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CORPORATIONS AMENDMENT REGULATIONS 1999 (NO. 3) 1999 NO. 143
EXPLANATORY STATEMENTStatutory Rules 1999 No. 143
Issued by the Authority of the Minister for Financial Services and Regulation
Corporations Act 1989
Corporations Amendment Regulations 1999 (No. 3)
Section 22 of the Corporations Act 1989 (the Act) empowers the Governor-General to make regulations, not inconsistent with the Act or the Corporations Law, prescribing, among other things, matters which are required by the Corporations, Law to be prescribed by regulations, or necessary or convenient to be prescribed by regulations for carrying out or giving effect to the Corporations Law.
The Corporations Agreement, reached between State, Northern Territory and Commonwealth Ministers who had responsibilities in relation to corporate regulation in June 1990 forms the political compact on which the national companies and securities scheme is based.
The responsible Ministers of the States and the Northern Territory on the Ministerial Council for Corporations have been consulted on the regulations and have given approval to the regulations, as required by the Agreement.
Schedule 3 of the Financial Sector Reform (Amendments and Transitional Provisions) Act (No. 1) 1999 ('the FSR(A&TP) Act') added a new Schedule 4 into the Corporations Law that has the effect of deeming entities registered under the Financial Institutions Code and the Friendly Societies Code of the States and Territories to be registered under the Corporations Law. The new Schedule 4 requires or permits various matters to be prescribed by regulations.
The regulations deal with transitional matters and will provide relief of a temporary or ongoing nature from various requirements of the Corporations Law as they apply to transferring entities for the registration of financial institutions and friendly societies as companies, and regulation of those entities under the Corporations Law in respect of, but not limited to:
- the financial reporting obligations of the transferring entities which are not disclosing entities and have not completed their reporting obligations under their previous governing Codes;
- the fundraising, licensing and disclosure obligations which will apply to friendly societies;
- the provision of an extension facility for transferring entities to lodge elections to become a particular company type after the transfer date;
- the transfer to the Australian Prudential Regulation Authority of the power to grant consent to names of bodies corporate that connote a financial institution;
- providing a facility for transferring entities limited by shares only to issue shares during the period between the transfer date and the time that the entities' constitutions are amended to recognise the type of shares on issue. Details of the regulations are attached - Attachment A.
The Regulations will commence on the commencement of Schedule 4 to the FSR(A&TP) Act.
Schedule 4 of that Act commences on the 'transfer date' specified for the purposes of that Act.
ATTACHMENT A
Regulation 1 - Name of regulations Regulation 1 provides that the regulations are the Corporations Amendment Regulations 1999 (No. 3).
Regulation 2 - Commencement
Regulation 2 provides that the Regulations will commence on the commencement of Schedule 4 to the Financial Sector Reform (Amendments and Transitional Provisions) Act 1999 ('the FSR(A&TP) Ad'). Schedule 4 is set to commence on the 'transfer date', defined in clause 1 of Schedule 4 of the Corporations Law as the date that is the transfer date for the purposes of the FSR(A&TP) Act.
Regulation 3 - Amendment of the Corporations Regulations 1990
Regulation 3 contains Schedule 1, which provides for the amendments to the Corporations Regulations 1990. Schedule 1 contains 28 items that amend the Corporations Regulations 1990, with the most significant contained in item [19], being the insertion of a new Chapter 12.
Schedule 1 - Amendments
Item [1] Subregulation 1.0.02 (1), after definition of approved form
Item [1] inserts two new definitions into subregulation 1.0.02(1) in order to clarify the application of the amendments to the regulations. They define the meaning of a benefit fund with reference to its use in section 16B of the Life Insurance Act 1995, and what constitutes a financial business in relation to conduct for the purpose of the regulations.
Item [2] - Subregulation 1.0.02 (1), definition of life office
Item [2] omits the definition of life office presently provided in subregulation 1.0.02 (1). An amended form of the definition is incorporated into subregulation 7.3.13(2) (see item [11]), which is the only regulation to use the definition.
Item [2] substitutes the definition of life office with a new definition of friendly society, as defined in section 16C of the Life Insurance Act 1995.
Item [3] - Regulations 1.2A.04 and 1.2A.05
Item [3] omits regulations 1.2A.04 and 1.2A.05, which provide for the treatment of financial institutions as defined in section 111AZA of the Corporations Law. Section 111AZA was repealed by item 29, Schedule 3 of the FSR(A&TP) Act.
Item [4] - Regulation 2B.6.02: Consents required for use of certain letters. words and expressions
Item [4] transfers to the Australian Prudential Regulation Authority ('APRA') the power to consent to certain names that include the expressions "building society", "credit union" and "friendly society" being available to bodies corporate. Prior to the amendments, body corporate names that included these expressions could only be registered with the consent of the Minister who administers the Corporations Law ('the Minister').
The Corporations Law also provides for certain other names to be registered if the application for registration is accompanied by the consent of a specified Minister. This rule applies to names containing any of a number of words or phrases that prior to the amendments included the words "bank", "banker" and "banking".
To allow persons other than the Minister to consent to certain names, paragraphs 147(4)(a) and 601DC(4)(a) of the Corporations Law (as amended by items 33 and 45 of Schedule 3 of the FSR(A&TP) Act) permit a particular unacceptable name to be available to a company if a specified public authority, or an instrumentality or agency of the Crown in right of the Commonwealth, a State or the Capital Territory, has consented to the company using or assuming the name. The consent of the authority, instrumentality or agency may be given subject to conditions.
1 . Restricted words/expressions under the Banking Act
Under item 54 in Schedule 2 of the FSR(A&TP) Act, subsection 66(1) of the Banking Act 1959 ('the Banking Act') is amended to make it an offence to assume or use a restricted word or expression in relation to a financial business, unless APRA has consented to the assumption or use of that word or expression.
Authorised deposit-taking institution (AD1s)
Pursuant to item 57 of Schedule 2 of the FSR(A&TP) Act, subsection 66A(1) of the Banking Act is amended to make it an offence to assume or use the expression "authorised deposit-taking institution" or "ADI" in relation to a financial business, unless APRA has determined otherwise.
Subsection 66A(2) provides that a reference to an expression being assumed or used includes a reference to the expression being assumed or used as part of another expression or in combination with other words, letters or other symbols.
Bank, banker, banking, building society, credit union, and credit society
Under subparagraphs 66(4)(a)(i) and (ii) of the Banking Act, the expressions "bank", "banker", "banking", "building society", "credit union" and "credit society' are restricted words or expressions. In addition, the tern "restricted word or expression" also includes any other word or expression (whether or not in English) that is of like import to a word or expression covered by any of subparagraphs 66(4)(a)(i) and (ii) (subparagraph 66(4)(a)(iv) of the Banking Act).
Paragraph 66(4)(b) of the Banking Act provides that a reference to a word or expression being assumed or used includes a reference to the word or expression being assumed or used as part of another word or expression or in combination with other words, letters or other symbols.
2. Restricted words/expressions under the Life Insurance Act
Friendly society
Under section 16E of the Life Insurance Act 1995 ('the Life Insurance Act"), as amended by item 11 of Schedule 4 of the FSR(A&TP) Act, it is an offence to assume or use the expression "friendly society" in relation to a financial business if the body is not a friendly society and APRA has not consented to the use of that expression.
Section 16C of the Life Insurance Act defines the expression "friendly society". Broadly, a body is a friendly society if it is a company registered under the Corporations Law and is either taken to be registered under the Life Insurance Act (this relates to certain bodies that were friendly societies immediately before the changes) or has been determined by APRA to be a friendly society (see item 11 in Schedule 8 of the FSR(A&TP) Act).
Item [26] in Schedule 1 inserts a new Part 5 in Schedule 6 of the Corporations Regulations for the purposes of prescribing certain words or expressions that need to be accompanied by the consent of APRA, Part 5 contains words or expressions that connote a financial institution.
Item [4] in Schedule 1 recasts regulation 2B.6.02. Applications to use any of the words or expressions in the new Part 5 of Schedule 6 in the Corporations Regulations need to be accompanied by the consent of APRA. Applications to use any of the words or expressions in Part 4 of Schedule 6 continue to require the consent of the relevant Minister (there is no change to the current rules relating to Part 4).
In addition to covering the words or expressions actually set out in Part 4 or 5 of Schedule 6, the new regulation 2B.6.02 also covers any other word or expression (whether or not in English) that is of like import and whether used as part of another word or expression or in combination with other words, letters or other symbols. However, the regulation does not prohibit the use of the letters ADI as part of another word
Item [5] - Regulation 5B.3. 02: Consents required for use of certain letters, words and expressions
Item [5] replaces regulation 5B.3.02 to introduce the same rules for foreign companies and registrable Australian bodies as contained in item [4]. Reference is made both to the existing Part 4 of Schedule 6 in the Corporations Regulations (where Ministerial consent continues to be required) and to Part 5 of Schedule 6 (where consent by APRA is required).
Item [6] - Regulation 5C. 11.01: Certain funds not managed investment funds
The current regulation 5C. 11.01 mirrors section 1083A of the Law and was inserted on 1 July 1998 as part of the Managed Investments Act reforms. As a result of section 1083A being repealed by item 50 Schedule 3 of the FSR(A&TP) Act, regulation 5C. 11.01 is no longer necessary in its present form. It is substituted by a new regulation in relation to friendly societies.
Regulation 5C. 11.01 provides that an approved benefit fund maintained under the Life Insurance Act 1995 is exempted from the definition of "managed investment scheme" in section 9 of the Corporations Law. The result is that an approved benefit fund of a friendly society is not regulated under the managed investment scheme provisions in Chapter 5C of the Law. These funds are subject to appropriate regulation under the Life Insurance Act 1995.
In addition, the regulation ensures that interests in friendly society benefit funds are not "securities" for the purposes of section 92(2) of the Corporations Law and are not subject to the fundraising provisions of the Corporations Law. Instead, the disclosure obligations in Part 6 of Schedule 4 of the Corporations Law (inserted by the FSR(A&TP) Act) apply to offers of friendly society benefit fund products.
Prior to the transfer date, friendly societies were exempted from complying with the managed investment and fundraising provisions of the Corporations Law by ASIC Class Order 96/69. Due to the changed regulatory requirements under the FSR(A&TP) Act, it is appropriate that the exemption be formalised.
Item [7] - Paragraphs 7.3.02B(8)(k) and (1)
Regulation 7.3.02B provides that a licensee must meet additional requirements if they provide investment advice to a retail investor. Paragraph 7.3.02B(8)(k) and (1) provide that a financial institution, building society or credit union under a Financial Institutions Code, or a friendly society under a Friendly Society Code or the Friendly Societies Act 1894 (W.A.), does not fall within the definition of a retail investor.
Due to the changed regulatory arrangements under the FSR(A&TP) Act, the bodies formerly covered by regulation 7.3.02B(8)(k) are now covered by regulation 7.3.02B(8)(f) as authorised deposit taking institutions. Friendly societies, formerly covered by regulation 7.3.02B(8)(1), are now covered by regulation 7.3.02B(8)(e) as bodies registered under the Life Insurance Act.
Accordingly, item [7] omits paragraphs 7.3.02B(8)(k) and (1).
Item [8] - Subregulation 7.3.02B(10), definition of Friendly Societies Code
In light of the omission of paragraph 7.3.02B(8)(1) (see item [7]), it is no longer necessary to provide for a definition of "Friendly Societies Code" in regulation 7.3.02B.
Therefore, item [8] omits this definition from subregulation 7.3.02B(10).
Item [9] - Subregulation 7.3.11(2A)
The interaction between regulation 5C. 11.0 1, which excludes friendly society benefit funds from
the definition of 'managed investment scheme', and existing regulation 7.3.11, which excludes from
the licensing provisions managed investment schemes that do not need to be registered, may have
the effect of excluding friendly society benefit funds from the licensing provisions. This would
undermine the operation of subsection 92(2A), inserted by the FSR(A&TP) Act, which ensures that
the licensing provisions of the Corporations Law apply to dealings in benefit fund products.
Item [9] inserts a new subregulation 7.3.11(2A), which ensures that regulation 7.3.11 (1) does not apply to a dealing in or with an interest in a friendly society benefit fund.
Item [10] - Regulation: 7.3.13: Heading
Item [10] amends the heading of regulation 7.3.13 from the existing "Exemptions from licensing, etc -superannuation schemes, life offices and life insurance" to "Exemptions from licensing superannuation schemes, life offices and friendly societies".
The amendment reflects the broader application of regulation 7.3.13 in light of other amendments to that regulation.
Item [11] - Subregulation 7-3.13(2)
Item 11 amends subregulation 7.3.13(2) to omit the term "life office" and substitute it with "body corporate (except a friendly society) registered under the Life Insurance Act 1995". This incorporates into subregulation 7.3.13(2) the definition of "life office" in subregulation 1.0.02(1), which is omitted by item [2]. To ensure consistency, the incorporated definition excludes friendly societies, reflecting the wider application of the Life Insurance Act 1995.
Item [12] - Subregulation 7.3.13(4)
Item [12] inserts a new subregulation 7.3.13(4) to ensure that, consistent with the previous regime, friendly societies are not required to be licensed if they deal solely in their own benefit fund products.
Regulations 7.3.13A, 13B and 13C (see item [13] below) ensure that friendly societies which are exempted under this regulation are subject to some obligations similar to those imposed on licensees under the Law.
The regulation provides that a friendly society that only deals in securities in relation to its own benefit fund is exempt from Divisions 1 and 3 of Part 7.3 and Parts 7.5, 7.6 and 7.7 of the Corporations Law.
Item [13] - Regulation 7.3.13A Action by representatives of certain friendly societies; Regulation 7.3.13B: Friendly society dealing in interests in friendly society benefit fund; Regulation 7.3.13C: Authorisation to deal in interests in certain friendly societies
Item [13] inserts a number of regulations that apply to friendly societies that are exempted from the licensing provisions of the Corporations Law under subregulation 7.3.13(4), and to the representatives of those friendly societies.
Regulation 7.3.13A provides that a friendly society which is exempted from the licensing provisions, and its representatives, are subject to the following:
* a person must not, in relation to interests in a benefit fund, do an act as a representative of the
society unless they hold a proper authority from the society (subregulation 7.3.13A(3));
* a body corporate must not act as a representative of a friendly society (subregulation
7.3.13A(3));
* there is defence for an act done by a person as a representative of a friendly society if the
person reasonably believes that they are authorised as a representative of the friendly society
(subregulation 7.3.13A(4));
* all representatives of the society are required to hold a proper authority from a society-either
a document in the approved form or a proper authority previously issued in accordance with
section 184 of the Friendly Societies Code (subregulation 7.3.13A(4)); and
* if a person is subject to a banning order issued by the Australian Securities and Investments
Commission ('ASIC') under Division 5 of Part 7.3 of the Corporations Law, they must not act
as a representative of a friendly society and the society must not authorise them to act as a
representative (subregulations 7.3.13A(5) and (6)).
Regulation 7.3.13B applies to a friendly society to which subregulation 7.3.13A applies. It provides.
That sections 810, 811, 812 and 8 15; Division 4 of Part 7.3 and Division 3 of Part 7.4 of the
Corporations Law apply to the friendly society as if the society were licensed under the
Corporations Law. This ensures that these friendly societies maintain registers of persons who hold
proper authorities, are liable for the conduct of their representatives and are subject to the provisions
of the Corporations Law concerning recommendations about securities.
Regulation 7.3.13C applies to persons who hold a proper authority from a friendly society under subregulation 7.3.13A(3). It provides that sections 814 and 816 of the Corporations Law apply to representatives of a society as if they held a proper authority under the Corporations Law. This ensures that ASIC can require production of the proper authority and that the friendly society can require the representative to return the proper authority.
Item [14] - Regulation 7.3.14A: Exemptions from licensing
Regulation 7.3.14A exempts from the licensing provisions of the Corporations Law benefit funds that are health benefit funds or superannuation funds. This continues the existing exclusion for superannuation funds and health benefit funds from the conduct and disclosure obligations of Part 4B of the Friendly Societies Code by section 128 of the Code.
The exemption in relation to disclosure obligations is preserved by clause 36(1)(c) of Schedule 4 of the Corporations Law, while the regulation preserves the exemption in relation to the licensing obligations.
Item [15] - Subparagraphs 7.12.05(a)(v). (vi) and (vii)
Item [15] repeals existing subparagraphs 7.12.05(a)(vi) and (vii), which declare as 'excluded issues' an offer or allotment of securities to a terminating building society or a friendly society. Terminating building societies no longer fall under the Financial Corporations Act 1974 so a continuing exemption from the fundraising provisions of the Corporations Law is no longer appropriate. Friendly societies are covered by subparagraph 7.12.05(a)(iii) as bodies registered under the Life Insurance Act 1995 so that a separate exclusion is not necessary.
Item [16] - Paragraph 7.12.05(b)
Paragraph 7.12.05(b) provides that the issue or allotment of member shares constitutes an excluded issue for the purposes of paragraph 66(2)(n). 'Member shares' are defined in regulation 12.5.03.
Currently, the issue of 'withdrawable shares' by a financial institution is exempted from the fundraising provisions of the Corporations Law by paragraph 1083A(1)(a). Under the FSR(A&TP) Act, section 1083A is repealed. Item [16] ensures that the existing exemption is continued by paragraph 7.12.05(b).
Item [17] - Subparagraphs 7.12.06(a)(v), (vi) and (vii)
Item [17] repeals existing subparagraphs 7.12.06(a)(vi) and (vii), that declare as 'excluded offers and invitations' an offer or invitation to a terminating building society or a friendly society. Terminating building societies no longer fall under the Financial Corporations Act 1974 so a continuing exemption from the fundraising provisions of the Corporations Law is no longer appropriate. Friendly societies are covered by subparagraph 7.12.06(a)(iii) as bodies registered under the Life Insurance Act 1995 so that a separate exclusion is no longer necessary.
ltem [18] - Paragraph 7.12.06(c)
Paragraph 7.12.06(c) provides that an offer or invitation in relation to 'member shares' is an excluded offer or invitation for the purposes of paragraph 66(3)(k). 'Member shares' are defined in regulation 12.5.03.
Currently, the offer of 'withdrawable shares' by a financial institution is exempted from the fundraising provisions of the Corporations Law by paragraph 1083A(1)(a). Under the FSR(A&TP) Act, section 1083A is repealed. Item [18] ensures that the existing exemption is continued by paragraph 7.12.06(c).
1
Item [19] - Chapter 12: Financial Sector Reform
Item [19] inserts a new Chapter 12 into the Corporations Regulations, which contains various provisions to facilitate the transition of transferring financial institutions to companies under the Corporations Law.
In particular, it provides for:
- registration of transferring financial institutions;
- meetings of members of transferring financial institutions;
- compliance with requirements to display the institutions' names and numbers;
- financial reporting for disclosing and non-disclosing entities;
- transferring financial institutions and certain other institutions; and
- winding up and deregistration of certain financial institutions.
Details of the Chapter 12 regulations are attached in the Annexure.
Item [20] - Schedule 6, Part 2, subparagraph 6203(b)(i)
Item [20] amends rule 6203(b)(i) by replacing the reference to Schedule 6 with a more specific reference to. Part 3 of that Schedule. This clarifies the operation of rule 6203(b)(i).
Item [21] - Schedule 6, Part 2, paragraph 6204(a)
Item [21] amends rule 6204(a) to omit the reference to items 3 and 10 from rule 6204 because of the omission of the terms "building society" and "credit union" from Part 3 of Schedule 6. Those items are now covered by Part 5 of Schedule 6 (see discussion under item [4] above).
Items [22] and [23] - Schedule 6. Part 3, items 6303 and 63 10
Items [22] and [23] remove the terms "building society" and "credit union" from Part 3 of Schedule 6 of the Corporations Law as mentioned in the discussion of item [21].
Item [24] - Schedule 6, Part 3 item 6312
As explained under item [4] above, words or expressions connoting a financial institution are dealt with in the new Part 5 of Schedule 6 of the Corporations Regulations. This covers expressions such as "building society" and "credit union".
Unlike "building society" and "credit union", the expression "friendly society" could be used in relation to a body that is carrying on a business other than a financial business. Under the Life Insurance Act 1995, APRA has no regulatory responsibilities with respect to such friendly societies - it is only concerned with the regulation of bodies carrying on a financial business.
There are two sets of rules that apply in relation to the expression "friendly society". For friendly
societies that propose to carry on a financial business, the rules are similar to the new rules for
building societies and credit unions - that is, APRA's consent is required. However, for friendly
societies that do not propose to carry on a financial business, the rules remain the same as they were
- that is, the consent of the Minister is required.
Accordingly, item [24] adds the qualifier "(other than in relation to the conduct of a financial business)" to item 6312 in Part 3 of Schedule 6.
Item [25] - Schedule 6, Part 4, item 6402
Item [25] makes a consequential change to Part 4 of Schedule 6 of the Corporations Regulations, namely, to omit item 6402 from that Part. The words "bank", "banker", and "banking" are now covered by new Part 5 of Schedule 6.
Item [26] - Part 5: Names relating to financial institutions for use of which consent is required
Item [26] inserts a new Part 5 in Schedule 6 of the Corporations Regulations. This Part contains a list of certain words and expressions that are not able to be included in the names of bodies corporate without the consent of APRA. The relevant words or expressions are those that connote a financial institution. The background to Part 5 is discussed under item [4] above.
Item [27] - Schedule 9A, items 2 and 3
Item [27] makes a consequential change to Schedule 9A, items 2 and 3 as they are no longer required by virtue of changes made by regulation 12.4.14.
Item [28] - Schedule 12: ASIC transitional standards
Item [28] inserts a new Schedule 12 into the Corporations Regulations, which specifies various AFIC prudential standards preserved under new Part 12.7 (see further the description of that part in the Annexure).
ANNEXURE
CHAPTER 12 FINANCIAL SECTOR REFORM
Part 12.1 Preliminary
Regulation 12. 1.0 1: Definitions for Chapter 12
Regulation 12.1.01 provides definitions of terms used in Chapter 12.
Regulation 12.1.02: Application of this Chapter to previous governing Codes etc
Regulation 12.1.02 provides that a reference to a previous governing Code or a provision thereof, which is applied by the regulations, includes any reference to the Code or provision as varied by the regulations.
Regulation 12.1.03: Interpretation of applied provisions
A number of provisions of Chapter 12 carry forward the application of various provisions, standards and instruments that took effect under the previous governing Codes.
Regulation 12.1.03 provides for certain specific references in such provisions, standards and instruments to be read as being specific references to the equivalent matters under the new regulatory arrangements.
The regulation also provides for other references in instruments that are carried forward to be read in a way that is consistent with, and promotes, the transition from the application of a previous governing Code to the application of the Corporations Law and Regulations; is consistent with the duties, functions and powers of ASIC, and does not otherwise alter the interpretation or operation of the instrument in which the reference appears.
Part 12.2 Transitional matters - general
Division 1: Modifications of Corporations Law
Regulation 12.2.01: Purpose of Division 1
Regulation 12.2.01 provides that the regulations of the Division apply pursuant to clause 28 of Schedule 4 of the Corporations Law, and provide modifications from some parts of the Corporations Law as it applies to transferring financial institutions during the transitional period.
Regulations 12.2.02. 12.2.04 and 12.2.05: Common seals, company names to be displayed at registered offices and use of company name and ACN on documents
Transferring financial institutions need sufficient time to comply with the Corporations Law requirements relating to company seals and displaying their name or their ACN.
There are a number of requirements relating to the use of the ACN including:
- on the company seal (section 123 of the Corporations Law); and
- on all public documents and negotiable instruments (section 153 of the Corporations Law).
Subsection 144(1) of the Corporations Law requires that a company display its name prominently at every place at which the company carries on business and that is open to the public. Subsection 144(2) provides that a public company must also display its name and the words "Registered Office" prominently at its registered office.
Regulations 12.2.02, 12.2.04 and 12.2.05 exempt all. transferring financial institutions registered under the Corporations Law from the need to comply with the following provisions of the Corporations Law:
(a) in the case of subsection 123(1) of the Corporations Law, the exemption lasts for 28 days from the transfer date (regulation 12.2.02);
(b) in the case of section 144 of the Corporations Law, the exemption also lasts for 28 days from the transfer date (regulation 12.2.04); and
(c) in the case of section 153 of the Corporations Law, the exemption lasts for 12 months from the transfer date (regulation 12.2.05).
Regulation 12.2.03: Registers of Members
Regulation 12.2.03 provides relief for the transferring financial institutions, during the 18-month transitional period, from complying with certain requirements of the Corporations Law regarding members' registers.
During the transitional period transferring financial institutions are subject to a requirement to record on the members' register the 'date of admission' to membership of their members (as required under the previous governing Codes), rather than the date of entry on the register (as required by the Corporations Law).
The requirements of the Corporations Law concerning the recording on the register the details of beneficial ownership do not apply for the transition period.
Regulation 12.2.06: Age of Directors
Section 228 of the Corporations Law has the effect that directors of public companies who are older than 72 years of age can only continue as directors if they are appointed by a special resolution at "a general meeting of that company", and they only hold office until the "next annual general meeting of the company".
On transfer to the Corporations Law, transferring financial institutions become public companies.
Regulation 12.2.06 displaces the application of section 228 of the Corporations Law to transferring financial entities for a period of 18 months after the transfer date to provide them with sufficient time to comply with the Corporations Law requirements. After that time, if a transferring financial institution wishes to continue with a director who is in the relevant age group, it must have the matter voted on at a general meeting.
Regulation 12.2.07: Disclosure of directors' emoluments
Regulation 12.2.07 exempts transferring financial institutions from the power to require disclosure of directors' emoluments under section 239 of the Corporations Law.
While the transferring financial institutions are subject to the provisions of the Corporations Law, due to the treatment of their member shares and other holdings, it is impractical at this time to have the transferring financial institutions subject to the requirements under section 239 of the Corporations Law. The regulation is made under clause 28, and provides relief from the section 239 requirement for the 18-month transition period.
Division 2. Other matters
Regulation 12.2.08: Lodgment of certain documents with ASIC
Section 150(1)(a) of the FS Code allowed a friendly society disclosure document to incorporate by reference documents already lodged under the Code.
With commencement of the FSR(A&TP) Act section 150 is preserved to still permit incorporation by reference. However, because of the operation of clause 36(2)(e) of Schedule 4 of the Corporations Law it only allows the incorporation of documents lodged under the Corporations Law (that is, documents lodged after the transfer date).
Regulation 12.2.08 is a transitional measure necessary to give friendly societies a mechanism to lodge with ASIC documents that were previously lodged under the FS Code. This allows the documents to be available for incorporation by reference.
Regulation 12.2.09: Notices lodged by SSAs
Subclause 4(1) of Schedule 4 of the Corporations Law sets out information that SSAs must provide to ASIC in respect of all transferring entities. Subclause 4(2) deals with additional information required in respect of transferring entities, while paragraph 4(2)(b) allows regulations to prescribe additional information (over and above the information required under paragraph 4(2)(a)). Specifically, the regulation prescribes the following matters: the date the entity entered into the external administration; the name and contact details of the external administrator currently in office;
details of the provisions under which the entity entered external administration and, where applicable, details of the provisions under which the entity is currently being externally administered; and
copies of relevant orders, reports, statements or accounts lodged by external administrators of the entity and currently held by the SSA relating to the transferring financial institution's business and affairs; the conduct of officers of the transferring entity and/or the conduct of the administration.
It is not intended that the prescribed matters above constitute a limitation on the information that may be provided by SSAs to ASIC regarding transferring financial institutions that are in the course of external administration.
Regulation 12.2. 10: Certain appointments of auditors continue
Regulation 12.2. 10 provides that where a transferring financial institution has appointed an auditor under a previous governing Code, the auditor is deemed to have been appointed under section 327 of the Corporations Law.
Part 12.3 Registration of transferring financial institutions
Clause 4 of Schedule 4 of the Corporations Law (inserted by the FSR(A&TP) Act) provides a mechanism for transferring financial institutions to elect what type of company they wish to become on transfer, by way of an election lodged with ASIC at least seven days prior to the transfer date.
Due to the close proximity in time between the likely commencement of the FSR(A&TP) Act and the likely transfer date, it may not be practicable for a number of transferring financial institutions to lodge the election in the prescribed time flume.
The intention of Part 12.3 is to provide a facility whereby transferring financial institutions may still take advantage of the election facility provided for in clause 4 of Schedule 4 of the Corporations Law, even if the election is lodged after the deadline set out in that clause.
Regulation 12.3.01: Purpose of Part 12.3
Regulation 12.3.01 provides that the regulations under Part 12.3 are made pursuant to clause 28 of Schedule 4 of the Corporations Law.
Clause 28 allows for the making of regulations that modify the operation of the Corporations Law with respect to transferring financial institutions during the transitional period.
Regulation 12.3.02: Registration as companies
Regulation 12.3.02 modifies the requirement in paragraph 3(4)(b) of Schedule 4 of the Corporations Law that a transferring financial institution must lodge an election within 7 days prior to the transfer date.
Regulation 12.3.02 provides that transferring financial institutions may lodge valid elections with ASIC up to six weeks after the transfer date.
Regulation 12.3.03: Effect of elections lodged after transfer date
Regulation 12.3.03 provides that an election lodged up to six weeks after the transfer date are effective, notwithstanding paragraph 3(4)(b) of Schedule 4 of the Corporations Law.
Regulation 12.3.04: Certificates of registration etc
Regulation 12.3.04 provides that certificates of registration issued to a transferring financial institution are taken to be in accordance with the election made under the regulation.
It ensures that, where a certificate of registration has been issued prior to an election made after the transfer date, then ASIC may issue a replacement certificate of registration to the transferring financial institution in accordance with the election.
The regulation also provides that, if a late election has the effect of making the transferring financial institution a company limited by shares or by shares and guarantee, the requirement under clause 6 of Schedule 4 of the Corporations Law to establish a register of members does not apply until 14 days after the new certificate of incorporation is issued in response to the late election. This gives the institutions concerned a reasonable opportunity to establish the registers, which they would not otherwise have had.
Part 12.4 Meetings of members of transferring financial institutions
The meeting requirements of the previous governing Codes (as defined in clause 1 of Schedule 4 of the Corporations Law) provide a different regime from the Law requirements (Part 2G.3) in relation to the conduct of meetings. The previous governing Codes reflect the law on meetings as it stood prior to changes made by the Company Law Review Act 1998.
Part 12.4 provides transitional relief in relation to the new requirements for meetings. The meeting requirements of the previous governing Codes continue to apply where a meeting of a transferring financial institution is held within the first six months of the transfer date.
Regulation 12.4.01: Meeting requirements
Prior to transfer date, transferring financial institutions were not subject to the requirements of the Corporations Law concerning meetings, whether or not they were disclosing entities. The meeting requirements under the previous governing Codes are similar to the requirements of the Corporations Law for public companies prior to the changes made under the Company Law Review Act 1998.
Some of the significant differences between the Corporations Law requirements (Parts 2G.2). and the requirements of the previous governing Codes (Division 2 of Part 6 of the FI Code and Divisions 3 and 4 of Part 6 of the Friendly Societies Code) in relation to meetings are listed below.
* Unlisted institutions are required to give 21 days notice of annual general meetings (AGMs)
instead of 14 days provided for under the previous governing Codes. Listed institutions are
required to give 28 days notice before their AGMs.
* The Corporations Law requires written notice of meetings of members to be given
individually to each member. The previous governing Codes, however, permit a society to
give notice of a general or a special meeting by advertisement published ' in a newspaper
instead of individual notification. The previous governing Codes also require institutions to
display notice of a meeting "in a conspicuous place" in offices of the society prior to the
meeting.
* The Corporations Law sets out what must be included in the notice while the previous
governing Codes do not make specific provision for the contents of the notice of meeting.
* Members, under the Corporations Law, have the right to appoint a proxy to attend and vote
for the member at the meeting. The previous governing Codes provide for the rules of the
society to govern proxy voting.
* Section 249D of the Corporations Law provides that directors of a company must call and
arrange to hold a general meeting of members on the request of members with at least 5% of
the votes that might be cast at the general meeting or at least 100 members who are entitled to
vote. Section 249N of the Corporations Law gives a broad right to members to require the
company to place a proposed resolution on the agenda of a general meeting. There are no
similar requirements under the previous governing Codes.
Regulation 12.4.01 provides transitional relief in relation to the Corporations Law requirements for meetings. Parts 2G.2 and 2G.3 of the Corporations Law does not apply to a meeting of a transferring institution for the period of 6 months starting on the transfer date. Instead, the appropriate parts of the previous governing Codes will apply.
Part 12.5 Determinations and declarations in relation to certain instruments
Part 12.5 has two main functions:
it gives ASIC powers to vary or modify the terms of certain instruments which formerly took effect under the previous governing Codes and that have been expressly carried forward pursuant to other parts of the law or regulations; and
it gives ASIC power to declare that other instruments which operated under the previous governing Codes, whose continued application or otherwise has not been expressly dealt with in other provisions of the law or the regulations, to be so carried forward (possibly in a modified form) and have effect for a period not exceeding the transition period.
Regulation 12.5.01: Definition for Part 12.5
Regulation 12.5.01 defines the types of instruments to which Part 12.5 applies. It includes certain prudential standards that have been carried forward, and other instruments that took effect under previous governing Codes in relation to which continued application or cessation has not been specifically provided for under other parts of relevant legislation.
Regulation 12.5.02: Application, variation, revocation and modification
Subregulation 12.5.02(1) is the provision that permits ASIC to determine that an instrument under previous governing Codes, whose continued application or cessation has not been specifically dealt with elsewhere (that is, an instrument referred to in paragraph 12.5.01 (a)), may continue in operation during the transition period. ASIC's determination may provide that such an instrument has had effect, between the transfer date and the determination, and continues to have effect after the determination for a period not exceeding the transition period.
If an instrument needs to continue in effect beyond the transfer date, ASIC would need to remake its terms under the appropriate provision in the new regulatory arrangements (for example, the Corporations Regulations). Unless an appropriate determination is made under subregulation 12.5.02(1), instruments under the previous governing Codes (other than those for. which express provision is made elsewhere) cease to have effect for the purposes of the Corporations Law and regulations on the transfer date.
Subregulations 12.5.02(2) permits ASIC to vary or revoke the terms of any instrument referred to in subregulation 12.5.01. Those include instruments that have been carried forward under an ASIC determination under 12.5.02(1), and also other classes of instruments that have been carried forward pursuant to other parts of the law (see, for example, paragraphs 12.5.0 1 (b)). However, no variation or modification of a requirement may be made if it would result in making a requirement more difficult to comply with, if breach of that requirement would amount to an offence (subregulation 12.5.02(3)).
Some of the instruments that ASIC has power to vary or revoke under subregulation 12.5.02(2) comprise elements of AFIC prudential standards that have been carried forward to apply in respect of ASIC functions and under the Corporations Law and Regulations. The power will also apply to instruments carried forward under other laws for use in connection with the responsibilities of the Australian Prudential Regulation Authority (APRA) (under, for example, the Banking Act 1959). Subregulation 12.5.02(4) makes it a requirement for ASIC to consult with APRA before modifying or varying any prudential standard that has such a 'dual' character.
ASIC will be required to publish appropriate determinations in the Gazette, but failure to do so will not affect validity (see subregulations 12.5.02(5) and (6)).
Regulation 12.5.03: Effect of determinations and declarations
Regulation 12.5.03 provides that a relevant transitional instrument takes effect subject to a determination or declaration made under regulation 12.5.02.
Regulation 12.5.04: Publication of determinations and declarations
Regulation 12.5.04 provides that where a relevant transitional instrument is subject to a gazettal or like requirement, any determination or declaration affecting it must be published in the Gazette. Otherwise, the declaration or determination must be given to affected entities or made available by, for example, publication in the ASIC Digest.
Regulation 12.5.05: When determinations and declarations take effect
Regulation 12.5.05 permits determinations and declarations made under regulation 12.5.02 to take effect on the date specified in them.
Regulation 12.5.06: Inspection and purchase of copies of instruments
Regulation 12.5.06 provides that ASIC must take reasonable steps to make available appropriate carried forward instruments for inspection and purchase. However, failure to do so does not affect their validity.
Part 12.6 Financial Reporting
At present, transferring financial institutions are divided into two categories of entities with respect to the disclosure requirements for their financial reports under the Corporations Law.
Disclosing entities, as defined under Part 1.2A of the Corporations Law, are required to disclose
certain information as ' described in Part 2M3 of the Law, principally their financial statements and
reports, on a regular basis. Non-disclosing entities, however, are not required to comply with the
same disclosure obligations.
Part 12.6 applies the requirements of the Codes concerning the content of financial reports for years ending before the transfer date. While Part 12.6 has changes for both non-disclosing and disclosing entities, most of the Part, in Division 1, is devoted to non-disclosing entities. Transferring financial institutions that are presently disclosing entities will continue to be subject to the more comprehensive disclosure requirements.
Division 1: Non-disclosing entities
Subdivision A-Preliminary
Regulation 12.6.0 1: Definition for Division 1
Regulation 12.6.01 defines 'financial report' for the purposes of Division 1 so as to include a directors' report and an auditor's report.
Regulation 12.6.02: Application of Division 1
Regulation 12.6.02 provides that the regulations within Division 1 apply to transferring financial institutions which are not disclosing entities and have not completed their reporting obligations in relation to a financial year that ended prior to the transfer date under their previous governing Codes. "Reporting requirements" is defined for the purposes of the regulation to mean the requirements under the previous governing Codes to prepare accounts, group accounts, a directors' report and an auditor's report, to lodge those accounts and reports with the SSA for the transferring financial institution, and to have those accounts audited or to make the accounts and reports available to members.
Subdivision B-Continuation of provisions etc of previous governing Codes
Regulation 12.6.03: Certain provisions of previous governing Codes continue
Regulation 12.6.03 preserves the main reporting requirements of the previous governing codes for transferring financial institutions which are not disclosing entities for financial years ending before the transfer date.
The timing requirements and the requirements concerning distribution of reports in the previous governing codes are largely preserved even though the requirements of the Corporations Law provide members with access to the reports on a more timely basis. This transitional arrangement allows entities that do not already distribute accounts more time to reorganise their reporting timetables to comply with the new requirements of the Corporations Law.
Subregulation 12.6.03(3) provides that where requirements of the previous governing codes apply to transferring financial institutions they are to be treated as if they were included in Part 2M.3 of the Corporations Law. This clarifies the application of the enforcement provisions of Part 2M.3 and permits the application of provisions of the Law which need to be applied post transfer (eg, section 311 which requires auditors to report on non-compliance with the Law).
Regulation 12.6.04: Certain orders under previous governing Code continue
Regulation 12.6.04 ensures that any relief granted by an SSA pursuant to section 291 of the Financial Institutions Code is preserved as if it were relief granted under subsections 340(1) and 341(1) of the Corporations Law.
Subdivision C-Modifications of operation of Corporations Law etc
Regulation 12.6.05: Application of Subdivision C
Regulation 12.6.05 provides that Subdivision C modifies the operation of Part 2M.3 in relation to a financial report of the transferring financial institution that a previous governing code applied to.
Regulation 12.6.06: Modifications of Part 2M.3 of Corporations Law
Subregulation 12.6.06(1) specifies provisions of the Corporations Law that do not apply in relation to the financial report. These concern the contents of annual financial reports, directors' reports, audits and auditor's reports, and financial reporting to members. Subregulation 12.6.06(2) modifies the application to transferring financial institutions of section 316 of the Corporations Law in respect of member choices for annual financial information. The modification of section 316 has the effect of making the documents more accessible to members than they are under the previous governing Codes. Under those Codes, members can only obtain financial reports at the office of an institution and only then from the day the documents are required to have been prepared until the date of the AGM.
The modification of section 316 enables members to obtain the reports until the next financial report is available, and allow members to request the reports be sent to them at no charge rather than be compelled to obtain them at the office of the institution.
Subregulation 12.6.06(3) also modifies the application of paragraph 319(3)(b) of the Corporations Law to require that financial reports be lodged no later than the date of the institution's annual general meeting, consistently with the requirements of the previous governing Codes.
Regulation 12.6.07: Financial reports may not be relodged
Regulation 12.6.07 makes it clear that a transferring financial institution will not be required to relodge any documents with ASIC that have already been lodged with a previous regulator for a period ending before the transfer date.
Regulation 12.6.08: Interpretation of Part 2M.3 of the Corporations Law as modified etc
Regulation 12.6.08 facilitates the application of Part 2M.3 to financial reporting obligations in relation to a period ending before the transfer date. It provides that a reference in Part 2M.3 of the Corporations Law to a financial report or consolidated financial statements is to be read as if it were a reference to the accounts or the group accounts of an institution (the terms used in the Codes). In preparing financial reports and consolidated financial statements to which Part 2M.3 applies institutions may refer to provisions of the previous governing Codes.
Division 2: Disclosing entities
Regulation 12.6.09: Definition for Division 2
Regulation 12.6.09 defines "applicable accounting requirements" as the requirements specified in paragraph 272(1)(a) of the Financial Institutions Code of this jurisdiction. Apart from compliance with accounting standards, transferring financial institutions that are disclosing entities are already subject to the full requirements of Part 2M.3 of the Law. Hence, for years ending before the transfer date for which the reporting obligations have not been completed at the transfer date, there is only a need to consider relief in relation to the application of accounting standards.
Regulation 12.6. 10: Application of Division 2
Regulation 12.6. 10 provides that Division 2 applies to a transferring institution that is a disclosing entity in relation to a financial year or a half-year ending before the transfer date.
Regulation 12.6.11: Accounting requirements
Regulation 12.6.11 provides that paragraph 272(1)(a) continues to apply to disclosing entities in relation to a financial year or a half-year ending before the transfer date. A disclosing entity is defined in sec 111AC. Disclosing entities include listed public companies, listed managed investment schemes and entities which have 100 or more shareholders in a class for which there has been a prospectus, offer securities as consideration for a share acquisition under a takeover scheme or issue securities under a compromise or scheme of arrangement. A small number of transferring financial institutions are disclosing entities.
Financial institutions that are disclosing entities are relieved from complying with requirements of
the accounting standards of the Corporations Law in their full year and half year financial reports.
This is the case provided that they comply with the requirements of section 272 of the Financial
Institutions Code, being the AFIC prudential standards that ASIC declares in writing to be
preserved for the purposes of regulation 12.6.03(1) (including the accounting standards and other
requirements that those preserved prudential standards incorporate). Those requirements may be
varied from time to time, and revoked under subregulation 12.5.02(2). Accordingly, not all of the
prescribed requirements that applied under section 272 will necessarily apply after the transfer date.
Subregulation 12.6.11(2) exempts a transferring financial institution that has complied with the 'applicable accounting requirements' from compliance with the specified provisions of the Corporations Law.
Regulation 12.6.12: Modifications of Part 2M.3 of Corporations Law
Regulation 12.6.12 modifies the operation of specified provisions of the Corporations Law to ensure that the accounting requirements that apply for the purposes of the provisions are the "applicable accounting requirements" (see discussion above for details of that term).
Regulation 12.6.13: Annual financial reporting provisions not to be applied
Subject to regulation 12.6.14, regulation 12.6.13 exempts transferring financial institutions that are disclosing entities from the requirement to report to members for a financial year by a certain time. The exemption only applies to members who hold member shares as defined in regulation 12.8.03 (generally the equivalent of withdrawable shares under the previous governing Codes) in relation to a financial year or a half-year ending before the transfer date. The exemption does not apply in respect of members holding permanent shares.
Regulation 12.6.14: Reports to be available to members
Regulation 12.6.14 provides that the company must provide financial and other reports to members who hold member shares by making them available at the registered office and each other office of the institution.
Part 12.7 Other disclosure
The regulatory arrangements under the previous governing Codes permitted AFIC to make binding prudential standards that applied to regulated institutions. Part 12.7 has the effect of preserving the application of certain parts of the AFIC prudential standards relevant to matters over which ASIC has regulatory responsibility. Other mechanisms (outside these regulations) are used to preserve standards over which APRA has regulatory responsibility.
The prudential standards preserved under Part 12.7 may be varied or modified by ASIC under Part 12.5. Some parts of the standards may be preserved for both purposes, and arrangements (see subregulation 12.5.02(4)) deals with variation of preserved standards with that dual character.
Division 1: Preliminary
Regulation 12.7.01: Definitions for Part 12.7
Regulation 12.7.01 defines:
the AFIC prudential standards that the Part preserves, by reference to Schedule 12 inserted by item [28] of the regulations; and
the transferring financial institutions to which the preserved standards apply.
Regulation 12.7.02: Declarations by ASIC
Some of the preserved prudential standards are intended to apply to entities that were, under the previous governing Codes, special service providers ('SSPs). Unlike entities that were credit unions and building societies, it is not possible to identify SSPs under the new regulatory . arrangements by reference to any name that they are permitted to use under the Banking Act 1959. Those entities are ADIs for the purposes of the Banking Act but they will not necessarily be permitted to use any particular name.
Accordingly, regulation 12.7.02 permits ASIC to declare that any ADI conducts a similar business to a former SSP. If such a declaration is made, the entity is subject to the relevant preserved prudential standards regarding disclosure under Part 12.7.
Division 2: Continued application of certain provisions
Regulation 12.7.03: Continuation of certain provisions of previous governing Codes
Regulation 12.7.03 carries forward, in modified form, the application of certain provisions of the previous governing Codes that are necessary to support the appropriate application of the prudential standards being carried forward under Part 12.7.
Section 402(1) of the Financial Institutions Code and section 79 of the Friendly Societies Code continue to apply. They make compliance with the transitional standards mandatory.
Subsections 255(6), (7) and (8) of the Financial Institutions Code is also applied, in a modified form. This results in the requirement that certain special resolutions which amend the constitutions of building societies to be lodged with ASIC and registered before they become effective. This additional lodgment requirement will only apply to alterations which would affect, directly or indirectly, the operation of an exempt stock market or the timely disclosure of information to holders or potential holders of securities traded on that market.
Regulation 12.7.04: Continuation of ASIC transitional standards
The effect of regulation 12.7.04 is to make transferring financial institutions of particular classes remain subject to the relevant prudential standards as set out in new Schedule 12 of the Corporations Regulations. Those standards relate mainly to disclosure requirements.
Prudential Standard 6.8.3, as applied under regulation 12.7.04, does not permit ASIC to grant exemptions from various requirements to entities that market friendly society funeral bonds concerning the holding of a 'proper authority'. Rather, this power is dealt with in regulation 12.7.03.
Regulation 12.7.05: Exemption from. and modification of certain provisions
Regulation 12.7.05 permits ASIC to give exemptions to certain friendly societies from the licensing requirements of the Corporations Law in the same circumstances that similar exemptions were formerly available under AFIC Prudential Standard 6.8.3. As mentioned above, the powers to grant such exemptions under that standard are not being carried forward - all such exemptions must be granted under regulation 12.7.05.
Part 12.8 Shares in certain transferring financial institutions
Some transferring financial institutions (namely building societies and credit unions) become companies limited by shares alone. All members of such companies must have a share. However, the types of shares that these entities will issue to the bulk of their members are likely to be somewhat different from 'ordinary' shares issued by companies. They will be more akin to the 'withdrawable' shares formerly issued under the Financial Institutions Code, with their primary purpose being conferral. of membership rights rather than a mechanism for making an investment or acquiring ownership or control of the entity by accumulating a large parcel of such shares.
The nature of these shares means that some of the rules that would ordinarily apply under the Corporations Law are not appropriate. Division 1 of Part 12.8 provides for the concept of a 'member share' in place of the former concept of a 'withdrawable share'. Division 2 provides for relief from requirements under the Corporations Law in respect of 'member shares'. Division 3 provides a facility for building societies and credit unions to issue member shares to new members in the period after transfer but before their constitutions are amended to expressly recognise such interests.
Division 1: Preliminary
Regulation 12.8.01: Definition for Part 12.8
Regulation 12.8.01 provides that for Part 12.8 member share has the meaning given by regulation 12.8.03.
Regulation 12.8.02: Application of Part 12.8
Part.12.8 applies only in relation to a body corporate as stated in regulation 12.8.0 1, being a transferring financial institution that is permitted to use the expression, building society, credit society or credit union under section 66 of the Banking Act 1959.
Regulation 12.8.03: What is a member share
Regulation 12.8.03 provides that a "member share' is a share that has some or all of the following characteristics:
It is not an ED security. An ED security is defined in section 111 AD and broadly corresponds with an investment share.
It has a fixed value, (that is, it may be redeemed or otherwise exchanged for a fixed value of, for example, $10).
It is held by a single person, or several persons jointly.
It entitles the holder to maintain an account with, or use other services of, the institution.
The possibilities for transfer of the share are strictly limited by the constitution of the company.
The concept also includes "membership shares" that are taken to have been issued under clause 12 of Schedule 4 of the Corporations Law, "redeemable preference shares" referred to in clause 15 of Schedule 4 of the Corporations Law, shares declared by ASIC to be "member" shares under regulation 12.8.04 and shares issued under regulation 12.8.11 and 12.8.12.
Regulation 12.8.04: Declarations by ASIC
Regulation 12.8.04 provides ASIC with the power to make a declaration in writing that a share is, or is not, a "member share" of the body corporate.
Division 2: Member shares
Regulation 12.8.05: Notice requirements
Part 2H.6 of the Corporations Law requires that prescribed notices must be lodged with ASIC setting out the particulars of any shares have been issued or cancelled by the company. Regulation 12.8.05 exempts transferring financial institutions from the requirements of Part 2H.6 in relation to "member shares". Such a provision is necessary due to the particular nature of a member share.
Regulation 12.8.06: Registers of members
There are significant differences between Chapter 2C of the Corporations Law and the previous governing Codes concerning registers of members and register inspection rights that need to be taken into account during the transition period. The Corporations Law generally allows anyone to inspect a register kept under Chapter 2C, although it imposes some limitation on the use to which information in a register may be put.
The previous governing Codes require financial institutions to have a register of members but restrict access by both members and non-members to the register. The restrictions reflect the fact that the register of members effectively contains the financial institution's customer base. Where a transferring financial institution converts to a company limited by shares or shares and guarantee, it is necessary to continue to restrict access to the register of members who, after the transfer, hold the equivalent of "member shares".
Regulation 12.8.06 provides that a transferring financial institution may keep the register in parts, with one part recording the information required about "member" shares and the other part recording the information required about other kinds of shares, in particular investment shares. The regulation also modifies the Corporations Law to provide that a transferring financial institution (or other building societies and credit unions) may refuse access to the register of members holding "member" rights unless:
- the company is satisfied that the person requires access for the purpose of calling a. meeting of members; or a particular class of members; or
- for some other purpose approved by ASIC.
Where a transferring financial institution or a company grants access to, or gives a copy of, the register of members holding member shares, it may require the requesting party to enter into a contract under which they undertake to restrict access to the information obtained from the register. The restricted access may be to persons identified in the contract or to restrict the use of the information to a specified purpose.
The modifications of section 173 in subregulations 12.8.06(5) and (6) relate to inspection of the whole register. A member wishing to inspect the portion of the register recording his or her membership details should not be required to give an undertaking of the kind described in subregulations 12.8.06(5) and (6).
Regulation 12.8.07: Disclosure in annual returns
Regulation 12.8.07 modifies the operation of section 348 of the Corporations Law to provide that in the annual returns of companies, the companies to which the regulation applies are not required to provide the details of members that hold only a member share in the body.
Regulation 12.8.08: Member shares - numbering and certificates
Regulation 12.8.08 provides that sections 1086 and 1096 of the Corporations Law do not apply in relation to a member share of the body corporate. Member shares, as defined in regulation 12.8.03, are not required to be numbered, nor are share certificates required.
Regulation 12.8.09: Member shares - unclaimed property
Given the nature of the securities issued by transferring financial institutions, it would be impracticable to apply the unclaimed securities requirement in the Corporations Law (Section 1343).
- Under the FI Code, accounts may be declared 'dormant' if unused for more than one year and allows a society to cancel the membership in prescribed circumstances.
- The FI Code provision is applied in the rules of the entities to permit cancellation of withdrawable shares where an account is made dormant.
Subregulation 12.8.09 provides that the constitutions of transferring financial institutions may provide for the handling of member shares by way of cancellation and transfer of the value of the shares to be dealt with like unclaimed moneys.
Division 3: Certain shares in transferring building societies and credit unions
Some transferring financial institutions (namely building societies and credit unions) will become companies limited by shares alone. Adopting this corporate form means that all members of the company must have a share. The FSR(A&TP) Act contains provisions to ensure that all pretransfer members will have a share. However, it does not deal with the position post-transfer.
Eventually the constitutions of the relevant entities will be amended to expressly provide for the .issue of shares to new members. However, until that occurs, the entities may not have power under their constitutions to issue any type of share to new members in order to confer membership rights. The purpose of Division 3 is to provide under the regulations a capacity for building societies and credit unions to issue shares to new members conferring membership rights during a transitional period until such time as their constitutions are amended to enable them to do so.
Regulation 12.8.. 10: Definitions for Division 3
Regulation 12.8. 10 defines certain terms that appear in Division 3.
Regulation 12.8.11: Transferring building societies may issue shares equivalent to membership shares
For building societies, withdrawable shares issued will be cancelled prior to the transfer date by legislation enacted by States and Territories. This is because building society withdrawable shares rank equally with a deposit on a winding up and are really equivalent to debt rather than equity. Accordingly, building society withdrawable shares have no equivalent under the Corporations Law and should be dispensed with altogether.
Most building societies have rules that provide that various classes of persons are members, irrespective of any shareholding. The persons who joined building societies prior to transfer that convert to companies limited by shares alone will have been issued with a statutory membership share, pursuant to clause 12 of Schedule 4 of the Corporations Law. It is the statutory membership share that carries such membership rights/obligations as they have under the constitution.
Until building societies change their constitutions to allow the issue of redeemable shares carrying the rights/obligations of membership, there is no facility under the rules for the issue of shares conferring pure 'membership rights'. That is because all members following transfer will have to have a share and there is no provision in the constitutions for the issue of shares conferring membership rights.
Regulation 12.8.11 overcomes this by allowing building societies to issue shares to new members that put those persons in the same position as if they had joined prior to the transfer date and had been issued with a statutory membership share under clause 12.
The regulation only applies until such time as the transferring financial institution amends its constitution under clause 24 of Schedule 4 of the Corporations Law.
The facility provided under regulation 12.8.11 is not intended to impact on the ability of credit unions to issue other types of shares during the transition period under appropriate provisions of their constitutions, or the rights and obligations attaching to such shares.
Regulation 12.8.12: Transferring credit unions may issue shares equivalent to withdrawable shares
It is expected that most credit unions will become companies limited by shares alone. Prior to transfer, those entities would have issued 'withdrawable shares' to confer membership rights. However, after transfer, they will not be in a position to issue those shares any more, as they are not recognised under the Corporations Law. Also, they will not be in a position to issue the new form of share, a redeemable preference share (into which the withdrawable shares will have been converted), since their constitutions will not refer to those shares.
Regulation 12.8.12 addresses this issue by providing a mechanism under which credit unions may issue redeemable preference shares. New customers who receive such shares would be in the same position as those persons who obtained withdrawable shares prior to the transfer date (which were converted into redeemable preference shares). When the constitutional modifications are made, both types of redeemable preference shares would be substituted for "member shares" which would be redeemable preference shares issued under, and recognised by, the Corporations Law.
The regulation ceases to apply after a company makes constitutional changes to recognise a new form of redeemable preference shares which will be the primary membership vehicle.
The facility provided under regulation 12.8.12 is not intended to impact on the ability of building societies to issue other types of shares during the transition period under appropriate provisions of their constitutions, or the rights and obligations attaching to such shares.
Part 12.9 Winding up and deregistration of certain transferring financial institutions
Some transferring financial institutions may be in the course of an external administration (such as a liquidation or receivership). Clause 11 of Schedule 4 of the Corporations Law provides for transitional arrangements applying to such entities on the assumption that they are, prior to transfer, being externally administered under the provisions of the previous governing Codes.
However, there may be some transferring financial institutions that entered into liquidation prior to commencement of the previous governing Codes, and have continued to be administered under laws that applied prior to commencement (those laws having been saved by transitional provisions in the previous governing Codes themselves).
The purpose of Part 12.9 is to provide for the continuation of those liquidations under the laws that applied immediately prior to transfer date (that is, the saved laws that operated prior to the previous governing Codes).
Regulation 12.9.0 1: Application of Part 12.9
On the establishment of the previous governing Codes, some States and Territories preserved the application of provisions of the pre-code laws as they applied to liquidations which had already commenced. Some liquidations of transferring financial institutions are still proceeding under the pre-Code laws.
Regulation 12.9.01 provides that the regulations in Part 12.9 apply only if the external administration of a transferring financial institution commenced, and continued, under pre-Code winding up provisions.
Regulation 12.9.02: Winding up
Clause 11 of Schedule 4 of the Corporations Law already contains transitional provisions for entities in external administration. However, this only covers entities that are being administered under Chapter 5 of the Corporations Law. Entities that entered liquidation before the enactment of the previous governing Codes may be being administered under the pre-code winding up provisions, and accordingly, clause 11 does not operate with respect to those entities.
Regulation 12.9.02 provides that transferring financial institutions in the course of being wound up under laws other than the previous governing Codes (that is, laws saved under the previous governing Codes in so far as they applied to entities which had already entered liquidation) will continue to be wound up under the relevant pre-code State or Territory law.
A minor modification made by regulation 12.9.02 to the continuation of pre-code State or Territory law is that any reference to the Registrar is to be read as a reference to the Australian Securities and Investments Commission.
Information provided to ASIC under preserved pre-Code laws is still subject to the relevant confidentiality provisions in the ASC Law (see section 127 of the ASC Law).
Regulation 12.9.03: Deregistration
While regulation 12.9.02 saves the application of previous State and Territory winding up provisions, regulation 12.9.03 provides that, notwithstanding the saying, where a transferring financial institution has been wound up but has not yet been deregistered, the provisions of Chapter 5A of the Corporations Law applies to any deregistration of those bodies.