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1301.0 - Year Book Australia, 2012  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 24/05/2012   
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International Year of Co-operatives

REGULATION OF CO-OPERATIVES IN AUSTRALIA


This article was contributed by New South Wales Fair Trading, Department of Finance and Services.



BACKGROUND AND CURRENT REGULATION

Australia’s post-war economy and its growth as an exporting nation signalled a need for a national regulatory regime for business and financial markets. Constitutional limitations prevented the Commonwealth from passing laws to regulate the formation of companies as business vehicles and the Commonwealth’s power to make laws with respect to banking did not extend to financial mutuals. The Commonwealth and states sought to achieve uniform corporate regulation from the 1960s, resulting in the corporations law. In 1999, as part of the financial sector reform process, financial mutuals such as building societies and credit unions, as well as friendly societies, became companies governed by corporations law. In 2001, states referred their power to make laws to regulate all aspects of the formation and activities of companies to the Commonwealth, resulting in the Corporations Act 2001 (Cwlth). Non-financial co-operatives remained within the legislative authority of states and territories.

Each state and territory maintains separate legislation for co-operatives.<Endnote 1> Since 1995, states and territories have combined to ensure consistency on core provisions so that there are similar basic principles underlying the legislation in each jurisdiction. Budgetary constraints have led to variations in maintaining and reviewing the legislation, and it has slipped behind developments in corporate governance and financial reporting requirements for companies.

Access to capital markets has been a long-term problem for co-operatives because shares in a co-operative cannot be quoted on a stock exchange and can only be acquired by active members. Developments in New South Wales in 1996 saw the introduction of a new hybrid security called a co-operative capital unit (CCU). These securities can be issued to non-members and are capable of quotation on a stock exchange. CCUs were initially popular with co-operatives, but their popularity is limited by the fact that co-operatives in other jurisdictions were not able to issue them, and market knowledge of the securities is not widespread, particularly in a nationally operating financial market.

As creatures of state and territory legislation, co-operatives were prohibited from carrying on business across a state/territory border unless they also sought registration as a ‘foreign co-operative’ in that other jurisdiction. Foreign registration is not a complex procedure, but it is costly as it is a replication of registration costs, and annual obligations, in up to seven other jurisdictions. By comparison, a company, once registered is under no prohibition from carrying on business in a state or territory outside its place of incorporation.

Co-operatives are by nature conservative entities and, unlike their company counterparts; they generally do not make headlines in business media through reporting profits or public floats. Professional knowledge about how they work and what they can contribute to an economy or a community is limited.

At time of writing, there were approximately 1,700 registered co-operatives in Australia, compared with 2,350 in 2000.<Endnote 2> The declining number of co-operatives is not so much due to deregistration, but rather the very small number of new co-operatives being formed. Statistics published by the Australian Securities and Investments Commission <Endnote 3> on an annual basis reveal a much higher rate of company deregistration over the last decade than is evident among co-operatives. However, there is a comparatively high rate of new company formations, resulting in growth in company numbers that is not matched by co-operatives.

The number of co-operatives is likely to remain relatively small compared with companies, as the core requirement for co-operation demands that there be more than one member ready and willing to subscribe to co-operative principles to support a venture. A company may be formed by a single member.


UNIFORM CO-OPERATIVES LAWS FOR 2012

Work began in 2005 to prepare uniform provisions for jurisdictions to amend legislation and introduce a system of mutual recognition for co-operatives that would replace the registration requirements for foreign co-operatives and enable all co-operatives to issue CCUs. This work was overtaken by a proposal for uniform legislation under a template law and supported by an inter-government agreement in 2007. The template law is called the Co-operatives National Law. As well as providing a vehicle to remove barriers to cross-border business activities by co-operatives and enabling them to issue CCUs, the Co-operatives National Law has been an opportunity to review all aspects of co-operatives legislation.

In December 2009, a draft Co-operatives National Law was released for public comment by the Ministerial Council on Consumer Affairs. There was an extensive period of public consultation and consultation between jurisdictions as a result. Under the inter-government agreement, called the Australian Co-operative Laws Agreement, New South Wales will pass the Co-operatives National Law, which will be supported by national regulations. Other jurisdictions will have the option of adopting the Co-operatives National Law or passing consistent legislation. Jurisdictions are working towards commencement of the legislative scheme during 2012, the International Year of Co-operatives.

The Co-operatives National Law continues to be a law made by states and territories; however, its standardisation will enable it to operate in a similar manner to a national law. The Australian Co-operative Laws Agreement requires jurisdictions to co-operatively maintain the legislation and to adopt uniform administrative procedures. It is anticipated that a co-operative in any jurisdiction will be able to carry on business in any other jurisdiction in the knowledge that the law is the same and that it will be administered according to the same policies and procedures.

In addition to removing barriers to cross border business and enabling all co-operatives to issue CCUs, the Co-operatives National Law introduces significant changes to the regulatory regime to help place co-operatives in a more competitive position compared with companies. In particular, it more clearly articulates the relationship between co-operatives laws and the Corporations Act 2001(Cwlth) by providing a clear indication of what provisions of that legislation are adopted for use by co-operatives. It also updates key areas of corporate governance by modernising provisions relating to the qualification of directors and their duties. Changes are also made to simplify financial reporting by smaller co-operatives by utilising a risk management model which preserves the principle of democratic control unique to co-operatives by requiring financial reporting to members.<Endnote 4>

The Co-operatives National Law is designed to deliver a modern legislative environment that removes competitive barriers but continues to assure the unique nature of the co-operative structure. It is hoped that a new regulatory regime coupled with a renewed interest in co-operatives through the United Nations International Year of Co-operatives will arrest the decline in the number of co-operatives and thereby contribute to a strong and varied economy and community.


ENDNOTES

  1. All states, except Western Australia, had specific legislation for co-operatives during the 1990s. Northern Territory passed legislation for co-operatives in 1997 and the Australian Capital Territory passed similar legislation in 2002. Western Australia passed the Co-operatives Act 2009 which repealed the Companies (Co-operatives) Act 1943 and other legislation. The Western Australian legislation is based upon the Exposure Draft of the Co-operatives National Law template. <Back>
  2. Data collected by Registry of Co-operatives and Associations, NSW Fair Trading. <Back>
  3. The Australian Securities and Investments Commission publishes annual insolvency and company registration statistics. <Back>
  4. The Co-operatives National Law distinguishes between reporting obligations for small and large co-operatives. Criteria for determining when a co-operative is ‘small’ will be settled in national regulations. Co-operatives regulation in Western Australia already defines a small co-operative. <Back>

 

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Statistics contained in the Year Book are the most recent available at the time of preparation. In many cases, the ABS website and the websites of other organisations provide access to more recent data. Each Year Book table or graph and the bibliography at the end of each chapter provides hyperlinks to the most up to date data release where available.

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