Banks (Shareholdings) Regulations (Amendment) 1996 No. 147
EXPLANATORY STATEMENT
STATUTORY RULES 1996 No. 147
Issued by the Authority of the Assistant Treasurer
Banks (Shareholdings) Act 1972
Banks (Shareholdings) Regulations (Amendment)
Section 10 of the Banks (Shareholdings) Act 1972 (the Act) limits the amount of the voting shares of a bank in which a person (including a corporation) may have an interest to 10 per cent, or 15 per cent with the approval of the Treasurer, of the total amount of the voting shares of the bank. Under subsection 10(4) of the Act the Governor-General may, after application made to the Treasurer by a person, if the Governor-General is satisfied that to do so is in the national interest, fix a higher percentage for that person by instrument published in the Gazette. Subsection 10(5A) provides that the Governor-General may, on the publication under subsection 10(4) of an instrument fixing a percentage applicable to a corporation in respect of a bank, declare by instrument in writing published in the Gazette that the percentage so fixed is also applicable to the persons who are from time to time relevant officers of the corporation in respect of the bank.
Section 17 of the Act provides that the Governor-General may make regulations for the purposes of the Act.
The Commonwealth Government currently holds 50.4 per cent of the Commonwealth Bank of Australia (CBA). On 5 June 1996, the Minister for Finance announced that this shareholding would be sold using a 'sale by instalment' (SBI) method. Under SBI, investors would pay for the shares in two instalments. After making the first instalment, investors would receive to the extent lawful and practical the full benefits of ownership of the underlying shams. They would not, however, receive title to the shares until the second instalment payment is met Instead, investors would receive Instalment Receipts matched to the underlying shares, with the shares themselves being hold in trust for the investors by a separate trustee company, called Commonwealth Instalment Receipt Trustee Limited, pending the payment of the second instalment. The effect of this arrangement is that, between the first and second instalments, Commonwealth Instalment Receipt Trustee Limited would hold title on trust to more than 10 per cent of the voting shares of the CBA.
An instrument under subsection 10(4) of the Act has been prepared, fixing a percentage of 50 for Commonwealth Instalment Receipt Trustee Limited in relation to its interest in CBA.
Under section 9 of the Act the associates (including officers, partners, subsidiaries and related companies) of Commonwealth Instalment Receipt Trustee Limited would also be deemed to have the same interest in CBA as that trust. In the case of officers of Commonwealth Instalment Receipt Trustee Limited, an instrument pursuant to subsection 10(5A) of the Act is proposed which would fix a percentage of 50 in relation to interests in CB A for those persons who are from time to time relevant officers of Commonwealth Instalment Receipt Trustee Limited.
Under the Act, it is not possible to make a 'class' instrument for the interests of the associates of Commonwealth Instalment Receipt Trustee Limited, other than its relevant officers. These other associates represent a large and ever-changing group of persons.
Rather than make an instrument pursuant to subsection 10(4) for every person within the meaning of section 9, it is convenient to prescribe these interests - that is, to have them disregarded for the purposes of section 10 of the Act - by regulation, as provided for by section 17 and paragraph 8(9)(d).
Paragraph 8(9)(d) of the Act Provides that a prescribed interest in a share, that is an interest of such a person or class of persons as is prescribed, shall be disregarded. The Banks (Shareholdings) Regulations (the Regulations) currently prescribe a class of persons in relation to their interests in the banks listed in the Schedule to the Regulations, where those interests are deemed to be held by virtue of an associate relationship. The effect of the proposed amendments to the Regulations would be to disregard, for the purposes of the Act, interests in CBA arising from associate relationships with Commonwealth Instalment Receipt Trustee Limited.
The details of the proposed Regulations are as follows:
The Schedule to the Banks (Shareholdings) Regulations is amended by adding the following corporation to column 2:
Commonwealth Bank of Australia;
and by adding the following trust to column 3;
Commonwealth Instalment Receipt Trustee Limited.
Overview
The Banks (Shareholdings) Regulations (Amendment) 1996 No. 147 amends the Banks (Shareholdings) Regulations 1972 to address a specific issue arising from the Commonwealth Government's proposed sale of its shareholding in the Commonwealth Bank of Australia (CBA) using a 'sale by instalment' method. Enacted by the Parliament of Australia, the Banks (Shareholdings) Act 1972 was established to regulate the ownership of voting shares in banks to ensure financial stability and prevent undue concentration of power. The policy objective of the amendment is to facilitate the sale process while ensuring compliance with the Act's shareholding limits. The amendment disregards certain interests in CBA for the purposes of the Act, allowing the sale to proceed without breaching the 10 per cent voting share limit for individuals or corporations.
Scope and Application
The Banks (Shareholdings) Regulations (Amendment) 1996 No. 147 applies to the Commonwealth Bank of Australia and the Commonwealth Instalment Receipt Trustee Limited, specifically addressing the shareholding structure during the sale of the Commonwealth Government’s interest in the bank. This regulation is issued under the authority of the Assistant Treasurer and pertains to the Banks (Shareholdings) Act 1972. The Act restricts the voting shares a person or entity can hold in a bank to 10 per cent, or 15 per cent with the Treasurer's approval, and allows for higher percentages if deemed in the national interest by the Governor-General. The amendments aim to facilitate the sale of the Commonwealth Government’s 50.4 per cent shareholding in the Commonwealth Bank of Australia using a sale by instalment method, during which Commonwealth Instalment Receipt Trustee Limited would temporarily hold more than 10 per cent of the voting shares. The Regulations disregard the interests of associates of the Trustee, including officers, partners, subsidiaries, and related companies, for the purposes of the Act by prescribing these interests, thereby exempting them from the shareholding limitations.
Key Provisions
The Banks (Shareholdings) Regulations (Amendment) 1996 No. 147 amends the existing Banks (Shareholdings) Regulations under the Banks (Shareholdings) Act 1972. The key amendment, detailed in the Explanatory Statement, involves the addition of specific entities to the Schedule of the Regulations. Section 10 of the Act sets a limit of 10% on the voting shares of a bank that a person, including a corporation, can hold, or 15% with the approval of the Treasurer. The Governor-General can fix a higher percentage if deemed in the national interest. Section 17 of the Act empowers the Governor-General to make regulations for the purposes of the Act, which is exercised through these amendments.
The Regulations now include the Commonwealth Bank of Australia (CBA) and Commonwealth Instalment Receipt Trustee Limited. This amendment is in response to the Commonwealth Government's decision to sell its 50.4% shareholding in CBA through a sale by instalment method. This method involves investors receiving Instalment Receipts matched to the underlying shares, which are held in trust by Commonwealth Instalment Receipt Trustee Limited until the second instalment is paid. The amendment disregards the interests of certain persons in CBA arising from their association with Commonwealth Instalment Receipt Trustee Limited for the purposes of Section 10 of the Act.
The amendments impose specific obligations on the parties involved. Commonwealth Instalment Receipt Trustee Limited and its relevant officers are now subject to the Act’s provisions, particularly the percentage limit on voting shares. By adding CBA and Commonwealth Instalment Receipt Trustee Limited to the Schedule, the Regulations ensure these entities are subject to the Act’s oversight. The instruments under subsections 10(4) and 10(5A) of the Act ensure that the interests of Commonwealth Instalment Receipt Trustee Limited and its relevant officers are fixed at 50% temporarily, in line with the national interest and the sale method. The associates of Commonwealth Instalment Receipt Trustee Limited, including officers, partners, subsidiaries, and related companies, are also deemed to have the same interest in CBA for the purposes of the Act.
The Act imposes penalties and consequences for non-compliance with its provisions. While the specific penalties are not detailed in the Explanatory Statement, generally, breaches of the Act can result in civil or criminal penalties. The Act may impose fines, and in severe cases, imprisonment. The precise penalties would depend on the nature and severity of the breach, as outlined in the Act. The amendments ensure that the sale by instalment method for CBA shares does not contravene the Act’s shareholding limits, thus avoiding potential penalties for the Commonwealth Government and the involved entities.