Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Hansard source

Senator Murray rightly corrects me and says ‘cross-party’. It is a cross-party recommendation whereby we say this to the government: you should remove the prerequisite of insolvency because, on the evidence that we were presented with both in the 2004 inquiry and, I would suggest, in this inquiry, it is unnecessarily restrictive. We have the view that this provision can impede the recovery of property for the company for the benefit of creditors, and we think it needs to be reconsidered by government. We are conscious of the issues Treasury raised, which is why the committee, again on a cross-party basis, has suggested a shortening of the time frame in which such clawback can occur, through an uncommercial transaction process, to 12 months. We encourage the government to consider that.

The second point I want to raise relates to recommendation 3, which is the right of an administrator to use a casting vote in relation to his or her removal. We have raised this previously. It seems extraordinary, in terms of general principles about the conflicts of interest and the desire that administrators not only act independently but be seen to be independent, that an administrator can exercise a casting vote in favour of or against their removal. We strongly encourage the government, consistent with the principles of independence, which the insolvency system to a large extent depends upon, to consider an alternative voting mechanism to deal with that issue. It seems to be a fairly patent conflict of interest that ought not to be permitted under the legislation and needs to be dealt with.

Finally, I want to deal with recommendations 5 and 6, which relate to the keeping of proper financial records. The evidence before this inquiry and, as I recall, also before the 2004 inquiry was that they are clearly a minority but there are some directors of insolvent companies who have not kept appropriate records. Not only does that make the administrator’s or liquidator’s job very hard, but it can potentially create a significant cost burden to the administration, to the detriment of creditors, which may include employees but also independent contractors and other persons or entities with whom the company contracts. In other words, the creditors get stung twice: first, the company goes into insolvency and they may not get the entirety or any of the moneys that they are owed; and, second, they then effectively have to wear the cost of the fact that the directors have not complied with their obligations under the law.

There was some very compelling evidence at one point in the inquiry where I think one of the representatives of the insolvency bodies pointed out that the penalties under the act for the nonkeeping of these financial records were probably less than it might cost some directors to remedy any noncompliance. It is a practical absurdity to have a situation where it is potentially cheaper for people to not comply with the law than to comply with it. I urge the government to consider both recommendations 5 and 6. Recommendation 5 is a recommendation to significantly increase the penalties pursuant to section 286. In my view, this is absolutely required. I suggest to the chamber that most businesses do the right thing. We need a compliance mechanism to ensure that the directors who do not do something as simple as keeping proper financial records of the operations of a company are subjected to appropriate penalties as a deterrent to that sort of behaviour.