Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2008-2009-2010
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
corporations amendment (no 1) bill 2010
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Minister for Financial Services, Superannuation and Corporate Law,
the Hon Chris Bowen MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Access to registers 5
Chapter 2 Aevum Case Changes 9
Chapter 3 Penalties for market offences and ASIC powers 13
Chapter 4 Amendments to the Telecommunications (Interception and Access)
Act 1979 17
Chapter 5 Regulation Impact Statement 19
Index 37
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|Aevum Case |Aevum ACN 087 648 691 v |
| |National Exchange Pty Limited|
| |ACN 006 079 974 [2004] |
| |FCA 1781 |
|ASIC Act |Australian Securities and |
| |Investments Commission Act |
| |2001 |
|ASIC Regulations |Australian Securities and |
| |Investments Commission |
| |Regulations 2001 |
|Bill |Corporations Amendment (No 1)|
| |Bill 2010 |
|Corporations Act |Corporations Act 2001 |
|Corporations |Corporations Regulations 2001|
|Regulations | |
|Crimes Act |Crimes Act 1914 |
|Criminal Code |Criminal Code Act 1995 |
|TIA Act |Telecommunications |
| |(Interception and Access) Act|
| |1979 |
General outline and financial impact
Outline
This Bill amends various acts to change the way people access
information kept on company registers. The measures relating to
access to registers will:
. Require persons seeking a copy of a register of members to
apply to the company, stating the purpose for which they
will use the register.
. Provide that where a register is maintained on a computer
that it should be able to be inspected on a computer.
. Provide for the regulations to prescribe the formats in
which a copy of the register can be provided.
The Bill also amends the Corporations Act 2001 (Corporations Act)
and the Australian Securities and Investments Commission Act 2001
(ASIC Act) and Telecommunications (Interception and Access) Act
1979 in relation to market offences and the Australian Securities
and Investment Commission's (ASIC) powers to investigate offences.
These measures:
. Increase the magnitude of criminal penalties that can be
imposed for breaches of the insider trading and the market
manipulation provisions in Part 7.10 of the Corporations
Act.
. Enable an interception agency, such as the Australian
Federal Police (AFP) to apply for telecommunications
interception warrants in the course of a joint
investigation into these offences.
. Enhance ASIC's search warrant power, to enable ASIC to
apply for a search warrant under the ASIC Act without
first having to issue a notice to produce the material.
The Bill will also clarify the criminal liability under section
1041B of the Corporations Act in accordance with the requirements
of the Criminal Code Act 1995 (Criminal Code).
Date of effect: On proclamation.
Proposal announced: The measures were announced in the Minister
for Financial Services, Superannuation and Corporate Law's Press
Releases No. 8 of 28 January 2010 and No. 9 of 3 February 2010.
Financial impact: Nil
Compliance cost impact: The compliance cost will be low for the
access to registers measures and nil for the market offences and
ASIC powers measures.
Summary of regulation impact statement
Regulation impact on business
Impact: The impact on business will be minimal for the access to
registers measures and nil for the market offences and ASIC powers
measures.
Main points:
. The proper purpose test will provide clear guidance and
limitations on when a copy of a register may be provided.
. Specifying the format in which a copy must be supplied
will have a neutral effect on business.
. Ensuring that a register may be accessed on a computer
where it is maintained will reduce the regulatory impact
on business.
Chapter 1
Access to registers
Outline of chapter
1. The Bill limits the instances in which a copy of a register of
members of a company or registered scheme may be obtained; provides
that where a copy of the register is provided, that the copy be
provided in a prescribed format; and specifies that, where the
register is maintained on a computer, a person seeking to inspect
the register must do so on a computer.
Context of amendments
2. The provisions dealing with the maintenance of and access to
registers of companies and registered schemes are currently found
in Chapter 2C of the Corporations Act. For ease of reference, any
reference to a company register should be read as including a
reference to a registered scheme where appropriate.
3. A company's register of members is required to contain members'
names, postal addresses and shareholding details. Currently,
anyone may request a copy of a company's register without providing
any indication of the purpose for which they intend to use the
information. Increasingly, members' contact details are being used
for purposes that are not considered proper or appropriate. There
is currently no mechanism in the legislation to limit access to
appropriate purposes.
4. The Corporations Act currently provides that a person seeking a
copy of a register may specify a particular format, but the current
provision does not require the company to provide the copy in the
format requested, often leading to copies that are inappropriate
for the requestor's needs or difficult to use.
5. The current provision relating to a register maintained
electronically provides that the person seeking access is entitled
to request that a copy of the register be printed. In these
instances, a company is not able to recoup the cost of producing a
copy.
Summary of new law
6. The Bill amends the Corporations Act to require a person seeking a
copy of the register to apply to the company and state the purpose
for which they intend to use the information contained in the copy
of the register. The company can refuse to provide a copy where
the purpose is an improper purpose as provided in the Corporations
Regulations.
7. The Bill also amends the Corporations Act to provide that where a
register is maintained on a computer that it is inspected on a
computer and allows for formats of electronic copies of the
register to be prescribed in the Corporations Regulations.
Comparison of key features of new law and current law
|New law |Current law |
|A person seeking a copy |A person seeking a copy |
|of a register will need |of the register only |
|to apply to a company and|needs to request a copy |
|indicate the proposed use|from the company. The |
|of the information |company has seven days to|
|contained in the |comply with the request. |
|register. The company | |
|has seven days to comply | |
|with the request or deny | |
|access to the copy of the| |
|register. | |
|The penalty for misuse of|The penalty for misuse of|
|information contained in |information contained in |
|a register will be 50 |a register is 10 penalty |
|penalty units. |units and/or three months|
| |imprisonment. |
|A person seeking to |A person seeking to |
|inspect a register |inspect a register |
|maintained on a computer |maintained on a computer |
|will do so on the |may request a print-out |
|computer, unless they |of the register and is |
|wish to apply for a copy |not required to pay the |
|of the register. |fee applicable for a copy|
| |of the register. |
|A person seeking an |A person seeking an |
|electronic copy of the |electronic copy of the |
|register may receive it |register must receive it |
|in the format prescribed |on a 'floppy disk' if so |
|in the Corporations |requested, but the data |
|Regulations. |need only be readable and|
| |need not be formatted in |
| |a particular way. |
Detailed explanation of new law
8. The proper purpose test will specifically target improper uses of a
register. The test will not permit specific uses; instead it will
exclude undesirable uses of the information on a register.
9. Applicants will be required to submit an application containing
prescribed information (including their name, address, corporation
and the proposed use of the register) which will be inserted in the
Corporations Regulations. [Schedule 1, Items 6 and 8]
10. Where an application states more than one purpose, if any of these
is an improper purpose specified in the Corporations Regulations,
then the request to provide a copy will be refused.
11. The Regulations will specify a number of improper purposes. Where
an applicant applies for a copy of the register for an improper
purpose, the company can refuse to provide a copy.
12. There are relatively few improper purposes targeted by the proper
purpose test, however, where an improper purpose becomes evident it
is important that the law be able to swiftly respond. The
specification of improper purposes in the Corporations Regulations
enables the law to keep pace with changes to the use of a register
or members and to be amended more swiftly than if improper purposes
were specified in the Corporations Act. Any changes to the
Corporations Regulations would be subject to the approval of the
Ministerial Council for Corporations, prior to being made by the
Governor-General.
13. It is an offence for an applicant to use information obtained from
the register for an improper purpose specified in the Corporations
Regulations or disclose the information knowing it is likely to be
used for an improper purpose. [Schedule 1, Item 9]
14. Where a company denies an applicant access on the basis of one of
the prescribed improper purposes, there is scope for judicial
review of the decision under section 1324 of the Corporations Act.
15. The offences provisions under section 137.1 and 137.2 of the
Criminal Code will also apply where someone knowingly makes a false
or misleading statement or produces a false or misleading document
in relation to an application.
16. The Bill will remove the current requirements in the Corporations
Act regarding the format of an electronic copy of a register and
allows for formats to be prescribed in the Corporations
Regulations. This will avoid references to superseded technology
in the Act, as the Corporations Regulations are able to more
quickly incorporate changes. [Schedule 1, Item 7]
17. The Bill provides that where a register is maintained
electronically, it is to be inspected electronically. Where a
person requires a hard copy of the register, they will be required
to apply for a copy of the register. [Schedule 1, Item 4]
18. Subsection 177(1) of the Corporations Act requires that information
contained in a register must not be used to contact or send
material to a person unless the information is relevant to the
interest held by the person or is approved by a company.
19. Items 8 and 9 to Schedule 1 of the Bill make it an offence for a
person to use the information obtained from a copy for an improper
purpose or to disclose that information knowing it will be used for
such a purpose. This offence is an offence of strict liability
will maximum penalty of 50 penalty units, which will operate as an
appropriate deterrent for a breach of this provision. [Schedule 1,
Item 19]
20. The penalty for a breach of subsection 177(1), which is an offence
of strict liability, is currently 10 penalty units and/or three
months imprisonment. Given the inherent similarities of these
offences, it is appropriate that the penalties be consistent, and
for this reason, the penalty for a breach of subsection 177(1) will
be amended by the Bill to a maximum of 50 penalty units and will
address the concern that imprisonment is not an appropriate
sanction for an offence of strict liability. The provision will
now comply with the Commonwealth Guide to Framing Offence
Provisions. [Schedule 1, Item 19]
Application and transitional provisions
21. The provisions contained in this Bill commence on proclamation.
22. The amendments made to require applications to be made to a company
for a copy of the register and requiring that the intended not be
for an improper purpose applies to requests made after
commencement. [Schedule 1, Item 18]
Supporting legislation
23. Amendments will be made to the Corporations Regulations, to provide
improper purposes and to prescribe the form of an application for a
copy of the register.
Chapter 2
Aevum Case Changes
Outline of chapter
24. The Bill amends section 1019G of the Corporations Act to clarify
that any unsolicited offer that is made to purchase financial
products off-market must remain open for at least one month from
the date of the offer.
Context of amendments
25. Subsection 1019G(2), of the Corporations Act states that an
unsolicited offer to purchase financial products off market
(predominantly the acquisition of shares), may be withdrawn at any
time, but not within one month of the date of the offer. This has
been interpreted to date to mean that such an offer must remain
open for at least one month from the date the offer is made.
26. In 2004, National Exchange Pty Limited (National Exchange) made an
unsolicited and off-market share offer to members of Aevum Ltd for
$0.35 per share, compared with the market value estimate of between
$0.90 -$1.29 per share. Aevum brought an action against National
Exchange in the Federal Court regarding the formulation of the
offer, asserting that the offers were not sent as soon as possible
after the date of the offer and that they were not expressed to
remain open for at least one month.
27. The Federal Court found that National Exchange contravened:
. section 1019E(2) of the Corporations Act in that its
written offer was not sent to shareholders as soon as
practicable after the date of offer; and
. section 1019G(2) of the Corporations Act in that the
offers were not expressed to remain open for at least one
month.
28. In hearing the case, the Federal Court Judge noted that the wording
of section 1019G(2) was written in terms of the withdrawal of an
offer and not that an offer must remain open for at least one
month, and that perhaps this should be amended, to reflect this
intention of the provision.
29. This amendment provides clarity in the wording to avoid further
misreading or misinterpretation of the relevant provision.
30. This amendment, amongst others, was canvassed in an options paper
Access to Share Registers in the Regulation of Unsolicited off
Market Offers, issued in May 2009. Submissions received were in
favour of the proposed amendment.
Summary of new law
31. The provision has been amended to make it clear that the offer must
remain open for a period of at least one month from the date of the
offer. The related existing provision addressing how long the
offer must remain open has also been moved into this subsection.
Comparison of key features of new law and current law
|New law |Current law |
|The amendment substitutes|The provision notes that |
|new wording to make it |an offer made under this |
|clear that an offer made |Division may be withdrawn|
|under this Division must |at any time, but not |
|remain open for at least |within one month of the |
|one month from the date |date of the offer. |
|of the offer. | |
|Consequential minor | |
|amendments have also been| |
|made to two other | |
|subsections to ensure the| |
|correct cross reference | |
|to this revised | |
|provision. | |
Detailed explanation of new law
32. Division 5A in Chapter 7 of the Corporations Act sets out the legal
requirements for making an unsolicited offer (ie. offers other than
those made on a licensed financial market) to purchase financial
products off-market. Division 5A principally establishes a
disclosure regime in relation to these offers. To date these kinds
of offers have only been made to acquire shares.
33. Section 1019G sets out the rules regarding the duration and
withdrawal times when making these offers. Currently the 'offer
may be withdrawn by the offeror at any time, but not within one
month of the date of offer', which previously had been interpreted
as requiring that an offer must remain open for at least one month
of it being made.
34. However, in Aevum ACN 087 648 691 v National Exchange Pty Limited
ACN 006 079 974 [2004] FCA 1781, the Court found this provision to
be ambiguous and suggested consideration be given to revising the
wording to clearly state that an offer must remain open for at
least one month.
35. Proposed subsection 1019G(1) provides revised wording to achieve
more clarity and to avoid further doubt about how long an offer
made under this Division must remain open. [Schedule 1, Items 13
and 14]
Application and transitional provisions
36. These amendments apply to offers made after this schedule
commences. [Schedule 1, Item 20]
Consequential amendments
37. Subsequent amendments to references to the substituted provision
are also to be made to subsections 1019K(1)(b) and 1021)(3)(c).
[Schedule 1, Items 13 and 14]
Chapter 3
Penalties for market offences and ASIC powers
Outline of chapter
38. The Bill increases the magnitude of the penalties that can be
imposed for breaches of the insider trading and market misconduct
provisions in Part 7.10 of the Corporations Act.
39. The Bill amends the current ASIC search warrant power in the ASIC
Act to permit ASIC to apply for a search warrant without first
having to issue a notice to produce for the material sought.
40. The Bill also amends section 1041B of the Corporations Act to
clarify how criminal liability is imposed on persons who breach
this provision.
Context of amendments
41. Insider trading and market manipulation offences cause serious harm
to the fair and efficient functioning of Australia's financial
markets. These markets function best when information is widely
dispersed and investors have confidence in the fairness of markets.
It is essential that the penalties associated with these offences
reflect the serious impact that a breach can have on Australia's
financial markets.
42. The penalties for insider trading and market manipulation offences
contained in the Bill also reflect that the benefit that can be
gained from engaging in this conduct often far outweighs the
maximum penalty that can currently be imposed for a breach.
43. The search warrant power in the ASIC Act currently requires that
ASIC first issue a notice to produce the documentary evidence
sought. Due to the risk of destruction of evidence, this power is
therefore rarely used. Warrants are instead executed under the
Crimes Act 1914 (Crimes Act) and, as a result, the evidence
obtained can only be used in criminal proceedings. Information
obtained using an ASIC Act warrant can be used to enforce whichever
penalty ASIC deems most appropriate, either civil or criminal.
44. Section 1041B of the Corporations Act provides that it is an
offence to engage in any activity (including specified types of
transactions) which is likely to create a false or misleading
appearance of active trading. The fault elements for this offence
are not expressly identified in section 1041B. This has resulted
in confusion regarding the interaction of this offence with the
Criminal Code and there has been debate on whether the relevant
fault element applies to the act itself (that is, undertaking a
specified type of transaction) or to the result of that act (that
is, creating a false or misleading appearance).
Summary of new law
45. The Bill amends the maximum level of criminal sanctions that may be
imposed on both individuals and body corporates for breaches of the
insider trading and market manipulation provisions in the
Corporations Act.
46. The Bill amends the search warrant power in the ASIC Act so that a
warrant may be applied for without ASIC first issuing a notice to
produce the material sought.
47. The Bill inserts a fault element into section 1041B.
Comparison of key features of new law and current law
|New law |Current law |
|The maximum criminal |The maximum criminal |
|penalties for an |penalty for insider |
|individual who breaches |trading is five years |
|insider trading or market|imprisonment and/or 2,000|
|manipulation provisions |penalty units. |
|are 10 years imprisonment|The maximum criminal |
|and/or the greater of |penalty for market |
|4,500 penalty units or |manipulation offences is |
|three times the profit |five years imprisonment |
|gained or loss avoided. |and/or 200 penalty units.|
|The maximum penalty for a|The maximum penalty for a|
|corporation that breaches|corporation that breaches|
|the insider trading or |the insider trading |
|market manipulation |provisions is 10,000 |
|provisions is the greater|penalty units. |
|of 45,000 penalty units, |The maximum penalty for a|
|three times the profit |corporation that breaches|
|gained or loss avoided or|the market manipulation |
|ten per cent of the body |provisions is 1,000 |
|corporate's annual |penalty units. |
|turnover in the relevant | |
|period. | |
|New law |Current law |
|ASIC will be able to |ASIC must first issue a |
|apply for a search |notice to produce the |
|warrant without issuing a|material it seeks. Where|
|notice to produce the |the material is not |
|material. |produced, ASIC may then |
| |apply for a search |
| |warrant. |
|The fault elements for |There is a lack of |
|the two physical elements|clarity as to which fault|
|of the offence in section|elements apply to the |
|1041B are made explicit. |physical elements of the |
| |offence in section 1041B.|
Detailed explanation of new law
48. The Bill increases the maximum criminal penalty for the following
offences to 10 years imprisonment; and/or the greater of 4,500
penalty units, or three times the profit gained or loss avoided
for:
. market manipulation;
. false trading and market rigging - creating a false or
misleading appearance of active trading;
. false trading and market rigging - artificially
maintaining a trading price;
. dissemination of information about illegal transactions;
. false or misleading statements;
. inducing persons to deal in financial products; and
. dishonest conduct in relation to a financial service or
product.
[Schedule 1, Item 20]
49. The maximum criminal penalty for a body corporate that breaches the
insider trading or market manipulation provisions will be the
greater of:
. 45,000 penalty units;
. three times the profit made or loss avoided; or
. ten percent of annual turnover during the relevant period.
[Schedule 1, Item 20]
50. The Bill amends the ASIC Act to remove the requirement that a
notice to produce must be issued and not complied with before ASIC
can apply for a search warrant.
51. The Bill clarifies the fault elements of the offence in
section 1041B in accordance with the requirements of the Criminal
Code. That is, criminal liability for such an offence would
require:
. intention with respect to the act itself; and
. intention, knowledge or recklessness with respect to
creating a false or misleading appearance.
[Schedule 1, Item 15]
Application and transitional provisions
52. The provisions contained in this Bill commence on proclamation.
53. The amendments made to the search warrants power in the ASIC Act
apply in relation to warrants issued after commencement. [Schedule
1, Item, 22]
Do not remove section break
Outline of chapter
54. The Bill includes the insider trading and market misconduct
provisions in Part 7.10 of the Corporations Act in the list of
serious offences in section 5D of the Telecommunications
(Interception and Access) Act 1979 (TIA Act).
Context of amendments
55. Insider trading and market manipulation offences cause serious harm
to the fair and efficient functioning of Australia's financial
markets. These markets function best when information is widely
dispersed and investors have confidence in the fairness of markets.
56. The offences related to market misconduct have been identified as
offences which should be included in the definition of 'serious
offence' in section 5D of the TIA Act. However, the current level
of criminal penalty imposable has been identified as insufficient.
57. Insider trading and other market offences are difficult to
investigate as these offences by their very nature involve complex
networks of people, technological sophistication and avoidance of
paper and traceable communications. In addition, the transactions
often occur in real time, meaning that telephone conversations are
often the only evidence of the offence.
Summary of new law
58. The Bill amends the TIA Act to include the following offences in
section 5D of the TIA Act:
. market manipulation;
. false trading and market rigging - creating a false or
misleading appearance of active trading;
. false trading and market rigging - artificially
maintaining a trading price;
. dissemination of information about illegal transactions;
. false or misleading statements;
. inducing persons to deal in financial products; and
. dishonest conduct in relation to a financial service or
product.
Comparison of key features of new law and current law
|New law |Current law |
|An interception agency |Telecommunications |
|will be able to apply for|interception warrants are|
|telecommunications |not currently available |
|interception warrants in |for the investigation of |
|the course of |insider trading and |
|investigations into |market manipulation |
|insider trading and |offences. |
|market manipulation | |
|offences. | |
Detailed explanation of new law
59. The Bill will amend the TIA Act to include the insider trading
offences and those in Part 7.10 of the Corporations Act as serious
offences for the purpose of section 5D of the TIA Act. [Schedule
1, Item 21]
60. This will enable an interception agency to apply for a
telecommunications interception warrant in the course of
investigations into these offences, including investigations
assisted by ASIC.
Application and transitional provisions
61. The provisions contained in this Bill commence on proclamation.
Do not remove section break.
Background and problem identification
62. The provisions dealing with the maintenance of, and access to,
registers of companies and registered schemes are currently found
in Chapter 2C of the Corporations Act 2001 (Corporations Act). All
companies and all registered schemes are required to set up and
maintain:
. a register of members;
. a register of option holders and copies of options
documents - if the company or scheme grants options over
unissued shares or interests; and
. a register of debenture holders - if the company issues
debentures.
63. Companies and registered schemes may also engage a specialist firm
to maintain their registers. These requirements also generally
apply to firms maintaining registers on behalf of another company.
64. Historically, companies have been required to keep registers of
their members, which were considered public documents. Company
member registers provide necessary information to assist current
and future members to exercise their membership rights, and members
and interested third parties to engage in commerce.
65. The legitimate and beneficial reasons for accessing a member
register are now much wider than the original objective, which was
to enable creditors to discover the identity of members and the
extent to which they were liable to contribute to the company's
capital. Access to the register of members facilitates good
corporate governance through member engagement and participation.
The Parliamentary Joint Committee on Corporations and Financial
Services expressed the view that public access to member registers
was essential to ensure transparency and preventing target
companies from blocking legitimate offers to members from being
made.
66. Reasons for members accessing the register may include:
. members checking that their personal details are
accurately recorded on the register;
. members communicating with other members about their
potential rights to bring or join an action against the
company for relief against oppression or to bring a
statutory derivative action;
. members or interested parties writing to existing members
with an offer to purchase shares;
. members or interested parties canvassing a small number of
members to identify sellers, as a step preliminary to a
takeover bid;
. members contacting members in order to influence company
management about the operation of the company, or to
obtain support for a members' resolution; and
. candidates contacting members about their election as
directors.
67. A company generally keeps its register of members at its registered
office. The register is required to contain members' names, postal
addresses and shareholding details. This information is generally
discoverable by the company when individual members, or their
representatives, report their membership interests to the company
for registration either on subscription or transfer of shares.
68. Currently, a company must allow anyone to inspect or copy the
register, however, the Corporations Act restricts the use of
information obtained from a register.
69. A person can only use or disclose the information if it is relevant
to the holding of the interests recorded in the register or the
exercise of the rights attaching to them, or if the company
consents. For example, the use of information on the register for
the direct marketing of goods or services would be prohibited. The
restrictions on use of the information contained on the register,
and the sanctions applying to misuse, are designed to protect
members from undue intrusion.
70. Legitimate reasons for accessing registers have become broader
since these provisions were introduced into the Corporations Act.
Additionally, developments in other areas of the law, such as
privacy, have raised concerns that the balance between the right to
access the register and the expectation of privacy in relation to
personal information should be revised. The permissive nature of
the current provisions has given rise to undesirable uses of the
register. Amongst these uses are: organisations, such as
charities, soliciting donations; brokers soliciting for clients;
and making off-market low-value offers to purchase shares
(unsolicited share offers, or USOs).
71. Offers to purchase shares generally occur on-market, or through
legitimate commercial off-market offers including takeover bids,
buybacks, share sale facilities, offers to wholesale investors, and
foreign-regulated takeover bids. However, a number of entities are
in the business of offering to purchase shares off-market and
unsolicited from shareholders for amounts that are usually
substantially less than the going market rate.
Objectives
72. The proposed changes will eliminate uses of the register which are
considered to be improper.
Options
Option A: No action
73. This option would maintain the status quo, meaning there would be
minimal restrictions placed on gaining access to copies of the
register.
Option B: Proper purpose test
74. This option would result in a requirement that access to registers
can only be gained if it is for a 'proper purpose'.
75. The Corporations Act would be amended to require a person seeking a
copy of a register to make a request to the company that includes:
the person's name and address (for an individual); the name and
address of the person responsible for making the request (for an
organisation); the purpose for which the information will be used;
and whether the information will be disclosed to a third party.
76. The Australian Securities and Investments Commission (ASIC) would
publish guidance on what purposes would be considered proper. The
guidance material produced by ASIC would be similar to that issued
in the United Kingdom by the Institute of Chartered Secretaries and
Administrators for the UK proper purpose test.
77. A non-exhaustive list of 'improper purposes' would be set out in
the Corporations Regulations 2001 (Corporations Regulations). The
improper purposes for accessing a register that have been
identified to date are set out below.
. Specific groups in the community, such as charities, using
the register information to solicit donations from
shareholders.
. Gathering information about the personal wealth of
shareholders.
. Brokers using register information to solicit clients.
. Making off-market offers to purchase securities in a
listed company, other than for the purposes of a takeover.
78. If a company refuses to provide a copy of its register, the
applicant would have 20 days within which to apply to the court for
review of the company's decision if they believe that their
intended purpose is proper. The court would review requests for
copies of the register for which the stated purpose does not fall
squarely within the specified improper purposes. The court would
also take into account the guidance material produced by ASIC.
When the court has determined whether a copy of the register was
sought for a proper purpose, it would make an order that the
company either comply, or not comply, with that request and similar
requests. The court may also order costs in favour of the company
or the applicant.
Impact analysis
Option A: No change
Impact on corporations
79. There is no impact on corporations if the status quo remains.
Corporations will be required to provide a copy of their register
whenever one is requested.
Impact on shareholders
80. If the status quo is retained, shareholder details will continue to
be available to anyone that requests a copy of the register,
regardless of the intended use of the information.
Impact on a person seeking a copy of the register
81. There would be no impact on a person seeking a copy of the register
if the status quo is maintained.
Option B: Proper purpose test
Impact on corporations
82. Many submissions to the Access to Registers and Unsolicited Off-
market Offers to Purchase Shares Options Paper indicated that a
proper purpose test would be likely to decrease costs and
complexity for corporations dealing with requests for access. This
is because currently, although there is no option to refuse access,
companies nonetheless look for ways to limit access. A proper
purpose test would provide clear guidance on the instances in which
a company could refuse to provide a copy of its register. It is
also expected that a requirement to fulfil a proper purpose test to
obtain access to a register would result in fewer requests being
made, as people would desist from seeking access where their
purpose is considered improper.
83. There is no hard data on the number of requests that are currently
made to companies, in particular, there is no hard data on the
number of improper requests. Anecdotally, improper requests are
uncommon but when they do occur they may create significant
disruption. For example, they can result in a large number of
shareholders having to deal with unsolicited offers to purchase
their shares, and the company then has to respond to shareholder
complaints and provide information to those who may have received
the offers.
Impact on shareholders
84. Some shareholders, in particular those vulnerable and less educated
investors targeted by USOs, would benefit from no longer receiving
these offers. Consumer research conducted by ASIC indicated that
most investors who accept USOs do not realise the offer they are
accepting will result in them selling their shares for
significantly below market value, despite the required consumer
warnings. Conversely, some shareholders might be adversely
affected by the requirement to fulfill a proper purpose test to
access registers if they treat USOs as a means of easily disposing
of their shares, regardless of the fact they obtain less than
market price.
85. More generally, shareholders will benefit from the increased
protection of their personal information. Under the current laws,
there have been significant levels of complaint by shareholders
that their privacy rights are being infringed by persons accessing
their contact details for improper purposes. While it is currently
an offence to use information on a member register to direct-market
to shareholders, the way in which the current provision is framed
enables organisations seeking donations and brokers seeking clients
to by-pass this restriction. Implementing a proper purpose test
for access to registers will prevent member details from being used
in this way and ensure that shareholder privacy is protected.
Impact on a person seeking a copy of the register
86. Under the current laws, a person seeking a copy of the register
must request it in writing. The proposed change will not alter
this requirement; however, the person will need to include some
additional information relating to their reasons for seeking
access. This should only minimally increase the compliance burden
and would be unlikely to significantly impact people seeking access
to a register.
87. Six individuals have been identified as being in the business of
making USOs through various corporate entities. Generally, the
ability to make USOs is dependent on the offeror securing a copy of
a company's register which details the shareholding and contact
information for potential offerees. This option would adversely
affect these individuals. There is, however evidence that USOs are
not being made as frequently as in the past. However, it should
also be noted that these offers have never been made with great
frequency. In AXA Asia Pacific Holdings Limited v Direct Share
Purchasing Corporation Pty Ltd (AXA case) there had been two
requests for the register in a 12-month period, both by a
corporation in the business of making USOs.
88. Treasury has been advised that one major bank received 12 requests
for a copy of its register over a two-year period. Of those
requests, one was from an offeror of USOs, four were from
charities, and two were from investment (brokerage) firms. The
other requests were from shareholders and companies seeking missing
estate funds. Given the low numbers of requests for copies of
registers, the overall impact of this change will not be great.
89. There would be no impact on a shareholder seeking a copy of the
register in order to exercise their rights as a shareholder.
Consultation
90. In May 2009, the former Minister for Superannuation and Corporate
Law released the Options Paper which considered a number of ways in
which the issues presented by USOs could be addressed, including by
restricting access to company registers.
91. The option to introduce a proper purpose test received strong
support from a majority of stakeholders. The proper purpose test
that is now being proposed has changed slightly from that in the
Options Paper by specifying improper purposes.
92. It is now proposed that improper purposes be specified in the
Corporations Regulations. The four purposes that have been
identified so far as improper uses of register information are:
specific groups in the community (such as charities) soliciting
donations from shareholders; brokers soliciting clients; obtaining
information about the personal wealth of shareholders; and making
off-market offers to purchase securities (other than for a takeover
or an unlisted company). It is therefore proposed to undertake
public consultation by way of a proposals paper which would include
this revised version of the proper purpose test.
Preferred option
93. The preferred option is Option B, the introduction of a proper
purpose test.
Strategy to implement preferred option
94. The proposed changes would be implemented by amending the
Corporations Act and the Corporations Regulations. ASIC would also
have a role in providing guidance material on the proper purpose
test.
Related issues - Fees for copies of the register
Background and problem identification
95. The law currently provides that where a person requests a copy of a
member register that is kept on computer, the fee chargeable is 'up
to a reasonable amount that does not exceed the marginal cost to
the company of providing and inspection'. The concept of 'marginal
cost' is intended to allow companies to set fees with respect to
their particular operational costs of providing access to its
register and with regard to the reasonableness of the fee. This is
meant to ensure that companies do not frustrate access to their
register to an extent that access does not occur.
96. In the AXA case, the Court held that, based on the current framing
of the provision, the appropriate fee for a copy of the register is
$250. However, this fee does not cover the cost of producing a
copy of the register for the majority of companies. Additionally,
since the AXA decision was handed down in 2008 there has been an
increase in requests for copies of member registers which relate to
purposes not within the policy intent of the law.
97. The construction of the current regulation attempts to balance two
competing policy objectives of facilitating rapid and easy access
by the public to a company register in order to promote good
corporate governance and commerce, and managing the associated
compliance costs for companies.
Objectives
98. The proposed amendments would ensure certainty and transparency in
the fee that would be applicable for obtaining a copy of a
register, and would manage the compliance costs for corporations.
Options
Option A: No change
99. The existing law would be retained without amendment.
Option B: Tiered fee structure
100. A tiered fee structure would be prescribed in the Corporations
Regulations.
101. The first tier would apply to a company with up to 5,000 members
and impose a flat fee of $250. The $250 fee determined in the AXA
case is based on the assessment by Justice Finkelstein of a
reasonable fee, which took into account expert evidence from an
economist, an IT professional, and a state manager with
Computershare.
102. The second tier would apply to a company with between 5,000 and
20,000 members and impose a fee of $250 plus $0.05 for each member
in excess of 5,000. For a company with 20,000 members, a copy of
the register would cost $1,000.
103. The third tier would apply to a company with more than 20,000
members and impose a fee of $1000 plus $0.01 for each member in
excess of 20,000. A copy of the register of a company with 500,000
members would cost $5,800.
104. A cost of $0.05 per additional member recognises that there are
marginal costs associated with providing additional details. The
reduction of this marginal cost to $0.01 where a company has over
20,000 members reflects the economies of scale in producing a copy
of the register of a company that has a large number of members.
105. This option also reflects the general view that there should be
consistency in the fees applied. A number of submissions suggested
that $0.05 per member was a reasonable amount to charge, in
contrast to the takeovers fee, which was generally seen to be too
high at $0.10 per member. By adopting a tiered approach, the fee
payable recognises that the cost of producing the register should
not be an impediment to obtaining a copy of the register. The
three-tiered structure reflects that adopting a set price per name
should not operate to prevent access to copies of the register.
Impact analysis
Option A: No change
Impact on corporations
106. There is no benefit to corporations or shareholders if no change is
adopted.
Impact on those seeking copies
107. People seeking copies would continue to pay $250 for a copy of a
member register in accordance with the decision in the AXA case,
regardless of the number of members and cost of producing a copy.
Option B: Tiered fee structure
Impact on corporations
108. The proposed fee structure would better reflect the cost of
producing a copy of a register to a corporation and therefore
reduce the net cost of complying with requests.
109. The proposed fee structure would also provide certainty as to the
fee payable for a copy of a register. This would reduce
complexity and cost for companies in determining an appropriate
fee. It would also eliminate the risk of substantial disputes
arising between the parties as to the fee that should be payable -
which carries associated costs for the company and those seeking
access.
110. It is likely that the increase from $250 would reduce the incidence
of requests made for copies of registers and the consequent
frivolous communications that are made to large numbers of
shareholders.
Impact on those seeking copies
111. The cost of a obtaining a copy of a register would be increased
where the relevant company has over 5,000 members. However, the
cost would still be significantly less than prior to the AXA
decision. In that case, AXA requested that Direct Share Purchasing
pay a fee of $17,195.39 for a register with in excess of 344,000
members, which was the accepted standard at that time. Under the
tiered structure a fee of $4240 would be payable for a register of
that size.
112. The imposition of a clearly defined fee will substantially reduce
the potential for companies to obstruct access for legitimate
purposes (but which may be against the interests of the company or
its directors). It will therefore have a positive impact on the
ability of persons asserting their legitimate rights in respect of
the company.
Consultation
113. The issue of the fee payable for a copy of a register was
considered in the Options Paper. Six options were proposed,
however, the submissions did not produce a consensus on a preferred
option.
114. All respondents were in favour of changing the current regime. The
concepts of reasonable cost, market cost, and a negotiated fee were
seen not to address the criticism in the AXA case of the complexity
inherent in the use of these terms. Problems were identified with
all of these options, as set out below.
. If the status quo were maintained, the introduction of a
proper purpose test would resolve the issue of
inappropriate access, but companies would still be left
with the decision that $250 is considered the reasonable
cost.
. Removal of the 'marginal cost' element of the current test
would leave the concept of reasonableness, which generally
requires an objective evaluation of the particular
circumstance of each case.
. Removal of marginal cost may avoid the complexities
identified in the AXA case, but the use of reasonableness
alone would not provide sufficient guidance for companies
to determine what costs should be included when seeking to
recover fees.
. Allowing companies to pass on the full cost of access in
the absence of a reasonable qualifier would permit
companies to frustrate access by setting a high price for
it.
. The introduction of a market fee, whereby members and
interested parties would negotiate a price with a company,
may result in removal of regulator requirements on
companies, particularly where they are greater than the
transaction costs associated with negotiation. On the
downside, companies may be able to manipulate prices so as
to preclude optimal access to the register.
. Requiring companies to disclose to members their policy
for negotiating costs of accessing its register is likely
to impose additional compliance costs on companies and
lead to unsatisfactory outcomes for small investors, who
do not have the same bargaining power as large investors.
. Aligning the fee with the current takeover fees would be
simple to comply with and could be readily reviewed to
ensure that it reflects current market prices associated
with providing access. However, it would not represent a
reasonable option for the majority of investors. For
example, the cost of a copy of the Commonwealth Bank's
register, with a current membership of 770,000, using the
takeover prescribed fee, would be $77,000.
115. Although submissions generally favoured an option that would create
a degree of certainty in the fees payable, such as corporations
passing on the full cost of producing a copy or aligning the fee
with the takeovers fee, such options would impede legitimate uses
of registers. This is why Treasury has developed a three-tiered
fee structure which creates a balance between the decision in the
AXA case, and the costs incurred by companies in preparing member
registers.
Preferred Option
116. The preferred option is Option B, implementation of a tiered-fee
structure.
Strategy to implement the preferred option
117. The applicable fee is prescribed in Schedule 4 of the Corporations
Regulations, implementing this change would require amending the
schedule.
Related issues - Format of copies of the register
Background and problem identification
118. The Corporations Act currently provides that where an electronic
copy of the register is requested, companies must provide the data
in a readable electronic format. However, there is no requirement
to format the data for the requestor's preferred operating system.
The Options Paper noted that there would be benefits and reduced
costs for a person who requests an electronic copy of the register
if they received the data in their preferred format. This would
accord with the policy intent of access to registers.
119. The requirement to provide the data in a readable electronic format
was originally intended to reduce costs to companies that had a
different operating system from the requestor. Given the advances
in technology and the convergence of operating systems since the
current provisions were enacted, reduced compliance costs may no
longer be a significant factor to warrant retaining this condition.
The Options Paper proposed that the law be amended to require an
electronic copy to be provided in the format requested, unless both
parties agree to a different format.
Objectives
120. The proposed change would ensure that corporations are not able to
interfere with legitimate uses of member registers by providing
copies of the register in a format unsuited for further use.
Options
Option A: No change
121. The existing law would be retained without amendment.
Option B: Specify formats for copies of member registers
122. This proposal would amend the Corporations Act to include a
regulation making power that would enable a number of formats and
device mediums to be prescribed in the Corporations Regulations.
The current reference to 'floppy disk' would also be removed.
Impact Analysis
Option A: No change
Impact on corporations
123. There would be no impact on corporations by retaining the status
quo.
Impact on those seeking copies of registers
124. Under the current law, a person seeking a copy of the register can
receive the copy in whatever format the company chooses. In
practice, companies generally attempt to thwart use of the
information for purposes they disagree with (even if the purpose is
'proper') by providing the register in a format that is not readily
useable, such as Portable Document Format.
Option B: Specifying formats for copies of member registers
Impact on corporations
125. Corporations would have to comply with a request for a copy of
their register in the format specified in the Corporations
Regulations. This may increase costs where the format is
unsupported. The prescribed formats would be those currently
supported and will be developed in consultation with industry. The
net effect for corporations will be a cost saving, as they will not
be required to comply with requests in unsupported formats.
Impact on those seeking copies of registers
126. There will be a decrease in costs for persons seeking copies of the
register because the information will be provided in one of the
readily useable specified formats.
Consultation
127. The issue of what format register copies should be provided in was
considered in the Options Paper. Submissions generally appreciated
that the format of an electronic copy of the register should not be
used to frustrate access. However, generally the submissions
favoured including either a specific format in the regulations
(such as Microsoft Excel), or a reference to an industry standard.
All submissions supported the removal of references to outdated
technology and favoured the use of a more technology-neutral term,
such as portable electronic storage device, which would encompass
CD-ROM, DVD-ROM, and USB memory drives.
Preferred Option
128. The preferred option is Option B, specifying formats for copies of
member registers
Strategy to implement preferred option
129. The Corporations Act would state that copies are to be provided in
the format requested, which must be from the list of specified
formats in the Corporations Regulations.
Related issues - Access to a register maintained on a computer
Background and problem identification
130. A person wishing to view a register maintained on a computer may
demand a printout of the register, unless both parties agree to
inspection on the computer. This requirement can be expensive for
a company, even when a person only intends to inspect the register
and does not intend to retain the hard copy. Companies may not be
able to recoup the costs associated with preparing the hard copy as
they can where a person requests a copy of the register.
131. The current law fails to reflect the increasingly computerised
nature of record keeping and increasing levels of computer
literacy. The provisions also expose a company to the costs
associated with maintaining the register on computer and in hard
copy.
Objectives
132. This proposal would amend the Corporations Act so that where a
register of members is kept on a computer, a person seeking to
inspect the register does so on the computer.
Options
Option A: No change
133. The existing law would be retained without amendment.
Option B: Accessing registers maintained electronically on a computer
134. It is proposed that the Corporations Act be amended to have as the
default position for a register that is maintained electronically
that it is to be viewed on a computer. This will ensure that
companies are not subject to undue costs of providing access in
hard copy. The changes would reflect the modernisation of record
keeping and facilitate costs savings associated with improvements
to technology. In addition the possibility of copies of the
register being obtained without payment of the prescribed fees will
be avoided.
Impact Analysis
Option A: No change
Impact on corporations
135. Corporations would continue to be required to print a copy of their
member register where requested.
Impact on those accessing the register
136. If no change is adopted, there would be no impact on those
accessing the register.
Option B: Accessing registers maintained electronically on a computer
Impact on corporations
137. There would be a reduction in costs to corporations as they would
no longer be required to produce hard copies of the register where
access has been requested.
Impact on those accessing the register
138. There would be little change for those seeking access to the
register as this change does not affect access, only the manner in
which the register is viewed.
Consultation
139. All submissions that addressed this proposal supported the register
being inspected on a computer where it was maintained
electronically, provided that adequate security procedures were
implemented to protect the details of members. This is primarily
an issue where a register contains additional information to that
required under the Corporations Act. None of the submissions
indicated that there would be difficulties in addressing these
security concerns.
Preferred Option
140. The preferred option is Option B, accessing registers maintained
electronically on a computer.
Strategy to implement preferred option
141. The Corporations Act would be amended to remove the reference to a
register being printed and to instead provide that a register be
inspected in the format in which it is maintained.
Do not remove section break.
Schedule 1 - Amendments
|Bill reference |Paragraph number |
|Items 1 to 3 |2.6 |
|Item 4 |1.17 |
|Items 5 to 6 and 8 |1.8 to 1.12 |
|Item 7 |1.16 |
|Item 9 |1.13 |
|Item 10 |1.18 to 1.20 |
|Item 11 |2.12 |
|Items 12 to 14 |4.9 to 4.12 |
|Item 15 |2.14 |
|Items 16 to 17 |2.12 |
|Item 18 |1.22 and 4.13 |
|Item 19 |1.18 to 1.20 |
|Item 20 |2.11 to 2.12 |
|Item 21 |3.6 to 3.7 |
|Item 22 |2.16 |