FOCUS : Australia Is Bolstering Stock Agency’s Power

In a bid to eliminate the kind of corporate scandals that have discouraged some Americans and other potential foreign investors from doing business in Australia, the government is beginning to put teeth into its young securities watchdog agency.

The Australian Securities Commission was created in January to root out illegal and improper financial conduct and improve a business image sullied in the 1980s by some of the country’s high-flying corporate power brokers.

The commission replaced an ineffective agency that relied on regulators who reported to individual state agencies--resulting in lack of uniformity in enforcement of securities laws.

In recent weeks, the Australian Stock Exchange has given the commission new regulations to enforce. Some are designed to force disclosure of the kind of information that could have been used to rein in some of the flamboyant executives who flourished during the heady days of easy credit and light regulation. Many of these “corporate cowboys” are now foundering in bankruptcy or debt-ridden disgrace.

For example, Alan Bond--known for financing Australia’s surprising win over the United States in the 1983 America’s Cup yacht race--is now considered one of Australia’s biggest financial losers. At its peak, Bond Corp. Holdings Ltd. held interests in brewing, media, mining and telecommunications in Australia, Chile and the United States.

Bond’s family company, Dallhold Investments Pty. Ltd., was closed Friday, with debts of more than $760 million. A federal court in Sydney appointed a liquidator after receivers were named for Bond’s last major asset, his stake in the Greenvale nickel joint venture in Queensland.

In September, Bond resigned as head of debt-ridden Bond Corp. He was recently charged with violating securities laws--allegedly “concealing” material facts about his company’s dealings with Rothwells Ltd., a finance company that subsequently collapsed.

The young commission attempting to prosecute Bond was created when Australia’s ruling Labor Party and the conservative Liberal Party decided to create a regulatory agency that would take an aggressive, more uniform approach to enforcement. John Hewson, Liberal Party leader and a likely candidate for prime minister, disagrees with Labor on many economic and business issues but supported a bipartisan plan for dealing with financial scandal.

“Clearly, some of our entrepreneurs have received bad press, but they’re a small percentage of our business community,” Hewson said during a visit to Los Angeles last week. “It is a pity that people like Bond . . . receive so much attention when there are so many (corporate) successes in Australia.”

Hewson is among many Australian government leaders concerned about international reaction to the financial improprieties and resulting business failures in Australia.

At least 15 of Australia’s major businesses have fallen on tough times the last two years, with losses totaling $12.8 billion. The list of those associated with the failures includes some of Australia’s most visible executives of the 1980s:

* Christopher Skase once headed media conglomerate Qintex Australia Ltd., paying himself $9.5 million in salary one year and making a failed attempt to acquire MGM-UA in 1989. Loaded with debt, Qintex subsequently went bankrupt. Skase last May was charged with violating corporate laws.

* Laurie Connell’s Rothwells Merchant Bank, which failed November, 1988, is under investigation for alleged improprieties. Connell faces criminal fraud charges in the failure.

* George Herscu was considered one of Australia’s wealthiest citizens until his Hooker Corp., which included some U.S. shopping malls and retail companies, fell on hard times. Now bankrupt, Herscu was convicted of corruption charges that involved paying off a former state official.

Many of the financial flops stem from 1980s bank practices that enabled some entrepreneurs to build financial houses of cards. Amid the competitive frenzy of the times, banks began to make unsecured loans to some of Australia’s overly ambitious corporate executives.

Some go-go company-builders used the easy loans to finance takeover bids worldwide, developing reputations as sharp corporate raiders. The cards began to tumble after the global stock market crash of October, 1987. Cash flows slowed, high loan interest payments came due, credit markets dried up and banks were suddenly unwilling to refinance debt.

To be sure, there were debt-balloon blow-outs in other countries. Liberal Party hopeful Hewson noted that some high-profile American businessmen--Donald J. Trump, for example--also are trying to cope with massive bills.

However, the scale of failure in Australia has made Americans and others wary of investing “Down Under,” said Rod Swanson, vice president and senior economist at First Interstate Bancorp.

“An investor has to ask, ‘How do I know that this (Australian) company is being run properly?”’ Swanson said. “The (Australian) government is now trying to bring more accountability to their investment arena.”

To help securities regulators, the Australian Stock Exchange intends to improve the flow of information to shareholders by closing loopholes and requiring companies to provide more information.

For example, the definition of related corporate entities has been broadened, making it more difficult for any unscrupulous company executive to hide the liabilities or assets of one company by shifting the holdings or obligations to the balance sheet of a sister firm. On the other hand, the Australian government still does not require companies to issue quarterly financial reports.

“Given the problems generated by the (corporate) cowboys, the government had to act,” Swanson said. “This shows a willingness to move some distance toward addressing one of the concerns of some foreign investors.”