Proposed changes to Indigenous Corporations laws

Last week MPS Law attended a consultation meeting held by the Office of the Registrar of Indigenous Corporations  (ORIC) on the proposed changes to the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act).  This article provides a summary of the proposed changes.

The proposed changes follow a technical review and public consultation conducted in late 2017 and aim to reduce red tape, especially for small corporations, increase transparency for members and align the CATSI Act with the Corporations Act 2001 (Cth) (Corporations Act). 

It is intended that the proposed changes will take effect on 1 July 2019 with a two-year transition period.  A summary of the proposed changes can be found below. 

1.      Size classification of CATSI corporations

Proposed change: Simplify the classification system for corporations to a revenue-based test. 

Under the CATSI Act corporations are classified as large, medium or small by a three-part test based on income, assets and number of employees.  The current test however is far too complicated and the threshold between small and medium corporations is too low.  Under the proposed revenue-based test, corporations with revenue under $250,000 per year will be classified as small corporations.   

2.      Rule books  

Proposed changes: Require that a corporation’s rule book include all the ‘replaceable rules’.  Allow the Registrar to refuse to register rule books that are not fit for purpose.   

The intent of the ‘replaceable rules’ are for corporations to adopt or tailor them to suit in the corporation’s constitution.  As it stands there are 35 ‘replaceable rules’ spread throughout the CATSI Act.  It is intended that all the replaceable rules will be put into one document and model rule books in plain English will be provided for corporations to easily adapt and adopt.  The proposed changes are intended to allow directors and members to more easily navigate their rule book and participate more successfully in their corporation’s affairs. 

3.      Business structures  

Proposed change: Make it much easier to create subsidiaries and allow joint venture organisations to be set up under the CATSI Act. 

It is very difficult to create wholly-owned CATSI Corporations as subsidiaries under the CATSI Act compared to the Corporations Act.  As such, the proposed changes seek to allow for CATSI Corporations to incorporate wholly-owned CATSI Corporations as subsidiaries under the CATSI Act as well as joint ventures.  By allowing a variety of business structures to be established under the CATSI Act this is intended to provide ongoing regulatory support and open the door to greater economic opportunities. 

4.      Meetings and reporting  

Proposed changes: Allow small corporations to pass a special resolution to not hold an AGM for up to three years.  Require medium and large corporations to table their annual reports at the AGM.  Allow corporations to activate a once-only extension of time for a period of 30 days to hold an AGM or lodge reports. 

It is a current requirement under the CATSI Act that a corporation holds an annual general meeting (AGM) after the end of every financial year.  This can be quite costly for small corporations.  As such the proposed changes to defer the AGM for up to three years provide greater flexibility for small corporations.  It will still be a requirement however, that small corporations submit and provide their general report to members annually.  In addition, the tabling of annual reports at the AGM aim to make medium and large corporations more transparent and accountable to members. 

The added change around extension of time for AGM’s and annual reports seeks to address uncontrollable situations such as where there is a death in the community, a natural disaster, cultural activity or an unavoidable delay in the audit. 

5.      Membership  

Proposed changes: Allow use of alternative member contact details.  Enable suppression of personal information in certain cases.   

The proposed changes seek to make better use of alternative member contact details for communications, in particular where members of a corporation are graphically dispersed and for cancellation of memberships.  Under current provisions of the CATSI Act membership may be cancelled by special resolution if the member has been uncontactable for two years and two attempts have been made to contact them.  The proposed amendments are intended to reduce the time to 12 months with 3 attempts and provide options to use alternative contact details. 

The proposed change in relation to the suppression of personal information is intended to keep people safe. 

6.      Transparency of senior executives  

Proposed change: All medium and large corporations will report the remuneration and work history of senior managers to members.   

The proposed change requires medium and large corporations to provide a director report for senior executives, namely the CEO, CFO or Managing Director.  The reports will then be provided to members at the AGM and publicly listed on ORIC.  The intention of this change is to provide members with more information about their senior management team.  A question this raises is how should ‘remuneration’ be defined.

7.      Related third party transactions

Proposed changes: Allow corporations to make some low-value related third party transactions, up to $5,000 per party annually.  Allow discretion for the Registrar to allow other transactions.   

The current regime under the CATSI Act requires member approval for any related party benefit which works against corporations with small communities and limited options for purchasing goods or services.  The proposed changes allow small corporations to approve third-party transactions up to $5,000 per party annually rather than getting member approval and give discretion to the Registrar to allow other transactions to be approved.  

8.      Special administration  

Proposed changes: Broaden and clarify the grounds for putting corporations into special administration.  Streamline the ‘show cause’ process if a board unanimously requests a special administrator be appointed. 

The proposed changes seek to revise outdated processes for the appointment of a special administrator and broaden the grounds for appointment, in particular where the corporation has no directors, is insolvent, there is doubt as to whether the board of directors is validly constituted, there has been a substantial or repeated breach of related party transactions rules or where a Registered Native Title Body Corporate is conducting its affairs contrary to the interests of the common law holders. 

9.      Voluntary deregistration

Proposed change: Make the criteria for voluntary deregistration more flexible by reducing the requirement to a special resolution of the members (75% of votes cast).

Under the current regime 100% of the members of the corporation must agree to voluntary deregistration, which is practically impossible.  The intention of this change is to reduce the requirement to a special resolution (75% of the votes cast) which in turn would save costs by allowing more corporations to voluntarily deregister rather than voluntarily wind up. 

10.   Compliance powers

Proposed change: Broaden investigation and compliance powers to address lower-level compliance problems.

The Registrar’s current powers are limited and only suited to more serious levels of non-compliance.  As such the proposed changes seek to give the Registrar additional powers, such as the power to issues fines and require enforceable undertakings in relation to lower-levels of non-compliance (for example a failure to lodge annual reports).

11.   Other technical changes

-        Prohibiting entities using names like ‘Aboriginal Corporation’ if they are not incorporated under the CATSI Act.

-        Reversing the default position on independent directors in model rule book so that the corporation can appoint independent directors if they want to. 

-        Extending the provisions to protect native title bodies from conflicting statutory duties under the CATSI Act and State/Territory native title legislation. 

To keep updated or for more information on the proposed changes, visit http://www.oric.gov.au/catsi-review or contact Michael Pagsanjan at michael@mpslaw.com.au.