By Shaun McGushin, Director Ash St. with research contributions from Cassian Ho, Lawyer Ash St.
On 4 October 2018, the Australian Government released an exposure draft of the Treasury Laws Amendment (Mutual entities) Bill 2018 (Cth) (Exposure Draft), which if implemented, will amend the Corporations Act 2001 (Cth) (Act) to define a ‘mutual entity’ for the first time. The Exposure Draft follows the Government’s acceptance of all the recommendations made by the Hammond Report on Reforms for Cooperatives, Mutuals and Member-owned firms released on 31 July 2017 (Report).
- Definition of ‘mutual entity’: The Exposure Draft proposes to define a ‘mutual entity’ as a company which has a constitution which provides that “each member has no more than one vote at a general meeting.” For clarity, a person who is a member in more than one capacity, or joint members, must also only have one vote.
- Disclosure event triggers: Currently, the demutualisation disclosure obligations are generally triggered if the mutual entity proposes to modify its constitution to vary or cancel the rights of its members (with ASIC having a discretionary power to exempt entities from these provisions, generally where the modification does not have the effect of a demutualisation). With the introduction of the new definition, the trigger can be simplified to modifications which “would have the effect that the unlisted company would cease to be a mutual entity” and thereby removing the need for the ASIC exemption provision.
The Exposure Draft only addresses two of the eleven recommendations in the Report (particularly, recommendations 5 and 9), however its introduction is a sign that reform in the mutual sector is now a priority for the Australian Government and further changes may be expected. For starters, mutuals should check their constitution to ensure that they comply with the proposed definition in the Exposure Draft. Submissions on the Exposure Draft will close on 1 November 2018.
Summary of Recommendations of the Hammond Report
- 1 & 2: Mutual ADIs, friendly societies and private health insurers to have power to issue CET1 instruments
- 3 & 4: APRA to facilitate issuing of capital instruments by mutuals by developing templates and service standards
- 5: Amend the Act to ensure effectiveness of demutualisation provisions
- 6: ASIC to liaise with industry re disclosure requirements for small offers of converting capital instruments
- 7: Consistent tax treatment of Tier 2 Capital Instruments
- 8: Amend the Act to permit mutuals to issue capital instruments without risking their mutual structure or status
- 9: Amend the Act to include a definition of a ‘ mutual company’
- 10: ASIC to provide regulatory guidance on the duties of directors of mutuals
- 11: ASIC to reduce barriers to raising of capital by State and Territory Co-operatives
This communication is intended to provide commentary and general information only. It is not intended to be a comprehensive review of all aspects of the matter referred to. It should not be relied upon as legal advice as to specific issues or transactions.
About the Author
Shaun McGushin leads the Ash St. Projects & Finance team. He is one of Australia’s most experienced advisers on infrastructure and finance, including buying and selling infrastructure assets, public private partnerships, project finance, corporate finance, acquisition finance, capital markets and workouts.
Formerly a partner of both Corrs and Freehills, Shaun has over thirty years’ experience advising local and international corporates on a wide range of transactions with particular focus on the infrastructure, power, energy and resources industries. He has a reputation for successfully completing major transactions, no matter how complex, and is sought for his strategic and negotiating skills.