EXPLANATORY STATEMENT
STATUTORY RULES 1987 NO. 206
COMPANIES REGULATIONS (AMENDMENT)
Section 577 of the Companies Act 1981 (“the Act”) provides in subsection (1) that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters that are necessary or convenient to be prescribed for carrying out or giving effect to the Act. Subsection 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. Section 16A of the Acts Interpretation Act 1901 provides that where, in an Act, the Governor-General is referred to, the reference shall, unless the contrary intention appears, be deemed to include the person for the time being administering the Government of the Commonwealth.
3. 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 and futures industries in the six States, the Australian Capital Territory and the Northern Territory of Australia.
4. Under subclause 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 subclause 45(2) of the Agreement, to submit the draft regulations to the Federal Executive Council for making by the Governor-General.
5. The accompanying regulations are indentical in form and substance to draft regulations approved by the Council.
6. The purpose of the accompanying regulations is to amend the Companies Regulations (“the Regulations”) to
• make consequential amendments arising out of the establishment, with effect from 1 April 1987, of the Australian Stock Exchange Limited and the renaming of the capital city stock exchanges to reflect the fact that they are subsidiaries of the new exchange;
• implement the Ministerial Council’s decision to revise the directors’ and executives’ remuneration disclosure requirements in Schedule 7 to the Regulations and to make some other drafting and technical changes to the Schedule; and
• make a number of other minor changes to the Regulations.
7. Details of the accompanying regulations are set out below.
Regulation 1 : Commencement
8. The amendments to the Regulations come into operation on 30 September 1987.
Regulation 2 : Definition of “authorized trustee corporation”
9. “Authorized trustee corporation” is defined in subsection 5(1) of the Act to mean a body corporate that is declared by the Regulations to be an authorized trustee corporation for the purposes of the provision in which the expression appears. Regulation 14 of the Regulations lists the bodies corporate that have been declared to be authorized trustee corporations.
10. This regulation amends regulation 14 by adding “National Nominees Limited” to the list of bodies corporate that have been declared.
Regulation 3 : Stock exchanges declared for certain purposes
11. Subregulation 15(1) of the Regulations lists the stock exchanges for the purposes of the definition of “securities exchange” in paragraphs 100(4)(a) and (b) of the Act, for the purposes of the definition of “broker” in subsection 189(1) of the Act and for the purposes of the definition of “prescribed corporation” in subsection 189(1) and a number of other provisions of the Act. Subregulation 15(2) of the Regulations lists the stock exchanges for the purposes of the definition of “securities exchange” in subsection 131(5B) and a number of other provisions of the Act.
12. On 1 April 1987 a new stock exchange, the Australian Stock Exchange Limited, was incorporated as a company limited by guarantee under the Australian Stock Exchange and National Guarantee Fund Act 1987. That Act also made the existing capital city exchanges subsidiaries of that Exchange and changed their names to reflect their new status.
13. This regulation amends subregulations 15(1) and (2) by adding “Australian Stock Exchange Limited” to the list of stock exchanges in each subregulation and by inserting the new names of the capital city exchanges in place of the old names.
Regulation 4 : Prescribed stock exchanges for the purpose of subclause 16(3) of Schedule 7
14. Subclause 16(3) of Schedule 7 to the Regulations requires the accounts of a company to disclose the market value of investments listed on a stock exchange specified in the Regulations. Regulation 16 of the Regulations lists the Australian and overseas stock exchanges specified for the purposes of subclause 16(3).
15. This regulation repeals the existing regulation 16 and substitutes a new regulation 16 which contains “Australian Stock Exchange Limited” and which lists the capital city stock exchanges under their new names. As some overseas stock exchanges have also recently changed their names, the opportunity has been taken to insert the current names of those exchanges in the new regulation 16.
Regulation 5 : Prescribed securities
16. Regulation 53 of the Regulations provides that a prescribed interest, as defined in subsection 5(1) of the Act, is a prescribed security where it is listed for quotation in the official list of a stock exchange that is a member of the Australian Associated Stock Exchanges (AASE). The members of the AASE were the six capital city stock exchanges that joined together to form the Australian Stock Exchange Limited. Following the establishment of the Australian Stock Exchange Limited, the AASE ceased to exist.
17. This regulation amends regulation 53 by omitting the reference to stock exchanges that are members of the AASE and substituting a reference to the stock exchanges referred to in subregulation 15(1) (that is, the Australian Stock Exchange Limited and the six capital city stock exchanges).
Regulation 6 : Prescribed authorities: subsection 227(3)
18. Subsection 227(2) of the Act provides, in part, that a person who has been convicted of one of a number of offences listed in that subsection shall not, within a period of 5 years after his release from prison, be a director or promoter of, or be in any way concerned in or take part in the management of, a corporation. Subsection 227(3) provides that, in any proceeding for an offence under subsection 227(2), a certificate by a prescribed authority stating that a person was released from prison on a specified date is prima facie evidence that the person was released from prison on that date.
19. Regulation 54A of the Regulations lists the prescribed authorities who may issue a certificate of the kind referred to in subsection 227(3).
20. This regulation amends regulation 54A to reflect the fact that the name of the prescribed authority in the Northern Territory has been changed from “the Secretary, Department of Correctional Services of the Northern Territory” to “the Director of Correctional Services of the Northern Territory”.
Regulation 7 : Annual Return
21. Paragraph 56A(b) of the Regulations prescribes the documents that have to be attached to the annual return of a company pursuant to subsection 263(1) of the Act. In the case of an exempt proprietary company (that is, a proprietary company none of the shares in which are beneficially owned by a public company), the only document prescribed is the auditor’s report where it includes a statement of reasons for the auditor not being satisfied about any matter referred to in paragraphs 285(3)(a), (b) and (c) of the Act (that is, whether the accounts present a true and fair view of the profit or loss and financial position of the company and whether the accounting records, etc, of the company have been kept in accordance with the provisions of the Act).
22. Following recent amendments to subsection 285(3), the auditor is now only required to provide a statement of reasons for not being satisfied about any matter referred to in paragraph (a) of that subsection (that is, whether the accounts present a true and fair view). Consequently, the reference to paragraphs 285(3)(b) and (c) is redundant and this regulation omits the reference to those paragraphs from subparagraph 56A(b)(i) of the Regulations.
Regulation 8 : Accounts and group accounts requirements
23. Subregulation 57(2) of the Regulations sets out the transitional provisions that are to apply in respect of Schedule 7 to the Regulations (which contains the disclosure requirements for accounts and group accounts).
24. For the amendments to Schedule 7 that came into operation on 1 October 1986 (“the new Schedule”), transitional arrangements were as follows:
• for financial years that commenced before 1 January 1986, the superseded Schedule had to be used;
• for financial years that commenced in the period 1 January to 30 September 1986 (inclusive), either the superseded or new Schedule could be used; and
• for financial years that commenced on or after 1 October 1986, the new Schedule had to be used.
25. The Ministerial Council has decided that, in respect of financial years commencing before 30 September 1987, a company that either had to comply with or had the option of complying with Schedule 7 as in force on 1 October 1986 should be permitted to comply with the less onerous requirements of the Schedule as in force on 30 September 1987 (that is, the new Schedule as amended by proposed regulation 10).
26. This regulation amends subregulation 57(2) by inserting the transitional provisions required to give effect to Council’s decision.
Regulation 9 : Schedule 2
27. Schedule 2 to the Regulations contains the forms prescribed for the purposes of the Act.
28. This regulation amends Forms 66 and 113 as set out below.
Form 66
29. Item 15 of Form 66 requires a company to indicate whether the report of the auditors of the company includes a statement of reasons for the auditor not being satisfied as to any matter referred to in paragraph 285(3)(a), (b) or (c) of the Act. Following recent amendments to subsection 285(3), the auditor is now only required to provide a statement of reasons for any matter referred to in paragraph (a) of that subsection. Consequently, the reference to paragraphs 285(3)(b) and (c) is redundant and paragraph 9(a) omits the reference to those paragraphs from item 15.
30. In addition, paragraph 9(b) amends Form 66 by inserting a new direction 22A. This direction requires a company to give particulars of any order under subsection 273(5) of the Act that has the effect of relieving the directors of the company, the company or the auditor of the company from compliance with any specified requirements of the Act relating to, or to the audit of, accounts or group accounts or the report of the directors.
Form 113
31. This form is the prescribed form for the particulars of directors of a foreign company that have to be provided pursuant to paragraphs 512(2)(c) and 515(2)(b) of the Act.
32. Paragraph 512(2)(c) requires a foreign company to provide particulars about its directors equivalent to those particulars required to be contained in the register of directors, principal executive officers and secretaries of a company incorporated under the Act. Section 70 of the Companies and Securities Legislation (Miscellaneous Amendments) Act 1985 (“the 1985 Act”) amended subsections 238(2) and (4) of the Act to require the register of directors, principal executive officers and secretaries to specify the date and place of birth of those officers.
33. Paragraph 9(c) amends Schedule 2 to the Regulations by substituting a new Form 113 which differs from the superceded form only in that it contains a column for the date and place of birth of all officers appointed or reappointed after the commencement of section 70 of the 1985 Act.
Regulation 10 : Schedule 7
34. Schedule 7 to the Regulations (“the Schedule”) contains the prescribed requirements for the accounts of a company and the group accounts of a holding company.
35. This regulation amends clauses 1, 6, 8, 14, 16, 17, 22, 23, 24, 26, 28 and 33 of the Schedule as set out below.
Clause 1 : Interpretation
36. Paragraph 10(a) amends paragraph 1(2)(b) of the Schedule by omitting “subclause 12(1)” and substituting “clause 12”. The incorrect reference occurred when, during the final stages of drafting Schedule 7, clause 12 was recast to eliminate subclauses.
Clause 6 : Balance Sheet-basic format
37. Paragraph 10(b) inserts a full-stop at the end of subclause 6(1).
Clause 8 : Profit and loss account-basic notes
38. Paragraph 8(1)(d) of the Schedule requires the accounts or group accounts to include a note of each extraordinary item included in determining the profit or loss. The accounting profession’s accounting standards define “extraordinary items” as meaning “items of revenue and expense…which are attributable to events or transactions outside the ordinary operations of the business entity”. Examples of extraordinary items include:
• the sale or abandonment of a significant segment of a business and its related assets;
• the condemnation, expropriation or destruction of a property;
• the sale of investments not acquired for resale; and
• a major currency re-alignment.
39. The need to include a note of each extraordinary item in the accounts may impose a significant burden on companies and, as a consequence, Council has decided that the disclosure required in respect of this matter should be limited to each material extraordinary item in line with most other disclosure requirements contained in subclause 8(1).
40. Paragraph 10(c) gives effect to this decision by inserting “material” in paragraph 8(1)(d).
Clause 14 : Particulars of each class of share capital
41. Paragraph 14(1)(e) of the Schedule refers to a “non-liability company” whereas the reference should be to a “no liability company”.
42. Paragraph 10(d) corrects this reference by replacing “non-liability” with “no liability”.
Clause 16 : Subdivision of certain classes of assets and liabilities
43. Paragraph 16(4)(b) of the Schedule deals with the capitalisation of interest received whereas the reference, in accordance with generally accepted accounting practice, should be to the capitalisation of interest paid or payable.
44. Paragraph 10(e) corrects this reference by replacing “received” with “paid or payable”.
Clause 17 : Debts, Charges or Options
45. Subclause 17(2) of the Schedule provides that the accounts of a company shall indicate, in respect of debts receivable by or payable to the company, the extent to which those debts are receivable from or payable by the holding company (if any) and any other related corporation. This subclause thus deals only with debts owing to the company, whereas it should also have dealt with debts that have to be paid by the company.
46. Paragraphs 10(f) and (g) correct subclause 17(2) by replacing “receivable by or payable to” with “receivable by or payable by” and “receivable from or payable by” with “receivable from or payable to”.
47. Subclause 17(6) of the Schedule, which contains the provision for the group accounts of a holding company that is equivalent to subclause 17(2), also contained the incorrect references and the necessary corrections are be made by paragraphs 10(h) and (i).
Clause 22 : Contingent liabilities
48. Subclauses 22(3) and (4) of the Schedule require the group accounts to disclose in a note particulars of the contingent liabilities of each corporation in the group.
49. Council has decided that this requirement should be amended to one where the group accounts disclose in a note the aggregate amount of the contingent liabilities of all corporations in the group.
50. Paragraph 10(j) replaces subclauses 22(3) and (4) with new subclauses which give effect to this decision.
Clause 23 : Standby arrangements, unused credit facilities, etc
51. Clause 23 of the Schedule requires specified companies to provide particulars of financing arrangements such as credit standby arrangements and loan rollover facilities.
52. As initially drafted, clause 23 applied to all companies except exempt proprietary companies and to corporations in a group of companies that are a borrowing corporation, a guarantor corporation, or a corporation to which the Financial Corporations Act 1974 (“the FCA Act”) applies. This provision should, in fact, have applied only to a company, or a corporation in a group of companies, that is a borrowing corporation, a guarantor corporation, or a corporation to which the FCA Act applies.
53. Paragraph 10(k) amends subclause 23(1) by omitting the words “to which this Part applies”.
Clause 24 : Remuneration of directors
54. Clause 24 sets out the requirements for disclosure of the remuneration of the directors of a company and, where the company is a holding company, the group of companies for which
the company is the holding company. The 1986 amendments, which applied to all companies except exempt proprietary companies, provided that:
• the names of all directors of a company and their individual remuneration had to be disclosed in the accounts of the company; and
• the aggregate remuneration paid to all directors in a group of companies had to be disclosed in the group accounts of the holding company.
55. Following representations from the business community, the Ministerial Council has decided that these requirements should be replaced by new provisions (which will apply to the same companies as the present requirements) that require:
• the accounts of a company to state the number of directors in each $10,000 band of remuneration starting from $0 plus the aggregate remuneration of those directors;
• the group accounts of a holding company to state the aggregate remuneration paid to all directors in that group of companies.
56. Council also decided that where an executive of a holding company is a director of a wholly-owned subsidiary company (but is not a director of the holding company), particulars of that executive’s remuneration should not be included in the information about directors’ remuneration in either the accounts of the subsidiary company or the group accounts of the holding company (that is, they are to be treated purely as executives).
57. Paragraph 10(1) inserts into the Schedule a new clause 24 containing the amended requirements for disclosure of directors’ remuneration decided upon by Council.
Clause 26 : Remuneration of auditors
58. Clause 26 provides that the accounts of a company and the group accounts of a holding company are to disclose separately the remuneration received by the auditor in connection with
• auditing the accounts; and
• other services provided to the company.
59. However, as drafted, it is possible to interpret this clause as requiring only the aggregate amount paid to the auditor for auditing the accounts and the provision of other services to be disclosed. Consequently, the draftsman has recast the offending parts of the clause to clarify their meaning.
60. Paragraph 10(m) inserts into the Schedule new subclauses 26(1), (2) and (3).
Clause 28 : Remuneration of executive officers
61. The 1986 amendments to the Schedule provided that a listed corporation should disclose the following information about the remuneration of its executive officers:
• the accounts of a listed corporation are to state the names of the five most highly remunerated executive officers in the corporation and the aggregate remuneration paid to those officers; and
• the group accounts of a listed corporation are to state the names of the five most highly remunerated executive officers in the group of companies for which the listed corporation is the holding company and the aggregate remuneration paid to those officers.
62. Following representations to the Ministerial Council by the business community about these requirements, Council has decided to replace them with new provisions in which:
• the accounts of a listed corporation are to state how many executive officers of the corporation are in each $10,000 band of remuneration commencing from $85,000 and the aggregate remuneration paid to those officers; and
• the group accounts are to state how many executive officers of the group of companies, for which the listed corporation is the holding company, are in each $10,000 band of remuneration commencing from $85,000 and the aggregate remuneration paid to those officers.
63. Paragraph 10(n) amends the Schedule to give effect to Council’s decision by substituting a new clause 28 containing the new requirements.
Clause 33 : Business undertakings
64. Subclause 33(2) of the Schedule provides that where a company or a subsidiary of that company has interests in business undertakings, none of which are material to the company individually but which are material in aggregate, particulars of those undertaking are to be specified in a note to the accounts. As subclause 33(2) only sets out the requirements for the accounts of a company (the equivalent group accounts’ requirements are in subclause 33(4)), the words “or a subsidiary of that company” are incorrect.
65. Paragraph 10(o) amends subclause 33(2) by omitting the words “or a subsidiary of that company”.