EXPLANATORY STATEMENT
SELECT LEGISLATIVE INSTRUMENT 2011 No. n
Issued by the authority of the Minister for Finance and Deregulation
Commonwealth Authorities and Companies Act 1997
Commonwealth Companies (Annual Reporting) Orders 2011
The Commonwealth Authorities and Companies Act 1997 (the CAC Act) contains reporting, accountability and other rules for wholly-owned Commonwealth companies.
The CAC Act provides for the Finance Minister to issue annual reporting Orders, requiring wholly-owned Commonwealth companies to report specific public sector issues as part of their annual reports in addition to what is already required by the Corporations Act 2001.
Prior to these Orders, no reporting Orders have been issued for wholly-owned Commonwealth companies. The ability to allow for the Orders arose from an amendment to the CAC Act in 2008, and these Orders have been prepared after extensive consultation.
These Orders have been closely modelled on equivalent Orders that apply to Commonwealth authorities under the CAC Act (that is, bodies corporate established through the Parliament in legislation, rather than companies formed by registration under the Corporations Act 2001).
The CAC Act requires the directors of a Commonwealth company to give their responsible Minister an annual report at the end of each financial year (in accordance with section 36 of the CAC Act). The annual report, at a minimum, must include a copy of a company’s financial report, directors’ report, auditor’s report, and any other report required by the Corporations Act 2001.
For a wholly-owned Commonwealth company, directors must also include any information or report required by the Finance Minister’s Orders. A wholly-owned Commonwealth company can integrate this additional information into the standard directors’ report required under section 298 of the Corporations Act 2001.
Legislative Instruments Act 2003
The Orders are a legislative instrument for the purposes of the Legislative Instruments Act 2003. The Orders are subject to disallowance and to sunsetting (under section 42 and Part 6, respectively, of the Legislative Instruments Act 2003). They also become publicly available, through publication on the Federal Register of Legislative Instruments.
Consultation was undertaken with affected wholly-owned Commonwealth companies, responsible Ministers and portfolio Departments in relation to these Orders, in accordance with section 17 of the LI Act.
Best Practice Regulation Preliminary Assessment
A Best Practice Regulation Preliminary Assessment was undertaken in accordance with the guidance issued by the Office of Best Practice Regulation. This assessment indicated that a regulation impact statement was not required, as the Orders only affect wholly-owned Commonwealth companies under the CAC Act, and do not affect the private or not-for-profit sectors.
Commencement
The Commonwealth Companies (Annual Reporting) Orders 2011 (the Orders) commence on the day after they are registered on the Federal Register of Legislative Instruments.
Details of the Commonwealth Companies (Annual Reporting) Orders 2011
Clause 1 – Name of Orders
This clause provides that the title of the Orders is the Commonwealth companies (Annual Reporting) Orders 2011.
Preliminary
The next 5 clauses of these Orders cover preliminary matters, such as timing of application and purpose, plus the process for directors to approve an annual report. The process in relation to exemptions from specific requirements is also explained.
Clause 2 – Commencement
This clause provides that the Orders are to commence on the day after they are registered.
Clause 3 – Application of Orders
This clause provides that the Orders apply to wholly-owned Commonwealth companies in relation to each financial year ending on or after 30 June 2012, with the exception of clause 13 (related entity transactions) which will apply to (and from) the 2012-2013 financial year. The clause also notes that the first report under the Orders will encompass the 2011-2012 financial year.
Clause 4 – Purpose
The Orders prescribe additional information that must be included in a wholly-owned Commonwealth company’s annual report.
This clause also prescribes that the annual report must be prepared in accordance with subsection 36(1) of the CAC Act and given to the responsible Minister within the timeframe specified in subsection 36(1A) of the CAC Act.
Clause 5 – Approval by directors
This clause provides that the annual report must be approved by a resolution of directors of a wholly-owned Commonwealth company. The annual report must be signed by a director and detail how and when approval was given.
Clause 6 – Exemptions
This clause provides that the Finance Minister may grant a written exemption to the directors of a wholly-owned Commonwealth company, or class of wholly-owned Commonwealth companies, from any requirement of the Orders. The written exemption may include conditions.
Details of any exemption must be provided in the annual report.
Requirements
The next 13 clauses of these Orders cover the specific reporting requirements sought from a wholly-owned Commonwealth company, such as information about the organisational structure, governance, directors, and activities of the company. The final clause deals with 6 short definitions, which have been used to help improve the readability of the other parts of the Orders.
Clause 7 – Parliamentary standards of presentation
This clause provides that the annual report must comply with the presentation and printing standards for documents presented to the Parliament.
Clause 8 – Plain English and clear design
This clause provides that the annual report must be constructed in an accessible manner, and information included in the report must be relevant, reliable, concise, understandable and balanced.
Clause 9 – Responsible Minister
This clause provides that the annual report must specify the name of the current responsible Minister and of any other responsible Ministers during the previous financial year.
Clause 10 – Ministerial directions and other statutory requirements
Where a wholly-owned Commonwealth company is obliged to act in a manner inconsistent with the best interests of the company, this clause provides for the annual report to detail:
- directions issued by the responsible Minister, or other Minister, under the enabling legislation of the wholly-owned Commonwealth company or other legislation; and
- general policies of the Australian Government that apply under section 28 of the CAC Act before 1 July 2008; and
- General Policy Orders that were applied to the wholly-owned Commonwealth company under section 28 and 48A of the CAC Act after 1 July 2008.
The annual report must also give an explain non-compliance where a direction, general policy or General Policy Order has not been fully complied with.
Clause 11 – Information about directors
This clause provides that the annual report must include information about the directors of the Commonwealth authority, such as their names, qualifications, experience, board meeting attendance and whether they are an executive or non-executive director.
Clause 12 – Outline of organisational structure and statement on governance
This clause provides that the annual report must provide an outline of the organisational structure of the wholly-owned Commonwealth company (including subsidiaries) and the location of major activities and facilities.
The annual report must also include information on the main corporate governance practices that the wholly-owned Commonwealth company had in place during the financial year. For example:
- board committees of the company and their main responsibilities; and
- education and performance review processes for directors; and
- ethics and risk management policies; and
- any legislation that specifically applies to the company, by name.
Clause 13 – Related entity transactions
This clause improves transparency around conflicts of interests by requiring wholly-owned Commonwealth companies to disclose the decision making process undertaken by the board of the wholly-owned owned Commonwealth company when it enters into a procurement or grant transaction where a director is also a director of the other company, where the value of the transaction is at least $10,000 (GST inclusive).
As stated above regarding clause 3, (Application of Orders), the commencement of clause 13 is delayed by a year, compared to the other requirements for annual reports, and will therefore apply from the 2012-2013 financial year onwards (that is, the annual report will not be required until the annual report due on 15 October 2013). This reason for this is to allow time for directors to establish record-keeping processes over the course of the financial year.
That said, if directors can (and wish to) report on this issue regarding 2011-2012, then that, of course, is open to them.
Clause 14 – Key activities and changes affecting the company
This clause requires the annual report to detail any key activities and changes that have affected the operations or structure of the company during the financial year. This can include:
- significant events under section 40 of the CAC Act; and
- amendments to the constitution of the company and to any relevant legislation; and
- changes to the membership structure of the company; and
- amendments to legislation that specifically applies to the company, by name (if applicable).
Clause 15 – Judicial decisions and reviews by outside bodies
This clause requires the annual report to contain the particulars of judicial decisions or decisions of administrative tribunals that have had, or may have, a significant effect on the operations of the company.
The annual report must also contain the particulars of reports on the operations of the company by the Auditor-General, a Parliamentary Committee, the Commonwealth Ombudsman or the Office of the Australian Information Commissioner.
Clause 16 – Obtaining information from subsidiaries
This clause requires directors of a Commonwealth company to provide an explanation of information they are unable to obtain from a subsidiary that is required to be included in the annual report.
Clause 17 – Disclosure requirements for GBEs
This clause requires GBE companies to disclose in the annual report an assessment of:
- significant changes in overall financial structure and condition over the financial year; and
- any events or risks that could cause reported financial information not to be indicative of future operations or financial condition; and
- details of any community service obligations, including an outline of actions taken to achieve these obligations and an assessment of the cost of fulfilling those obligations.
Details on dividends are already required by section 300 of the Corporations Act 2001, so this requirement (that appears in the Orders applying to Commonwealth authorities) is not set out in the requirements for wholly-owned Commonwealth companies.
Information can be excluded where the directors believe, on reasonable grounds, that it is commercially sensitive and would likely result in unreasonable commercial prejudice to the GBE. The annual report must state whether information has been excluded.
Clause 18 – Index of annual report requirements
This clause provides that the annual report must provide an index of annual report requirements identifying where information on legislative requirements can be found in the annual report.
Clause 19 – Definitions
Defines several key terms used in these Orders, such as annual report being defined in accordance with section 36 of the CAC Act, and the CAC Act being defined as meaning the Commonwealth Authorities and Companies Act 1997.
The Definitions clause has been placed at the back of the Orders, to help with their readability generally, and on the basis, in particular, that none of the definitions are particularly unexpected, unclear or unusual.