John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Mr President, you will be aware that I have had cause to speak about the Westpoint disaster on several occasions in this chamber and to make use of the estimates committee process in an attempt to get to the bottom of this terrible debacle. The recent decision of the Court of Appeal of the Western Australian Supreme Court in ruling that promissory notes issued by Westpoint’s Emu Brewery were not debentures under the control of the Corporations Act 2001 has highlighted the need for immediate—and I emphasise ‘immediate’—legislative action and clarification of the law where public capital raising activities to retail investors are conducted. I note that paragraph (d) of the definition of debenture in section 9 of the Corporations Act does not include ‘an undertaking to pay money under a promissory note that has a face value of at least $50,000’. Clearly, this definition needs to be amended urgently and the threshold brought into line with the current regime of regulation under the Corporations Act for capital raising activities directed at retail investors.

While ASIC has been criticised for not taking action to shut down the Westpoint schemes following the 2004 decision of the West Australian Supreme Court, it does not remove the need for government to ensure that, where funds are raised from the retail investing public, appropriate protections are always in place. As indicated in the 2004 decision of the West Australian Supreme Court, the legislative intention of paragraphs (a) to (f) of the definition of debenture in section 9 of the Corporations Act is:

... to exclude banking and other commercial transactions involving dealings in debt of a sort for which the protective provisions in Chapter 6D—

and they require the disclosure documents—

and Chapter 2L—

requiring a trust deed and a trustee—

are not required.

For the reference, look at Ford et al, Ford’s Principles of Corporations Law, Butterworth, Sydney, 1995 for the authority.

While the government has made huge advances in ensuring that Australian laws both facilitate business activity and ensure that retail investors are appropriately protected, the exclusion at paragraph (d) of the definition of debenture in section 9 of the Corporations Act appears to be one of those pockets missed in the modernising of our laws. I note that this matter was raised with ASIC in 2002 by the Western Australian government expressing its concerns about the apparent gap in the Corporations Act in relation to promissory notes. What did ASIC do about this information? Who did they pass it on to?

The decision of the Court of Appeal further highlights the need for legislative action to ensure that there are appropriate protections for retail investors. The obvious answer is to bring them within the scope of the law. I note that KPMG, the chartered accountants, has stated that it never approved any of the so-called ‘research house documents’ which allegedly provided a positive financial assessment of Westpoint. I also note that in 2004 KPMG, after extensive and appropriate audit work, issued unqualified audit reports but—and here is the rub—ensured that for relevant companies, the notes to the accounts properly disclosed going concern issues in respect of those things. Where was ASIC in relation to those concerns raised by the auditors? I think ASIC should have picked up on this—they were asleep at the wheel—whether or not they were strictly required to.

I would like to bring to the attention of the Senate the fact that over the past six months I have been contacted by dozens and dozens of concerned citizens from all over the country, most of whom have been badly hurt in some way by the Westpoint fiasco. But nobody seems to bother. Nobody seems to be concerned. It is my responsibility as a senator to make public excerpts from some of these letters that I have received. One reads:

I am a single woman aged 63 and have lost 40% ($160,000) of my retirement savings as a result of my (now previous) financial adviser putting me into two of the Westpoint companies. As a consequence I am selling my home in order to downgrade and free up some money for income.

How terrible—aged 63. Another person invested in Westpoint on the advice of their adviser, only to have their adviser abandon them seven months before the collapse of the Westpoint scheme. The adviser just walked away—no responsibility, no action taken. Nobody seems concerned. Another writes:

I was bitten by Westpoint for $160,000, through a financial planner in Adelaide who I later found out was not licensed. Obviously he was driven by the high commission he received from Westpoint. He recommended I use the equity in my family home—

How tragic—

and said the investment was safe and capital guaranteed. I would never have invested in anything that was not guaranteed.

What did this person do? The letter goes on:

I also rang ASIC in August 2005 to find out if it was a good investment before I signed.

And here is the tragedy—the irresponsibility of that organisation that we put our trust in. According to this letter writer:

Their response was that they could not comment either way. Being a pensioner I have no way of making this money back and face losing my home in the near future.

ASIC could not comment either way. They did not know. They were not prepared to say. They sat on the fence and allowed people to lose savings of that nature. I will read one more personal account:

We worked hard all our lives. We saved and sacrificed and bingo, our first experience with the financial industry and we lost big time. My husband was near nervous breakdown and is still on medication. I have had to take over everything. The effect on our physical and mental health will leave permanent and damaging side effects. We will never make our $400,000 again.

When the government encouraged Self-Managed Super Funds, I believed the Financial Industry had been tidied up and regulated. I thought there were safeguards put in place for our protection. There are more sharks out there now after our superannuations than ever before. It is big business. My advice to everyone we meet is to leave your money in the bank or under the mattress.

I cannot believe that our SMSF and financial advisor (who later changed her title to ‘product advisor’) was at times (unbeknownst to us) selling products while she was uninsured and unregulated and unattached to any licensed financial industry firm. She encouraged us to further invest in Bayshore on the 7th of November 2005, two weeks before Westpoint collapsed. She had been fired by her employer nearly two months previous, and as far as we know did not work for any financial institution when she sold us Westpoint products.

She knew other clients of hers could not get their money out of Westpoint since March 2005, but in November 2005 encouraged us to further invest another $100,000 and did not warn us. I reported her to ASIC, but she has since been able to obtain a new financial advisors licence and has set herself up in business again.

How pathetic! No checking! These are but a few examples that display the absolutely abhorrent nature of the Westpoint scheme, and I hope they go some way towards outlining the damage it has done to real people whose lives are now devastated.

I spoke on the evening of 9 March in this place about the decline in values in Australian society, and I point to these examples as a vindication of those statements. That people posing as financial advisers can so cynically lie to people, knowing they are giving their clients’ retirement savings away for a commission, is a dreadful inditement of Australian society, and ought to be stopped. I urge ASIC to take immediate action against these so-called unlicensed advisors. I ask: what were the great numbers of lawyers in ASIC doing to protect the people? The situation is not good enough. It is neglect of duty. (Time expired)