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Publications / Food and Agribusiness

9 May 13
Nationalisation of co-operatives law

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Australian agricultural co-operatives are soon to be aligned under a national scheme which proposes to harmonise all state and territory co-operative laws.  With New South Wales acting as host jurisdiction, the agreed deadline for all remaining jurisdictions to adopt the national laws is 18 May 2013.  Once implemented, the co-operative laws on corporate governance and accountability will more closely align with laws governing companies.

Currently each state and territory maintains separate co-operatives legislation.  This has led to the development of inconsistencies in operating across jurisdictions, as well as outdated corporate governance principles and impediments being placed on small co-operatives.  As a result, co-operatives have become a somewhat unattractive corporate structure, as opposed to alternatives such as companies limited by guarantee.

To address this, the Australian Uniform Co-operatives Law Agreement was entered into by all states and territories, whereby it was agreed to comply with the Co-operatives National Law.  The Co-operatives National Law proposes to align co-operatives laws on corporate governance and accountability more closely with laws governing companies.  An attractive feature is that the alignment ensures that there is no competitive advantage or disadvantage for co-operatives as compared with companies.

18 May 2013 is the agreed deadline for each state and territory to secure proclamation of the Co-operatives National Law or propose alternative consistent law.  New South Wales is the lead jurisdiction for the implementation of the national law and assented to the Co-operatives (Adoption of National Law) Act 2012 (NSW) on 18 May 2012.

Each jurisdiction’s intention in relation to the Co-operatives National Law is set out below:

Jurisdiction

Status

Bill or Act

New South Wales

New South Wales agreed under the Australian Uniform Co-operatives Law Agreement to be host jurisdiction for the Co-operatives National Law and enacted applicable legislation which has not yet commenced as there is a need for supporting regulations.

Co-operatives (Adoption of National Law) Act 2012

(NSW)

Queensland

Queensland has not announced its intention. However, it is anticipated that Queensland will adopt the Co-operatives National Law. It is similar in scope to the current Queensland Co-operatives Act.

No Bill has been introduced.

Victoria

Legislation was assented to on 13 March 2013 applying the Co-operatives National Law.

Co-operatives National Law Application Act 2013

(Vic)

South Australia

Legislation was heard for the third time in the South Australian House of Assembly on 9 April 2013 and is awaiting passage by the Legislative Council.

Co-operatives National Law (South Australia) Bill 2013

(SA)

Western Australia

Western Australia has confirmed that it will not adopt the Co-operatives National Law, however will work closely to ensure the current WA Act remains consistent with it.

Co-operatives Act 2009

(WA)

Tasmania

Tasmania intends to use the template legislation and regulations developed consistent with other states and territories.

No Bill has been introduced.

Australian Capital Territory

Australian Capital Territory has not released its intention.

No Bill has been introduced.

Northern Territory

Northern Territory has not released its intention.

No Bill has been introduced.

 

Freedom to operate on a national basis

Under the Co-operatives National Law, co-operatives will not be subject to additional registration and compliance burdens if seeking to operate across borders.  The existing system of multiple registrations to enable cross-border trade will be removed, including the fees payable in each jurisdiction.  Instead, there will be a mutual recognition and consistent compliance requirements for co-operatives.

This will mainly benefit larger co-operatives carrying on business across state and territory borders.  The high business cost of registration will be removed, along with the red tape associated with the current process.

Access to external funding

Co-operatives outside of Victoria and New South Wales will be able to take advantage of a unique financial instrument named a Co-operative Capital Unit.  The availability of this form of security is extended to all co-operatives under the Co-operatives National Law.  Co-operative Capital Units facilitate access to flexible funding from external bodies.  They confer an interest in the capital (but not the share capital, distinguishing it from membership) of the co-operative.  Co-operative Capital Units may be issued to members and non-members of the co-operative.  As holding a Co-operative Capital Unit will not carry the same rights as membership, the integrity of the co-operative’s democratic management structure will not be jeopardised.

In relation to debentures and subordinated debt, which is currently available to all co-operatives, the Co-operatives National Law extends regulatory measures across all jurisdictions that are currently only in place in Queensland, Tasmania and South Australia.  Under the Co-operatives National Law, all co-operatives seeking to raise funds will be restricted from advertising where no disclosure statement has been prepared.  There will also be a set requirement for any subscription money to be held on trust.

Civil liability for directors

During public consultation of the Co-operatives National Law a need was identified to draft provisions around director and officer liability more closely linked to those imposed upon directors of companies under the Corporations Act 2001 (Cth).  Specifically, the Co-operatives National Law introduces:

  • civil penalties for the breach by directors and officers of duties that are not considered criminal
  • criminal penalties for the breach by directors and officers of duties that are considered criminal, and
  • a ‘business judgment rule’ defence for breaches of duty of care by directors and officers.

Reduction of red tape for small co-operatives

Financial reporting for small co-operatives will be simplified under the Co-operatives National Law with a definition for this category of co-operative to be included in the Co-operatives National Regulations.  The draft regulations provide that a small co-operative will be determined by its size (based on revenue, assets and number of employees) and fundraising activities, or by declaration of the Registrar of Co-operatives.

A small co-operative will only be required to lodge a financial report and a directors’ report if it is directed to do so by 5% of its members or the Registrar of Co-operatives.  If a report is produced, there is no requirement for it to be audited.  Small co-operatives will see a reduction in reporting costs allowing them to more freely compete with small companies.

Update on Co-operatives National Regulations

The regulations, which will support the operation and administration of the Co-operatives National Law, are currently being finalised.  Public submissions on the draft regulations closed 7 January 2013 and at the date of this paper no further release has been made.  It is important to note that each jurisdiction will have a local regulation dealing with matters of difference between states and territories, such as local Registrars, court processes and fees.

What’s next for your co-operative?

Co-operatives that are currently registered in a state or territory will be deemed to be registered under the new system.  They will not need to re-register.  However, existing co-operatives will need to assess whether their current reporting is in line with the new reporting requirements.  If an existing co-operative is a ‘small co-operative’, it may be able to reduce its annual reporting.  Any group seeking to be registered as a co-operative will need to comply with the new requirements.  The process itself will still involve an application through each state or territory’s relevant department.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal
advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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