Film Licensed Investment Company (Application) Rules 2005

EXPLANATORY STATEMENT

Issued by the Minister for the Arts and Sport

Film Licensed Investment Company Act 2005

Film Licensed Investment Company (Application) Rules 2005 

Purpose of the Application Rules

Legislative authority

Section 8 of the Film Licensed Investment Company Act 2005 (the Act) states that the Minister must, in writing, determine rules concerning the application process under the Film Licensed Investment Company (FLIC) Scheme.  The Rules may provide for all or any of the following matters:

(a)   the method of calling for applications;

(b)   the closing date for a round of applications;

(c)   the form of the application and the documentation that must accompany an     application;

(d)   the establishing of a Selection Advisory Panel to advise the Minister in respect of the applications including the membership of the panel and the tenure of panel members;

(e)   the rules governing the operation of the Selection Advisory Panel;  and

(f)    any other matter relevant to the application process under the Scheme.

The Application Rules must be made before a call for applications from interested companies for the licence to raise concessional capital under the FLIC Scheme is made, otherwise there will be no rules to guide the application process.

Section 16 of the Act requires the Minister to have regard to the recommendations of the Selection Advisory Panel in deciding whether, and to whom, to grant the licence to raise concessional capital under the FLIC Scheme. 

The Application Rules also require the Panel to consider the extent to which applications meet the requirements of the Film Licensed Investment Company (Decision-making Criteria and Procedures) Determination 2005 made under section 9 of the Act (clause 19 of the Application Rules refers).

Background to the FLIC Scheme

The FLIC Scheme was announced as part of the Government’s 2004 election policy and was confirmed in the 2005-06 Budget.  The FLIC Scheme seeks to encourage greater private investment in the Australian film and television industry by providing a tax concession to the initial purchasers of shares in the Australian company which is granted the FLIC licence.

The Act provides for a single licensee to raise concessional capital (that is, capital that will attract a tax concession), in the financial years 2005-06 and 2006-07.  The amount of concessional capital that can be raised in each financial year is capped at $10 million. Even if less than $10 million is raised in 2005-06, the amount that can be raised in

2006-2007 remains at $10 million because the Scheme has been costed on a per annum basis.  Funds raised by the licensee must be invested in qualifying Australian films as defined under Division 10BA of Part III of the Income Tax Assessment Act 1936. 

Persons who invest in the FLIC during the capital raising period will be entitled to a 100% upfront tax deduction for the cost of the shares purchased.  The concessional capital raising period will end on 30 June 2007. After that date the FLIC is permitted to continue to raise capital but capital raised after 30 June 2007 will not attract a tax concession.  (Funds which do not attract a tax concession are referred to as non-concessional capital).  All capital raised by the FLIC, whether concessional or non-concessional, must be invested by 30 June 2008.  The Scheme operates until 30 June 2009.  A review of the FLIC Scheme’s operation was foreshadowed when it was costed in the 2005-06 Budget context.

The FLIC licence is granted by the Minister following a competitive selection process.  An expert Selection Advisory Panel appointed by the Minister will assess applications against the criteria determined by the Minister under section 9 of the Act and make a recommendation to the Minister on which company should be granted the licence.  

Consultation

Consultation was undertaken with key industry stakeholders in the finalisation of the Application Rules. Targeted consultations were undertaken in order to obtain timely comment thus avoiding a delay in calling for applications for the FLIC licence.  Such a delay would have impacted on the time available for the successful licensee to seek shareholders within the limited capital raising period (refer to Background on the FLIC Scheme above). 

Stakeholders raised no concerns in relation to the Application Rules.

Regulation Impact Statement

The Office of Regulation Review has advised that a Regulation Impact Statement is not required.

Operation of Application Rules

Notes on Clauses

Part 1 Preliminary

Clause 1 Name of Rules

Clause 1 states that the name of the Rules is the Film Licensed Investment Company (Application) Rules 2005.

Clause 2 Commencement

Clause 2 requires that the Rules commence on the day following the date the instrument is registered.  This is the default timing for commencement under the Legislative Instruments Act 2003.

Clause 3 Object of Rules

This clause sets out the object of Rules which is to determine how applications for the licence under the FLIC Act are to be made and handled.

Clause 4 Definitions

This clause defines the terms used in the Rules.

“Act” refers to the Film Licensed Investment Company Act 2005.

“application” refers to an application for the licence to raise concessional capital under section 11 of the Act.

“licence” is the licence to raise concession capital granted by the Minister under section 14 of the Act.

“member” refers to a member of the Selection Advisory Panel established under clause 10 of the Application Rules.

“Panel” refers to the Selection Advisory Panel established under clause 10 of the Application Rules which makes a recommendation to the Minister about which Australian company should be granted the licence to raise concessional capital under the FLIC Scheme.

Part 2 Applications

Clause 5 Calling for applications

Subclause 5(1) provides that this clause applies when the Minister decides to call for a round of applications for the licence to raise capital in accordance with section 10 of the Act.

Subclause 5(2) provides that the call for applications be advertised nationally, including in one daily national newspaper; in a print or electronic journal dedicated to the Australian film and television industry; and on the Department of Communications, Information Technology and the Arts’ website.  The purpose of the clause is to ensure that the call for applications is widely available and is given an appropriate profile within relevant industry groups.  It also recognises that those groups increasingly access information about the sector via email or the Internet.

Clause 6 Closing date for applications

Subclause 6(1) requires that applications be received by the Minister no later than 5:00pm on the date stipulated in the advertisement calling for applications.  This subclause acknowledges that the FLIC Scheme has prescribed capital raising and investment periods and that the Selection Advisory Panel needs to provide its recommendation to the Minister in a timely manner, taking those time restrictions into account.

Subclause 6(2) refers to the closing date for applications which is at least 6 weeks later than the day the advertisement calling for applications appears.  This means that the closing date could be more, but not less than, six weeks after the call for applications is made.  This time period recognises the amount of information to be provided by applicants is comprehensive.  It also imposes a time limit to ensure that the time allowed for submission of applications does not unnecessarily impact upon the capital raising period.

Clause 7 Form of applications

Subclause 7(1) provides that the application must be in the form approved by the Secretary of the Department of Communications, Information Technology and the Arts.  This allows control over versions of the form and assists in ensuring that due consideration will be given to collection of information that supports a rigorous consideration of applications.  Information will be available from the Department to assist applicants in preparing applications.

Subclause 7(2) sets out the information required by an applicant.  This includes the name of the company applying for the licence and its registered address; the name of each Director; its Australian Company Number and date of registration; and the paid up share capital on date of registration.  This information allows the company to be identified and demonstrates that it has been registered in accordance with requirements under the Corporations Act 2001.

Subclause 7(3) provides for circumstances where a company has not yet registered in accordance with requirements under the Corporations Act 2001. Only companies that have not yet started business can be granted the licence.  This provision ensures that companies which have not completed the registration process will not be prevented from applying.  However, a company must be registered before the licence can be granted by the Minister under section 13 of the Act.

Subclause 7(4) provides for applicants to make submissions in electronic form.  This is intended to assist applicants to meet the deadline for submissions and facilitate the submission of documents produced in electronic form. 

Clause 8  Documents to accompany applications

Subclause 8(1) explains that documents to accompany an application are described in Schedule 1. 

Subclause 8(2) acknowledges that the applicant may not have all of the information required at the time of its application. This could include, for example, information about the projects in its proposed production slate and consequently, estimated levels of recoupment (returns) on those projects.  If all of the information is not available at the time of the application then the applicant must indicate in its application what that information is and when it is likely to become available.  Providing a written statement to this effect as part of the application will satisfy requirements under clause 7 of the Rules (‘Form of Applications’). 

Similarly, under Subclause 8(3), if an applicant is unable to provide a particular document in its application, it must provide an explanation as to why it is unable to do so and when that document will become available.  This statement will satisfy requirements under clause 7 of the Application Rules.

Subclauses 8(2) and 8(3) are intended to afford a reasonable level of flexibility to applicants.  It is not, however, intended that these provisions provide a means for submitting information well after the closing date for applications.  The Selection Advisory Panel will therefore have particular regard to the applicant’s written explanation for not providing certain information or documentation in making its recommendation to the Minister.

Clause 9 Number of copies

Subclause 9(1) provides that seven copies of applications must be provided where applications are made in hard copy form.  This allows for applications to be circulated to all members of the Selection Advisory Panel. 

Subclause 9(2) provides that, where an application has been made in electronic form (i.e. via email), that the applicant also furnish seven identical copies of its application for circulation to Selection Advisory Panel members within forty-eight hours of the closing date for applications.  Forty-eight hours is considered a reasonable timeframe for postage of hard copies.  In light of section 36 of the Acts Interpretation Act 1901, this effectively means that applicants have two working days to submit hard copies of their electronic application.  Copies are to be identical to the electronic version in order not to provide advantage to those applicants who submitted applications in electronic form.

Subclause 9(3) notes that the Minister is not required to consider an application that does not comply with subclauses 9(1) and (2).  However, circumstances which could reasonably be described as beyond the applicant’s control and led to an applicant’s inability to comply with subclauses 9(1) and (2) would be taken into account by the Minister in deciding whether an application should be considered. 

Part 3  Selection Advisory Panel

Clause 10 Selection Advisory Panel    

Subclause 10(1) establishes the Selection Advisory Panel to advise the Minister in respect of applications for the capital raising licence granted under the Act.

Subclause 10(2) sets out the nature of the Panel’s membership.  The Panel’s membership will encompass a range of skills across the government, film and television and accounting, banking, investment and/or legal sectors.  This will provide for a balanced assessment of applications in accordance with the objects of the scheme as set out under section 4 of the Act.  The Panel will consist of: an officer of the Department of Communications, Information Technology and the Arts nominated by its Secretary, and four members appointed in writing by the Minister.  Of those four, two will be persons involved in the film or television industry in Australia who have expertise in the area of development, production or distribution in that industry; and two will be persons who have expertise in the accounting, banking, investment or legal sectors.

Subclause 10(3) allows for an appointment period not exceeding 12 months.  It is anticipated that the Panel’s work will be completed once it issues its recommendation to the Minister.  This should take a matter of weeks.  A 12 month period of appointment allows the Panel to consider a further round of applications in circumstances where the Minister decides that a further call is warranted (subsection 10(2) of the Act refers). 

Under subclause 10(4), a Panel member may resign by providing the Minister with a written instrument notifying the Minister of his or her decision.

As panel members are appointed under a law of the Commonwealth, relevant determinations of the Remuneration Tribunal apply to them.

Clause 11 Confidentiality

Clause 11 requires Panel members, as soon as practicable after being appointed, to sign an undertaking to the Minister to comply with clauses 17 and 18 of the Application Rules.  Clauses 17 and 18 set out Panel members’ Duty of Confidentiality and address possible conflict of interest situations by requiring panel members to disclose direct or pecuniary interests that could conflict with any recommendations they are required to make.  Panel members must also not participate, or continue to participate, in matters where there is a conflict of interest unless the Minister consents. It is expected that panel members would sign the undertaking before the Panel’s first meeting.

The intention of these confidentiality and conflict of interest provisions is both to underscore the importance of Panel members’ responsibilities and to provide comfort to applicants that applications, which are likely to contain sensitive, commercial-in-confidence information, will be treated with an appropriate level of discretion and that decisions will be free of bias.

Clause 12 Functions of Panel

Clause 12 sets out the Panel’s functions in considering applications.  Paragraph 12(1)(a) provides that the Panel must consider applications in accordance with clause 19 of the Applications Rules which deals with the comparison and ranking of applications. Under paragraph 12(1)(b) the Panel must also make a recommendation to the Minister in accordance with clause 20 which sets out the types of recommendations the Panel may make to the Minister.   

Subclause 12(2) provides that the Panel must perform its functions as quickly as proper consideration of a matter allows.  Prompt consideration will ensure timely granting of the licence to raise capital within the time limits imposed by the FLIC Scheme. 

Clause 13 Powers of Panel

Subclause 13(1) provides that the Panel may do everything that is necessary or convenient in performing its functions.  This would include conducting meetings and discussions and interviewing applicants.   

Subclause 13(2) provides the panel with the power to seek additional information within a stated period that the Panel considers necessary to allow full consideration of an application.  This includes information that the applicant was required to provide as part of its application, including information under Schedule 1 of the Application Rules, but was not provided and in relation to which the applicant provided an explanation. It may also include complementary or supplementary information that will allow a complete assessment of the application.  Imposition of a timeframe ensures timely consideration of the information in light of the prescribed capital raising and investment periods under the Scheme.

Clause 14 Panel procedures - general

Subclause 14(1) provides that attendance at any meeting by four Panel members constitutes a quorum.  This will ensure an appropriate balance at each meeting with at least one member from the film and television sector and one member from the banking, investment, legal or accounting sectors always in attendance.  Attendance at a meeting via teleconference is acceptable for the purposes of establishing quorum.  This acknowledges that Panel members are likely to be high profile members of the community with multiple commitments who may also reside in different states and/or territories.

Subclause 14(2) establishes that the panel must, in performing its functions, follow procedures that are fair and reasonable and consistent with other provisions of the Application Rules. 

Subclause 14(3) provides that the Minister may nominate a member as Chair of the Panel.  Appointment of a Chair is principally for the purposes of facilitating and presiding over meetings as indicated at subclause 14(6).  The Chair will also play a leadership role within the Panel.  If appointed by the Minister, under subclause 14(4) the Chair must nominate a person to act as Chair in his or her absence (refer subclause 14(6) also). 

Subclause 14(5) provides for the Panel to convene meetings in order to discharge its functions, namely to provide a recommendation to the Minister on which company, if any, should be granted the FLIC licence.  While the Panel is required to discharge its functions in a timely way, it is not intended that the number of meetings be prescribed.

Under subclause 14(7) the Panel may invite a person who is not a member of the Panel to advise or inform the Panel.  This would include circumstances where the Panel requires specialist advice to assist its understanding of applications or guidance on matters of process.  Such advice should not be used as the sole basis for influencing the Panel’s recommendation(s) to the Minister.

Clause 15 Minister may cancel appointments of members

Subclause 15(1) sets out the circumstances in which the Minister may cancel a Member’s appointment by written notice.  Cancellation of membership in these circumstances is intended to protect the integrity of the Scheme’s application process.  These circumstances should be provided in the written notice, which may take the form of correspondence from the Minister to the Panel member.  These circumstances include:

• under paragraph 15(1)(a), where the member has failed to sign an undertaking in relation to confidentiality under clause 11 to comply with clauses 17 and 18 of the Application Rules;
• under paragraph 15(1)(b) the member has been shown to have breached his or her undertaking in relation to the duty of confidentiality under clause 17; 
• under paragraph 15(1)(c) demonstration that the member has breached his or her undertaking in relation to participation, or continued participation, in an interest which conflicts with his or her functions as a Panel member and does so without the Minister’s consent;  and/or
• under paragraph 15(1)(d) is otherwise not a fit or proper person to be a member.

Subclause 15(2) provides for the timing of the cancellation of the Panel member’s membership, either on provision of the notice or at a later time if so specified in the notice.  Cancellation, if required, would preferably take effect immediately in accordance with paragraph 15(2)(a), however a cancellation notice may specify a future date to allow for receipt of the correspondence before the cancellation takes effect.

Given the short operational period of the Panel and the Panel members’ assurances with regard to conflict of interest, it is highly unlikely that the Minister will need to cancel appointments.  If such circumstances do arise, it is intended that the principles of natural justice apply and that, before the Minister cancels an appointment, a Panel member would be given adequate notice of the intention to cancel the appointment and an opportunity to reply.        

Clause 16 Decisions of Panel

Subclause 16(1) provides that all members of the panel have one vote on decisions.  This ensures that no interest dominates the decision making process. Subclause 16(2) provides that decisions must be made by a majority of votes.  Subclause 16(3) allows decisions to be made outside of Panel meetings by the mechanism of members agreeing in writing to the proposed decision.  

Decisions in writing would include those taken via email correspondence, for example, in lieu of holding a meeting to reach a decision on minor administrative matters that do not warrant a meeting.  Equally, a written decision may be warranted in relation to significant decisions by the Panel that, in the majority view of the Panel, require formalisation in writing (such as the recommendation to the Minister on which company should be granted the licence).

Clause 17 Duty of confidentiality

Subclause 17(1) provides that a Member must not disclose information acquired by the member in his or her capacity as member of the Selection Advisory Panel, if that information is, or is reasonably likely to be, detrimental to an applicant for the FLIC licence, a director or key personnel of an applicant or the FLIC (once the licence is issued), or a shareholder in an applicant or the FLIC (once the licence is issued).  This is to ensure that there is an appropriate level of confidentiality afforded to all applicants and the licensee and the information they provide to the Selection Advisory Panel both before and after the issue of the licence.  It ensures that any information provided in confidence by applicants or the licensee will not be inappropriately disclosed to third parties.

Subclause 17(2) provides an exception to the obligation to maintain confidentiality imposed by subclause 17(1), if the member discloses the information in performing functions of the Panel.  

Clause 18 Disclosure of certain interests of Panel members

This clause sets how conflict of interest situations should be handled by panel members.  It recognises that the Panel is composed of specialists in their fields, that its members will be making recommendations on applicants and applications from sectors from which the Panel members themselves are drawn, and that it is possible that a conflict of interest may arise.         

In particular, if a member has a direct or pecuniary interest that could give rise to a conflict with the performance of his or her duties as member, subclause 18(1)(a) requires the member to disclose his or her interest in any recommendation he or she is required to make in performing the duties of a panel member.  Further, the member is required to desist from participating or continuing to participate, unless the Minister consents.  The Minister would bring an independent view to the question of whether the declared interest would adversely affect the decision-making process.  

The conflict of interest provision is intended to ensure that applicants and prospective investors can have confidence in the decision-making process and its outcome because efforts have been made to ensure that the decision on the successful applicant has been made, untainted by bias.

Where the Minister has provided consent for the member’s ongoing participation in the performance of his or her duties, under subclause 18(2) the member must disclose his or her interest when making a recommendation.  This requirement is included for the sake of  transparency and addresses perceived conflict of interest issues.   The member’s interest is on the record.

Part 4  Assessment and recommendations

Clause 19 Comparison and ranking of applications

This clause sets out the process the Panel must undertake in comparing and ranking applications.  First, subclause 19(1) sets out the threshold matters the panel must consider in assessing applications.  The panel must consider whether: 

• the application is in the required form as set out under section 11 of the Act, provides the required information and was given to the Minster;
• the applicant meets the requirements under section 13 of the Act under which a company can only be granted the licence to raise concessional capital if the following conditions are met:

(a)   the company is registered under the Corporations Act 2001;

(b)   the company has not started business or exercised any borrowing power;

(c)   the company’s central management and control is ordinarily exercised in a place in Australia;

(d)   the chair of the company (however described) and all of the directors of the company are Australian citizens;

(e)   the company’s constitution provides that all of the shares in the company are to be fully paid and of the same class; and

• the applicant meets the requirements of the provisions of the Film Licensed Investment Company (Decision-making Criteria and Procedures) Determination 2005.

Subclause 19(2) sets out how the panel must distinguish between all applications that meet the requirements in subclause 19(1).  The Panel must then compare those applications.  It may choose to rank those applications but it is not obliged to do so.  However, in comparing applications, the Panel must identify which application meets the above requirements to the greatest extent as being first in merit.  This may be achieved without ranking the remaining applications.  As only one licence can be granted under the scheme, there may be no benefit in ranking other applications.

Clause 20 Recommendations to the Minister

This clause sets out what action the Panel must take if it decides to recommend an applicant be granted the licence to raise concessional capital under the FLIC Scheme or if it decides that none of the applicants should be granted the licence.

Under subclause 20(1), if the Panel considers that one or more of the applications meets the requirements described under subclause 19(1), then it must recommend in writing to the Minister that the applicant ranked first in merit under subclause 19(2) be granted the licence to raise concessional capital.  A recommendation in writing formalises the Panel’s recommendation and would be signed by the Chair on behalf of all the members of the Panel or by all Panel members.

Subclause 20(2) allows the Panel to recommend in writing that none of the applications meets the requirements and whether, in the Panel’s view, the Minister should call for a further round of applications under section 10 of the Act. 

In providing recommendations to the Minister under subclauses 20(1) or (2), the Panel must provide the basis for those recommendations in writing.  This will inform the Minister’s thinking in deciding what action to take following receipt of the Panel’s recommendations. 

Schedule 1 Documents to be attached to application

As noted under subclause 8(1), the Schedule sets out what documentation is to be attached to applications.  This documentation will provide essential information about applicant companies and also allow Panel members to make an informed comparison of applications.  Documents include: 

• the company’s constitution, setting out the company’s objectives, organisational structure and business and operational procedures;
• an organisation chart identifying by name all staff, including key personnel and directors.  This will show the organisation’s hierarchical structure as well as the company’s staffing levels and therefore serve as an indicator of the company’s size and overheads;
• résumés, including relevant experience and qualifications, for key personnel and directors (who may be the same people) in order to provide the Panel with a clear idea of the company’s skill set.  This information would not be required for support or administrative staff.  The nationality of key personnel and directors must also be provided (see section 13(d) of the Act) and a description of his or her role within the company;
• one professional reference for key personnel and company directors of the company in order to substantiate claims made in the application about an individual’s skills and professional history;
• information about the experience, qualifications and background of each of the company’s board members to allow the Panel to make judgements about the skill set the Board brings to the company;  and
• a business plan for the period from the date of application up until 30 June 2009.  This will be a key document in an application and will set out in detail the company’s aims and objectives over the life of the FLIC Scheme.  Further, the business plan will allow Panel members to assess the viability of the company.  This would be indicated by its capital raising strategies, including opportunities for co-investment; the types of projects in which it proposes to invest; amounts it proposes to direct towards marketing and distribution (if any); its approach to risk management, above all in a situation where there is a shortfall of capital; and its intentions for monitoring performance of the projects in which it decides to invest shareholder funds.  Information about operating costs will also be required as will information about how returns to investment partners would be treated.