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Transcripts from the Prime Ministers of Australia

Transcript 2111


Photo of Gorton, John

Gorton, John

Period of Service: 10/01/1968 to 10/03/1971

More information about Gorton, John on The National Archive website.

Release Date: 16/09/1969

Release Type: Statement in Parliament

Transcript ID: 2111

The Rt Hon. J. G. GORTON, M. P.
( Ministerial Statement)
[ From the ' Parliamentary Debates', 16 September 1969]
Mr GORTON ( Higgins-Prime Minister)
by leave The importance to
Australia of a strong and continuing inflow
* of overseas capital has never been ques-
'. tioned by my Government. During the years
-after the end of World War II, the accumulated
total of private overseas investment
ini Austral) ia has been about $ 7,000m. With-
6 tha. ' investment, ' it would have been
impossible for us to develop as quickly as
history demands we must. Our immigration
programme would have been restricted.
Import replacement and a, growing independence
of many overseas commodities would
have been curtailed. And we would not have
grown the industrial muscles which we need.
This overseas flow of investment has
developed resources which were previously
not utilised. It has contributed to the sustained
growth in our export income, and
it has raised the general level of efficiency
and therefore of real incomes in many
sectors of the economy. It confers great
benefits on us and it is essential that it should
continue. It is, however, also true that overseas
capital does not come to Australia
merely because of a wish to confer these
advantages on us. Basically it comes here
because we are a politically stable country,
because there are great opportunities for
new development here, and because there
are good opportunities for profit, and for
growth as the nation grows.
Naturally, at a time when great new
possibilities are opening up in this country
22179/ 69 we wish to see Australians get as good an
opportunity as possible, within the limits of
their resources and capacities for saving,
for participation in these developments and
growth and profits. This is not an attitude
that can or should be carried to'the point
of discouraging people from abroad who
are willing to bring here their money and
their energies and their know-how. But it
is an attitude on the part of the Australian
community which overseas interests have to
recognise. To a very large extent they
already recognise and are prepared to
accept it. And many of them indeed, in
indreasing numbers, have seen that it is an
attitude which is basically helpful to them
and can be turned, in a co-operative spirit,
to their and our good account.
As we see it, the central aim of policy
must be to provide, on terms which are fair
as between overseas investors and the Australian
people, the conditions under which
investment will be attracted here. Those
conditions should be such that overseas
enterprises can operate securely and
effectively, making the greatest contribution
they can to our development at a fair
return to themselves. And above all, conditions
under which they can work ' in
harmony, on even terms, and so far as
practicable on a joint basis and in close
collaboration with Australian enterprises.
We do not believe that we can or should
seek to legislate, in such a complex field.

But we reiterate our wishes and have little brevity I will refer to those amounts as
doubt that overseas companies of repute the increase in funds employed.
A h -iL
will Lnote and reiponJ LU Uose wl es.
Mr Uren-They have not in 20 years.
Mr GORTON-Yes. They are doing it
more and more. The Government has, as
its general objective, the encouragement of
Australian participation in and partnership
with, overseas enterprises. And in speaking
of partnership I place emphasis upon the
offer of equity participation to Australians
by overseas ventures. As encouragement
towards this end we have recently completed
a review of the restraints imposed on
overseas companies seeking to raise fixed
interest borrowings in Australia-or the
borrowing guidelines as they have come to
be known. These guidelines . apply onlyto.
proposed fixed interest borrowings, not to
the raising of share capital in Australia for
the purpose of financing operations by
enterprises incorporated here.
' At present overseas interests proposing
any form of borrowing within Australia are
requested to consult the Reserve Bank and
Australian lending institutions are requested
to satisfy themselves that overseas interestsor
companies in which more than 25% of
the shares are held by overseas interestshave
received approvals from the Reserve
' Bank covering any proposed borrowings.
This will continue. Generally speaking companies
will be allowed reasonable access to
Australian borrowings for financing normal
requirements of working capital, bridging
finance, and continuing carry-on requirenients.
Further, in accordance with the
Government's general policy of ensuring
that every effort is made to increase exports
of Australian goods, ready approval will be
given to borrowings for the specific purpose
of financing export transactions.
In calculating the new local borrowings
that will be approved to finance fixed assets
Sin future, the base will be the local borrowings
approved as acceptable as at 30th
June 1969 under the existing guidelines.
Companies that are now regarded as having
been established in Australia for a period
of' 4 years or longer will be allowed to
borrow up to 10% of any increase subsequent
to June 1969 in the total of shareholders'
funds, other funds from overseas
sources, and. local borrowings excluding
those to finance increases in working capital
: or to finance exports. For the sake of Companies wholly overseas-owned and
established in Australia for periods of less
than 4 years will be allowed local borrowings
of up to 21% of the increase in funds
employed for each year that they have been
, established. Such companies will hence-
, forth have a new base and a new percentage
applied each year until they have been
established here 4 years. From that time
onwards they will be allowed local borrowings
of up to 10% of subsequent increases
in funds employed. For companies in
which Australians have a share of the
equity, additional borrowings to those set
out above will be allowed. The extent of
the additional borrowings will be determined
by the share of the total equity in
the company held by Australians.
.: To meet, requirements of funds additional
' to the proceeds of new share issues and the
local borrowings in accordance with the
preceding paragraphs, a company will be
., allowed to raise in Australia a proportion
of its total new borrowings which will
accord with. the proportion of shares in
the company held by Australians. Australian
equity will be weighted on a four
for three basis so that the proportion for a
. company with 30% Australian equity will
be 40%. If for special reasons overseas
loan funds to match local borrowings can-
: not be arranged, access to local borrowings
will nevertheless be increased to take
account of the extent of the Australian
equity. In the application of this aspect of the
guidelines, the Reserve Bank will take into
account,; for purposes of calculating the extent
of Australian equity, offers to Australians
of new or increased equity ( other
than through convertible notes) which have
not been taken up but which are considered
to have been genuine and reasonable offers
of . local equity participation in the company.
If new or increased Australian equity
, is offered bona fide through the issue of
convertible notes, the Reserve Bank will
take into account in calculating the extent
of. Australian equity one-half the future
increase in Australian equity that would
result if the notes were converted.
' It should be mentioned here that
approval will not normally be granted for

borrowings that would facilitate the remittance
of funds abroad. Consistently, moreover,
with the longstanding exchange control
policy of requiring overseas interests
taking over enterprises in Australia to bring
in cash to the full extent of the purchase
price, approval will not normally be given
to borrowings intended to finance a takeover.
Overseas interests seeking exchange
control for a takeover are reminded
that on completion, the changed
ownership of the enterprise taken over will
necessitate discussions with the Reseive
Bank of the extent of local borrowings by
the enterprise as a whole.
I move on to discuss convertible notes.
During , the developmental stages of many
major projects there are either no earnings,
or no surplus earnings available for distribuition
to shareholders. This, of course, discourages
would-be investors who need a
return on their capital at once and limits
the amount of share capital which those
promoting the venture can raise. Therefore
the alternative of fixed interest borrowings,
with a guarantee of income, has had more
attraction to many lenders as well as; to
those seeking to borrow. For the borrower
believes that by offering immediate return
on the investment as income he will increase
the likelihood of borrowing successfully. He
also knows that the interest he must pay on
fixed interest borrowings is cumulatively
deductible for income tax purposes, thus
substantially reducing the effective cost of
his borrowings.
As a step towards attaining our goal of
increasing Australian equity participation in
Australian development, we sought means
of-diverting these fixed interest borrowings
into borrowings'with-' a chance of equity
participation. It was foi this reason that the
Treasurer /( Mr McMahon) announced in
his Budget Speech our proposal to amend
the Income'Tax Law in order to restore
deductibility of interest for income tax purposes
on convertible company securities.
Before 1960 interest on all convertible securities
was deductible; but it became evident
that convertible notes were being widely
substituted for equity issues and that, in
the majority of cases, the plain purpose of
this substitution was tax avoidance. So to
protect the revenue, deduction of interest
on all convertible securities was disallowed. We do not intend to go back to a pre-
1960 situation. We shall minimise the scope
for tax avoidance and will lay down conditions
to which convertible securities must
conform if they are to qualify for deductibility
of interest. These conditions are:
1. The lender or noteholder, and not the
issuing company, has the option to
2. The noteholder's right to exercise the
option is not deferred longer than 24
months after the date of issue of
the security;
3. The convertible note has a currency
of not less than 7 nor more than
years but the company may make the
terminal date for the exercise of the
option as much as, but not more than,
12 months earlier than the maturity
date of the note;
4. The terms and conditions of the issue
are fixed and not subject to any variation
throughout the period of their
S currency; and
5. The conversion price for shares is not
less than 90% of their market price
when the convertible securities are
issued, qr par, whichever is greater.
We believe that these conditions will have
. a twofold advantage. They will give companies
adequate scope for using convertible
securities to their best advantage in business
financing and they will offer to Australian
investors a new opportunity to participate
in the equities of overseas-initiated
ventures in Australia, especially those in the
extractive industries. If such ventures issue
* convertible notes to finance development or
expansion, Australians who take up these
securities will have an assured rate of income
during the developmental period of
the project with the option to acquire equity,
and thus share in the growth of the business.
The opportunity that convertible notes opens
up for wider participation by Australians
in the ownership of such overseas-initiated
ventures has been a major consideration in
the decision we have taken to restore tax
deductibility of interest on such convertible
notes. In so seeking to widen opportunities for
Australian participation in ownership we
have sought to ensure that the opportunities
would be real and not merely nominal and
that they will not be too long delayed. We
think that the option to -convert to shares-

should remain open long enough for the
company to have established itself and for
its shares to have value enough for noteholders
to take them rather than opt for
repayment of their loan in cash. It is in
order to provide adequate time for development
and profitability that we propose that
convertible notes should have a currency of
at least 7 years and that the option to
convert should not terminate earlier than
12 months before the maturity date of the
note. We also believe that 10 years will
for all practical purposes be long enough
for convertible notes to remain outstanding.
Certainly, if the development or expansion
of an overseas-initiated venture is to lead to
an issue of equity to Australians, it is
reasonable to expect this to be resolved
within a period not longer than 10 years.
Convertible issues proposed to be issued by
companies in which more than 25% of
the shares are held by overseas interests
will be subject to examination by the
Reserve Bank to determine that the terms
of issue are . reasonable and genuine.
The question of Australian participation
in Australian development is not confined to
expressing a strong Government desire for
joint ventures, -or to encouraging the offer
of equity to Australian shareholders through
borrowing guidelines. The question of protection
of Australian companies against
overseas takeovers also arises. . The Government
has given special consideration to this
question of takeovers in general, whether
such takeovers are by overseas or by other
Australian companies.
We have been especially concerned to
prevent the use of takeover methods which
are unfair -to a company's shareholders as
a body. I refer to such practices as the
large-scale purchase of shares through
nominees, to first come first served offers
and similar manoeuvres. These problems
were. reported on. by the Company Law
Advisory Committee and in March of this
year the Standing Committee of Attorneys-
General agreed to adopt the report in
principle. * As the Attorney-General informed the
House on 20th May the Commonwealth
Government has considered that report and
has decided to amend the companies Ordinances.,
of, the, Australian. Capital Territory. and Northern Territory to give effect to the
Advisory Committee's recommendations,
namely: Disclosure
A person having a beneficial interest of
10% or more in the voting capital of a
company listed on an Australian stock
exchange will be required to give notice of
that interest to the company. The company
will be required to enter this information in
a special register which will be available
for public inspection. The new provisions
are to apply to, but without discrimination
against, persons resident, or companies
incorporated, outside the jurisdiction, as
well as to persons or corporations within
the jurisdiction of this Government. The
-proposed provisions are generally in line
' with the existing law in the United Kingdom
and the United States but, in view
of. enforcement difficulties,. are to be
accompanied by certain sanctions not provided
in those countries. A registered holder
who is aware that he holds on behalf of a
non-resident will be required to furnish to
that. person information as to the requirements
of the legislation.
A. The code will be made applicable to
offers by natural persons.
An invitation to make an offer-as,
for example, in first come first served
invitations will be treated as if it were
an offer.
C. The criterion for application of the
code will be 15% of the voting power,
instead of one-third as at present.
D. An offerer who increases the price
offered in respect of some shareholders
will be obliged to pay the
increased price to those who have
already accepted.
E. Provision will be made to prevent a
bid for less than the provided limit
of 15% of shares being used to
acquire shares in excess of that limit.
F. -It will be an offence for a person to
make a takeover offer, or to give
notice of intention to do so without
having any reasonable or probable
grounds of expectation of being able
to provide the consideration for the
offer or proposed offer.

G. All aspects of a takeover will be
governed by the law of the State or
Territory in which the offeree company
was incorporated.
It will be noted that the report does not
recommend the prohibition of first come
first served offers as such but the Eggleston
Committee -reported that these . changes will
ensure that this kind of offer will not escape
the control applicable to other kinds of
takeover offers.
There were additional proposals from the
Associated Stock Exchanges and although
these were not covered by the Committee
because it considered they were outside its
terms of reference, they will be incorporated
in the companies ordinances of the Australian
Capital Territory and the Northern
Territory. 1. One of the amendments will provide
that any amendment to the articles of
association restricting voting rights
shall require the affirmative vote of
not less than 51% in value of the
shareholders of the class of shares
affected. A similar requirement
already exists in the listing requirements
of the Australian Associated
Stock Exchanges. The present position
under the uniform Companies Act is
that any amendment of the articles
of association of a company requires
a special resolution, which in turn,
requires a three-fourth's majority of
members of the company voting in
person or by proxy.
The proposed provision will be in
the nature of an additional requirement,
which will recognise the
significance of a restriction on voting
rights. Shareholders who do not vote
affirmatively for a restriction-including
those who do not vote at
all-will, in effect, be treated as
opposed to the restriction.
2. The other additional, amendment
relates to the notice of intention that
must be given before a takeover is
made. The present position is that this
notice must be given not earlier than
28 days, and not later than 14 days,
before the offer is made. The amendment
will require the notice to be
given not earlier than 42 days and
not later than 28 days. The additional notice provided for by the amendment
will allow an offeree corporation a
better opportunity of considering the
terms of the offer and of taking steps,
if it so desires, to amend its articles of
association to restrict voting rights
attached to shares held by overseas
I turn now to takeovers which, irrespective
of the method used, may be judged
contrary to the national interest. In the past
theGovernment has acted to preserve
Australian ownership and control of enterprises
which for special reasons of national
interest or importance could not be permitted
to' pass into foreign hands.
For many years we have opposed the
entry of overseas banks into the local
industry. And . inth e areas of television and
radio broadcasting the acquisition of control
by foreign interests has been excluded by
statute. Further statutory control is not at
present contemplated and we do not believe
that it is possible now to define further
classes or fields of enterprise which we
believe should not, in the national interest,
pass to overseas ownership.
However whilst our general experience
over the years has shown that almost all
overseas investment in Australia accords
with our country's interests it has also shown
that there remains a need for the Government
to be ready to guard against the
transfer from Australian control of established
companies in particular areas of
activity. For example some few years ago
there were thought to be attempts by overseas
investors to take over an important
and long-established Australian mining company,
while more recently it was believed
that there was an attempt to take over
one of the principal Australian life assurance
organisations, which would have carried
with it the right to determine the
investment policy of assets totalling some
$ 700m of Australians' savings.
Although we expect the need to arise
only on rare occasions as a Government
we reserve the right to do all in our power
to prevent particular takeovers when, in the
circumstances of the case, we would consider
it to be bad in the national interest.
The strengthening of the takeover code
through amendment of the Uniform Companies
Act should ensure not only that takeover.
proposals proceed in a fair and open

manner, but also that the Government will
have more time to intervene, or express a
Government view, if it considers the
national interest calls for it.
To sum up, Mr Speaker, we seek to encourage
the flow of overseas capital into
this country. We seek-to make it crystal
clear that we look with favour on joint
enterprise and . on the offer of Australian
equity in new ventures-and that we will
' be disturbed where the opportunity for Australian
participation is not given. We seek
to encourage the growth of Australian
equity by offering more access to the fixed
interest borrowing as Australian equity in a
company increases. We seek to protect
companies against unfair methods of takeover
and to reserve to ourselves the right
to. intervene in such takeovers when we
consider it is in the national interest, and
we seek the acceptance of the basic principles.
of a code of good corporate behaviour.
Such a code was adopted by the
Canadian Government three years ago. Speaking of overseas companies, and paraphrasing
the language to our -own environment,
I think there are three essentials for
which we look as a nation:
1. A high. degree of Australian autonomy,
with Australian citizens participating
on the boards of directors
and in the management of companies;
2. The objective of a financial stucture
, which provides opportunity for equity
participation by Australians;
3. A sensitivity to the reasonable
national -aspirations of Australia
vhic6 whilst somewhat indefinable in
detail are known quite well by all
those in this House and by anybody
who is at all sensitive to these aspirations,
' and who as a company has
intentions of investing in -this ration.
By the means outlined in this speech we
believe that we will, without interfering
with the flow of capital we need so badly,
offer considerable encouragement to greater
Australian, equity participation and that,
Sir, is the objective. of this Government
and, I believe, of most of the citizens of
this country.
Priuteil for the Government of the Commonwealth by W. 0. MURRAY at tho
. Government Printing Office, Canberra

Transcript 2111