COMPANIES (AMENDMENT) BILL

[Mr Speaker in the Chair]

Order for Second Reading read.

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Bill before the House has two main strands. First, it seeks to make provision for the computerised depository system for scripless transfer of securities listed on the Stock Exchange of Singapore (SES). Secondly, it provides a new regime that will enable representative or derivative actions to be brought on behalf of a corporation to enforce the rights of a corporation where the directors, for example, refuse to enforce those rights.

Apart from these major amendments, the Bill contains amendments that are designed to provide for the winding up of local companies and striking off the register of foreign companies which have been convicted of an offence under the Charities Act or the Regulations made thereunder. The Bill also makes provision for retrenchment benefits or contractual ex-gratia payments to be payable to employees on the winding up of a company. The remaining amendments are basically to remove anomalies in the Act and to improve its administration.

I now deal first with that part of the Bill that is concerned with the electronic transfer of securities listed on the SES.

Company law had for long required that every transfer of shares should be evidenced by a share certificate and the delivery of a completed transfer form to the company so that it could enter the name of the transferee in the company register and transfer the legal title to the shares to the transferee. Besides the great deal of paperwork involved, there is considerable delay between the time shares are sent for registration in the buyer's name and the time the shares are returned to the buyer. In the meantime, until he receives the physical share certificates from the company register, the buyer is denied the opportunity of re-selling the shares in the market at the opportune time.

To overcome these problems, the Central Depository System was introduced. Transfer of listed securities by reproduction of share certificates and transfer forms under the paper-based settlement system will be replaced by book-entries in the computer-based records controlled by an operator called the Central Depository Pte Ltd, or simply known as the Depository. Such a major conversion exercise, involving hundreds of listed companies and thousands of shareholders, obviously cannot be accomplished overnight. Until this exercise is completed, the paper-based system of transfer for listed securities will continue to function in parallel with the book-entry settlement system on the stock exchange.

As far as the trading in shares on the stock exchange by investors is concerned, this will continue in much the same way as under the paper-based system. Shares will still be bought and sold through brokers. Investors whose names are entered in the Depository Register shall be deemed to be members and consequently retain all the existing rights that go with such membership. For example, rights to dividends and voting rights. The main changes will occur, as I have mentioned, in the procedures of transfer of ownership of the shares.

The Central Depository System, as it is called, that is introduced in the new Division 7A of the Bill, gives statutory support to the book-entry system introduced by the SES. This new system will avoid the inconvenience, waste and inefficiency associated with the paper-based system. Apart from these advantages, it provides greater security for investors and minimises the opportunities for fraud and forgery as well as losses from misplaced certificates.

The essence of the system is that all owners of securities of companies that are listed on the SES will deposit the certificates relating to these securities with the Depository, and register them in the name of the Depository or its nominee. Shareholders of these listed companies may, however, at any time, withdraw these certificates and register them in their own names, if they, for whatever reason, choose to do so. But they will not then be allowed to trade in such shares on the SES unless the shares are brought back under the Central Depository System. The true ownership of the securities will be evidenced in accounts kept by the Depository in the name of each depositor. When the latter wishes to buy or sell securities, he gives instructions to the Depository or his depository agent which will effect the transaction by entering it in the Depository Register.

The new Division 7A seeks to ensure that the book entry system has the backing of statutory law and that proper safeguards are written into the law so that shareholders' rights and liabilities under the Act are preserved. Special provision is made for the mortgaging of book-entry securities. It clarifies doubts as to whether the scripless securities can be mortgaged and how this can be done. Powers are also conferred upon the Minister to make regulations in respect of the depository system.

I now refer to the next major amendment. Clause 22 would make statutory provision for representative or derivative actions to be brought by shareholders on behalf of their corporations. Such actions would be brought, for example, where the directors of a corporation refuse to enforce rights belonging to the company.

The clause would provide more effective remedies for minority shareholders than existed at common law at present. It would have the effect of overriding the obstacles put in the way of such actions by the common law. To ensure that the remedies that would be open to shareholders are not abused and give rise to unjustified court actions, section 216A contains strict conditions that must be satisfied before any action can be brought against corporations.

I shall now go through the other amendments in the Bill. Clause 8 of the Bill seeks to enable the Minister to petition the Courts to wind up a local company, and the Registrar to strike off a foreign company from the register, if the local company or foreign company has been convicted of an offence under the Charities Act or the regulations made thereunder.

Clause 23 amends section 328. The amendments have become necessary because of the High Court ruling in 1989 that retrenchment benefit is not payable when a company is in liquidation. To provide adequate protection for workers made redundant as a result of their companies being placed under liquidation, this section of the Companies Act will be amended as follows:

(a) to specifically stipulate that retrenchment benefits will be payable to employees affected by the winding-up of a company. In the event that the quantum of retrenchment benefits is not spelt out in the contract of service or collective agreement, the amount of compensation will be decided by the Commissioner of Labour;

(b) to allow claims for retrenchment benefits or contractual ex-gratia payments, to be payable to employees who have less than three years' service and who do not qualify for retrenchment benefits, to be accorded priority ranking after the "costs of winding up" and "wages and salaries"; and

(c) to subject the total claim for retrenchment benefits, contractual ex-gratia payment as well as "wages and salaries" as priority treatment to the ceiling of $7,500 or five months' salary, whichever is lower. Claims exceeding this ceiling shall be rated pari passu with other unsecured debts.

The amendments to section 209A and the Ninth Schedule are, by and large, of a drafting nature to remove uncertainty in existing law relating to the consolidation of accounts and accounts generally of a company which practising accountants have come across in the course of their practices. The remaining amendments in the Bill are, in the main, designed to improve administration of the Act as well as to remove existing anomalies in it.

Sir, I beg to move.

Question proposed.

Mr Chew Heng Ching: Mr Speaker, Sir, the Government Parliamentary Committee (GPC) for Finance and Trade and Industry welcomes the amendments proposed in this Bill.

Sir, we feel that as the world economy matures, and hence keener competition within and outside Singapore, rules will have to be revised to keep abreast with changes. We therefore support the amendments. We also feel that since the amendments, particularly those relating to the Central Depository System, are quite technical and complex in nature and have an impact on a large section of the business community and the public at large, we recommend that this Bill be referred to a Select Committee.

Sir, I have some comments on other clauses of the Bill. Clause 4 (section 12)

Sir, this clause states that government companies that are classified as "exempt private companies" shall not disclose to the public any document or information relating to their activities in the "interest" of the public. The amendment could be perceived in the eyes of the prying public, few as they may be, as imposing a shroud of secrecy on what ostensibly is just another "exempt private company", except that it is now owned by the Government. It is therefore opportune perhaps for the Minister to explain and to illustrate with examples the possible "public interest" factors that would make disclosure of these companies undesirable.

Clause 6 (section 16A)

Sir, this clause confers immunity on the employees of the Registry of Companies (ROC) for information supplied to the public. To err is human, to forgive divine. It is quite another thing to guarantee in writing that when one acts in good faith, one need not fear punishment if one makes a mistake. Sir, the ROC supplies very important information to the public, indeed, and these are information which is more often than not piously relied upon. While I support this amendment, I wish to ask the Minister what measures are there in place to ensure that ROC staff act in good faith. Will the Minister assure the House that ROC staff will continue to be alert in their work and that ROC records and standards will not be compromised with the passing of this amendment?

Clause 18 (section 154)

Sir, this clause confers a discretion upon the Court as to whether a person will be disqualified to act as director on conviction of offences in Singapore. I would like to ask the Minister to explain if this also applies to offences committed outside Singapore, say, in Malaysia. If not, why not? Surely the standard of fraud outside of Singapore cannot be any less reprehensible. Clause 22 (sections 216A and 216B)

Sir, I think the Government is to be lauded for seeking to rest in the shareholder the right to vindicate the company. As in now, if the Board of Directors and/or the majority shareholder refused to act for the company, there is nothing that the individual minority shareholder can do. Lest the jubilation of giving this right of the shareholder to sue the company be carried to one extreme too far, the legislation must be guarded against encouraging frivolous and petty applications by minority shareholders to put unnecessary pressure on the Board of Directors in the process. Will the Minister therefore assure this House that the amendments, as contained in this Bill, are adequate to ensure that this will not happen?

Clause 23 (section 328)

Sir, the passing of this amendment will ensure that all employees will be guaranteed payment of retrenchment benefits ahead of unsecured creditors. Sir, many a time, when a company goes bust, the employees are left high and dry with little more than the wages payable under the existing law in the Act. This amendment will therefore be a boon and indeed a timely one in the light of an economy which is maturing. I just have one comment. I wonder if the total amount of retrenchment benefits payable to an employee should be pegged at $7,500 as the maximum. It seems fair to fix the amount at five months' salary, but does not seem quite fair to try to limit the amount to $7,500. It seems to penalise the better-paid employees. Therefore, will the Minister explain why is the maximum set at $7,500 and no higher?

Sir, the GPC has also approached the Resource Panel for comments on the Bill. We have conveyed the comments by the Resource Panel directly to the Minister and the Minister has given the assurance that he will look into the comments.

Mr Leong Horn Kee: Mr Speaker, Sir, I wish to state that the proposed amendments to the Companies Act are mostly much welcome, as they seek to define better several anomalies that are present in the existing provisions. Most of the proposed amendments to the various sections, including the elaborate amendments to the Central Depository System, are most appropriate. I wish to voice my in-principle support for these amendments.

Sir, I thought I would like to use this opportunity to seek some clarification from the Minister on certain clauses of the Bill.

Clause 16 (section 130)

I welcome the many additions to the Bill to specify the functions of the Central Depository. I believe that it is not clearly spelt out whose responsibility would it be to determine and verify whether a shareholder is local or foreign. At present, many companies listed on the Stock Exchange of Singapore have to conform to certain limitations on percentage of foreign ownership. Therefore, it would probably be the responsibility of the company concerned to monitor closely whether these limits on the foreign ownership have been breached. It is not well defined as to whose responsibility, however, to verify the local or foreign status of shareholders.

I note that section 130E states that, "The Depository shall be under a duty to certify the names [but not status] of persons on the Depository Register". However, it is only performing a registry or recording function to certify the names. I presume the company itself would be responsible for the policing work to watch over the foreign shareholders limit. If this is the case, would the company then have the power to instruct the Depository not to accept any additional registration of foreign shareholders should the foreign limit be reached? What would be the case if the Depository has made a recording error?

I note that the new section 130H states that:

"Subject to the regulations, the Depository, if acting in good faith, shall not be liable for conversion or for any breach of trust or duty where the Depository has, in respect of book-entries in accounts maintained by it, ... ." The ambiguity here, Sir, is that should a staff in the Depository make an error in book-entry, but having done it in good faith, this could result in either losses or damages incurred by the rightful owner, or the company having breached the foreign control limit.

In the event of the above circumstances, it is uncertain as to where the responsibility should lie, and where appropriate, from whom can redress or compensation be sought by the affected party. If the Depository is not at fault, since the staff has acted in good faith, and, on the other hand, as the company does not maintain the registry of shareholders and therefore could not be deemed to be responsible, we have a case of having to point fingers in circles, as no one would be prepared to take the responsibility.

Clause 22 (section 216)

I note that the Minister has introduced a new provision to allow a complainant, who could be a member of the company, to take action against the directors in the name of the company should there be a breach of right or duty owed to the company, with legal fees to be borne by the company. I am generally supportive of this intention in this Bill as it allows an aggrieved shareholder to take action against directors who have acted not in the interest of the company; and by association, not in the interest of the shareholders.

However, I am concerned with this new provision. It may provide and give rise to too liberal litigious tendency as any complainant, even those who are owning one share, could raise a personal vendetta against the directors of a particular company. This complainant, though purporting to be acting in the interest of the company, could have many personal, competitive or other reasons for taking actions against the directors and apply to Court to use the company's funds for the purpose. These Court actions could soak up much time and attention of the directors away from the proper running of the company. This would result in overall adverse effect on the performance of the company and therefore definitely will not be in the interest of the company and all the other shareholders.

Naturally, Sir, directors who have acted and managed the companies with their utmost ability and in the best interest of the company need not fear. However, I do feel that there is a need for a balance between allowing shareholders to take pot-shots at directors (using the company's funds as ammunition) and for shareholders to take errant directors to task.

I note that there is a provision in section 216A(3) which provides that any action may be brought against a director unless the Court is satisfied that the complainant is acting in good faith and it appears to be prima facie in the interest of the company. In order not to appear to be acting in oppression of the interest of minority shareholders, the Court may take a more liberal interpretation of this section 216A to permit action to proceed and allow the use of company funds to cover legal expenses. I would suggest to the Minister to consider whether the complainant should be required to produce a petition with more than, say, 20 signatories of bona fide shareholders or representation of at least, say, 5% shareholdings, before such action which invokes section 216 could be considered in Court.

Clause 23 (section 328)

I would like to seek a clarification from the Minister on the intent of this section 328 which provides that in the situation of winding-up of a company, the amount payable to employees should not exceed the amount equivalent to five months' salary or $7,500, whichever is lesser. I agree with Mr Chew that I also find this proposed limit of $7,500 to be very disadvantageous to those employees who earn more than $1,500 a month. As we all know, nowadays several employees can easily earn more than $1,500 a month, particularly those who have been working for many years and those who have families to support. Even a graduate engineer could command that amount as starting salary. I would like to ask the Minister to consider lifting this limit of $7,500, but retain the proposed limit of five months' salary of the employees affected.

Mr Speaker, Sir, the Companies Act has grown in volume and details over the years. Now, it is a book covering over 550 pages, not including the new amendments that are being proposed in this Bill. Perhaps it is why we need so many lawyers nowadays to understand these provisions.

Sir, as this Bill is of importance to the operation of companies in Singapore, again I agree with Mr Chew, I would like to ask the Minister to refer the proposed Bill to a Select Committee to allow for wider views and representations to be obtained from professional bodies and the public. 3.30 pm

Mr Chng Hee Kok: Mr Speaker, Sir, I wish to declare my pecuniary interest as a director of a public company.

Sir, I support the general provisions in the Companies (Amendment) Bill but I would also like to support the views of the GPC for Finance and Trade and Industry that this Bill be committed to a Select Committee for the various points which were raised and some other points which I shall be bringing up.

Sir, clause 18 revamps the existing section 154 which disqualifies a person from acting as a director or manager of a company. The present section 154 is a very blunt instrument which makes no distinction between executive and non-executive directors. Although the new section 154 makes no such distinction, the present new section 154 gives the Court the discretion. Therefore, in that case, I believe the Courts, in time to come, will make some distinction between the directors who are working and are responsible, and those directors who are not doing a job which is executive in nature. This should go some way towards addressing the concerns of directors who are now appointed to several boards of companies, especially those who are serving in the Audit Committees.

The new section, however, restricts the disqualification only for offences committed under Singapore law whereas the existing provision of section 154 actually disqualifies a person when he is convicted of a law outside Singapore. The advantage of the new section 154 is that by excluding offences outside Singapore, it is much easier for Singapore businessmen and Singaporeans to invest and work outside Singapore, especially in countries where the judicial system is quite different from ours. But, however, by excluding foreign offences, I also share the views of Mr Chew that there does not seem to be any provision in the Companies Act which allows the Minister now to disbar or disqualify someone from acting as a director in case of an offence committed under a judicial system which is very similar to ours, for example, an offence under Malaysian law. I wonder what will the Minister do in the event that he needs to disqualify such a person from acting as a director, as asked by Mr Chew.

Sir, I move to clause 16 on the setting up of the Central Depository Pte Ltd, or very commonly known as the CDP. A number of points have already been raised by Mr Chew and Mr Leong and I shall like to focus only on the part of the Bill relating to section 130J. Section 130J prohibits a shareholder or depositor from applying to a Court to rectify the register of the CDP. In other words, if a shareholder or a depositor's name has been removed by fraud or computer error, a person has got no recourse to law to have his name reinstated. Without his knowledge, in other words, a person or shareholder of a company may wake up one morning to find that he is no longer a shareholder until three months later when he receives a statement of account from the CDP. His only recourse is through the Court and his only remedy is damages and not reinstatement as a shareholder.

Sir, this raises several issues. One is that in the case of damages, there is no provision in the Bill at the moment which makes it mandatory for the CDP to take up adequate and sufficient insurance in the event of a loss in the Court. On one extreme, small shareholders will be penalised because it is very expensive and time-consuming to seek legal redress. It also raises the question of how would damages be determined. Share prices are very volatile and why should shareholders be penalised and be awarded damages at the time when the shares are removed from his ownership. He could have wanted to keep his shares for the long term.

On the other extreme, for the large investors, especially majority shareholders, they can also have a serious problem. The majority shareholders, by virtue of the fact that they control the majority of the shares in a company, have the right to control and manage the company. A sudden loss of a shareholding of some or all of the shares due to an error in the computer can mean that the majority shareholders lose control completely overnight. And taking a hypothetical example, this can happen even to Temasek which may not be a major shareholder of Singapore Airlines through such an error. What is the recourse for Temasek? They go to Court but the name cannot be reinstated. They are only entitled to damages from the CDP. It raises a lot of other interesting questions, especially if it relates to a controlling shareholder. If such a shareholder loses his shareholding or part of it, and he reinstates his shares by buying in the market which breaches the take-over code, is he obliged to make a mandatory general offer again for the rest of the shares?

Sir, clause 22 on the derivative actions provides an effective remedy to minority shareholders. I welcome this clause. I think it is very useful and very important, especially for closely-held private companies. Presently, the minority shareholders or companies which are not publicly listed and have no recourse to the law are not able to dispose of the shares. They are not able to take action on behalf of the company against the directors who abuse their position. The only remedy is to take the company to Court on oppression and if the case proven, will result in a liquidation of the company. I, therefore, welcome this law, especially it relates to companies which are not listed on the Stock Exchange, as this seems to be a prevalent problem.

However, if the new sections 216A and 216B are also applicable to public-listed companies, we have a situation, which has already been mentioned by Mr Leong, whereby a shareholder owning one share or 1,000 shares can take action on behalf of the company against the directors, or on behalf of the company. This, in my view, will likely lead to increased litigation where a simple complaint against a public-listed company to the Stock Exchange will usually provoke a response from the directors. So the new section 216A which applies to public-listed companies can have a lot of dire consequences for our stock market. You can imagine a situation whereby a minority shareholder has some information which he thinks is relevant and if the Court grants him leave to take action on behalf of the company. This will likely affect the share price. And in trying to protect the minority shareholders, it may penalise them.

In some European legislation, as a safeguard, the intending litigants must usually hold a certain proportion of the shares, and Mr Leong has already suggested 5%. In other words, one cannot take action against SIA unless one owns 5% of the shares and not 1,000 shares. So by providing a legal framework for redress which, I believe, is based on the Canadian model, it is something which we must try to avoid. Derivative action is very popular in North America, especially in the US. And what we must bear in mind is that what is necessary for North America is not healthy and necessarily good for Singapore.

Therefore, I strongly urge the Minister to commit this Bill to a Select Committee so that some of these additional safeguards and provisions can be worked out, Sir.

Mr Walter Woon (Nominated Member): Mr Speaker, Sir, I support this Bill, but not in its entirety. Like the curate's egg, some parts of it are good, but not all of it. Before I proceed further, may I declare my interest as a director of a listed company.

As the Minister has said, the provisions in the Bill actually fall into two distinct parts - the provisions that deal with the amendments to the Companies Act and the provisions that deal basically with the Central Depository system. It is to the latter that I will confine my observations, leaving my comments on the former to the Committee stage.

The logical way to implement a scripless trading system is to first change the law and then design the system. The SES has chosen to do it the other way. They change the system first and now this House is being asked to change the law to accommodate the system. What we have is a system that is not entirely efficient because it still requires share certificates to be issued and share certificates to be registered. And the reason why this less than efficient system has been chosen is that the law was not changed first to enable a company to completely dematerialise scrip. The result is a very unsatisfactory situation - a law which has little coherence and a system which is not entirely efficient.

If you look at the provisions in the Amendment Bill, you will see that they are focused entirely from the view of the SES and the Central Depository. The two groups of persons who were most intimately concerned with scripless trading are not taken care of at all. These are the listed companies whose shares are going to be traded on a scripless basis and investors who are being asked to put their money in the market. The interest of these two parties, I submit, have not been adequately taken care of.

The Minister has said that the scripless trading system will improve matters, improve security for small investors. May I respectfully differ from him on this. The system has loopholes through which you could drive a double-decker bus and that invites massive fraud. What we have got is the equivalent of a current account but with shares instead of cash.

I ask the hon. Members of this House to consider whether they would consider operating a current account under the following circumstances. Firstly, the bank holding your money does not have to have a cheque or written instruction to pay away your money. Secondly, the bank can debit your account on the instruction of someone who claims to be your broker. In fact, you have no choice about this because you cannot give instructions to them directly. Thirdly, they will send you a statement of account quarterly, and unless you challenge this within seven days, the statement is deemed to be conclusive. Fourthly, if the bank mistakenly pays away your money without your consent, it is not for them to prove that you have consented. It is for you to prove that you did not consent. And fifthly, if the bank pays away your money without your consent, you cannot sue them even if they did so negligently. Would any of the hon. Members consider running a current account under these circumstances? Yet this is the very system that we are being asked to approve in this Bill applying to shares, this is precisely what can be done under the present scripless trading system.

Let me give the House some examples of how fraud is facilitated under the new system. I hesitate to do this in such a public forum, lest we give encouragement to crooks. But I think it has to be said. Firstly, the bent financial controller. You have a company that invests money in shares. Under the present system, the scrip is kept by a custodian. Under the scripless system, there is no custodian because there is no scrip. Let us assume the financial controller of this company is a crook. He instructs the company's broker to sell the company's entire portfolio of shares. Under the present system, this will not benefit him one jot because he has to make delivery of the shares before he would get payment. Under the scripless system, he instructs, the broker will sell. The CDP will debit the company's account, the cheque will come to the company. If you are in the position of a financial controller there are any number of ways you can get the money out of the company once it comes. How do you protect yourself against this? I have asked various people - internal auditors, external auditors, 8stock brokers - and nobody has been able to give an adequate answer, short of keeping your shares out of the scripless system.

Next, the dishonest dealer. If you have a dishonest dealer or remisier. At present, a dealer or remisier cannot sell his client's shares unless he has access to his client's scrip. So you are very careful. You make sure that your dealer or remisier does not hold on to your scrip. Under the scripless system, no scrip is required. So whoever knows your CDP account number and your client number can sell your shares without your consent and without your knowledge. The cheque, of course, will be crossed in your name but I have asked brokers whether it is possible for a dealer or remisier to get money that is payable to a client and they have told me how. If anyone would like to know, I will be happy to tell them after this. But I think perhaps it would not be a good idea to make it public in this way. But it can be done. So you could wake up one day and find that your dealer or remisier has sold all your shares, taken your money, and is winging his way to Taiwan without you knowing it.

Next, fraud by directors of broking firms. What can be done by a dealer or remisier will only affect a few clients. But the director of a broking firm, if he is a crook, can clean up the entire firm's clientele at one fell swoop. Can the Minister assure us that we will have no more Pan Electric-type situations and the directors of the broking firms now and forever more will be paragons of virtue? If a director of a broking firm has access to a client's numbers and client's accounts, he can instruct sale. He can do it by way of a married deal bypassing the usual safeguards. The cheque will come and, being a director of a broking firm, there will be again any number of ways he can convert the money to his own use. It only takes one crook to destroy the reputation of Singapore as a financial centre.

But the problem is not only the question of fraud. The problem is that the system is also open to human error. What happens if a dealer miskeys the client's account? I am told this happens all the time. It is not unknown. He miskeys the client's account. What happens under the present system is that there is a manual reconciliation at the end of the day. The system kicks out a list. The dealer then compares the list with his own list of trades and he reconciles the two. And if there are any mistakes, the trade can be recalled within two days, I am told.

What if the dealer does not do this? People are human. They are fallible. The dealer may be tired after a long day. He may want to go home to the wife and the kids. He may be off for a long week-end. He does not do his proper job. So the error creeps through.

The client gets a notification. He calls the broking firm. He says, "I never told you to sell. Why did you sell?" The dealer, to save his own skin, lies. He says, "You told me to sell." His word against the broker's word.

Under the present scrip system, if a client declines to make delivery, the broking firm will buy in against him and sue him. The broking firm will have the burden of proof. They will have to prove that the client gave the order. Under the scripless system, the CDP will debit the client's account. The client will then have to sue the broking firm. The client will have to prove that he did not give the order. How does one prove a negative? And when you talk about small investors, can a small investor afford to sue a broking firm? A broking firm has the resources to fight a small investor to a standstill. So the net result will be that if a mistake of this sort is made, the small investor will lose out. Your retiree who has put his life savings, your little old lady who does not know what else to do with her money, will find themselves cleaned out by mistake.

It is actually worse than this. Even if the mistake is discovered, there is no provision for stopping the trade. The client cannot call CDP and say, "Look, there was a mistake. Do not debit my account." At least with a current account, you can stop the cheque. In the case of CDP, there is no such provision. The trade goes through whether or not it is a mistake and you leave the small investor to his remedy against the broking firm. As I said, the net result will be that the broking firm will get away with it and the small investor will lose out totally.

What is troubling about all these examples is that they are not unknown. I raised some of these problems two years ago at a conference on regulation of the market. Since then, there has been deafening silence from the Stock Exchange. If an outsider can think of all these scams, I shudder to think what the insiders who are familiar with the system will be thinking of at present.

I strongly urge the Minister not to push the amendments through until the Stock Exchange can assure the public that the problems have been addressed. We cannot pretend that the problems do not exist. It has never been this Government's style to ignore a problem until it becomes a crisis. If there is a major scandal, people will want to know why the problem was not foreseen and dealt with. It will be catastrophic for our reputation as a financial centre if the problems were foreseen but they were not dealt with because of the desire to push through a flawed system as fast as possible.

SES is pushing for listed companies to go scripless by June 1993. Some companies, including INTRACO, on whose board I sit, have expressed reservations about doing so until the law is settled. A responsible company director cannot recommend changes to a company's Articles of Association until the law is clear, nor can a responsible board recommend scripless trading until they are satisfied that the shareholders' interests are fully protected.

One of the major problems of the scripless system, as I have said, is that there is no written confirmation of any trade, and this is a fundamental problem. If you say we are going to have this scripless system without a written confirmation, then you must be prepared for this kind of fraud. If, on the other hand, you say we need a written confirmation like you need a cheque when a bank debits your current account, then the system will have to be revamped. And this cannot be done, I think, in one sitting today. The Bill will have to go to a Select Committee, at the very least.

May I make another suggestion? May I urge the Minister to extend the stamp duty exemption for shares that are deposited with the CDP? The stamp duty exemption for deposit of shares expires in June 1993. Because of the reservations that some companies have expressed, they will not meet the 1993 deadline. The shareholders of these companies should not be penalised because their directors are taking a cautious view. Moreover, if the system goes through in its present form, ie, without requiring a written confirmation of a trade, the only way you can protect yourself adequately against fraud is to take your shares out of the system and redeposit them when you want to trade. That is why I urge the Minister to extend the stamp duty exemption for people who do want to redeposit later on, because they want to protect themselves.

There are other drafting problems with the Companies (Amendment) Bill, as suggested, but I think I will reserve my comments for the Committee stage. May I, however, make two suggestions in addition to supporting the Members who spoke before me by asking that this Bill go before a Select Committee? My first suggestion is that I strongly urge the Minister to take the sections dealing with the CDP out of the Companies Act. They do not belong in the Companies Act. The vast majority of companies will never be listed, much less be traded scripless. They belong properly in something like the Securities Industry Act. Or like in Malaysia, in a separate Act of its own.

The Securities Industry Act also needs revision. So may I also urge the Minister to form a Law Reform Committee to look into the question of revising the Securities Industry Act, the by-laws, the rules as well as the sections on the CDP so that they form a coherent whole?

My second suggestion basically relates to the Companies Act as a whole. Our Companies Act is a legal equivalent of a platypus. It has got bits of different animals stuck together. The basic structure is copied from a British Act of 1948 which was based on a British Act of 1929. We have amended it and re-amended it, copying Australian sections, English sections, American sections and bits of our own.

The wonder is not that it is flawed. The wonder is that it works at all.

In the last decade, there have been four major amendments to the Companies Act. This is the fifth. This cannot be satisfactory from the point of view of businessmen and lawyers who have to live with this kind of thing from day to day. So may I suggest to the Minister that he set up a proper Company Law Reform Commission to look into a coherent revision of the Companies Act. The Australian Act has been revised. The English Act has been revised. Our Act just putters along in the 1948 form. With respect to the overworked Parliamentary Counsel in the Attorney-General's Chambers, I do not think they can do this revision themselves. You need people with practical knowledge of how the law works to do this. Company law is far too important to be left in the hands of the lawyers alone.