Bills Digest 93 1995-96
Housing Loans Insurance Corporation (Transfer of Assets and Abolition)
Bill 1996
WARNING:
This Digest is prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments.
This Digest was available from 29 May 1996
CONTENTS
Date Introduced: 8 May 1996
House: House of Representatives
Portfolio: Treasury
Commencement: Part 1 (Preliminary formalities of the Bill), Part
2 (Transfer of assets of the Housing Loans Insurance Corporation), Part
3 (Pre-transfer contracts), Part 4 (Transfer and rights of employees)
and Part 5 (Miscellaneous) commence on the day the Act receives the Royal
Assent.
Part 6 (Abolition of Corporation) commences on a day to be fixed by
Proclamation (but not earlier than the 'transfer day', and in any event
6 months after the 'transfer day').
The purpose of the Bill is to provide for the transfer of the assets,
and the abolition, of the Housing Loans Insurance Corporation ('HLIC').
A new Government-owned company is to be established. It is, for all practical
purposes, identical to a Bill of the same name passed by the House or
Representatives on 24 October last year, but which did not make it through
the Senate before the Federal election.
HLIC was established by the Commonwealth Government in 1965 to provide
a Government-backed housing loan insurance scheme. The main purpose for
this scheme was to assist prospective home purchasers to obtain a loan
at a reasonable rate of interest. HLIC offered insurance against the risk
of loss by a lender to recover against a home loan.
In more recent years, HLIC has extended its activities to insuring loans
for the purchase, construction or refinancing of non-residential buildings.
Under amendments to the Housing Loans Insurance Act 1965, in 1985
and 1987, HLIC was empowered to insure approved dealers in the secondary
mortgage market, and to enter into reinsurance contracts with lenders,
respectively.
HLIC is the largest mortgage insurer in Australia and it operates in
competition with other insurers. Under the existing legislation, HLIC
is guaranteed by the Commonwealth but it is self-financing. HLIC is liable
for Commonwealth, State and Territory taxes. HLIC operates on a national
basis with offices in each State capital. HLIC operates as a business
undertaking.
Initially, the sale of HLIC as a going concern was announced in the
1989 Budget. The Housing Loans Insurance Corporation (Sale of Assets
and Abolition) Act 1990 provided authority for the Commonwealth to
effect the sale of the HLIC franchise to the private sector.
This Bill will complete the reorganisation of this Government asset
- by restructuring HLIC into a new Government-owned company ('Company
Limited');
- enabling the new restructured HLIC to be contracted to manage the
existing portfolio of HLIC's insurance policies;
- making available sufficient capital for the restructured HLIC to satisfy
the requirements of the Insurance and Superannuation Commission;
- addressing the issues of the transfer of staff to the new company;
and
- winding-up of the 'old' HLIC body corporate.
Technically, this restructuring of HLIC into a Government-owned company
does not necessarily mean that this business enterprise will be sold immediately
to the private sector. It does, however, release HLIC's capital and financial
reserves to return to Consolidated Revenue. Presumably, after a period
of operating as a Government-owned company, which will attract new business
(as well as managing the 'old book' policies), the Government would have
the option of selling this asset.
The estimated gain from the return to the Commonwealth of HLIC's capital
and financial reserves of this public asset is $100m in 1995-96. Expected
budget outlays associated with the management of existing (i.e. 'old book
') insurance policies in future years are:
1996-97 1997-98 1998-99
$20m $15m $8m(1)
There is a view that the expected budget allocations, above, are a relatively
high estimate and that they reflect an anticipated increase in home loan
defaults, at least in the next two financial years. This is, however,
against a backdrop of a fairly low rate of loan defaults in 1994.(2)
Clause 3 contains definitions of words and terms used in the
Bill. One significant definition is 'transfer day' which is the day fixed
by the Minister by notice published in the Gazette. The 'transfer'
refers to the transfer of assets and liabilities from HLIC to the new
Company Limited. Regard should also be paid to the special definition
of 'assets' in the Bill at clause 3.
Clause 6 specifies that the newly restructured body corporate,
which is to be called the Housing Loans Insurance Corporation Limited
(the new 'Company Limited'), does not have the shield of the Crown and
it does not represent the Crown. The Company Limited is simply a company
registered under the Corporations Law and owned by the Commonwealth.
Clause 7 is a key provision in the Bill and it empowers the Minister
to determine in writing what assets, capital and money are to be transferred
to the new Company Limited to enable it to operate as an insurance company.
The Clause also specifies that any existing HLIC insurance contracts remain
with the Commonwealth. In essence, the clause contains the necessary authority
to transfer assets back to the Commonwealth or to the new Company Limited.
Clauses 8 and 9 operate as saving provisions for legal instruments
(e.g. documents and agreements) and any pending legal proceedings, respectively.
These saving provisions have the effect of substituting the Commonwealth
or the new Company Limited, whichever is applicable, in lieu of the HLIC
which is to be abolished.
Clauses 10 to 13 provide authority for all HLIC insurance contracts
which exist before the transfer of HLIC assets and liabilities to the
new Company Limited to be guaranteed by the Commonwealth (Clause 11)
but managed by the new Company Limited. The Bill refers to these items
as the 'pre-transfer contracts'. To facilitate this arrangement, a management
agreement between the Commonwealth and the new Company Limited will be
completed. Clause 12 appropriates any necessary payments from the
Consolidated Revenue Fund to an Insurance Account to met any Commonwealth
liabilities arising from the pre-transfer contracts.
Comment: It is conceded that the Commonwealth's liabilities under
pre-transfer insurance contracts are amounts that only become fixed from
time to time as claims arise in the future. Nevertheless, the Explanatory
Memorandum to the Bill provides an estimated of expected outlays (see
table above). It is suggested that consideration could be given to providing
a statutory cap (albeit with a reasonable margin) for this appropriation.
Clauses 14 to 15 provide for the transfer of HLIC employees to
the new Company Limited on the same terms and conditions of employment.
Subclause 14(3) specifies that the act of transfer does not create
an entitlement to, say, a redundancy payment. HLIC is audited by the Australian
National Audit Office ('ANAO').(3) Subclause 14(4) relieves ANAO
of audit responsibility for the new Company Limited.
Clauses 16 to 22 provide portability for long service leave credits
for HLIC employees who transfer to the new Company Limited.
Likewise, Clauses 23 to 25 provide transitional and saving provisions
for workers' compensation matters, while Clauses 26 to 28 deal
with maternity leave entitlements.
Clauses 29 and 30 have the effect of continuing, when applicable,
the provisions of the Crimes (Superannuation Benefits) Act 1989
and the Director of Public Prosecutions Act 1983, respectively,
to HLIC employees in relation to any matters which may have arisen while
they were employed with HLIC, and who are now employed by the new Company
Limited. Likewise, any person employed by the new Company Limited from
the transfer day is subject to those Acts, as if the new Company Limited
was a Commonwealth authority.
Clause 31 removes any obligation upon the Commonwealth to accord
public service mobility rights, after transfer day, to any employee of
HLIC who has those rights at present. Mobility rights would otherwise
have allowed employees who, after transfer day, relinquish employment
with the new Company Limited to seek reappointment to the Public Service.
Clause 32 proves an exemption from Commonwealth, State and Territory
taxes in relation to the transfer of HLIC's assets and liabilities pursuant
to Clause 7.
Clause 33 provides a mechanism for the registration of title
to assets divided between the Commonwealth and the new Company Limited,
as a result of the transfer of assets and liabilities from HLIC.
Clause 34 provides that any transfer of assets of HLIC which
would result in the 'acquisition' of the property of any person otherwise
than on just terms, then the Commonwealth must pay that person reasonable
compensation.
Clause 35 stipulates that the financial statements of the new
Company Limited required to be sent to the Commonwealth as a shareholder
of the company must also be tabled by the Minister in Parliament.
Clause 36 continues the obligations arising from the Commonwealth
Borrowing Levy Act 1987, which applied to HLIC, to the new Company
Limited.
Clause 39 repeals the Housing Loans Insurance Act 1965
and the Housing Loans Insurance Corporation (Sale of Assets and Abolition)
Act 1990, and in doing so abolishes the HLIC.
Comment: In Clause 39, the reference to 'Housing Loans
Insurance Act' without a year is not a drafting oversight. The Act is
defined in that form inthe definitions (see Clause 3).
1. Explanatory Memorandum to the Housing Loans Insurance Corporation
(Transfer of Assets and Abolition) Bill 1995: 3.
2. See Rogers, Ian 'HLIC claims mark a big rise in defaults', Australian
Financial Review, 6 October 1995. See also, Rogers, Ian. 'Third time
lucky in $100m HLIC funding restructure', Australian Financial Review,
6 October 1995.
3. See for example, 29th Annual Report & Financial Statements:
Year Ended 30 June 1993, Housing Loans Insurance Corporation, December
1993.
Brendan Bailey, Ph. 06 277 2434
Bronwyn Young, Ph 06 277 2699
23 May 1996
Bills Digest Service
Parliamentary Research Service
This Digest does not have any official legal status. Other sources should
be consulted to determine whether the Bill has been enacted and, if so,
whether the subsequent Act reflects further amendments.
PRS staff are available to discuss the paper's contents with Senators
and Members and their staff but not with members of the public.
ISSN 1323-9032
© Commonwealth of Australia 1996
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Published by the Department of the Parliamentary Library, 1996.
This page was prepared by the Parliamentary Library, Commonwealth of
Australia
Last updated: 23 May 1996
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