a new form of liability on directors. Other measures, for example, clarification of the directors duty of care and diligence, and of the ability of directors to delegate functions and to rely on the advice of experts when making decisions, will give directors the confidence to engage in entrepreneurial or informed decision making.
1.4 The Takeover reforms contained in the Bill are designed to improve the efficiency of the market for corporate control while encouraging better management and enhancing investor protection. Takeovers, or the prospect of takeovers, provide benefits for shareholders, the corporate sector and the economy since they provide incentives for improved corporate efficiency and enhanced management discipline, leading ultimately to greater wealth creation. The reforms are aimed at ensuring that these incentives operate effectively.
1.5 In relation to Fundraising, the Bill contains reforms designed to minimise the costs of fundraising while improving investor protection. The purpose of the fundraising provisions is to promote the disclosure of information that investors reasonably require in order to make informed investment decisions. The reforms will promote the operation of informed markets and, by removing unnecessary impediments to fundraising, facilitate investment which is vital to Australias economic performance. The reforms also seek to ensure that the fundraising rules provide an appropriate cost effective framework for capital raising by small, medium and large companies.
1.6 The Accounting Standards provisions in the Bill provide for the establishment of new institutional arrangements for the Australian accounting standard setting process and for the adoption of new procedures that must be followed by the standard setter when it is making or formulating accounting standards.
1.7 Other reforms arising from the proposals in CLERP Paper No.5 (Electronic Commerce - Cutting cybertape - building business) have been implemented in the Payment Systems and Netting Act 1998 and the Company Law Review Act 1998 . In relation to CLERP Paper No. 6 (Financial Markets and Investment Products - Promoting competition, financial innovation and investment), consultation papers regarding reforms relating to financial markets, financial intermediaries and investment products are expected to be released by the end of 1998.