Commonwealth Numbered Regulations - Explanatory Statements

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BANKS (SHAREHOLDINGS) REGULATIONS (AMENDMENT) 1995 NO. 380

STATUTORY RULES 1995 No. 380

Issued by the Authority of the Assistant Treasurer

Banks (Shareholdings) Act 1972

Banks (Shareholdings) Regulations (Amendment)

Section 10 of the Banks (Shareholdings) Act 1972 (the Act) generally limits the nominal amount of the voting shares of a bank in which a person (including a corporation) may have an interest to 10 per cent, or 15 per cent with the approval of the Treasurer, of the total nominal amount of the voting shares of the bank. Under subsection 10(4) of the Act the Governor-General may, after application made to the Treasurer by a person, if the Governor-General is satisfied that to do so is in the national interest, fix a higher percentage for that person by instrument published in the Gazette. Subsection 10(5A) provides that the Governor-General may, on the publication under subsection 10(4) of an instrument fixing a percentage applicable to a corporation in respect of a bank, after application made to the Treasurer by the corporation, by instrument in writing published in the Gazette, declare that the percentage so fixed is also applicable to the persons who are from time to time relevant officers of the corporation in respect of the bank.

Section 17 of the Act provides that the Governor-General may make regulations for the purposes of the Act.

On 31 July 1995, Westpac Banking Corporation (Westpac), which currently owns around 8.5 per cent of Challenge Bank Limited (Challenge), announced its intention to pursue a merger with Challenge, which is a regional bank operating mainly in Western Australia. Westpac wants to merge with Challenge in order to combine regional banking proximity and understanding of markets with a national bank range of services, capital and expertise. The Westpac/Challenge merger proposal was approved at a meeting of Challenge shareholders on 22 November 1995.

The Treasurer has provided in-principle written support for the sale, subject to conditions which Westpac has accepted. These conditions are:

•       the integration of Challenge with Westpac occurring as quickly as possible and, in any case, within four years;

•       a requirement that Westpac sell down to less than 10 per cent of Challenge shares should the proposed merger not proceed for regulatory or other reasons; and

•       no Westpac representatives are to be appointed to the board of Challenge ahead of the proposed merger.

To reflect the ownership by Westpac of 100 per cent of Challenge, instruments have been gazetted in accordance with the Act, effectively fixing a percentage of 100 under subsection 10(4) for Westpac in relation to its interest in Challenge.

Under section 9 of the Act the associates (including officers, partners, subsidiaries and related companies) of Westpac would also be deemed to have the same interest in Challenge as that corporation. In the case of officers of Westpac, an instrument pursuant to subsection 10(5A) of the Act is proposed which would fix a percentage of 100 in relation to interests in Challenge for those persons who are from time to time relevant officers of Westpac.

Under the Act, it is not possible to make a 'class' instrument for the interests of the associates of Westpac, other than its relevant officers. These other associates represent a large and ever-changing group of persons and corporations.

Rather than make an instrument pursuant to subsection 10(4) for every person within the meaning of section 9, it is convenient to prescribe these interests - that is, to have them disregarded for the purposes of section 10 of the Act - by regulation, as provided for by section 17 and paragraph 8 (9) (d).

Paragraph 8(9)(d) of the Act provides that a prescribed interest in a share, that is an interest of such a person or class of persons as is prescribed, shall be disregarded. The Banks (Shareholdings) Regulations (the Regulations) currently prescribe a class of persons in relation to their interests in the banks listed in the Schedule to the Regulations, where those interests are deemed to be held by virtue of an associate relationship. The effect of the proposed amendments to the Regulations would be to disregard, for the purposes of the Act, interests in Challenge arising from associate relationships with Westpac.

The details of the proposed Regulations are as follows:

The Schedule to the Banks (Shareholdings) Regulations is amended by adding the following corporation to column 2:

Challenge Bank Limited;

and by adding the following to column 3:

Westpac Banking Corporation.