CO-OPERATIVES NATIONAL LAW (SOUTH AUSTRALIA) BILL

Introduction and First Reading

Received from the House of Assembly and read a first time.

Second Reading

The Hon. G.E. GAGO (Minister for Agriculture, Food and Fisheries, Minister for Forests, Minister for Regional Development, Minister for the Status of Women, Minister for State/Local Government Relations) (18:05): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

This Bill will give effect to an intergovernmental agreement under which all States and Territories have committed to replace their existing legislation regulating co-operatives with a new national law, the Co-operatives National Law.

Currently, all States and Territories in Australia have legislation which enables a co-operative to register and to become incorporated as a legal entity. It is an alternative form of incorporation to that under the Corporations Act and other legislation, tailored to the distinct attributes of co-operatives.

Existing co-operatives legislation is similar, but not uniform, across jurisdictions and is based on a set of standard provisions developed in 1996 by the Standing Committee of Attorneys-General.

The co-operatives legislation in most jurisdictions has not been comprehensively reviewed since the mid 1990s. A recent review of the existing legislation has identified impediments to the operation of co-operatives that potentially place them at a competitive disadvantage to other types of incorporated body.

The new Co-operatives National Law to be implemented by this Bill will provide a more level playing field for co-operatives by:

ensuring that legislative measures for the oversight of co-operatives are no less favourable than measures in place for other forms of corporate body, including companies registered under the Corporations Act 2001; and

ensuring that a registered co-operative can operate on a national basis, equivalent to the manner in which a company can operate on a national basis.

History of co-operatives

Co-operatives have existed in Australia since the mid nineteenth century. Producer co-operatives became a common form of organisation in the dairying and wheat industries in the late 19^th Century. This extended to the sugar, cotton and rice industries in the mid part of the 20^th Century. Consumer co-operatives became more numerous in the years between the First and Second World Wars—and in some rural communities became the principal source of consumer goods. Other forms of mutual organisation have also played an important role in Australian society. Friendly societies which provided medical services and income support were common in the early part of the twentieth century. Credit unions and building societies became a feature of Australian society from the 1950s.

In current day Australia, the number of co-operatives has declined. This reflects changes such as the restructuring of rural industries and markets, the concentration of retail markets around national enterprises such as supermarkets as well as changes in medical insurance and the financing of health care.

There are now around 1,700 co-operatives registered across Australia. About three quarters of these co-operatives are established as non-profit entities and have rules which prevent them from distributing any surplus to their members. The remaining quarter distribute surpluses to their members and are known as distributing co-operatives or trading co-operatives. Co-operatives tend to be concentrated in the eastern states, with between around 600 to 700 co-operatives each in NSW and Victoria, respectively but less than 60 in South Australia.

Most co-operatives in Australia are small organisations in terms of turnover and assets. Approximately 98 per cent of co-operatives have annual revenue of less than $25 million and 99 per cent have assets of less than $12.5 million. There are a very small number of co-operatives that have assets in excess of $100 million.

Distinguishing features of co-operatives

Co-operatives are organisations that are owned, controlled and used by their members. A co-operative's main purpose is to benefit its members. Rather than maximise profits, co-operatives aim to offer their members better prices and lower costs. Co-operatives are also distinguished from other business enterprises and organisational structures because they operate according to internationally agreed co-operative principles developed by the International Co-operative Alliance.

Existing co-operatives legislation

States and Territories regulate general co-operatives. The Commonwealth regulates financial co-operatives such as building societies, credit unions and friendly societies under the Corporations Act 2001. Co-operatives incorporated under State and Territory co-operatives legislation are excluded from the operation of the Corporations Act, although many Corporations Act provisions are applied or mirrored in the co-operatives legislation.

In South Australia, the Co-operatives Act 1997 currently provides for the formation, registration and management of co-operatives. Consumer and Business Services (CBS) is responsible for administering the Act.

Reasons for replacing the existing scheme with the National Law

Existing co-operatives legislation in most jurisdictions has not been comprehensively reviewed since the mid 1990s. A recent review of the existing legislation has identified impediments to the operation of co-operatives that potentially place them at a competitive disadvantage to other types of incorporated body. Examples of these barriers include approvals that must be obtained to carry on business in another State or Territory, limited means of external fundraising and financial reporting requirements for small co-operatives that are more extensive than those in place for small companies.

In light of this, the COAG Legislative and Governance Forum on Consumer Affairs (formerly Ministerial Council on Consumer Affairs), agreed to replace the existing State and Territory legislation with a new Co-operatives National Law.

To address identified deficiencies in the existing legislation, the new National Law will:

remove the requirement for co-operatives operating across borders to register in more than one jurisdiction and reduce costs to co-operatives operating in multiple jurisdictions from complying with inconsistent State and Territory legislation;

adopt a more risk sensitive financial reporting regime for co-operatives that will reduce financial reporting and auditing requirements for small co-operatives in line with similar relief provided to small proprietary companies under the Corporations Act. Under this regime, small co-operatives whose activities pose comparatively little risk to consumers will not need to lodge audited financial reports with regulators, although there will be obligations to report to members, who generally have the greatest stake in small co-operatives;

update directors' and officers' duties to reflect modern standards of corporate governance integrated with co-operative principles and reduce director and officer liability for corporate fault matters in accordance with the mandated COAG principles and guidelines;

update and standardise interactions between co-operatives legislation and the Corporations Act (noting that the co-operatives legislation applies many Corporations Act provisions, modifying them to suit co-operatives);

provide nationally for a new co-operative-specific form of security, a 'Co-operative Capital Unit', to improve access to capital by co-operatives; and

introduce cost effective supervisory tools for regulators such as civil penalty provisions and enforceable undertakings.

Otherwise, the new National Law is substantially similar to the existing SA Co-operatives Act 1997.

The proposed Co-operatives National Law will have a positive economic impact in that it will reduce financial reporting and auditing requirements and costs for small co-operatives as well as registration and compliance costs to co-operatives that operate in multiple jurisdictions. As at January 2013, eight of the 57 co-operatives registered in SA were based interstate.

Consultation

There has been both extensive consultation at the national level on the template National Law as well as a brief period of consultation on the South Australian Bill with local co-operatives and the professions that advise them. The co-operatives sector around Australia, including in South Australia, is supportive of the Co-operatives National Law.

The draft Co-operatives National Law and national Consultation Regulatory Impact Statement (RIS) were released by the Ministerial Council on Consumer Affairs for public consultation from 4 December 2009 to 26 February 2010.

24 written submissions, including submissions from the national co-operatives representative body and five state based co-operative federations (including the Co-operative Federation of SA) were received. That national consultation process resulted in changes to the exposure draft of the Law, in particular to:

clarify definitions and terminology;•clarify disclosure requirements;

ensure consistency with the Corporations Act;

outline specific voting requirements; and

establish minimum standards of reporting to members by small co-operatives in the wake of the proposed relaxation of the requirement to report to registration authorities.

The draft South Australian Bill was released for a short period of consultation with local interested parties between 25 October and 9 November 2012. This was limited to a brief period because of the previous extensive consultation on the National Law at a national level, bearing in mind that the South Australian Bill essentially reproduces the National Law, with additional supporting provisions to ensure the Law will operate properly in this State.

The Government wrote to all South Australian co-operatives, plus the Law Society and SA Joint Legislative Review Committee of the three accounting bodies in their capacities as advisors to co-operatives, offering them an opportunity to comment.

The one concern raised by the SA Joint Legislative Review Committee of accountants would be appropriately considered for the national regulations currently under development and has been referred to the relevant officer managing that process.

No comments on the South Australian Bill were received from co-operatives. The Co-operative Federation of SA, representing a number of SA co-operatives, had made submissions during the national consultation and changes were made to the draft National Law in response to their concerns.

South Australia's implementation of the Co-operatives National Law

By entering into an intergovernmental agreement via the Legislative and Governance Forum on Consumer Affairs, States and Territories committed to implementing the Co-operatives National Law, either by enacting application of laws legislation to apply the New South Wales law as amended from time to time as a law of their State or Territory or by enacting alternative consistent legislation.

Under this Bill, the NSW Act will not automatically be applied in South Australia from time to time as amended, rather amendments could be adopted by the making of a South Australian regulation, which will be subject to disallowance by Parliament in the usual way. This model is favoured as it maximises the ongoing consistency of the law of South Australia with the other jurisdictions, thus delivering the benefits of the Co-operatives National Law, while maintaining South Australian Parliamentary sovereignty.

I commend the Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Name of Act

This clause sets out the short title of the measure.

2—Commencement

The measure will be brought into operation by proclamation.

3—Definitions

This clause sets out various definitions that are relevant to the operation of the measure. It will also be the case that terms used in the measure and also in the National Law text have the same meanings in the measure as they have in the text.

Part 2—Application of National Law and Co-operatives National Regulations

4—Application of Co-operatives National Law

This clause applies the Co-operatives National Law, as set out in the Schedule to the measure, as a law of the State.

5—Amendments to Schedule to maintain national consistency

This will allow the Governor, by regulation, to amend the Co-operatives National Law, as set out from time to time in the Schedule to the Act under the scheme established by this measure, for the purposes of the law of the State if the Governor is satisfied that the amendment corresponds, or substantially corresponds, to an amendment made by the Parliament of New South Wales to the national law.

6—Application of Co-operatives National Regulations

The National Regulations under the Co-operatives National Law are to apply for the purposes of the Co-operatives National Law (South Australia, subject to any modifications that may be made by the Governor for the purposes of the legislation as it applies in South Australia. The Minister will be required to ensure that any regulations made under the national law are tabled in both Houses of Parliament and these regulations will be subject to disallowance in the same way, and within the same period, as regulations made under an Act of this jurisdiction.

7—Meaning of certain terms in Co-operatives National Law for purposes of this jurisdiction

This clause defines certain words and expressions used in the Co-operatives National Law (South Australia.

8—Exclusion of legislation of this jurisdiction

This clause excludes the operation of the Acts Interpretation Act 1915 from applying to the Co-operatives National Law (South Australia), the Co-operatives National Regulations (South Australia), the Co-operatives National Regulations or other instruments made under that Law. The clause makes it clear that it does not affect local regulations made under the proposed Act.

Part 3—Some matters referred to in Co-operatives National Law (South Australia)

9—Designated authority, designated instrument and designated tribunal (Co-operatives National Law section 4)

This clause specifies for this jurisdiction the meaning of certain terms used in the Co-operatives National Law (South Australia). These terms are designated authority, designated instrument, and designated tribunal.

10—Disposal of consideration for shares compulsorily acquired (Co-operatives National Law section 436)

These provisions will allow for the continuation of certain accounts and arrangements relating to money held in South Australia.

11—Deregistration (Co-operatives National Law section 453)

This clause results in certain property of a deregistered co-operative vesting in the State of South Australia. This clause achieves this by providing that the specified entity referred to in section 453(d) of the Co-operatives National Law (South Australia) is the State of South Australia. By way of explanation, section 453 of the national law applies provisions of the Corporations Act that refer to the Commonwealth, and clause 11(1) has the effect of substituting the State of South Australia for this purpose. Clause 11(2) replaces references to a Special Account under the Commonwealth legislation with references to an account established or approved by the Treasurer.

12—Costs of inquiry (Co-operatives National Law section 530)

This clause provides that the costs of an inquiry required to be paid under section 530(3) of the national law must be paid to the Corporate Affairs Commission.

13—Secrecy (Co-operatives National Law section 537)

This clause provides that information obtained in the course of administering the Co-operatives National Law (South Australia) or the Co-operatives Act 1997 may be divulged to certain specified persons.

14—Pecuniary penalty orders (Co-operatives National Law section 556)

This clause provides that a pecuniary penalty ordered to be paid in the State is a civil debt payable to the Corporate Affairs Commission on behalf of the State, and is recoverable accordingly.

15—Stamp duty (Co-operatives National Law section 620)

This clause provides that stamp duty is not payable on certain instruments associated with co-operatives, and stamp duty already paid is to be taken into account in respect of certain other instruments associated with co-operatives.

16—Registration fees (Co-operatives National Law section 620)

This clause provides that registration fees are not chargeable under any Act in respect of certain instruments associated with co-operatives.

Part 4—Regulations

17—Local regulations

This clause authorises the Governor to make regulations (local regulations) for the purposes of the proposed Act or as contemplated by the Co-operatives National Law as applying in this jurisdiction.

Part 5—Miscellaneous

18—Non-application of Co-operatives National Law to housing co-operatives and other bodies

This clause provides that the Co-operatives National Law (South Australia) does not apply to certain co-operative housing bodies.

19—Orders and other instruments published in Gazette

This clause contains evidentiary provisions relating to the making of orders, notices, exemptions and other instruments published in the Gazette.

20—Proceedings for offences

This clause provides for the procedure for the prosecution of offences under the proposed Act and the Co-operatives National Law (South Australia).

21—Proceedings for recovery of fines or penalties under co-operative's rules

This clause provides for the recovery of fines and penalties imposed by the rules of a co-operative.

22—Particular officials protected from liability

This clause gives protection from civil liability to certain persons.

23—Registrar of Co-operatives

The Corporate Affairs Commission is to constitute the Registrar of Co-operatives under the legislative scheme.

24—Repeal

The Co-operatives Act 1997 is to be repealed.

Part 6—Savings and transitional provisions

25—Definition

26—Local regulations for savings or transitional matters

27—General savings

28—Registration of co-operatives

29—Entitlements of former members of trading co-operatives (Co-operatives National Law Schedule 3, clause 1)

30—Entitlement to distribution from business or reserves of co-operative

31—Minimum paid up amount of shares (Co-operatives National Law section 78(4))

32—Personal property security interests

These clauses contain some specific transitional provisions.

Schedule 1—Co-operatives National Law

This Schedule sets out the Co-operatives National Law. It is divided into Chapters and Schedules, which are briefly summarised as follows.

Chapter 1 Preliminary

This Chapter sets out the principles used by a co-operative organisation. The principles are those agreed by the International Co-operative Alliance and incorporated into Recommendation 193 of the International Labour Organization. The Chapter contains interpretation provisions and also sets out the relationship between the Co-operatives National Law and the Corporations Act. The provisions of the Corporations Act that are applied throughout the Co-operatives National Law are collected in a note and cross-referenced in tabular form along with relevant modifications for ease of reference.

Chapter 2 Formation, powers and constitution of co-operatives

This Chapter provides the mechanism for incorporating a co-operative and specifies the legal powers of the incorporated body as well as the legal assumptions that underpin a co-operative's dealings with third parties. It identifies the matters that must be included in the rules of a co-operative and authorises the Registrar of Co-operatives to publish model rules that a co-operative can adopt. The Chapter also sets out the nature of share capital of a co-operative and establishes the legal notions of membership and active membership. Member rights and obligations as well as the circumstances in which membership is cancelled and any rights accompanying cancellation are dealt with in the Chapter.

Chapter 3 Management and operation of co-operatives

This Chapter deals with corporate governance of a co-operative. Matters such as the board as the managing organ, directors and their duties and meetings are included. Matters relating to financial reporting and auditing are contained in the Chapter along with provisions governing fundraising from members and the public.

Chapter 4 Structural and other events for co-operatives

This Chapter deals with corporate structural events such as external administration, mergers, schemes of arrangement and transfers of incorporation. Relevant provisions of the Corporations Act are applied and modified to achieve consistency of treatment in most external administration processes. Special provisions for caretaker-type administration and administrative powers of the Registrar of Co-operatives leading to a winding up are also located here.

Chapter 5 Participating co-operatives

This Chapter replaces the existing system of multiple registration to enable cross-border trade by co-operatives with a mutual recognition scheme for co-operatives from jurisdictions that participate in the Co-operatives National Law scheme.

Chapter 6 Supervision and protection of co-operatives

This Chapter establishes the powers of the Registrar of Co-operatives, inspectors and special investigators and the procedures that must be used when conducting an investigation. The Co-operatives National Law will introduce consistent powers and procedures across jurisdictions. If necessary, however, a particular jurisdiction will be able to modify provisions in this Chapter to account for local circumstances.

Chapter 7 Legal proceedings and other matters

This Chapter establishes nationally consistent provisions for offences, civil penalty provisions, appeals against administrative decisions, and the use of evidence in proceedings.

Chapter 8 General

This Chapter deals with administrative and other miscellaneous matters such as those relating to the office of Registrar of Co-operatives, the service and filing of documents, and the making of National Regulations.

Schedules

Schedule 1 sets out the matters that must be addressed in the rules of a co-operative.

Schedule 2 defines terms used in provisions that regulate interests and control in shares of a co-operative.

Schedule 3 contains savings and transitional provisions.

Schedule 4 sets out interpretation provisions that are nationally consistent and are used in place of the interpretation legislation in each jurisdiction.

Debate adjourned on motion of Hon. D.W. Ridgway.