EXPLANATORY STATEMENT
STATUTORY RULES 1989 NO. 4
ISSUED BY THE AUTHORITY OF THE TREASURER
BANKS (SHAREHOLDINGS) ACT 1972
BANKS (SHAREHOLDINGS) REGULATIONS (AMENDMENT)
Section 10 of the Banks (Shareholdings) Act 1972 (the Act) generally limits the nominal amount of the voting shares of a bank incorporated in Australia 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 nominal 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, fix a higher percentage for that person by instrument published in the Gazette if the Governor-General is satisfied that to do so is in the national interest. Subsection 10(3) provides that where a percentage is applicable in relation to a person, that person may not have a greater nominal amount of shares than the percentage so fixed (a person may hold less than the percentage fixed).
In accordance with the Act an instrument has been gazetted which fixes a percentage of 100 under subsection 10(4) as the maximum interest that each of the following corporations may hold in relation to Australian Bank Limited.
• Lend Lease Corporation
• MLC Life Limited
• State Bank of Victoria
• The MLC Limited
The exemptions were made to allow two competing proposals by the State Bank of Victoria and MLC Life Limited to take-over and restructure Australian Bank Limited to be placed before the bank’s shareholders. A feature of both proposals is that the successful bidder will, in due course, reduce its shareholdings in Australian Bank to 10 per cent.
It is proposed that the instrument would then be revoked so that the normal limit of 10 per cent would apply to shareholdings in Australian Bank.
Under section 9 of the Act the associates (i.e. all officers, partners, subsidiaries) of the above corporations would also be deemed to have the same interest in Australian Bank Limited as those corporations. An instrument has been
gazetted which declares that for the purposes of the Act the percentage of 100 is also applicable to the persons who are from time to time relevant officers of the above corporations in respect of Australian Bank Limited.
Under the Act, however, it is not possible to make such a ‘class’ instrument for the interests of the associates of those corporations other than the relevant officers. These other associates, as defined in section 9 would represent a large and ever changing list of persons and corporations, and rather than make an instrument pursuant to subsection 10(4) for every person with the meaning of section 9, it is convenient to prescribe these interests 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 persons, or of the persons included in such 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 by virtue of subsection 9(2) of the Act, that is, by virtue of an associate relationship. The effect of the Regulations is that these interests are disregarded for the purposes of the Act.
When MLC Life Limited, known at the time as The Mutual Life and Citizens’ Assurance Company Limited, received approval in May 1985 to acquire up to 15 per cent in Australian Bank, the interests of the associates MLC Life Limited, the MLC Limited and Lend Lease Corporation were prescribed by Regulation for the purposes of paragraph 8(9) so that they were disregarded.
The effect of the amendment to the Regulations is to do the same in the case of the interests of the associates of the State Bank of Victoria in Australian Bank Limited and to revise the Schedule to reflect The Mutual Life and Citizens’ Assurance Company Limited’s change of name to MLC Life Limited.
Overview
The Banks (Shareholdings) Regulations (Amendment) Statutory Rules 1989 No. 4, issued under the authority of the Treasurer, was enacted to address the issue of share ownership in Australian banks. The Banks (Shareholdings) Act 1972 aims to regulate the extent to which a person or corporation can own voting shares in an Australian bank. Generally, this limit is set at 10% of the total nominal amount of voting shares, though it can be increased to 15% with the Treasurer's approval. The objective of this regulation is to ensure that no single entity can gain undue influence over a bank, thereby maintaining the stability and integrity of the Australian banking system. The amendment to the regulations was made to allow specific entities to temporarily exceed the normal shareholding limit, facilitating the restructuring and takeover of Australian Bank Limited by either the State Bank of Victoria or MLC Life Limited.
Scope and Application
The Banks (Shareholdings) Regulations (Amendment) under the Banks (Shareholdings) Act 1972, aims to temporarily modify the shareholding limits for certain corporations in Australian Bank Limited. This amendment is designed to facilitate the potential takeover and restructuring proposals by the State Bank of Victoria and MLC Life Limited, allowing them to temporarily hold up to 100% of the bank's voting shares while they present their proposals to the bank's shareholders. Once a successful bidder is determined, they are expected to eventually reduce their shareholding to the standard 10% limit. The regulation also extends to the associates of these corporations, including officers and partners, who are treated as having the same interest level in the bank as their corporations. However, only the relevant officers of these corporations are explicitly mentioned in the gazetted instrument, while other associates are subject to a broader regulatory prescription that disregards their interests for the purposes of the Act. This amendment reflects a temporary measure to enable specific restructuring proposals, with a future intent to revert to the standard shareholding limit once the restructuring is complete.
Key Provisions
The primary operative sections of the Banks (Shareholdships) Regulations (Amendment) (C2004L00983) involve the amendment of existing regulations under the Banks (Shareholdships) Act 1972. Specifically, section 10 of the Act establishes the general limit on the voting shares a person can hold in an Australian bank at 10 per cent, with a potential increase to 15 per cent with the Treasurer's approval. Under subsection 10(4), the Governor-General can set a higher percentage if it is deemed to be in the national interest. The amendment here specifically addresses the shareholding limits for certain corporations in relation to Australian Bank Limited, setting these limits at 100 per cent temporarily (subsection 10(4)). Section 9 of the Act extends these limits to the associates of these corporations, including officers, partners, and subsidiaries.
The Act imposes specific obligations on the parties involved, primarily centred around the temporary exemption from the usual 10 per cent limit on shareholdings for certain corporations in relation to Australian Bank Limited. The amendment also extends these exemptions to the associates of these corporations, ensuring that the interests of these related entities are disregarded for the purposes of the Act. This is particularly relevant for the officers of these corporations, as indicated in the explanatory statement. Additionally, the Act requires that these exemptions are temporary and that the normal 10 per cent limit will apply once the restructuring process is complete and shareholdings are reduced accordingly.
Breach of the provisions set out in the Banks (Shareholdships) Act 1972 could result in various civil and criminal consequences. Although the specific penalties are not detailed in the explanatory statement, typically, violations of financial regulations in Australia can lead to fines and, in severe cases, imprisonment. The penalties can vary based on the severity and intent behind the breach. The Act is enforced by the relevant authorities, and failure to comply with the prescribed shareholding limits can result in legal action against the offending parties. The temporary nature of the exemption suggests that non-compliance with the requirement to reduce shareholdings to the normal limit post-restructuring could also attract penalties.
The explanatory statement does not provide explicit details on the maximum penalties for breaches under this specific regulation. However, under Australian law, penalties for breaches of financial regulations can range from substantial fines to imprisonment, depending on the nature and intent of the breach. For example, corporate offences can result in fines up to several million dollars, while individual offences can lead to fines and imprisonment for several years. The precise penalties would be determined based on the specific breach and the jurisdiction's legal framework at the time of the offence. The statement emphasises the importance of adhering to the prescribed limits and the potential consequences of failing to do so.