EXPLANATORY STATEMENT

 

Select Legislative Instrument 2007 No. 227

 

Issued by the authority of the Parliamentary Secretary to the Treasurer

Corporations Act 2001

Corporations Amendment Regulations 2007 (No. 9)

Subsection 1364(1) of the Corporations Act 2001 (the Act) provides that the Governor‑General may make regulations prescribing matters required or permitted by the Act to be prescribed by regulations, or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act.

Subsection 173(1) of the Act provides that a company or registered scheme must allow anyone to inspect a register kept under Chapter 2C of the Act. Subsection 173(3) of the Act provides that a company or scheme must give a person a copy of the register within seven days if the person asks for a copy and pays any fee required by the company or scheme. ASIC may also allow a longer period to comply with a request for a copy of the register.

Subsection 177(1) of the Act restricts a person from using information about a member obtained from a register kept under Chapter 2C to contact that member, or from disclosing information of that kind knowing that the information is likely to be used to contact or send material to that member. Subsection 177(1A) of the Act states that subsection 177(1) does not apply if the use or disclosure of information is relevant to the holding of the interests recorded in the register or the exercise of the rights attaching to them, or if it is approved by the company or scheme.

Regulation 12.8.06 in the Corporations Regulations 2001 (the Regulations) provides additional limitations in relation to access to a register of members of a body corporate that is mentioned in regulation 12.8.02. Specifically, the body corporate may require the person seeking access to agree in writing to certain matters, and the body corporate may also refuse to grant access in certain circumstances. Bodies mentioned in regulation 12.8.02 are transferring financial institutions of a State or Territory and companies that are permitted to use the expression ‘building society’, ‘credit society’ or ‘credit union’ under section 66 of the Banking Act 1959. The term transferring financial institution is defined in Part 1 of Schedule 4 of the Act.

The Regulations introduce a broad discretion for a body corporate mentioned in regulation 12.8.02 to refuse access to a register of members, where the body is not satisfied that granting access to the register is in the interest of the members as a whole. For example, security concerns may justify the refusal of access in circumstances where membership is concentrated in the defence or police sectors.

To facilitate communication about corporate governance issues, the Regulations introduce an alternative mechanism for persons seeking to communicate with the members of a body corporate mentioned in regulation 12.8.02. This mechanism will operate where a copy of the register has not been provided within 28 days of a person’s request for a copy.

Further details on the mechanism are included at Attachment A.

Details of the Regulations are set out in Attachment B.

Under the Corporations Agreement 2002, the State and Territory Governments referred their constitutional powers with respect to corporate regulation to the Commonwealth. Under subclauses 506(1) and 507(2) of the Corporations Agreement, the Commonwealth is required to consult with and receive the approval of at least three State and Territory Ministers of the Ministerial Council for Corporations (the Council) before making a regulation under the national law. The Commonwealth has received approval of the Council for the Regulations. In addition, under subclause 511(3), the Commonwealth is required to consult with the Council as to whether the Regulation should be exposed for public comment for between one and three months. The Commonwealth has received the approval of the Council to waive the public disclosure period for the Regulations.

The Council approved the Regulations. The Council also waived the requirement to expose the Regulations for public comment.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003. The Regulations commence on the day after they are registered.

 

ATTACHMENT A

The person seeking to communicate with members would, under the alternative arrangements, not obtain direct access to a register of members of the body corporate. Contact with members will occur via a third-party service provider (known colloquially as a ‘mailing house’) selected by the body corporate. The person seeking to communicate with members will be required to pay the costs of contacting members, or sending material to members, prior to the institution being required to make arrangements for this to occur. The person seeking to communicate with members will also be required to sign a statutory declaration indicating that they will only use information from the register of members for contacting members of the body, or sending material to members of the body, for a purpose that is relevant to the holding of the shares or the exercise of rights attaching to those shares, and in a way that does not contravene any law.

Once the costs of making contact are paid and a statutory declaration is signed and provided to the body corporate, the body corporate will be required to do everything that is reasonably possible to arrange for members to be contacted or for material to be sent to members. Where a body corporate has reasonable grounds for believing the person will use information from the register of members to contact members of the body, or send material to members of the body, for a purpose that is not relevant to the holding of the shares or the exercise of rights attaching to those shares, or in a way that contravenes any law, the body corporate would be able to refuse to arrange for contact to be made or for material to be sent to members.

The Regulations set out timeframes within which certain things must occur to facilitate communication with members of bodies corporate. A body corporate must provide a third-party service provider with details from its register of members within 14 days of a person paying the costs of sending material to, or making contact with, members. A body corporate must provide a copy of material that is to be sent to members within 28 days after the person provides the material to the body corporate. Where contact is to be made with members, written details of the contact to be made with members must be provided to the third-party service provider within 28 days of its receipt by the body corporate.

The third party service provider will be required to send materials to members, or contact members, within 14 days after receipt of the relevant material or details, respectively. It is intended that bodies corporate will write this requirement into contracts that are made with third‑party service providers to satisfy the body corporate’s obligation to ensure that this occurs.

The Regulations made with a third-party service provider are to remain in place for a period of six months from the expiry of 28 days after a person is refused access to a register of members, or six months from the expiry of a longer period allowed by ASIC. Where a person seeks to contact members on a second or subsequent occasion, the time periods mentioned above, with the exception of the 28 day period allowed before arrangements are to be made, would apply to those subsequent communications. The person will also be required to pay the reasonable costs of contacting members, or sending material to members, prior to those actions occurring on a subsequent occasion. The body corporate would be able to terminate any arrangement, thereby preventing subsequent communication, if it has reasonable grounds for believing that the person will use information from the register of members to contact members of the body, or send material to members of the body, for a purpose that is not relevant to the holding of the shares or the exercise of rights attaching to those shares, or in a way that contravenes any law.

ATTACHMENT B

Details of the Corporations Amendment Regulations 2007 (No. 9)

Regulation 1 – Name of Regulations

This regulation provides that the title of the Regulations is the Corporations Amendment Regulations 2007 (No. 9).

Regulation 2 – Commencement

This regulation provides for the Regulations to commence on the day after they are registered on the Federal Register of Legislative Instruments.

Regulation 3 – Amendment of Corporations Regulations 2001

This regulation provides that the Corporations Regulations 2001 (the Principal Regulations) are amended as set out in Schedule 1.

Schedule 1 – Amendments

Items [1] to [3] – Dividing Chapter 2C of the Corporations Regulations 2001 into three parts

Items 1, 2 and 3 of Schedule 1 amend the Principal Regulations to create separate parts of Chapter 2C of the Regulations. Parts 1 and 2 would include the existing content of Chapter 2C of the Regulations, dealing with the definition of a prescribed financial market and the form of notice under subsection 172(2) of the Corporations Act 2001 (the Act).

Item [4] – Chapter 2C, after Regulation 2C.2.01 (as renumbered)

Item 4 inserts a new Part 3 of Chapter 2C dealing with use of information on a register of members.

Application of the new regulations

Subregulation 2C.3.01(1) applies regulation 2C.3.01 if a body corporate mentioned in regulation 12.8.02 fails to provide a person with a copy of a register of members of the body who hold member shares within 28 days of the person’s request for a copy (or a longer period if ASIC allows).

Subregulation 2C.3.01(6) will provide that the regulation will also apply in relation to requests for the register of members of a body corporate that is a company limited by guarantee, and the register of members of a body corporate limited by share and guarantee who do not hold shares in the body corporate.

Conditions to be satisfied before the body corporate is obliged to make arrangements for contact to occur with its members

Subregulation 2C.3.01(2) provides that, prior to the new communication mechanism being made available, the person seeking to communicate with members must make a statutory declaration addressing certain matters. The person must make a statutory declaration that they intend to use information from the part of the register of members who hold members shares for a purpose that is relevant to the holding of the shares or the exercise of rights attaching to those shares. While each situation would need to be assessed in light of the particular circumstances, examples of shareholder communications that would generally satisfy this requirement include communications intended to provide advice in relation to a takeover or the election of a director, or intended to influence company management about the operation of a company.

The declaration under subregulation 2C.3.01(2) must also provide that the person intends to use information that is contained on the register in a way that does not contravene subsection 177(1A) of the Act or any other law. Examples of other laws that may be relevant here include laws in relation to misleading and deceptive conduct or defamation.

That subsection also requires that a person pay all reasonable costs of contacting members before the body corporate is obliged to make arrangements for contacting members or sending material to members. Once payment is made and a statutory declaration is provided, the body corporate must do everything reasonably necessary to arrange for communication to occur between the person and members (whether by contact or by sending material to members).

Subregulation 2C.3.01(3) will provide that, where a body corporate has reasonable grounds for believing the person will use information from the register of members to contact members of the body, or send material to members of the body, for a purpose that is not relevant to the holding of the shares or the exercise of rights attaching to those shares, or in a way that contravenes any law, the body corporate would be able to refuse to arrange for contact to be made or for material to be sent to members.

Timeframes for communication to occur with members

Subregulation 2C.3.01(4) will provide timeframes for the actions required to facilitate contact being made with members of a body corporate. Under paragraph 2C.3.01(4)(a) a body corporate would be required to provide details from its register of members to a third party service provider within 14 days after the person seeking to contact members pays the costs associated with that contact. Under paragraph 2C.3.01(4)(b) the body corporate would be required to provide a copy of any material to the third party service provider within 28 days after the material is provided to the body corporate. It is expected that this period might be utilised by bodies corporate to make a decision, and seek legal advice if necessary to inform a decision, about whether sending the material to members would breach any law. Under paragraph 2C.3.01(4)(d), the arrangements must require the material to be sent to members within 14 days of the body corporate providing the material to the third party service provider. It is expected that this period will provide sufficient time for the mailing house to organise and conduct a mail out.

Under the amendments, it is contemplated that, in some circumstances, contact might be made with members of bodies corporate having member shares by means other than the sending of paper documents to those members. Subregulation 2C.3.01(4) makes provision for such contact to be made with members via a third party service provider. Paragraph 2C.3.01(4)(c) requires written details of any contact to be made with members to be provided to the third-party service provider within 28 days after the body corporate receives such details. Paragraph 2C.3.01(4)(d) requires that any contact is made with members within 14 days of a third party service provider receiving such details. It is envisaged that the most common form of material to be used in this context will be telephone scripts that are used for making contact with members during an election for a position on the board of a body mentioned in regulation 12.8.02. Use of telephone scripts is currently common practice in the context of takeovers under Chapter 6 of the Act.

Arrangements to be in place for a period of 6 months

Subregulation 2C.3.01(5) requires that any arrangement made under the Regulation must remain in place for a period of 6 months. This is intended to allow repeated communications with members under the regulation. The requirement to pay the reasonable costs of any communications before such communications occur continues to apply with respect to repeated communications with members. A person is not prevented from seeking to have new arrangements made after the expiry of the six month period.

Where a body corporate has reasonable grounds for believing the person will use information from the register of members to contact members of the body, or send material to members of the body, for a purpose that is not relevant to the holding of the shares or the exercise of rights attaching to those shares, or in a way that contravenes any law, the body corporate would be able to terminate any existing arrangement.

Item [5] – Paragraph 12.8.02(b)

Item 5 amends paragraph 12.8.02(b) to clarify that Part 12.8 of the Principal Regulations applies to Friendly Societies.

Item [6] – Subregulation 12.8.06(3)

Item 6 inserts a new subparagraph 12.8.06(3)(1AB)(c) into the Principal Regulations to allow a body corporate to refuse to allow a person to inspect the part of the register for members of the body who hold member shares if it is not satisfied that such inspection is in the best interests of members as a whole. This amendment is intended to provide a body corporate with a broader discretion to refuse to allow inspection of a register. The general presumption would be that any communication to members about corporate governance issues would be in the best interest of members on a whole. An example of where this presumption may be overturned is where the membership of a body corporate is concentrated in security-sensitive industries, such as police or defence. When such a discretion is used, the alternative method of communicating with members under subregulation 2C.3.01 will remain available.

Item [7] – Subregulation 12.8.06(4)

Item 7 inserts a new subparagraph 12.8.06(4)(3B)(c) into the Principal Regulations to allow a body corporate to refuse to give a copy of the part of the register for members of the body who hold member shares if it is not satisfied that would be in the best interests of members as a whole. This amendment is intended to provide a body corporate with a broader discretion to refuse to provide a copy of the register. The general presumption would be that any communication to members about corporate governance issues would be in the best interest of members on a whole. An example of where this presumption may be overturned is where the membership of a body corporate is concentrated in security-sensitive industries, such as police or defence. When such discretion is used, the alternative method of communicating with members under subregulation 2C.3.01 will remain available.