Co-ops & Mutuals Empowered But Further Reform Still Necessary

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Co-ops & Mutuals Empowered But Further Reform Still Necessary

The Federal Government has agreed to make regulatory and legislative changes to improve co-operative and mutual enterprises’ access to capital. The Government’s announcement on 8 November 2017 was made in response to the findings of the Hammond independent review. This involved consultation with a range of organisations at roundtable meetings, which Kingfisher Law attended. The findings of the review were provided to Treasurer Scott Morrison in July and drew on the findings of a related Senate Report released in early 2016.

The changes proposed by the Government implement Hammond’s recommendations that:

  • Mutuals should have the ability to issue Tier 1 instruments and APRA should amend its prudential standards to permit them to do so (Recommendation 1).
  • The Corporations Act should be amended to expressly permit mutuals registered under the Act to issue capital instruments without risking their mutual structure or status (Recommendation 8). A definition of ‘mutual company’ should be inserted (Recommendation 9).
  • ASIC should provide regulatory guidance on the duties of directors of mutuals to enhance the Australian community’s understanding of the structure and role of mutuals (Recommendation 10).

Allowing mutuals to issue Tier 1 instruments is a welcome change. This will promote investment, growth and competition, and will strengthen the banking system and improve financial stability. Further, improving the recognition and understanding of mutuals will also facilitate growth and access to capital.

However, the Government did not decide to take active steps toward amending AASB 132. This accounting standing requires co-operative shares to be listed as a liability rather than equity on balance sheets. The Senate Report found this to be a barrier to co-operatives and mutuals accessing capital. Both the Senate Report and Hammond recommended that AASB 132 be amended to bring co-operative shares under the definition of capital.

Further, the Government did not mention Recommendation 11 which called for legislative changes to eliminate the dual registration requirement for co-operatives making security offers. Co-operatives are required to comply with the disclosure requirements outlined in the Co-operatives National Law (or other State legislation) when they offer securities. Disclosure requirements are complicated if an offer is made to persons outside the co-operative’s ‘home’ jurisdiction. However, provisions of the Corporations Act suggest that interstate offers by a co-operative will be subject to the Corporations Act fundraising provisions. Therefore, co-operatives are usually required to lodge a disclosure statement to the relevant state Registrar and an identical disclosure document with ASIC, causing them to incur two sets of fees. Hammond argued that this barrier to raising capital should be addressed by changing the Co-operatives National Law (and other State legislation) or the Corporations Act and Regulations.

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