Introductory Info

Date introduced: 25 August 2021
House: House of Representatives
Portfolio: Indigenous Australians
Commencement: The whole Act will commence the first 1 January or 1 July to occur after it receives the Royal Assent.

Purpose of the Bill

The purpose of the Corporations (Aboriginal and Torres Strait Islander) Amendment Bill 2021 (the Bill) is to amend the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (the Act) to implement ‘either in whole or in part, a large majority of the recommendations’ made by the Final Report of the CATSI Act Review (Final Report)[1] to:

• reduce the administrative burden on small CATSI corporations dealing with low-value related party transactions by making it easier to satisfy reporting and meeting obligations
• provide greater flexibility for CATSI corporations to enable the realisation of economic and community development priorities
• ensure governance requirements are fit-for-purpose by expanding the capacity of CATSI corporations to determine their own operational rules
• increase transparency of CATSI corporation operations through improved reporting and access to reports for members, common law holders and other stakeholders by:
  • requiring reporting of information about remuneration of key management personnel to the Registrar and AGMs
  • requiring corporations to lay before an AGM any reports they are required to submit to the Registrar
  • requiring corporations to lay prescribed reports in respect of a financial year before their AGM
• enhance support for CATSI corporations that are experiencing difficulties to enable these entities to return to health and, ultimately, the control of their members
• streamline the process of winding up defunct CATSI corporations
• enhance the efficacy of operations by increasing access by CATSI corporations to modern technology, including for managing their membership bases and
• provide the Registrar with expanded powers to enable a graduated, proportionate response to non-compliance.[2]

The Government notes that the Final Report ‘builds on’ two earlier reviews of the Act, namely:

• the Regulating Indigenous Corporations final report (2016 Report) produced in 2016 by KPMG and
• the Technical Review of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 conducted in 2017 by DLA Piper Australia (2017 Technical Review).[3]

Structure of the Bill

The Bill has one Schedule that is divided into 18 Parts as follows:

• Part 1—Review of operation of the Act: imposes a statutory requirement for the Act to be reviewed every 7 years to enable Parliament to determine whether the Act has achieved its objects as a special measure
• Part 2—sets out and provides for enhanced regulatory (investigation and compliance) powers and functions of the Office of the Registrar of Indigenous Corporations
• Part 3—Membership applications: deals with the process for making, receiving and processing membership applications, and also enables CATSI corporations to collect contact details for members so as to better facilitate effective communication of relevant information to members in a timely manner with contact details and electronic communication
• Part 4—Subsidiaries and joint ventures: contains amendments which introduce greater flexibility in the minimum membership requirements for CATSI corporations, and provide increased flexibility in how they structure their affairs, and promote the use of CATSI corporations as vehicles for economic and social development
• Part 5—aims to simplify the classification of Corporation (the criteria for determining the size of a CATSI corporation) so that corporations are registered as a small, medium or large corporation based on a simple consolidated revenue test only. The size of a corporation is relevant as it determines the associated reporting obligations
• Part 6—Meetings and reports: proposes changes to meeting and reporting requirements of CATSI corporations to provide for flexibility in the scheduling of their AGMs, as well as providing for enhanced transparency to members in relation to the operations of their corporations, including by access to financial reports
• Part 7—Constitutions: proposes changes to make constitutions for CATSI corporations that are fit-for-purpose, requiring that all relevant replaceable rules be referred to in the constitution of a corporation and provides a process for the Registrar to reject a constitutional change that is lodged after a special administrator has changed the constitution[4]
• Part 8—Officers of corporations, contains changes to increase the transparency of senior management arrangements, including by reporting senior management remuneration to members and to the Registrar
• Part 9—Related party transactions: contains changes to simplify related party transactions to remove red tape
• Part 10—proposes changes to enable the Registrar to exempt a corporation from the requirement that the majority of directors of a corporation must not be employees of the corporation
• Part 11—Independent Directors: makes amendments designed to promote the appointment of independent directors who bring relevant knowledge, skills and experience for the benefit and improved working of CATSI corporations
• Part 12—Modernising publication requirements: contains amendments enabling the Registrar to publish notices on platforms that are more accessible to members. It also proposes amendments to the Registrar’s power to exempt corporations and their directors from exemptible provisions in Chapter 5 of the Act for specific entities by written instrument or, as a class, by legislative instrument
• Part 13—Storage of information: contains amendments allowing corporations to store information on platforms such as cloud servers and requires corporations to provide a means by which the stored information (required to be contained in a book) is accessible at its place of inspection
• Part 14—Contains amendments designed to better align particular provisions with the Corporations Act by:
  • inserting a new definition of the term ‘dishonest’
  • applying and modifying whistleblower provisions in Part 9.4AAA of the Corporations Act in a manner that reflects the operating context for CATSI corporations
  • aligning penalties in the Act for making or authorising the making of statements that are materially false or misleading with the Corporations Act and
  • inserting a definition of qualified privilege for auditors of a CATSI corporation in a similar way to the Corporations Act
• Part 15—Finalising processes: propose changes to provide for provide certainty to corporations following an examination or compliance notice[5]
• Part 16—Dealing with unclaimed property, contains amendments which provide for the creation of a new special account for the purposes of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), to hold funds transferred from the Aboriginal and Torres Strait Islander Corporations Unclaimed Money Account (Unclaimed Money Account)
• Part 17—Contains amendments relating to external administration and deregistration of a CTATSI corporation
• Part 18—Minor technical amendments
• Part 19—Review of financial reports: contains amendments which provide for reviews of financial reports as an alternative to audits under Chapter 7 of the CATSI Act
• Part 20—Native Title Register: contains amendments to enable the Native Title Registrar to update the National Native Title Register to reflect a change to the name or address of a prescribed body corporate or an agent prescribed body corporate.

Background

Under the Act, Aboriginal and Torres Strait Island Corporations (CATSI Corporations) are subject to a specialist regulatory framework designed to make it easier for Aboriginal and Torres Strait Islander persons to form and manage corporations in a manner that takes account of the unique cultural contexts of Aboriginal and Torres Strait Islander people. As such, whilst the Act mirrors many requirements of the Corporations Act 2001 it differs in some respects with the aim of providing the flexibility and support needed to meet those unique cultural needs.

Following the commencement of the Act, CATSI Corporations now play a crucial role in delivering services and supporting economic development in Indigenous communities, particularly in remote Australia.[6] Key areas in which CATSI Corporations operate include the provision of essential services such as land holding, housing, health, education, employment and native title services.[7]

In this regard, the spectrum of CATSI Corporations includes a large number that are not-for-profit and/or delivering community services (as noted above) in addition to for-profit businesses operated for purely economic gain. The Final Report noted:

The unique provisions of the CATSI Act reflect its history and that of its predecessor, the Aboriginal Councils and Associations Act 1976 (ACA Act). Following the 1967 Referendum, it was considered Aboriginal and Torres Strait Islander people could realise community priorities through government grants to community organisations. The ACA Act was enacted as a vehicle to enable people to incorporate community controlled organisations and was seen to be a measure of self-determination. The nature of corporations registered under the CATSI Act has changed over time and there are now for-profit entities, registered charities, community controlled entities and native title bodies—all at varying degrees of maturity. Some of these entities are required to incorporate under the CATSI Act, such as RNTBCs, while the majority of corporations are voluntarily incorporated under the CATSI Act.[8]

As such, the nature of CATSI Corporations is diverse and hence whilst some have many similarities with for-profit Corporations Act companies, others are more like not-for-profit incorporated associations and businesses, or charities regulated by the Australian Charities and Not‑for‑profits Commission (ACNC). The Final Report noted that this ‘diversity in corporation types also adds to the complexity in supporting CATSI corporations.’[9]

Role of the Registrar

The Act establishes the Office of the Registrar of Indigenous Corporations (ORIC) and sets out its functions and powers. Those powers and functions include:

• advising on how to incorporate
• training directors, members and key staff in good governance
• ensuring compliance with the law and
• intervening when needed.[10]

Whilst ORIC, as a regulator of corporations, has similarities with the Australian Securities and Investments Commission (ASIC) there are differences including:

• the Registrar of ORIC (the Registrar) can intervene when necessary to solve problems within CATSI corporations, including assisting with dispute resolution and examining the books of a corporation (in this regard, it has a greater capacity to intervene by request, or on its own initiative, in the affairs of a CATSI corporation than ASIC does in relation to companies) and
• whilst possessing various enforcement powers, the Registrar does not possess all of the regulatory powers of ASIC. Notably this includes the lack of the power to impose fines by way of infringement notice or to enter into enforceable undertakings, both of which may be more appropriate than criminal prosecution or civil litigation, particularly if the breach is the first offence by a CATSI corporation.[11]

Reviews of the Act

In recent years the Act has been the subject of several reviews and reports. This Digest summarises the most recent and substantive reviews. To the extent they are relevant to the measures contained in the Bill, recommendations made by these reports are examined in the Key issues and provisions section of the digest below.

The 2016 Report

In September 2016 the Department of the Prime Minister and Cabinet (PM&C) commissioned KPMG to conduct a review of the Registrar and the Act (the 2016 Report), with the object of strengthening the Registrar’s ability to support the Indigenous corporate sector, and considering whether any amendments to the Act were necessary to improve the Registrar’s ability or performance or ensure harmony with other corporate law.[12] Some of the recommendations about the Act from KPMG’s report appear to have formed the basis of the subsequent ‘technical review’ of the Act.[13]

The 2017 Technical Review

On 5 July 2017 the Minister for Indigenous Affairs Nigel Scullion and the Registrar of Indigenous Corporations Anthony Bevan announced a ‘technical review’ of the Act. The purpose of the review was to consider whether any strengthening or improvement of the Act was necessary, and align it with ongoing changes in corporate law and regulation.[14] The Registrar also produced a discussion paper to inform stakeholders and the review of prospective areas of reform and invite submissions.[15]

The review was contracted to the law firm DLA Piper and concluded on 31 October 2017 (the 2017 Technical Review). After the review had taken place, the Registrar released a summary of proposed changes to the Act stemming from the review, and conducted further consultations with stakeholders on these proposed changes.[16] The government has provided a tabulation of responses to the DLA Piper recommendations in its submission to the Senate Finance and Public Administration Legislation Committee inquiry into the Corporations (Aboriginal and Torres Strait Islander) Amendment (Strengthening Governance and Transparency) Bill 2018.[17]

Comprehensive Review of the CATSI Act 2019-20

In December 2019 the Minister for Indigenous Australians, the Hon Ken Wyatt, announced a comprehensive review into the Act (the Final Report).[18] The National Indigenous Australians Agency (NIAA) led the review. The review ‘built on’ the findings of the 2017 Technical Review and the 2016 Report.[19] However, the 2019 review had an expanded scope to include a wider range of issues:

• whether the CATSI Act is meeting its objects and continues to be desirable as a special measure for the advancement and protection of Indigenous people as set out in the Act’s preamble
• whether the functions and powers of the Registrar of Indigenous Corporations are appropriate, effective and adequate and
• possible amendments to the CATSI Act to better support the regulation of CATSI corporations.[20]

Two phases of consultations were conducted.

Feedback from the second phase of consultations informed the drafting of the Final Report.[21] The Final Report included 72 recommendations outlining changes to the Act and identifying additional support that could be provided to corporations incorporated under the Act. The review also considered aspects of the CATSI Act that are working effectively, and areas that could be improved. [22] The Government notes:

The Bill implements, either in whole or in part, a large majority of the recommendations made by the Final Report of the CATSI Act Review released by the Australian Government in February 2021.[23]

Committee consideration

Senate Finance and Public Administration Legislation Committee

The Bill was referred to the Senate Finance and Public Administration Legislation Committee (the Committee) for inquiry and report by 14 October 2021. Details of the inquiry are at the inquiry homepage.

The Committee inquiry received 13 submissions into the Bill. Of those, four were from Government departments, tribunals or agencies (government-connected submissions).[24] Nine submissions were from various indigenous groups, entities, corporations and non-indigenous industry groups (non-government connected submissions).

After considering the submissions and evidence presented to it, the Committee stated:

Overall, the committee is of the view that the measures proposed in the bill represent a positive step for Indigenous Australians, and will support the ability to form and manage Indigenous corporations in a way that benefits First Australians and takes account of their unique cultural circumstances.[25]

The Committee recommended that the Bill be passed.[26]

The ALP Senators, whilst noting their support for the objectives of the Bill,[27] recommended in their additional comments that:

• the Government should improve the Bill by adding an amendment to the objects of the Act to better reflect the intention to build capacity, promote modern governance and accommodate Aboriginal and Torres Strait Islander tradition and circumstance, consistent with Recommendation 1 of the Final Report of the CATSI Act Review and
• the Government should amend the Bill to include a non-exhaustive list of considerations guiding the Registrar’s discretion to issue or withdraw infringement notices. At a minimum, these considerations should include the gravity of the contravention, the likely impact of issuing a notice on an individual or corporation’s financial security, a corporation’s ability to continue to carry out its functions and whether the other interventions are more likely to promote compliance with the Act.[28]

The Australian Greens Senators, whilst noting their ‘support of the recommendation outlined in the committee report’,[29] made nine recommendations in their additional comments, including:

• small corporations under the CATSI Act continue to be required to hold AGMs
• for increased transparency and accountability, medium and large corporations under the Act, be required, with sufficient notice before an upcoming Annual General Meeting or Special General Meeting, to provide members with hard copies of:
  • the Incorporation Certificate
  • the Rule Book [constitution of the CATSI corporation]
  • Notices and Agenda for the meeting
  • Annual Audits
  • Other statutory documents
  • Native Title Act 1993 (Cth) Native Title Documents such as a Native Title Determination or an Indigenous Land Use Agreement and
• penalties in the CATSI Act, where higher than for similar offences under the Corporations Act, be aligned with the penalties under the Corporations Act.[30]

Senate Standing Committee for the Scrutiny of Bills

At the time of writing the Senate Standing Committee for the Scrutiny of Bills had conducted its initial analysis of the Bill.[31] It had sought further information regarding:

• the imposition of a reversed evidential burden for certain offences and the imposition of offence-specific defences
• the imposition of strict liability offences that attract criminal penalties
• the abrogation of the common law privilege against self-incrimination in some circumstances and the failure to provide any use or derivative use immunity and
• standing appropriations that enable entities to spend money from the Consolidated Revenue Fund on an ongoing basis without regular parliamentary approval and therefore parliamentary control.[32]

At the time of writing the Minister’s responses to the Senate Standing Committee for the Scrutiny of Bills were not publicly available and its views on the issues above were not finalised.

Policy position of non-government parties/independents

As noted above, the Opposition has indicated its support for the objectives of the Bill, whilst recommending two potential changes.[33]

At the time of writing the positions of other non-government parties and independents regarding the specific measures contained in the Bill could not be determined.

Position of major interest groups

Views on the Bill as a whole and in relation to specific measures contained in the Bill varied substantially between major interest groups. These views are examined in the Key issues and provisions section of the Digest below. However, concerns were raised in a number of submissions to the Senate Finance and Public Administration Legislation Committee inquiry into the Bill regarding:

• whether the Act is or is not properly characterised as a permissible ‘special measure’ under international human rights conventions and/or the Racial Discrimination Act 1975 (not explored in this Digest)[34] and
• the adequacy of not only the exposure draft consultation process, but previous consultation processes including those related to the Final Report.[35]

The Final Report indicates that many of its recommendations that the Bill seeks to implement had support from most (or many) organisations that engaged in that consultation process.

Financial implications

According to the Explanatory Memorandum states the Bill will have no financial impact on the Commonwealth.[36]

Special appropriations

Part 16 of the Bill will create a new special account for the purposes of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), to be known as the Aboriginal and Torres Strait Islander Corporations Assets Protection Account (Assets Protection Account). This new special account will hold funds transferred from the Aboriginal and Torres Strait Islander Corporations Unclaimed Money Account (Unclaimed Money Account) after a period of 6 years and these funds will be used to meet the costs associated with managing property vested with the Registrar.

Item 279 establishes a new special account to hold funds held in the Unclaimed Money Account for a period of 6 years that would have otherwise be paid to the Consolidated Revenue Fund formed under section 81 of the Constitution.

As such, as noted by the Senate Standing Committee for the Scrutiny of Bills, the Bill creates standing appropriations that enables the Registrar to spend money from the Consolidated Revenue Fund on an ongoing basis without regular parliamentary approval and therefore parliamentary control.[37]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.[38]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights made no comment on the Bill on the basis that it does not engage, or only marginally engages, human rights; promotes human rights; and/or permissibly limits human rights.[39]

Key issue: powers of the Registrar

Part 2 of the Bill makes several changes to the Registrar’s powers, including a power to accept enforceable undertakings and issue infringement notices in connection with contraventions of the Act.

The Bill will alter existing powers of the Registrar including:

• provision of a process to reject changes to the constitution of a CATSI Corporation made by a special administrator in particular circumstances[40]
• placing a CATSI Corporation into special administration.[41]

The Bill will also remove certain powers of the Registrar including:

• to provide comments to members of a CATSI Corporation on related party transactions[42]
• those related to providing exemptions to the prohibitions on certain third-party transactions.[43]

These are examined below.

Power to issue infringement notices

A general description of infringement notices is:

a notice of a pecuniary penalty imposed on a person by statute setting out particulars of an alleged contravention of a law … Infringement notices are administrative methods for dealing with certain breaches of the law and are typically used for low-level offences and where a high volume of uncontested contraventions is likely.[44]

That is, infringement notices are used for low-level contraventions of civil penalty provisions. They provide a regulator with an alternative to civil (that is, court) litigation as an enforcement mechanism. Importantly, issuing an infringement notice to a regulated entity (in this instance, a CATSI Corporation) means:

• the regulated entity can pay an amount of money specified in the notice, as an alternative to having court proceedings brought against it for an alleged contravention (which can save the entity time and money) and
• allows the regulator to commence enforcement action in court if the regulated entity does not pay the amount specified in the notice and
• importantly, allows the regulated entity to elect to contest the notice in court if it desires.

As such, infringement notices are a long-standing regulatory mechanism that are designed to increase the range of tools and responses available to a regulator to allow for a more flexible approach to regulation whilst also ensuring that regulated entities and persons retain their rights to contest alleged breaches in court (should they choose to).

Current situation under the Act

Currently, Part 8 of the Act deals with the civil consequences of contravening civil penalty provisions in the Act (essentially conferring powers upon the court to impose civil penalties). Other enforcement powers are scattered throughout the Act. Currently the Act applies the Regulatory Powers (Standard Provisions) Act 2014 infringement notices framework in relation to Part 6-7A, which deals with director identification numbers.[45]

The Act currently allows for the Regulations to prescribe offences to which penalty notices (essentially infringement notices by another name) can be issued, and the penalties that would apply. No offences or associated penalties have been prescribed.[46]

Previous report recommendations in relation to infringement notices

The 2016 Report noted the Registrar expressed a view that ‘penalty notices are not an effective enforcement tool, but are generally used by other regulators as ‘revenue raising’ tools’.[47] The Final Report appears to have reached a different conclusion regarding the effectiveness of infringement notices as an enforcement tool, noting:

Despite having essentially the same role, the Registrar does not possess all of the regulatory powers of ASIC. For example, currently the only action open to the Registrar where a corporation has failed to lodge reports is to consider commencing a criminal prosecution and refer a matter to the Commonwealth Director of Public Prosecutions (CDPP) for this purpose. Depending on the facts of the case, this may be a heavy-handed response to what might be a minor regulatory breach. Unlike ASIC, the Registrar does not have the power to impose fines by way of infringement notice, which may be more appropriate, particularly if the breach is the first offence by a corporation.

In 2017—after 10 years of administering the CATSI Act—it was very clear that there was a gap in the regulatory tools at the disposal of ORIC and the Registrar resulting in a sometimes disproportionate response to non-compliance. Feedback from CATSI corporations and members also indicated a frustration with Registrar’s inability to respond to certain situations. The Technical Review was asked to consider this and reported that some stakeholders expressed the view that the Registrar and ORIC require additional powers which are less severe in scope or consequence to supplement existing powers. In other words, there was a widespread view that a broader range of powers (and resulting regulatory and support options) is needed.[48] [emphasis added]

This led the Final Report to note:

We proposed to expand the powers of the Registrar to include a suite of lower level discretionary powers, modelled on those of ASIC, including the power to issue penalty notices which in essence impose fines. This would enable the Registrar to respond in a proportionate manner, reflecting the nature of the breach. Of the 17 responses to the survey on this Chapter, 88 per cent agreed with providing the Registrar with a broader suite of lower level powers modelled on those of ASIC, including the power to issue penalty notices. The two responses that did not agree with this proposal offered no reasons for their objection.[49]

The Final Report recommended that the Registrar be given the power to issue penalty notices.[50] The Bill implements that recommendation.

Power of the Registrar to issue infringement notice under new infringement notice scheme

The Bill will expand the existing ability for regulations to create an infringement notice regime. This is by virtue of proposed Division 571 (Part 13-3) which establishes an infringement notice scheme based on offences to be prescribed in the Corporations (Aboriginal and Torres Strait Islander) Regulations 2017 (CATSI Regulations). Thus, the Regulations will specify the offences in respect of which the Registrar can issue an infringement notice. The Explanatory Memorandum notes that the proposed provisions in this part are based on similar provisions in the Corporations Act, which provide for more regulatory flexibility.[51]

Under the regime, the Registrar will be able to issue an infringement notice to a person who they believes on reasonable grounds has committed an offence prescribed in the Regulations.[52] Importantly, an infringement notice must be issued within 12 months after the day on which the offence was alleged to have been committed.[53] The Corporations Act contains a similar limitation.[54] The Explanatory Memorandum notes that applying that limitation:

is aimed at ensuring that the Registrar takes timely action to address alleged contraventions of the law.[55]

Proposed section 571-10 sets out the matters that must be included in an infringement notice including the details of the alleged offence, the amount that is payable under the notice, stating payment is not an admission of guilt and that the person may make written representations to the Registrar seeking the withdrawal of the notice. One notable change is that the Registrar will have the power to extend the payment period for an infringement notice and enter into an arrangement to allow a person to pay the amount by instalments.[56]

Stakeholder views

None of the non-government connected submissions to the Senate Finance and Public Administration Legislation Committee inquiry into the Bill directly addressed the changes to the power of the Registrar to issue infringement notices. The Final Report noted:

We proposed to expand the powers of the Registrar to include a suite of lower level discretionary powers, modelled on those of ASIC, including the power to issue penalty notices which in essence impose fines. This would enable the Registrar to respond in a proportionate manner, reflecting the nature of the breach. Of the 17 responses to the survey on this Chapter, 88 per cent agreed with providing the Registrar with a broader suite of lower level powers modelled on those of ASIC, including the power to issue penalty notices. The two responses that did not agree with this proposal offered no reasons for their objection.

In total, 22 submissions made comments in regard to this Chapter, and responses were quite varied. Twelve submissions supported or expressed qualified support for the proposal for the Registrar to have the power to issue fines, four did not support, and a further six made no comment or wanted further information before indicating a position.[57]

The Final Report concluded that ‘on balance, there is support for providing the Registrar with lower-level powers including the power to issue penalty notices’.[58]

Power to accept enforceable undertakings

An enforceable undertaking is a legal agreement where the person undertakes to a regulator to either perform, or refrain from, a particular action in exchange for avoiding, or minimising, the disciplinary action required to be taken against them by the regulator for the alleged breach.[59] They are considered an efficient and effective alternative to criminal offences[60] or civil prosecution.[61]

The use of enforceable undertakings was pioneered by ASIC and the Australian Competition and Consumer Commission (ACCC) in the early 1990s—that is, by corporate regulators.[62] The Australian Law Reform Commission in 2003 noted:

The flexibility of undertakings has enabled ASIC and the ACCC to secure timely and cost-effective outcomes that would not be achievable by court order, offering, it is said, tangible benefits for affected parties, and the prospect of lasting improvement in market conduct by the entity involved …. Undertakings are also popular with the regulated community. It was observed in one consultation that enforceable undertakings for corporations are ‘a nice way’ of warning and giving the regulated entity ‘another chance’. It was also stated that enforceable undertakings encourage greater candour and promote compliance.[63]

Current position under the Act

Currently the Act does not provide the Registrar with the power to enter into enforceable undertakings, unlike ASIC or the ACCC. The Final Report noted:

We proposed the Registrar’s powers be expanded to accept enforceable undertakings as well as to identify situations where the corporation is failing to fulfil the undertaking it has made. This was one of the more uncontroversial proposals, encountering little resistance either in the consultation sessions, the survey or submissions. Participants in consultation sessions questioned what types of breaches might be addressed through an enforceable undertaking and what an undertaking might look like. Enforceable undertakings can be used as a remedy for a broad range of non-compliance.[64]

Previous report recommendations in relation to enforceable undertaking

The Final Report noted:

At the moment, the CATSI Act effectively offers an ‘all or nothing’ regulatory approach with criminal prosecution being one of the only remedies available to the Registrar in many instances. Effective regulatory models provide for a graduated, proportionate approach to dealing with non-compliance. There was support for such an approach under the CATSI Act and for the Registrar to be able to access a suite of powers enabling him or her to take appropriate action to address the specific nature of any non-compliance … Depending on the facts of the case, this [criminal prosecution] may be a heavy-handed response to what might be a minor regulatory breach … An enforceable undertaking can also avoid the Registrar having to take prosecution action for relatively minor breaches of the Act. Both the Australian Competition and Consumer Commission (ACCC) and ASIC use enforceable undertakings. However, the Registrar does not currently have the power to accept enforceable undertakings from corporations.[65] [emphasis added]

The Final Report recommended that the Registrar be given the power to enter into enforceable undertaking.[66] The Bill implements that recommendation.

The Bill provides the Registrar with the power to accept enforceable undertakings

The Bill will introduce a new power for the Registrar to enter into enforceable undertakings in lieu of court-based enforcement action.[67] The Explanatory Memorandum notes that they are based on the ASIC Act and will give the Registrar ‘similar powers to ASIC’.[68] The Explanatory Memorandum further notes:

… the Registrar could accept enforceable undertakings where there has been repeated non-compliance with the Act and the terms of the undertaking would be directed at the type of non-compliance involved. For example, if a CATSI corporation has not held general meetings when requested to do so by the prescribed number of members, despite being required to do so under the Act, the Registrar might consider accepting an enforceable undertaking whereby the corporation might undertake to hold a general meeting within a specified period, or have directors undergo governance training. In certain circumstances, an undertaking might be given that involves public acknowledgement of the non-compliance such as publishing an apology or providing compensation for those members who were inconvenienced or disadvantaged.[69]

Importantly, entering an enforceable undertaking is voluntary. That is, the person or entity that gives them to the Registrar will have voluntarily elected to do so. Proposed subsection 439-25(2) reinforces this by providing that the person who has given the undertaking can withdraw or vary the terms of that undertaking at any time, so long as the Registrar consents. As noted by the Explanatory Memorandum this ‘ensures that no person who has given an undertaking is bound by terms that they do not agree to’.[70]

Consequences for non-compliance with an enforceable undertaking

Where a person or entity fails to comply with an enforceable undertaking, the Registrar can commence criminal or civil action against a person for breaches of the Act.

Importantly however, the Bill provides the Registrar with an alternative. Proposed subsection 439-25(3) allows the Registrar to apply to the Court if they consider that the person who has given the undertaking has breached any of its terms. In turn, proposed subsection 439-25(4) allows the Court to make a range of orders including:

• directing the person to comply with the term of the undertaking that has been breached
• directing the person to pay the Commonwealth an amount reasonably attributable to the breach, up to the amount of any financial benefit the person gained by committing the breach
• directing the person to compensate any other person who has suffered loss or damage as a result of the breach or
• any other order that the Court considers appropriate.

The Explanatory Memorandum notes:

This power provides the Registrar with an effective and more cost-efficient alternative to having to initiate criminal or civil action against a person for breaches of the Act. The power may be utilised by the Registrar for lower-level matters for which criminal or civil prosecution may be a disproportionate response in terms of cost and regulatory overstep.[71]

Stakeholder views

None of the non-government connected submissions to the Senate Finance and Public Administration Legislation Committee inquiry into the Bill directly addressed the power of the Registrar to accept enforceable undertakings. The Final Report noted:

Of the 17 survey responses, 88 per cent agreed that the Registrar should be able to accept enforceable undertakings. One of the two survey respondents who disagreed indicated a more general disaffection with the role of the Registrar as a whole.

Thirteen of the 22 submissions that addressed this Chapter made a comment on enforceable undertakings including 12 that expressed support for the proposal, and one indicated the proposal appeared reasonable but required further detail.[72]

Power to reject changes to CATSI Corporation constitutions

As with other incorporated entities (including companies regulated by the Corporations Act), a CATSI Corporation’s internal management may be governed by legislation (in this case the Act) that apply ‘replaceable rules’ to the entity, by a constitution, or a combination of both.[73] As noted in the Final Report:

Constitutions outline a corporation’s purpose, guide operations, and clarify the relationship between members and directors.[74]

Typically, a company constitution sets out the rules governing matters such as the rights of shareholders, the conducts of shareholders’ and directors’ meetings, powers of directors, their appointment and remuneration. They may also deal with the purposes and objects of the company, which can operate to restrict the business activities in which the company may engage in.[75] A company constitution can also deal with a range of other lawful matters. However, a company constitution will be invalid if it is contrary to public policy, if it purports to limit the statutory rights or liabilities of its members, or if it is expressly or impliedly rendered void by legislation.[76]

Current position under the Act

Currently the Act allows the constitution of a CATSI Corporation to be changed in a number of ways including by:

• the corporation passing a special resolution effecting the change, complying with any applicable requirements in its constitution and lodging certain documents with the Registrar
• by court order
• by the Registrar and
• by a special administrator.[77]

The Corporations Act contains no similar provisions allowing ASIC or an administrator to alter the constitution of a company.[78] Whilst ASIC does not have the power to alter a company’s constitution, it is not uncommon for regulators overseeing other types of incorporated entities (many of which operate businesses) to have similar powers (for example, refusing to register changes to the rules of an entity in certain circumstances). For example, in Queensland the Associations Incorporation Act 1981 (QLD) provides for the Chief Executive to:

• refuse an application for incorporation if they are satisfied that the proposed rules of the association do not comply with that Act[79] and
• refuse to register a rule change (noting no limitations are placed on this power other than to provide reasons for the refusal).[80]

Equivalent ACT legislation contains a similar power.[81] The General Manager of the Fair Work Commission can likewise refuse rule alterations and make rule alterations for entities regulated by the Fair Work (Registered Organisations) Act 2009 (FWRO Act) where the rules of the organisation (comparable to a company constitution) ‘do not, in the General Manager’s opinion, make provision required by this Act’.[82] The ACNC, whilst not having the power to alter an entities constitution or rules, has the power to deregister or refuse registration of entities where they do not comply with the Act or relevant governance standards,[83] which potentially includes where the entities constitution is the cause of such non‑compliance.

Current powers of the Registrar with respect to CATSI Corporation constitutions

The Act currently provides that various constitutional changes are subject to review by the Registrar, and the Registrar can change a CATSI Corporation’s constitution in certain circumstances.[84] Currently the Registrar:

• must not register a constitutional change made by a CATSI Corporation via special resolution or by a special administrator unless the Registrar is satisfied that, with the constitutional change, the internal governance rules of the corporation would comply with the internal governance rule requirements set out in the Act[85] or
• must not register a constitutional change where it is lodged after the Registrar has changed the constitution unless the Registrar is satisfied that:
  • the lodged change is consistent with the change made by the Registrar, taking into account the Registrar’s reasons for making that change and
  • the reasons for the Registrar making that change are no longer applicable[86]
• may, on his or her own initiative, change a CATSI Corporation’s constitution where they are satisfied that the corporation is not meeting the internal governance rules requirements.[87]
• may, on his or her own initiative, change a CATSI Corporation’s constitution where they are satisfied that the conduct of the corporation’s affairs, or an actual or proposed act or omission by or on behalf of the corporation, or a resolution, or a proposed resolution, of members or a class of members of the corporation, is either:
  • contrary to the interests of the members as a whole or
  • oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.[88]

Where the Registrar, on their own initiative, exercises the power to change the constitution of a CATSI Corporation, the Act currently provides that the Registrar may only make changes that they consider appropriate, having regard to the internal governance rules requirements and the circumstances of the particular corporation.[89]

Previous report recommendations in relation to amending CATSI Corporation constitutions

The 2016 Report recommended that the Registrar retain its existing powers to amend CATSI Corporation constitutions and provide an additional power to amend or refuse to register an amendment to a CATSI Corporation constitution if its terms are inconsistent with a native title determination.[90] The 2017 Technical Review recommended:

the Registrar be granted the power to refuse to register a rule book if, in the Registrar's opinion, it is deemed "not fit for purpose" for the CATSI corporation. Where such a determination occurs the members must either confirm adoption of the rule book in its current state or provide a re-drafted rule book, which the Registrar must approve (subject to the other requirements for registration being satisfied).[91]

The Final Report recommended that ‘an explicit provision be included in the CATSI Act to allow the Registrar to reject changes to a rule book [constitution] that are inconsistent with ones made by a special administrator’.[92] The Bill is consistent with that recommendation.

New powers of the Registrar regarding CATSI Corporations constitutions

The Explanatory Memorandum notes:

Special administrators often make changes to a corporation’s constitution with the purpose of addressing aspects of the corporation’s operations that are leading to governance or financial difficulties.[93]

The Bill will prevent CATSI corporations from seeking to reverse changes made by a special administrator except where the corporation’s circumstances (that led to the constitution being changed) have sufficiently changed.[94] Table 1 below compares the current powers of the Registrar and those proposed by the Bill.

Table 1: power of Registrar to refuse certain changes to a CATSI Corporation’s constitution

Current powers and requirements

Proposed powers and requirements

A constitutional change can be made by a special administrator or by the CATSI Corporation via a special resolution[95] The Registrar must decide whether to register such a constitutional change[96] The Registrar must not register such a change unless the Registrar is satisfied that, with the constitutional change, the internal governance rules of the corporation would comply with the internal governance rule requirements.[97]

Unchanged except that in addition to being satisfied that the change complies with relevant internal governance requirements, the Registrar must not register a constitutional change lodged after a special administrator has changed the constitution under section 499-5 unless the Registrar is satisfied that: the lodged change is consistent with the change made by the special administrator, having regard to the purposes of making that change; or the circumstances of the corporation have changed sufficiently that the lodged change does not need to be consistent with the change made by the special administrator.[98]

Source: as per footnotes in table above.

View of stakeholders

None of the non-government connected submissions to the Senate Finance and Public Administration Legislation Committee inquiry into the Bill directly addressed the power of the Registrar to power refuse to register an amendment to a CATSI Corporation constitution if its terms are inconsistent with a change made by a special administrator.

The Final Report noted that in relation to Registrar having the power to reject inconsistent changes only for a specified period of time (for example, three years after the conclusion of a special administration):

Of the 19 survey respondents, 79 per cent agreed with this proposal. Two of the reasons provided by those who did not agree included the view that the special administrator does not always make the right changes and changes to the rule book should be the responsibility of the board.[99]

Power to appoint a special administrator

The Act provides that CATSI Corporations can be placed into external administration in the same ways that companies can under the Corporations Act, as well as providing for a unique form of external administration termed special administration.

External administration under the Corporations Act

Under the Corporations Act the three main forms of external administration are voluntary administration,[100] liquidation[101] and receivership.[102] All of those can apply to CATSI Corporations.[103] External administration involves an independent person with accounting and management expertise being appointed to take control of the company, usually to the exclusion of the directors. Whilst not explored in detail in this Digest, in summary:

• Administration is designed to resolve a company’s future direction quickly and to administer the affairs of the company in a way that results in a better return to creditors than they would have received if the company had been placed straight into liquidation[104]
• Liquidation is designed to ensure the orderly winding up of a company’s affairs, including the realisation of assets to satisfy creditors (to the extent possible), investigating the affairs of the company and reporting to creditors about the company’s affairs, including any unfair preferences which may be recoverable, any uncommercial transactions which may be set aside, and any possible claims against the company’s officers[105] and
• Receivership (which can either be general or particular) is designed to protect contractual rights of lenders to companies, but also (in some circumstances) the rights of minority shareholders and other persons who may be impacted by improper or fraudulent activity by a company or its officers.[106]

Under the Corporations Act all three main forms of external administration involve either the directors, creditors, a general meeting, or a court (depending on the form of external administration) appointing a person to over control of the company as a whole, or in relation to particular property owned by it (in the case of some forms of receivership). Importantly, ASIC does not have the power under the Corporations Act to directly place a company into a form of external administration.[107]

In contrast, the ACNC can appoint an acting ‘responsible entity’ to control certain forms of regulated entities where the ACNC has suspended the directors of a company or the trustees of a trust.[108] Further, unlike the situation under the Act, the ACNC Commissioner can give directions to an acting responsible entity.[109]

In relation to co-operatives, recent national law reform has seen model co-operative laws introduced. Under those laws the relevant Registrar can appoint an administrator to take control of a co-operative where (among other things):

• the Registrar is of the opinion that the co-operative is insolvent or likely to become insolvent at some future time
• the co-operative has wilfully and after notice from the Registrar violated the provisions of this law or the rules of the co-operative or
• after an inquiry under this law into the affairs of a co-operative or the working and financial condition of a co-operative, it is in the interests of members or creditors of the co-operative or the public that the action (appointing an administrator) concerned should be taken.[110]

Special administration under the Act

Part 11-2 of the Act currently allows the Registrar to place a CATSI Corporation into special administration in a wide range of circumstances including where:

• the corporation has traded at a loss for at least 6 months during the period of 12 months before the determination is made
• the corporation or the officers of the corporation have failed to comply with, or to ensure that the corporation complies with, the Act, an internal governance rule of the corporation, certain notices given by the Registrar to the directors where there is a failure to give the Registrar a satisfactory explanation for the relevant failure(s) (includes various reporting obligations) or
• a majority of the directors request the Registrar to do so.[111]

Under the Act, before placing a CATSI Corporation into special administration the Registrar must:

• provide a written notice to the corporation to show cause within the period specified as to why a special administrator should not be appointed and
• consider the response to the show cause notice.[112]

This applies even where the directors of a CATSI Corporation have asked the Registrar to appoint a special administrator.[113]

The 2016 Report noted that the power to appoint a special administrator to a CATSI Corporation was one of ‘the more significant and unusual powers of the Registrar’, but one aimed at addressing ‘the unique role and circumstances of Indigenous corporations.’[114]

In general terms the Act currently allows a special administrator to be appointed by the Registrar to take control of a CATSI Corporation in a broad range of situations, many (but not all) of which are often co-symptomatic of serious irregularity in the financial affairs of a corporation. These include failures to comply with reporting requirements, financial losses and the directors of a company acting in their own interests.

The 2016 Report noted that usually ‘special administrators are appointed as a result of an examination, and occasionally directors or members of a corporation also request a special administration’.[115] The 2016 Report also noted that once an administrator has been appointed, special administrations generally go through three key stages:

• resolving the critical issues that resulted in the special administrator being appointed
• consolidating and ensure proper procedures and processes are in place
• preparations to hand back the corporation.[116]

As mentioned above, no comparable power is provided to ASIC by the Corporations Act but the ACNC and state-based cooperative regulators have similar powers to those provided by the Act to the Registrar.

Previous report recommendations in relation to amending CATSI corporation constitutions

The 2016 Report recommended that the Act be amended so that:

… for the purpose of establishing that there are grounds under which to place a corporation into special administration, a corporation should be presumed to have been operating at a loss where financial records have not been kept. This would be somewhat similar to the provisions relating to those available to liquidators under section 588E of the Corporations Act. The review supports progressing this potential change.[117]

The 2016 Report also recommended allowing CATSI Corporations to be placed into special administration without following the show cause process where all the relevant directors make a request.[118] The 2017 Report recommended the Act be amended to provide:

• an additional ground for placing a CATSI Corporation into special administration be that an authorised officer appointed to conduct an examination has reported that the corporation is insolvent
• for CATSI Corporations to be placed into special administration without following the show cause process where all the relevant directors make a request and
• additional grounds for placing a CATSI Corporation into special administration be added:
  • the corporation has no directors.
  • where in the opinion of the Registrar there is doubt as to whether the board of directors is validly constituted and that doubt, when it first came to the attention of the Registrar is not resolved either within 21 days of the date, or such longer period as the Registrar may, in writing to the corporation allow and
  • where all the directors of the corporation request in writing
  • breaches of native title legislation and
  • substantial or repeated breaches of the prohibition on related party transactions.[119]

The Final Report recommended:

• the ‘show cause’ notice procedure not be required under the Act when a majority of directors have requested that a special administrator be appointed and
• the current ground for appointing a special administrator that the CATSI Corporation has traded at a loss for at least six of the last 12 months be changed to identification of an irregularity in the management of a corporation’s financial affairs.[120]

The changes proposed by the Bill in relation to special administration is consistent with the Final Report recommendations set out above.

Changes to power to place CATSI Corporations into special administration

The Bill will change only one of the grounds that allow CATSI Corporations to be placed into special administration.[121] It will also change how requests from a majority of directors to place a CATSI Corporation into special administration are dealt with by the Registrar.[122]

As noted above, currently the Registrar can place a CATSI Corporation into special administration where the corporation has traded at a loss for at least 6 months during the period of 12 months before the determination is made.[123] The Bill would replace that ground with ‘where there is a serious irregularity in the financial affairs of the corporation’, which narrows the range of circumstances under which the Registrar could place a CATSI Corporation under special administration. It would also reduce pressure on the Registrar to make inquiries into CATSI Corporations that have made such losses in order to evaluate if the power should be exercised. In that regard, the Explanatory Memorandum states:

This will enable the Registrar to better identify CATSI corporations requiring assistance and make it easier for the Registrar to appoint a special administrator to assist a CATSI corporation.[124]

The Bill replaces that ground with where there is ‘a serious irregularity in the financial affairs of the corporation’. As the word ‘serious’ is not qualified or defined in the Bill or the Act it is likely to be interpreted as having its ordinary meaning and would therefore appear unlikely to capture repeated low-level financial irregularities.

From the drafting, the new power is directed at financial irregularities rather than trading outcomes. This means that what is captured and can trigger the appointment of a special administrator are intentional misstatements or omissions of information relating to financial transactions, matters or reports that are detrimental to the interests of the CATSI Corporation. It therefore covers fraud, the falsification of records to misappropriate assets of the company, falsification of financial reports and so forth. These will often be detected through audits, whistle-blowers, examinations conducted by authorised persons and other means. As such, the Bill will result in the Registrar will have an increased focus on governance and compliance with reporting obligations, rather than trading outcomes per se.

The second change made by the Bill is to provide that the Registrar does not have to give a ‘show cause notice’ where a majority of the corporation’s directors requested, in writing, that the Registrar appoint a special administrator. It appears that this measure is aimed at reducing ‘red tape’ and improving the timeliness and efficiency of the use of the power to place the company into special administration when requested by the directors to do so.

Views of key stakeholders

The First Nations Bailai, Gurang, Gooreng Gooreng, Taribelang Bunda People Aboriginal Corporation RNTBC opposed the measure on a number grounds including:

• there are ‘fundamental issues with the special administration regime that cannot be justified under the special measure tests’
• ‘there is nothing within these provisions that could not be addressed, and in a manner more consistent with the rights of self-determination, under a new Special Regulatory Assistance Scheme’
• ‘it fails to act as a learning experience for the corporation, its management and its board thus First Nations Corporations can end up back in special administration for a second or third time’
• ‘it acts as a deterrent for First Nations Corporations to seek assistance early when they are facing difficulties as by bringing their issues to the attention of ORIC, the Registrar can step in and appoint a special administrator resulting in them losing control of their corporations. This can potentially have the adverse effect that by the time a corporation is put into special administration it is in a far worse position than it would otherwise be had it sought assistance when it first began facing difficulties’ and
• ‘it is a negative discriminatory measure as no other corporations in Australia can be taken over by a regulator in this manner without the consent of the Board or members’.[125]

None of the other non-government connected submissions to the Senate Finance and Public Administration Legislation Committee inquiry into the Bill addressed the power of the Registrar to place a CATSI Corporation under special administration. The Final Report noted that in response to the suggestion of changing one of the grounds for the appointment of a special administrator from where a CATSI Corporation has traded at a loss for at least six of the last 12 months to an irregularity in the management of a corporation’s financial affairs:

There was general support for these changes from participants in the consultation sessions and one question around how financial irregularity would be defined. It is proposed the existing definitions for examinable affairs and operations would be used for this purpose. Of the 12 survey responses, 100 per cent agreed with the proposal. However, more than half of the submissions that commented on this proposal raised concerns about the suggested ground lowering the threshold for the appointment of a special administrator. While they saw merit in changing the current ground, they contended that ‘irregularity in the management of financial affairs’ was too broad, too vague, and needed further refinement.[126] [emphasis added]

Key issue: changes to CATSI Corporations

The Bill makes changes to how CATSI Corporations are classified as small, medium or large and also makes changes relating to joint ventures with, and subsidiaries of, CATSI Corporations.

Classifications

The classification of a CATSI Corporation determines a range of obligations under the Act, including for example, the corporation’s annual reporting obligations.[127] Under the Corporations Act companies are classified by both type and size, and both factors affect reporting obligations (for example, disclosure of executive remuneration).[128] In relation to small and large propriety companies, classification is based on consideration of the company’s consolidated revenue, assets and number of employees.[129]

Currently CATSI Corporations are classified according to their size.[130] A CATSI Corporation’s size is currently determined by a threefold test based on income, assets and number of employees.[131]

Previous report recommendations in relation to classification of CATSI Corporations

The 2016 Report noted that that a ‘simplification of corporation size categories (from three to two)’ would ‘better align’ the Act with ‘mainstream incorporation legislation’.[132] The 2017 Technical Review recommended:

The CATSI Act should embody a three tiered model based on revenue with small companies below $250,000 of revenue having significantly lesser obligations. It is recommended that the threshold be aligned with requirements for companies limited by guarantee (i.e. revenue of $250,000, below $1m and $1m and above), that the deductible gift recipient requirement not be replicated and the same reporting requirements apply as for companies limited by guarantee.[133]

The Final Report recommended that CATSI Corporation classification framework in the Act be ‘aligned with that of the Australian Charities and Not-for-profits Commission Act 2012 size classification framework’.[134]

Changes to how CATSI Corporations will be classified

The Bill provides that CATSI Corporations will be registered as a small, medium or large based on a simple consolidated revenue test only.[135] Threshold consolidated revenue amounts for each sized corporation will be prescribed in the Regulations.[136] The Explanatory Memorandum notes:

The introduction of the new size classification system will align the Act with the criterion for determining entity size under the ACNC Act. This measure will assist nearly 30 per cent of CATSI corporations who are also registered under the ACNC Act.[137]

Table 2 below gives a comparison of the relevant revenue thresholds that currently apply to entities regulated by the ACNC.

Table 2: consolidate income thresholds

Size of entity	ACNC Act consolidated revenue threshold	Existing Act consolidated revenue threshold	Thresholds proposed by the Final Report
Small	Less than $250,000	Less than $100,000	Less than $250,000
Medium	Between $250,000 and $1m	Between $100,000 and $5m	Between $250,000 and $1m
Large	Greater than $1m[138]	Greater than $5m[139]	Greater than $1m[140]

Source: as per footnotes in table.

Views of key stakeholders

The Victorian Aboriginal Heritage Council (VAHC) supported the principle that the reporting requirements of CATSI Corporations under the Act should equate to those of the Corporations Act[141] and hence opposed the measure on a number grounds, including that while it may reduce reporting requirements for some corporations it may increase the reporting requirements for mid-size corporations.[142] VAHC also noted:

Second, and more fundamentally, the equation of all CATSI corporations with companies limited by guarantee [not-for-profit and charitable organisations] under the CA [Corporations Act] is inappropriate. While all CATSI corporations have a member (as opposed to shareholder) structure as do companies limited by guarantee under the CA not all CATSI corporations are established for public or community purposes as is usually the case with companies limited by guarantee.

Many CATSI corporations are established for private business purposes. These companies equate more closely with Proprietary Limited corporations under the CA. In respect of a Proprietary Limited corporation the CA has only two classifications; small (revenue < $12.5m) and large (revenue > $12.5m). The proposed amendment would only operate to continue or increase the regulatory burden on CATSI corporations of this nature. In addition, it continues the false perception that CATSI corporations are necessarily “social enterprises” when this is manifestly not the case as indicated by the fact that 70% of CATSI corporations are not ACNC registered.[143] [emphasis added]

None of the other non-government connected submissions to the Senate Finance and Public Administration Legislation Committee inquiry into the Bill addressed how CATSI Corporations should be classified.

The Final Report noted that in response to the suggestion of changing how the size classification of CATSI Corporations operates:

We asked whether people thought the CATSI size classification should be changed to that of the ACNC. Overall, we received mixed support. In the consultation sessions, participants could see the benefit to registered charities that are also CATSI corporations with aligning the two frameworks. However, they did not think that revenue as the only determinant of size accurately reflected the nature or risk of corporations with significant asset holdings such as land holding and housing corporations. Similarly, number of employees was considered to be an important consideration of size by the Stakeholder Reference Group … In the survey we asked people whether they thought the three sizes should be retained with a simplified test or they thought there should be only two sizes: small and large. Sixty-eight per cent of survey respondents agreed with the question with 10 respondents indicating a preference for a three-tier model and six respondents preferring a two-tier model. One respondent suggested moving to a five-tier model.

Two of the responses suggested that three tiers should be retained because there is a significant shift in obligations between small and large corporations. This was also raised in the consultation sessions where participants considered that there was value in having a medium tier to enable corporations to gradually build their capacity before being subject to the obligations associated with a large corporation. Overall there was very limited support for a two-tier model in the consultation sessions.[144]

Joint ventures and subsidiaries

Currently, the Act contains rules relating to membership that are viewed as inhibiting the ability of CATSI Corporations to establish wholly owned or joint-venture subsidiaries.[145]

Current position under the Act

One of the basic requirements for registration of a CATSI Corporation is that it meets the ‘minimum number of member’s requirement’ under subsection 77-5(1) of the Act. Broadly, this requires a CATSI corporation to have at least five members unless otherwise exempted by the Registrar.[146] Importantly, currently the Act only permits individuals to become members of a CATSI Corporation.[147]

The Act also imposes an ‘Indigeneity Requirement’. This is set out in section 29-5 of the Act.[148] A CATSI Corporation satisfies this requirement if:

• in the case of a corporation with five or more members—at least 51 per cent of the members are Aboriginal and Torres Strait Islander persons (also referred to as Indigenous persons in this Digest)
• in the case of a corporation with less than five members but more than one—all of the members, or all but one of the members are Indigenous persons or
• in the case of a corporation with only one member—the member is an Indigenous person.[149]

Previous report recommendations regarding wholly owned or joint-venture subsidiaries

The 2016 Report recommended amending the Act to ‘provide greater flexibility for Indigenous people and bodies corporate when establishing corporate structures’.[150] The 2017 Technical Review recommended:

in order to promote greater flexibility in the design of corporate structures for CATSI corporations, which would, in turn, promote increased economic activity, that:

1. CATSI corporations be permitted to wholly-own other CATSI corporations as the sole corporate member, unless this is expressly prohibited by the CATSI corporation in its rule book;

2. That where a CATSI Act corporation is established with 2 members, one of which is not Aboriginal or Torres Strait Islander person, that the requirement in section 246-5(2) of the CATSI Act that a majority of directors to be Aboriginal or Torres Strait Islander persons be removed where the director that is an Aboriginal or Torres Strait Islander person has a casting (deciding) vote; and

3. an entity or group of entities be permitted to establish a CATSI corporation as a subsidiary, or joint venture entity, if that entity, or each member in the group of entities, at all times, satisfies the Indigeneity requirement in section 29-5 of the CATSI Act (and the requirements prescribed by the CATSI Regulations) when the underlying membership is assessed.[151]

The Final Report recommended:

• the membership and directorship provisions in the CATSI Act be changed to make it easier for corporations to establish subsidiaries and joint ventures and
• the CATSI Act be changed to allow for the incorporation of two-member corporations where only one member is Indigenous as long as that member has the deciding vote.[152]

The Bill implements the Final Report recommendations.

The Bill will enable the formation of joint ventures and wholly-owned subsidiaries

The Bill provides that a CATSI Corporation must have at least five members except where:

• the corporation is a wholly-owned subsidiary of a body corporate (including a CATSI Corporation)—in which case the minimum number is one member or
• if the corporation is not a wholly owned subsidiary of a body corporate (including a CATSI Corporation) and the corporation’s only members are body corporates—the minimum number is 2 members.[153]

Item 103 to 105 ensure that, where a corporation is a wholly-owned subsidiary or a corporation whose only members are body corporates, those corporations cannot seek an exemption from the Registrar in relation to minimum membership requirements.

The Bill will retain Indigenous control over CATSI Corporations

The Bill provides that for CATSI Corporations with two members, only one of whom is an Aboriginal and Torres Strait Islander person, the Aboriginal and Torres Strait Islander member will have the casting vote at a general meeting. This is consistent with the existing principle of the Indigeneity Requirement. It means that in the context of two-member CATSI Corporations, when only one member is an Aboriginal and Torres Strait Islander person, that person will retain effective control over the CATSI Corporation.

Currently the Act provides that a majority of directors of a CATSI Corporation must be:

• individuals who are Aboriginal or Torres Strait Islander persons
• members of the corporation
• ordinarily resident in Australia and
• not employees of the corporation (with special rules relating to a CEO who is also a director).[154]

This ensures indigenous control over CATSI Corporations. The Bill retains those requirements but provides that, for two-member CATSI Corporations, the requirement that a majority of the directors be individuals who are Aboriginal or Torres Strait Islander persons will be satisfied if:

• at least one of those directors is an Aboriginal or Torres Strait Islander person and
• that person has the casting vote.[155]

The Bill retains the requirement that a majority of the directors of a CATSI Corporation must be members of the Corporation, but effectively provides that that requirement does not apply where the Corporation is a wholly-owned subsidiary or only has body corporate members.[156] Due to the on-going application of the ‘Indigeneity Requirement’ in section 29-5 of the Act, these measures will ensure that joint ventures and subsidiaries remain subject to Indigenous control.

Views of key stakeholders

The Victorian Aboriginal Heritage Council (VAHC) indicated support for the measures on the basis that they would result in the removal of ‘existing discriminatory provisions’ in the Act.[157] In contrast the NSW Aboriginal Land Council (NSWALC) noted it:

does not support Items 108 to 110 in the CATSI Amendment Bill, which support the establishment of a two-member corporation where only one member is an Aboriginal or Torres Strait Islander person as long as that person has the deciding vote. This change is not in accordance with the general principle of Aboriginal community control and could lead to the exploitation of Aboriginal people. For example, the formation of partnerships seeking to profit from organisations with an Aboriginal status.[158]

The Final Report noted that, in response to allowing joint ventures and wholly-owned subsidiaries:

Of the 19 survey respondents, 79 per cent agreed that it should be easier under the CATSI Act to establish joint ventures and wholly-owned subsidiaries. Respondents who did not agree suggested the proposal would result in too much influence from non-Indigenous sources and insufficient transparency for common law holders and members …

During the consultation sessions there was general support for this proposal as participants saw value in CATSI corporations having greater flexibility of corporate structures which in-turn is expected to assist with the realisation of economic opportunities. Similar to the survey respondents above, some participants did raise concern about the opportunity for ‘black-cladding’ and CATSI corporations to be taken advantage of in a joint venture arrangement with a non-Indigenous entity.

Among the 15 written submissions that commented on this proposal, there was unanimous support noting: two indicated they were supportive and would like more detail on the proposal; one was supportive and suggested corporations should include a rule in their rule books if they do not want to establish a subsidiary as part of their structure; and two were supportive and suggested the provision in the CATSI Act that the majority of directors must also be members should be removed altogether.[159]

Key issue: changes to governance and reporting requirements

The Bill proposed to make a number of changes to governance and reporting requirements including when and how meetings are held, the appointment of independent directors and the reporting of key management personnel remuneration.

Meetings

Company meetings are formal gatherings of company members that represent a critical decision‑making process. Calling and conduct of meetings are part of the internal regulation of companies and is covered by the replaceable rules and/or the company's constitution. In addition, the Act sets out additional requirements that must be followed. Meetings allow members to:

• obtain information and ask questions regarding the management of the company[160]
• elect directors, appoint an auditor (and fix the auditor’s remuneration)[161]
• pass various resolutions (ordinary or special).[162]

As such, they are a critical aspect of corporate governance.

Current position under the Act

Currently, the Act requires a CATSI Corporation (other than a corporation with one member) to hold an AGM within five months after the end of its financial year.[163] Failure to do so is a strict liability offence, with a maximum penalty of 10 penalty units.[164] All CATSI Corporations can apply to the Registrar for an extension of time, with the provision not limiting the grounds on which the request can be made. If approving the request, the Registrar must specify the period of the extension and may impose conditions with which the Corporation must comply.[165]

Previous report recommendations regarding wholly owned or joint-venture subsidiaries

The 2016 Report recommended amending the Act to provide greater flexibility as to when meetings could be held or deferred, including ‘providing for members of medium and large corporations to have the power to pass a resolution to not require an AGM for up to three years’.[166]

The 2017 Technical Review made several recommendations in relation to AGMs including that the Act be amended so that:

• small CATSI Corporations can pass a special resolution not to have an AGM for up to three years, provided:
  • the directors do not vote on that resolution and
  • the corporation is obliged to advise the Registrar if there is any material change in its circumstances
• a CATSI Corporation can trigger an automatic once-only extension of time for a period of 30 days (or such longer period permitted by regulation) to hold a particular AGM, where a CATSI Corporation:
  • reports that there is a death in the community, natural disaster, cultural activity or an unavoidable delay in the audit; and
  • the CATSI corporation has not notified an automatic extension of time more than three years in a row
• … it allows for an automatic extension of time for a period of 30 days (or such longer period as permitted by regulation) reporting and lodgement of reports under Division 348 of the Act, in the case of death, natural disaster and certain cultural activities in Indigenous communities and
• the Registrar has the power to call and hold a general meeting of the corporation where the Registrar decides that it is reasonable to do.[167]

The Final Report recommended that a CATSI Corporation is able to:

… access an automatic 30-day time extension to hold an Annual General Meeting where it notifies the Registrar before the period to hold the Annual General Meeting has expired that there is a death in the community, natural disaster, cultural activity or an unavoidable delay in the audit; and it has not notified the Registrar of an extension of time more than three years in a row.[168]

Changes to holding meetings proposed by the Bill

The Bill makes several changes broadly consistent with the recommendations noted above.

Deferring AGMs

The Bill will enable small CATSI Corporations that:

• are not registered entities under the Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act) and
• had less than $1,000 in consolidated revenue in the previous financial year

to pass a special resolution to not hold the next one or two AGMs.[169] Directors cannot vote on that resolution unless all members are directors.[170] Once a resolution is passed, the corporation is required to advise the Registrar if there are any material changes in its circumstances.[171] The Registrar will have the power to direct a corporation to call and hold an AGM if the Registrar is satisfied there is a need to do so.[172]

Automatic extensions of time to hold AGM and lodge financial reports

The Bill will allow CATSI Corporations to activate an automatic, one-off extension of 30 days to the mandatory five-month period in which to hold an AGM and the time in which to lodge their reports.[173] Extensions will be available where there has been a death in the community, a natural disaster, cultural business or an unavoidable delay in the audit or review.[174] This extension cannot be used more than 3 years in a row.[175]

Deferral of meetings by directors

The Bill will allow directors to defer a meeting for up to 30 days after a notice has been issued.[176] A deferral may include a change to the date, time and/or place of the meeting, and would be allowable, for example, in the case of death, natural disaster or certain cultural activities.[177] In practice this will help CATSI Corporations to accommodate unexpected circumstances that make it difficult to hold scheduled meetings.

Other changes

The Bill will enable meetings to be held remotely (that is, it permits virtual meetings held by electronic communications).[178] Where a meeting is to be held in two or more places using technology without a physical venue, instructions for participating in the meeting must be included in the relevant notice provided to members.[179] These changes will enable CATSI Corporations to hold general meetings virtually, with a goal of aiming to improve participation rates and reduce meeting costs.[180]

Currently CATSI Corporations are unable to cancel meetings once they have been called unless they have a rule in their company constitution that allows that to occur.[181] A new replaceable rule will enable directors to cancel general meetings (other than those called by the Registrar) unless the corporation changes the rule by providing otherwise in its constitution.[182] This power is not limited to the circumstances that allow meetings to be deferred, and meetings will still be required to be held within certain periods (subject to any extensions or exemptions).[183]

The Registrar will also have the power cancel general meetings and AGMs they called.[184] In addition, the Bill will require CATSI Corporations to lay before an AGM any reports they are required to submit to the Registrar.[185]

The Explanatory Memorandum notes:

This will provide greater transparency to members in relation to the operations of their corporations, including with respect to financial reports.[186]

Views of key stakeholders

The National Aboriginal Community Controlled Health Organisation (NACCHO) opposed ‘changes that reduce an organisation’s accountability to members’ and noted in relation to allowing small CATSI Corporations to not hold AGMs:

This may seem like a minor concern, but it is a critical element for some of the more remote, smaller and vulnerable communities. It will have the effect of depriving members of a key mechanism to ensure the accountability of its boards and officials. NACCHO does not support changes that reduce an organisation’s accountability to members. They are counter to the fundamental principle of community control. We do not, therefore support recommendations that allow small corporations to avoid holding AGMs. Transparency and accountability to members is very important and we encourage any revisions to be targeted towards greater transparency around operations and membership. Furthermore, AGMs serve as a touch-point for the communities the corporations serve and provide a familiar means for members to ask questions about their management and results achieved (or lacking).[187]

NACCHO recommended that all CATSI Corporations should be required to hold AGMs.[188] The NSW Aboriginal Land Council (NSWALC) noted its support for enabling CATSI Corporations to hold their meetings virtually to allow for full participation of members.[189]

The Final Report noted that, in response to its proposal to allow ‘small corporations be allowed to pass a special resolution to not hold their AGM for up to three years after their most recent AGM’:

Fifty-three per cent of survey respondents did not agree with this proposal. Many of the survey respondents indicated that an AGM was a critical mechanism to ensure accountability and provide information to members. One respondent suggested the absence of an AGM would enable unscrupulous directors to take advantage of a corporation.

During the consultation sessions, participants were generally not supportive of this measure but became more encouraging when we discussed that this proposal is aimed at corporations that may not be generating large amounts of revenue or income and may simply be land holding corporations, but are incurring significant costs each year to hold an AGM. Four written submissions did not support this proposal and eight did with one recommending that it should be a replaceable rule and another suggesting that it should be two years instead of three years.[190]

Independent directors

Currently the Act provides that a majority of directors must not be employees of the Corporation.[191] In practice this prevents the majority of directors from working as employees of the Corporation. The Corporations Act does not impose such a restriction.

Previous report recommendations

The 2016 Report and 2017 Technical Review did not directly examine the issue of employee‑directors. The Final Report noted:

… in some cases such as art centres where artists may be employed to provide, maintain or promote art work, or native title corporations where members may be employed to do cultural heritage work, it may be appropriate for the majority of directors to also be employees. Allowing the Registrar to grant exemptions to the requirement that the majority of directors of a CATSI corporation must not be employees would provide a direct benefit to many corporations and their members. Granting such an exemption could be subject to certain conditions such as the presence of an independent director on the Board.[192]

The Final Report recommended that the Act be amended to allow the Registrar to exempt a corporation or class of corporations from the requirement that a majority of directors must not be employees.[193]

What the Bill does

The Bill implements the Final Report recommendation noted above. Items 204 and 205 provide the Registrar with the power to exempt a corporation, class of corporations, directors of a corporation or directors of a class of corporations from the requirement that the majority of directors of a corporation must not be employees of the corporation.

Independent directors

The Corporations Act does not define what constitutes an ‘independent’ director and does not impose a requirement that a proportion of the board be comprised of independent directors. In practice however directors can, broadly speaking, be classified as:

• executive directors—a person who is both a director and a full-time employee of the company
• non-executive directors—a person not involved in the full-time management of the company and not an employee of the company
• independent directors—a non-executive director who:
  • is not a member or shareholder of the company and
  • is free of business and personal relationships that could interfere with the independent exercise of their judgment.[194]

Current position under the Act

Currently, CATSI Corporations are prohibited from appointing non-member directors unless the Corporation's constitution provides for this.[195]

Previous report recommendations

The 2016 Report noted that ‘there would seem to be a case’ allowing members of a CATSI Corporation to appoint directors ‘from a broader pool of independent directors if they wish’.[196] The 2017 Technical Review recommended that the Act be amended to reverse the prohibition on the appointment of independent directors unless the company constitution provides for their appointment to a default position that all CATSI Corporations may appoint independent directors unless their constitution expressly provides otherwise.[197]

The Final Report recommended the Act be amended to allow CATSI Corporations to appoint independent directors without an explicit rule in their constitution.

What the Bill does

The Bill gives effect to the 2017 Technical Review and Final Report recommendations by:

• enabling the appointment of an independent director by the directors of a corporation, as a standard inclusion in the list of replaceable rules in the Act[198] and
• removing the existing prohibition on the appointment of independent directors unless the corporation’s constitution provides otherwise[199]

In addition, the Bill inserts proposed section 246-17 which allow the appointment of independent directors by other directors of a CATSI Corporation. As proposed section 246-17 is a replaceable rule, CATSI Corporations can modify it should they wish to do so, including (for example) by providing that all directors must be members of the corporation (and therefore not allowing the appointment of independent directors).

As such, the Bill adopts the Final Report recommendation that the default position under the Act is that all CATSI Corporations can appoint independent directors unless their constitution expressly provides otherwise.

Proposed subsection 246-25(1A) inserts a new replaceable rule limiting the term of the appointment of an independent director to a period of no more than one year. However, as a replaceable rule it is open to a Corporation to adopt in its constitution a rule that allows independent directors to be reappointed for consecutive terms, provided such a rule does provide for a term of appointment inconsistent with the Act.

The Explanatory Memorandum notes that the default position (independent directors can only be appointed for no more than a year) will:

… ensure that directors who are members of the corporation are able to review the contribution of independent directors and the needs of the corporation at appropriate intervals.[200]

Views of key stakeholders

NACCHO supported the ability of CATSI Corporations to appoint independent directors for 12‑month periods.[201] The First Nations Bailai, Gurang, Gooreng Gooreng, Taribelang Bunda People Aboriginal Corporation RNTBC noted:

The need for skills-based Directors is behind the new provision s246-17 in the proposed Bill, however, true self-determination would dictate that a CATSI Corporation could have as many skills-based directors as it desires and not have the composition of the Board dictated by requirements under the Act.[202]

The VAHC indicated support for the measures on the basis that they would result in the removal of ‘existing discriminatory provisions’ in the Act.[203]

The Final Report noted that, in response to its proposal to provide that the default position under the Act is that CATSI Corporations can appoint independent directors (rather than only being allowed if the company constitution permitted it):

Six submissions specifically commented on this proposal and all were supportive. There was also general support for this proposal among participants of consultation sessions.

Sixty-two per cent of the 21 survey respondents agreed that the CATSI Act should be amended to allow corporations to appoint an independent director without first having to change their rule books. Some of the reasons put forward by those respondents who did not agree with this proposal suggested that the survey question may not have been clear. For example, a couple of the responses indicated this change would result in insufficient transparency to members and/or diminished decision-making of members. Whereas, if the change was introduced, it is expected that members would still need to be involved in deciding to elect an independent director as well as deciding who should be elected.[204]

Officers’ remuneration reporting

Under the Corporations Act public corporations must have a company secretary,[205] proprietary companies must have at least one director and public companies at least three.[206] The definition of ‘director’ is expansive and encompasses not only individuals appointed as a director, but also a person not formally appointed as a director but the company or its directors ‘are accustomed to act in accordance with the person’s instructions or wishes’.[207] This means a CEO or CFO of a company can, in some circumstances, be considered a director of a company.

A company must lodge with ASIC a notice of the personal details of a director or secretary within 28 days after they are appointed.[208] A similar position applies in relation to CATSI Corporations under the Act.[209]

Current position under the Act

Whilst a similar position applies in relation to CATSI Corporations under the Act with respect to directors and secretaires, it does not impose a specific obligation to provide the Registrar with up‑to-date information regarding the key management personnel of a CATSI Corporation.[210]

Previous report recommendations

The 2017 Technical Review and the Final Report both made recommendations reflected in the measures proposed by the Bill. The 2017 Technical Review recommended that CATSI Corporations ‘include their CEOs and senior executives' names, addresses, contact details and employment history over the last ten years in their annual reports’.[211] The Final Report recommended that the Act be amended to require CATSI Corporations to:

• notify ORIC ‘within 28 days of a change in Chief Executive Officer, Chief Financial Officer and Chief Operating Officer’ and
• include in their annual reports to the Registrar details of corporate structure (including any subsidiaries or trusts) and key management personnel within that structure.[212]

What the Bill does

The existing definition of ‘chief executive officer function’ (CEO Function) currently refers to either a person who is primarily and directly responsible to the directors for the general and overall management of the corporation or, a person who is primarily responsible for financial matters in relation to the corporation.[213] The Bill replaces the definition of CEO function with two separate definitions: one for the CEO function and one for the ‘chief financial officer function’ (CFO Function).[214]

A person will perform a CEO function where they are primarily and directly responsible to the directors for the general and overall management of the corporation. A person will perform a CFO function where they are:

• primarily responsible for financial matters in relation to the corporation and
• directly responsible for those matters to either the directors or the person or persons who perform the CEO function in relation to the corporation.[215]

CATSI Corporations will be to advise the Registrar if there has been a change in the person performing the CEO and CFO roles within 28 days of that change.[216]

Proposed Officer remuneration reporting requirements

Under the Corporations Act the level of detail regarding the disclosure of executive remuneration for Corporations Act companies depends on the type of corporate entity.[217] In summary, the default position is that all financial reports for a financial year (including those presented at the AGM) for listed and unlisted companies must disclose each directors’ qualifications, experience and special responsibilities.[218] In addition, listed companies must also disclose the remuneration paid to directors and ‘key management personnel’.[219]

Current position under the Act regarding remuneration reporting

Currently there are substantial differences between the disclosure of the experience of, and remuneration paid to, senior management personnel in CATSI Corporations and some forms of companies regulated by the Corporations Act.

Currently division 7-3 of the Act deals with reporting obligations of CATSI Corporations. Briefly, all CATSI Corporations must prepare a general report in relation to each financial year. Large CATSI Corporations and certain small and medium CATSI Corporations must also prepare:

• a financial report and/or a directors’ report in relation to each financial year, as required by the Regulations and
• any other reports required by the Register.[220]

The general report—as its name suggests—only includes general information about the CATSI Corporation and its directors, including details of its members and directors, contact information and so forth.[221]

Section 330-1 of the Act requires that CATSI Corporations must prepare a general report in respect of each financial year, which must include any information required by the Regulations.[222] The current requirements are that the general report includes details of each director’s qualifications, experience and special responsibilities in relation to the Corporation which are to be disclosed to members at the AGM (as part of the financial report). [223]

Importantly, currently, the Act does not contain an explicit requirement to disclose remuneration paid to directors of a CATSI Corporation in any of its reports presented to the AGM (noting members can request such information, which must then be provided).[224]

Current financial and directors’ report requirements

Section 333-5 of the Act provides that the Regulations may require financial reports, directors’ reports and other reports to be prepared. Section 333-10 then provides that the content of such reports is determined by the Regulations. In turn, the Regulations provide that the financial report must include, among other things:

• the financial statements for the year required by the relevant accounting standards
• the notes to the financial statements required by the accounting standards and any other information necessary to give a true and fair view of the financial position and performance of the CATSI corporation and
• the directors’ declaration about the statements and the notes.[225]

The Regulations then provide that the Directors’ report must include, among other things:

• the name of each person who has been a director of the corporation during the financial year and the period of the director’s tenure and
• details of each director’s qualifications, experience and special responsibilities in relation to the corporation.[226]

Power to require the require the disclosure of remuneration already exists

As such, whilst the power already exists to require the disclosure of remuneration of key management personnel by CATSI Corporations, it has not been used. This means that currently such information is not regularly reported to the Registrar or disclosed to members.

Key management personnel disclosure obligations imposed on other entities

As noted above, under the Corporations Act listed companies must disclose the remuneration paid to directors and ‘key management personnel’.[227] In addition, however, similar remuneration disclosure requirements are also imposed on other types of entities.

For example, under the FWRO Act registered organisations (and branches of organisations) must disclose the identity of at least the five highest remunerated officers, their remuneration and the value (and form) of any non-cash benefits provided to them over the financial year.[228] Similar obligations are imposed on some charities regulated by the ACNC Act.[229]

As such, it can be seen that the reporting of the remuneration of key personnel, whilst not currently applied to all forms of companies and other similar entities, is not new and has been applied to a range of entities under different legislation.

Previous report recommendations regarding remuneration disclosure

The 2016 Report recommended:

• large (or potentially medium) sized corporations be required to disclose the nature and value of remuneration of key management personnel in annual reporting, consistent with the requirements of all listed companies and
• providing members with the same powers relating to approval of remuneration reporting as is available to shareholders in listed companies under the Corporations Act.[230]

The 2017 Technical Review recommended:

Other than small sized CATSI corporations, CATSI corporations should provide details of their director, CEO and senior management salary and benefits packages to the Registrar … It is recommended that further investigation be undertaken about whether certain large sized CATSI corporations (e.g. those with a gross operating income of $10 million per annum) be required to disclose the nature and value of remuneration of directors and employees in their annual reports in a similar fashion to listed entities.[231]

The Final Report recommended:

• senior executive remuneration information be included in annual reporting to the Registrar and that the same information is laid before Annual General Meetings
• remuneration information of key personnel of associated entities also be reported in annual reports to the Registrar and
• corporations must report how much each director is paid in sitting fees in their annual financial reports that are lodged with the Registrar.[232]

The Bill requires disclosure of key management personnel remuneration

The Bill will require that remuneration information about key management personnel to be reported in a remuneration report to the Registrar.[233] The Bill enables the Regulations to deal with the content of the report covering remuneration of key management personnel.[234]

Whilst such remuneration reports are not specifically included in the list of documents that must be entered on the Register of CATSI Corporations (which is publicly available), in proposed section 418-10, the Regulations can require those reports to be included, and therefore be publicly available.[235] In any case, items 184 to 186 provide that a CATSI Corporation that is required to prepare remuneration reports for a financial year must give a copy of the report to each member who requests it.[236]

The changes proposed by the Bill are consistent with the 2017 Technical Review and Final Report recommendations. The Explanatory Memorandum notes that these changes will increase ‘transparency with respect to key management personnel employed by CATSI corporations’.[237]

Views of key stakeholders

NACCHO opposed the remuneration reporting requirements on the basis that:

The changes set higher standards (e.g. remuneration reports) and penalties for directors and officers than what other Australians are expected to meet under the Corporations Act 2001 and the regulatory frameworks of ASIC and the ACNC. These measures will also have the effect of adding to the administrative and compliance burden for corporations.[238]

The NSWALC also opposed the measure, noting:

These measures will also have the additional adverse impact of increasing administrative and compliance burdens for Aboriginal corporations. The Government has justified this approach by stating that it is in line with the remuneration reporting for listed companies. However, listed companies are large businesses on the ASX trading in shares. Many Aboriginal and Torres Strait Islander corporations are not of this nature nor size. Remuneration reports are not a requirement for companies including not-for-profits incorporated under the Corporations Act 2001. NSWALC is not opposed to greater transparency around remuneration, but the requirements should not discriminate and treat Aboriginal corporations differently from non-Aboriginal corporations.[239]

The Kimberly Land Council, First Nations Bailai, Gurang, Gooreng Gooreng, Taribelang Bunda People Aboriginal Corporation RNTBC and VAHC also opposed the measure.[240]

The Final Report noted that in response to mandatory reporting of key management personnel remuneration for medium and large CATSI Corporations:

62 per cent of survey respondents agree, while reasons for disagreement varied widely including: remuneration is a confidential agreement; in small communities, disclosure of information can cause issues for individuals; and only payments above a threshold amount should be required to be reported. Several responses considered there was a role for ORIC either in providing external advice on standard remuneration, or in receiving confidential reporting of remuneration in order to provide benchmarking information. One response also argued that executive roles in CATSI corporations should in fact be voluntary to ensure that the officer is undertaking the role for the right reason …

Twenty-eight submissions made comments against this Chapter, of which 19 specifically addressed this issue. Interestingly, of the nine submissions that indicated some support for the proposal, only two of those was unqualified … Of the nine submissions that did not support this proposal, nearly all expressed support for increased transparency and accountability around senior executive remuneration… the volume of feedback and diversity of opinions highlighted that executive remuneration is a contentious and sensitive issue that requires consideration of the rights of members and common law holders with the rights of individuals to privacy and corporations to confidentiality. Despite the broad spectrum of opinions and perspectives put forward in the consultations, there was a strong consensus that the appropriate outcome would be an increase to transparency by providing members with remuneration information.[241]

Related party transactions

Related party transactions occur when a company or similar entity provides a financial benefit to a related party such as a director, their spouse and certain other relatives. Related parties are likely to be in a position to influence the decision of whether, and on what terms, a benefit is provided to them. These transactions will, therefore, very often involve conflicts of interest.[242]

Current position under the Act related party transactions

Currently the Act provides that, generally, member approval is needed before a CATSI Corporation can give a financial benefit to a related party.[243] This applies regardless of the size of the CATSI Corporation in question. Division 287 then sets out exceptions to the member approval requirement for related party transactions (for example, remuneration paid to a related party that is an employee).[244] In addition, under the Act CATSI Corporations must prepare explanatory materials for members to consider in relation to the proposed related party transactions, and lodge those with the Registrar. In turn, the Registrar may comment on the proposed resolution to approve a related party transaction, by giving written comments on the explanatory materials.[245]

Under the Corporations Act ASIC has similar powers, but only public companies and registered schemes are subject to similar rules and exemptions relating to related party transactions.[246]

The Government notes that the current rules for related party transactions in the Act can:

… make it difficult for corporations to do business, especially in small communities with extensive kinship ties and limited options for purchasing goods or services.[247]

Previous report recommendations regarding related party transactions

The 2016 Report recommended amending the Act so that related party financial transactions are dealt with in the same manner as proprietary companies and companies limited by guarantee under the Corporations Act.[248] The 2017 Technical Review recommended:

• the provisions relating to restrictions on related party dealings be retained, but that the Registrar be empowered to exempt particular opportunities or transactions from the related party provisions, where it would be beneficial to the affected director and in no way detrimental to the members of the CATSI Corporation
• a threshold for transactions that trigger the related party transactions provisions in the Act be introduced for small CATSI Corporations. A de minimis exception of $5,000 or such other amount as may be prescribed in regulations from time to time should apply. However, we further recommend that all related party benefits be described in an appropriate way in an annual report that is provided to members and the Registrar.[249]

The Final Report recommended:

• the provisions dealing with related party transactions be revised ‘to simplify and align more closely with the needs of Aboriginal and Torres Strait Islander communities’ and
• CATSI Corporations be required to report any related party provisions in their annual reports to the Registrar.[250]

What the Bill does

The Bill eases the requirements for CATSI Corporations dealing with low value related party transactions. Part 9 proposes to provide a general exemption to small CATSI Corporations from the requirement to obtain the approval of members where the total amount of:

• the amount or value of the financial benefit given to the related party and
• the total of all other amounts or values of financial benefits given to the related party, in the financial year, for which member approval was not needed

is less than or equal to the amount prescribed by the Regulations.[251]

The Bill also removes the requirement that a CATSI Corporation:

• lodge with the Registrar information detailing proposed related party transactions that the corporation intends to provide to members when seeking their consent to the transactions and
• prepare an explanatory statement that outlines proposed related party transactions for members.[252]

The Bill likewise removes the power of the Registrar to provide comments to the Corporation in relation to the material it intended to provide to members when seeking their agreement to related party transactions.[253]

Instead, the effect of items 197 and 198 is that a CATSI Corporation will simply be required to include in the notice convening a meeting to approve a financial benefit to a related party relevant information including:

• the text of the proposed resolution
• the related parties to whom the proposed resolution would permit financial benefits to be given
• the nature of the financial benefits and
• the value of the financial benefits.

The effect of these changes is that CATSI Corporations will not be required to seek member approval for low value related party transactions and where they must seek member approval, simplify the disclosure and approval process.

Whilst the Explanatory Memorandum states that the Bill ‘modifies the requirements in relation to small corporations dealing with low-value related party transactions’ none of the changes in Part 9 of the Bill appear to limit the changes noted above to only small CATSI Corporations. Instead, they appear to be applicable to CATSI Corporations of all sizes, with blanket exemptions applying on the basis of the value of the financial benefits given to a related party, rather than the size of the CATSI Corporation in question.

In this regard the changes proposed by the Bill differ somewhat from the recommendations in the 2017 Technical Review, but can be viewed as broadly consistent with those in the 2016 Report and Final Report.

Views of key stakeholders

The VAHC indicated support for the measures on the basis that they would result in the removal of ‘existing discriminatory provisions’ in the Act.[254] None of the non-government connected submissions to the Senate Finance and Public Administration Legislation Committee inquiry into the Bill directly addressed the proposed changes in relation to related party benefits.

The Final Report noted that in response to related party benefits:

Ninety-five per cent of the 21 survey responses agreed Part 6-6 of the CATSI Act which deals with third party provisions should be redrafted to be simplified and to bring it more in line with the Corporations Act. Suggestions from respondents as to specific provisions that could be simplified included exemption provisions if certain conditions exist such as corporations: in remote or very remote locations; with small membership bases; and without access to reliable and cost effective service providers. Other suggested exemption provisions were if: the total value of transactions do not exceed a certain amount; the transactions are listed in the annual report; or if the directors agree to or approve the transactions …

Sixteen submissions expressed strong support for streamlining the provisions around related party benefits in the CATSI Act, with a view to ensuring they are simpler and work in the best interests of corporations, members and communities. While some indicated that changes proposed under the Strengthening Governance and Transparency Bill would be welcomed, most highlighted the need for a broader revision of Part 6-6 of the CATSI Act …

The extensive nature of the comments on this topic indicates its importance to stakeholders. While there was a range of views expressed in submissions about factors to consider, there was unanimous support for revising this part in the CATSI Act for simplification and greater alignment with the needs of Aboriginal and Torres Strait Islander corporations.[255]

Key issue: review of the Act

The Final Report noted:

As a special measure, the CATSI Act should be periodically reviewed to assess whether it is meeting its objects. Special measures are designed to ensure the full and equal enjoyment of human rights and fundamental freedoms by certain racial or ethnic groups or individuals. By definition, a special measure is to be discontinued once its objects have been achieved.[256]

The Final Review therefore recommended that the Act be amended to include a provision requiring it be reviewed every seven years.[257]

Part 1 of the Bill gives effect to that recommendation. Proposed section 643-1 sets out the review requirements. In summary those requirements are:

• the Minister must cause a review to be undertaken of the operation of the Act as soon as possible after the seventh anniversary of the Bill, and on each successive seventh anniversary after that date
• the review must consider the effectiveness of the Act as a special measure for the advancement and protection of Aboriginal peoples and Torres Strait Islanders peoples
• the reviewer(s) must give the Minister a written report of their review within 18 months after the relevant anniversary date and
• the Minister must have the report tabled in both Houses of Parliament within 25 sitting days of the relevant house after completion of the report.

Views of key stakeholders

NACCHO opposed the requirement that the Act be reviewed every seven years, stating:

The Bill includes a cumbersome review process in which there will be 18-month reviews held in every seven-year period. This means that the sector’s legislation will be under review 21 per cent of the time, representing an enormous drain on resources and long periods of disruption for the sector and uncertainty for the 80+ NACCHO members operating under the CATSI Act.[258]

NACCHO recommended:

Either the review intervals need to be lengthened (say, every ten years) or the review period made efficient and targeted (i.e. completed within six months, with a three-month extension granted under exceptional circumstances).[259]

None of the non-government connected submissions to the Senate Finance and Public Administration Legislation Committee inquiry into the Bill directly addressed the measure.

The Final Report noted that, in response to the Act being regularly reviewed:

Eighty-eight per cent of the 26 survey respondents agreed that the CATSI Act should be subject to regular review. Suggestions varied in relation to how regularly such a review should be undertaken, including from twice a year at the shortest to five to 10 years at the longest. Seven respondents indicated every five years; three respondents indicated every three years; and three respondents indicated every two years. Some respondents also offered ranges such as five to seven years, five to 10 years, or a minor review every three years with a major review every seven years.

The survey responses were at odds with the views put forward as part of the consultation sessions where participants suggested that 10 years was too long an interval but five years was also seen to be too short as it was likely to result in the legislation constantly being subject to some kind of legislative amendment process whether that be a review, drafting changes or seeking passage of a Bill through Parliament.[260]

Concluding comments

The Bill is the result of a number of reviews and consultation processes over a number of years. It represents a substantial rewrite of the Act. In relation to the issues examined in this digest, whilst many appear to have substantial support amongst indigenous stakeholders’ others appear to be more contentious, attracting both support and criticism from different indigenous stakeholders.

Such diversity of views is not surprising, given that CATSI Corporations span a range of different business models, functions and purposes covered by not only ‘traditional’ for-profit Corporations Act companies, but also incorporated associations, co-operatives, charities and not-for-profit companies. As such, whilst the Bill attempts to amend the Act to apply ‘appropriate’ governance and reporting standards, the appropriateness of those standards to the entire range and different sizes of entities regulated by the Act appears to remain an issue of some concern to indigenous stakeholders and different types of CATSI Act entities.