EXPLANATORY STATEMENT
Issued by the Minister for the Arts and Sport
Film Licensed Investment Company Act 2005
Film Licensed Investment Company (Decision-making Criteria and Procedures) Determination 2005
Purpose of the Decision-making criteria and procedures
Legislative authority
Subclause 9(1) of the Film Licensed Investment Company Act 2005 (the Act) requires the Minster for the Arts and Sport to determine by legislative instrument criteria to be applied and procedures to be complied with by the Minister in deciding whether, and to whom, to grant the concessional capital licence under the Film Licensed Investment Company (FLIC) Scheme.
Subclause 9(2) of the Act provides that the Minister must also determine the weight to be given to each criterion.
The Decision-making criteria and Procedures Determination is a companion to the legislative instrument made under clause 8 of the Act, the Film Licensed Investment Company (Application) Rules 2005. Under the Application Rules, Selection Advisory Panel members are required, in making a recommendation to the Minister on which company should be issued with the licence to raise concessional capital, to consider the extent to which applications meet the requirements of the Decision-making criteria and Procedures Determination (see clause 19 of the Application Rules).
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 for 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 Decision-making criteria and Procedures. 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 Decision-making criteria and Procedures.
Regulation Impact Statement
The Office of Regulation Review has advised that a Regulation Impact Statement is not required.
Operation of Decision-making Criteria and Procedures
Notes on Clauses
Clause 1 Name of determination
This clause states that the name of the determination is the Film Licensed Investment Company (Decision-making Criteria and Procedures) Determination 2005.
Clause 2 Commencement
Clause 2 provides that the determination commences 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 Determination
This clause sets out the object of the determination which is to state the criteria to be applied and the procedures to be complied with by the Minister in relation to applications for the licence to raise concessional capital under the FLIC Scheme.
Clause 4 Definitions
This clause defines the terms used in the Determination.
“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.
“Application Rules” means the Film Licensed Investment Company (Application) Rules 2005.
“Panel” refers to the Selection Advisory Panel established under the Application Rules whose members are appointed by the Minister and which makes a recommendation to the Minister about which Australian company should be granted the licence to raise concessional capital under the FLIC Scheme.
Clause 5 Decision making criteria to be applied by the Minister
This clause provides that the criteria to be applied by the Minister in deciding whether, and to whom, to grant the licence to raise concessional capital are set out under Schedule 1.
Clause 6 Procedures to be complied with by the Minister
Subclause 6(1) requires the Minister to give applications s/he receives to the Panel in order for the Panel to consider the applications and make a recommendation to the Minister about which applicant should be granted the licence under the FLIC Scheme.
Subclause 6(2) provides that the Minister must satisfy himself or herself that a recommendation made to him by the Panel has been in accordance with the Application Rules and that the applications comply with the requirements of the Act. For example, applications must be delivered in the form and include the accompanying documentation as required under the Application Rules and be submitted by the closing date for applications. The Minister would draw on advice from the Panel or the Department of Communications, Information Technology and the Arts in forming his or her view under subclause 6(2).
Subclause 6(3) requires the Minister to comply with requirements set out in subclauses (1) and (2) as quickly as the proper consideration of a matter allows. This is important so as not to unnecessarily delay the issuing of the licence, given the time limits on the capital raising period.
Clause 7 Weight to be given to criteria
This clause sets out the varying weights to be applied to criteria in deciding whether, and to whom, to grant the licence to raise concessional capital. It provides that the greatest weight be given to the following items set out in the Schedule:
- Item 2 – the general expertise and experience of the key personnel and the company directors that would be in place if the applicant became the FLIC. An emphasis on this criterion will ensure that the licensee is appropriately qualified in the areas described in this item and that it will be able to meet the FLIC Scheme’s objective to increase private sector investment in local film and television and do so within the legal requirements imposed by the Act and the Corporations Act 2001.
- Item 3 – the expertise and experience in the film and television industry of management that would be in place if the applicant became the FLIC. This is intended to underscore the importance of the applicant having an established network in the film and television sector to draw upon should it be issued with the licence. The emphasis on this criterion is also intended to ensure that the applicant is better able to choose quality productions with potential for critical and commercial success.
- Item 4 – the quality of the business plan given to the Minister in accordance with the Application Rules. This places an emphasis on the quality of the applicant’s business planning and indicates that the applicant’s strategies under that plan will be closely scrutinised. It is considered that a robust plan covering in particular the areas set out under this item will maximise the licensee’s opportunities for success and therefore assist in achieving the Government’s objectives for the FLIC Scheme.
Schedule 1 Decision-making criteria
As noted in clause 5 above, Schedule 1 sets out the criteria to be applied by the Minister in deciding whether, and to whom, to grant the licence to raise concessional capital.
Item 1
Item 1 provides that a criterion to be considered is the extent to which the applicant meets the objects of the FLIC Scheme set out under subsections 4(a), (b), (c) and (d) of the Act:
(a) to encourage the production of qualifying Australian films which portray Australian perspectives and Australia’s cultural diversity;
(b) to encourage the production of qualifying Australian films which are of a high standard and are likely to be commercially successful;
(c) to support and promote the ongoing development of the Australian film industry through encouraging the use of Australia’s creative resources and industry expertise;
(d) to encourage private sector investment in the Australian film industry.
The object under section 4(e) of the Act seeks to ensure that the level of the Commonwealth’s assistance to the Australian industry is quantifiable, accountable and transparent. While this is an important element of the Scheme, it is not a criterion that an applicant could address specifically. The applicant’s ability to operate within the legal framework of the Scheme as well as the FLIC’s ability to generate and maintain financial reports and show good business reputation and high ethical standards, are both relevant criteria in relation to this object.
Item 2
The criterion under Item 2 is the general expertise and experience of the key personnel and company directors that would be in place if the applicant became the FLIC, including:
- experience in capital raising, which includes the applicant’s demonstrated ability to raise finance from the private sector;
- experience and achievements in one or more of the development, production and distribution of film and television program productions. This may include, but is not limited to, the number and range of such productions in which company directors and/or key personnel have been involved in a professional capacity and the critical and commercial success of those productions;
- demonstrated good business reputation and high ethical standards, as set out in the written application and established by management’s résumés and referee reports accompanying the application;
- demonstrated experience in generating financial data and reports on investments, as set out in the written application and established by management’s résumés and referee reports accompanying the application. In particular, an applicant’s ability to meet the reporting requirements under section 35 of the Act and as provided for in the Film Licensed Investment Company (Reporting Requirements) Determination 2005 will be taken into account.
Item 3
The criterion in Item 3 is the expertise and experience in the film and television industry of management that would be in place if the applicant became the FLIC. This criterion seeks to establish the extent to which directors and/or key personnel have worked within this industry and have a demonstrated understanding of its workings. Given the increasingly global nature of the filmmaking and film financing processes, this expertise and experience does not necessarily have to be confined to Australia.
Item 4
The criterion in Item 4 is the quality of the business plan given to the Minister in accordance with the Application Rules, including:
- the adequacy and effectiveness of the proposed capital raising strategies, which may include whether, in the Panel’s view, the applicant will be able to meet the $10 million capital raising target in the 2005-06 and 2006-07 financial years and the extent to which those strategies are realistic and achievable in the current investment environment;
- the strategies for attracting investors to the company, including the nature of any proposed offer to shareholders;
- the strategies for achieving returns for shareholders and the extent to which this would rely on the commercial success of productions and/or the nature of proposed investment structures, including co-investment with other market players;
- the applicant’s capacity to operate within the legal framework of the FLIC Scheme, including compliance with the provisions of the Act.