EXPLANATORY STATEMENT
STATUTORY RULES 1987 No. 172
ISSUED BY THE AUTHORITY OF THE ATTORNEY-GENERAL
COMPANIES REGULATIONS (AMENDMENT)
Section 577 of the Companies Act 1981 (‘the Act’) provides in sub-section (1) that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act. Sub-section 577(2) of the Act provides that the power of the Governor-General to make regulations shall be exercised only in accordance with advice that is consistent with resolutions of the Ministerial Council for Companies and Securities (‘the Council’).
2. The Council was established under an agreement between the Commonwealth and the States, executed on 22 December 1978, (‘the agreement’) that provides the framework for a co-operative Commonwealth-State scheme for a uniform system of law and administration in relation to company law and the regulation of the securities industry in the six States and the Australian Capital Territory. The Northern Territory became a party to the agreement in 1986.
3. Under sub-clause 45(1) of the agreement, the Council may consider a proposal for the amendment of regulations made
under the Commonwealth Acts enacted for the purpose of the co-operative companies and securities scheme. Should the Council approve any draft amending regulation which gives effect to such a proposal, the Commonwealth is then required, under sub-clause 45(2) of the agreement, to submit the draft regulation to the Federal Executive Council for making by the Governor-General.
4. The Council has resolved that the accompanying regulations should be made under the Act.
5. The purpose of the accompanying regulations is to amend the Companies Regulations, to declare, for the purposes of the definition of ‘prescribed interest’ in sub-section 5(1) of the Act, a right to participate, or an interest, as franchisee, in a franchise to be an exempt right or interest for the purposes of Division 6 of Part IV of the Act.
6. ‘Prescribed interest’ is defined as follows:
‘“prescribed interest” means -
(a) a participation interest; or
(b) a right, whether enforceable or not, whether actual, prospective or contingent and whether or not evidenced by a formal document to participate in a time-sharing scheme,
but does not include a right or interest, or a right or interest included in a class or kind of rights or interests, declared by the regulations to be an exempt right or interest, or a class or kind of exempt rights or interests, for the purposes of Division 6 of Part IV.’
7. ‘Participation interest’ is defined as follows:
‘“participation interest” means any right to participate, or any interest -
(a) in any profits, assets or realisation of any financial or business undertaking or scheme whether in the Territory or elsewhere;
(b) in any common enterprise, whether in the Territory or elsewhere, in relation to which the holder of the right or interest is led to expect profits, rent or interest from the efforts of the promoter of the enterprise or a third party; or
(c) in any investment contract,
whether or not the right or interest is enforceable, whether the right or interest is actual, prospective or contingent, whether or not the right or interest is evidenced by a formal document and whether or not the right or interest relates to a physical asset, but does not include -
(d) such a right that is a right to participate in a time-sharing scheme;
(e) any share in, or debenture of, a corporation;
(f) any interest in, or arising out of, a policy of life insurance; or
(g) an interest in a partnership agreement, unless the agreement or proposed agreement -
(i) relates to an undertaking, scheme, enterprise or investment contract promoted by or on behalf of a person whose ordinary business is or includes the promotion of similar undertakings, schemes, enterprises or investment contracts, whether or not that person is, or is to become, a party to the agreement or proposed agreement; or
(ii) is or would be an agreement, or is or would be within a class of agreements, prescribed by the regulations for the purposes of this paragraph.’
8. In a number of cases (Commissioner for Corporate Affairs v Casnot (1981) ACLC 40-704, Khania Nominees v Hamilton (1986) 4 ACLC 390 and R v Commons (1986) 4 ACLC 548) franchises have been held to be prescribed interests on the basis that:
(a) the franchisee had an interest in the profits from the franchisor’s scheme; or
(b) there was a common enterprise pursuant to which the franchisee could expect profits from the efforts of the franchisor.
9. To the extent that a franchise is a prescribed interest, Division 6 of Part IV of the Companies Act requires the franchisor:
- to be a company within the meaning of section 164 of the Act;
- to enter into an approved trust deed;
- to appoint an approved trustee; and
- to register a statement and otherwise comply with the provisions relating to prospectuses and the public offering of shares.
10. Promoters of franchise schemes that are prescribed interests are also required to hold dealers’ licences under section 43 of the Securities Industry Act 1980.
11. None of these consequences is intended. New regulation 14A of the accompanying regulations will therefore exempt from the definition of ‘prescribed interest’ any right to participate, or any interest, as franchisee, in a franchise.
12. In order to eliminate, as soon as possible, the administrative burden of licensing franchisors, the accompanying regulations will come into operation on 1 September 1987.