Introduction
In recent years the number of co-operatives registered in Australia has been steadily declining. In September 2009 there were 1,726 of these mutual organisations spread across the country (with three quarters being established as not-for-profit, or non-distributing, co-operatives). This represents a 26% decline in the number of co-operatives registered in Australia over the past nine years.
What they lack in number, they do not necessarily make up for in size, either. The average size of a co-operative in terms of turnover and assets is not large: 98% of co-operatives have annual revenue of less than $25 million, and 99% have assets of less than $12.5 million. This may be a reflection of the fact that nearly all co-operatives operate in only one jurisdiction; less than 1% engage in operations that cross state or territory boundaries. In fact, there are only twenty-six registered “foreign co-operatives” (that is a co-operative that is registered as carrying on business in another state or territory), and in real terms the number is less than this as each foreign co-operative is counted in each jurisdiction in which it is registered.
One explanation for the declining numbers of co-operatives and their relatively small turnover and asset holdings may be found in the competitively disadvantageous nature of having eight jurisdictions, each with their own laws governing co-operatives.
Whilst there are significant similarities between the statutes, impediments to achieving efficiencies and competitive advantages are created by the existence of this fragmented legislative framework. For example, the consent of the local Registrar of Co-operatives is required to be granted in each jurisdiction a co-operative wishes to carry on business and onerous and duplicitous financial reporting requirements are imposed upon these organisations (which are often more extensive than those imposed on small companies under the Corporations Act 2001 (Cth)) (Act).
There is, then, a clear imperative for an overarching, national legislative framework to be introduced in order to provide incentives to, and remove the barriers faced by, incorporated bodies that choose to implement co-operative principles. The Co-operatives National Law is the latest attempt to address the problems that exist under the current framework.
Objectives of the Co-operatives National Law
The proposed new context has as its objectives the following:
- providing the vehicle to deliver, apply and maintain nationally consistent co-operatives legislation;
- applying the relevant provisions of the Act consistently across the states and territories with pertinent modifications;
- simplifying reporting and auditing requirements, particularly for small co-operatives;
- removing barriers to carrying on business across jurisdictional borders; and
- implementing a national regulatory structure to facilitate uniform administration and the
The Options
The Ministerial Council on Consumer Affairs (Ministerial Council) presented three models for consideration in its recent Regulatory Impact Statement.
These were:
OPTION 1: encouraging incorporation under the Act;
OPTION 2: maintaining the status quo, but with the removal of existing variations between the jurisdictions;
and
OPTION 3: introducing the proposed Co-operatives National Law.
Option 1 does not require any changes to be made to the existing legislative structure as this option is currently available to co-operatives. In this sense, it does not remove a need for a national legislative framework, particularly where a co-operative elects not to incorporate under the Act. As it currently exists, this option is regarded as a complement to a national system rather than an alternative to it. All the objectives of the Co-operatives National Law can be achieved by co-operatives under this option, albeit at greater cost.
The following table summarises options 2 and 3 in light of each of the five objectives of the proposed Co-operatives National Law, listed above, as considered in the Regulatory Impact Statement.
| Objective | Option 2 – Status Quo | Option 3 – Co-operatives National Law |
| 1 | would not deliver, apply and maintain nationally consistent co-operatives legislationnot feasible to co-ordinate changes across eight jurisdictions | legislation enacted and maintained in one jurisdiction (NSW) on behalf of all states and territoriesregulations made by Governor of New South Wales which apply in all states and territoriesongoing national uniformitylow familiarisation costs would be incurred initiallyno other costs identifiedreduced legislative maintenance costselimination of duplication of costs of policy assessment, legislation development and Parliamentary processes |
| Objective | Option 2 – Status Quo | Option 3 – Co-operatives National Law |
| 3 | financial and auditing requirements would be neither simplified nor consistent with small proprietary companiescompliance similar to that of public companiescontinued inconsistencies where some jurisdictions provide modest exemptions whilst others offer nonehigh costs would continue | simplified financial reporting and auditingsimilar requirements to small proprietary companies available to small co-operativesprescribed definition of “small co-operative” determine cost of reductions arising from exemptions |
| Objective | Option 2 – Status Quo | Option 3 – Co-operatives National Law |
| 4 | continued high costs to register in other jurisdictionscontinued uncertainty as to whether registration will be approvednew notification system planned to replace registration system – reduces costs but still creates competitive disadvantage to companies where no restrictions are imposed on conducting business across jurisdictionsnotification procedure reduces costs and procedural difficulties associated with carrying on business across bordersno approval necessaryno notification to a regulatory body necessary | incorporation of the proposed notification procedure for foreign co-operativessame as if status quo retainedsimilar to registration as a company or Registrable Australian Body (RAB) with ASIConly needs to be done oncealternative: no prohibition on carrying on business in foreign jurisdiction if registered in a jurisdiction that applies the Co-operatives National Law or where co-operative holds an RAB number |
| Objective | Option 2 – Status Quo | Option 3 – Co-operatives National Law |
| 5 | variations in application forms and fees would continueno enforceable undertakingsno compliance mechanism available to Registrar of Co-operatives in any jurisdiction | nationally uniform provision for supervision of co-operatives (based on current provisions in Queensland)template can be modified by each jurisdiction if necessary eg in relation to use of search warrantsnational regulations can be establish standard forms for applications and returns and can set default feesenforceable undertakings equivalent to those currently available to ASICno effect on compliance costs expected |
| Chapter | Summary |
| 1 – Preliminary | provides principles used by a co-operative organisationthese principles are agreed by international Co-operative Alliance and incorporated into Recommendation 193 of the International Labor Organisationspecifies definitions and interpretationsets limits on application of the Act |
| 2 – Formation, powers and constitution of co-operatives | provides mechanism for incorporation and transfer to another form of corporate bodyspecifies legal powers of incorporated bodyidentifies matters to be included in rulesauthorises Registrar of Co-operatives to publish model rulesestablishes provisions for membershipprovides for issuing shares |
| 3 – Management and operation co-operatives | establishes requirements for directors and officers (more consistent with the Act)minimum requirements for voting and holding member meetingsprovides requirements for financial reporting which are more streamlined for small co-operatives (more consistent with the Act)provides for fundraising from public through securities e.g. debenturesenables co-operatives to issue special type of security (Cooperative Capital Unit)sets out disqualification of directors and officersrestrictions on acquisition of interests in a co-operative |
| 4 – Structural and other events for co-operatives | deals with circumstances where co-operative is restructured or ceases to existapplies provisions of Act related to co-operatives under administration, receivership or that are insolvent or being wound upsimplifies process for winding up where no longer in operationregulates mergers and transfersdeals with compromises and arrangements with creditorssets out the de-registration process and requirements |
| 5 – Foreign co-operatives | simplifies existing administrative arrangements for cooperatives that conduct business in more than one state or territoryauthorises Registrar of Co-operatives to wind up foreign co-operative has been de-registered in their home jurisdiction |
| 6 – Supervision and protection of co-operatives | establishes powers of Registrar of Co-operatives, inspectors and special investigatorsprovides procedure for conducting investigationsprovisions able to be modified by particular jurisdictions to account for local circumstancesestablishes general offence provisions eg making false statements, falsification of records, fraud, offering and accepting commissions |
| 7 – Legal proceedings and other matters | establishes nationally consistent provisions for offences, appeals against administrative decisions and use of evidence in proceedings |
| 8 – General | miscellaneous administrative matter eg service of documents, making of national regulations |
| Chapter | Summary |
| Schedule 2 | terms used in provisions regulating interests in shares and property |
| Schedule 3 | provisions for receivers and controllers of property when under administration or being wound up |
| Schedule 4 | transitional provisions |
| Schedule 5 | interpretation provisions |
| Schedule 6 | registration of charges against co-operative property redundant when proposed national property security legislation comes into effect |
It is anticipated that this new piece of legislation will be enacted in New South Wales during 2010, with the other jurisdictions applying the legislation within twelve months, so that a fully national co-operatives law is implemented in 2011.
Conclusion
The closing date to submit comments on the Ministerial Council’s Regulatory Impact Statement was 26 February 2010. We must now wait for the preparation and publication of the decision making Regulatory Impact Statement that will contain the results of further analysis of the expected impacts of introducing the Co-operative National Law, taking into account submissions from stake holders. It is clearly imperative that a change to the current legislative framework is required to quell the declining numbers of co-operatives, and to improve the regime within which these organisations operate by removing barriers to competition and reducing the costs of complying with administrative requirements.
Naturally, co-operatives must also help themselves. Whether or not a national scheme is introduced, co-operatives should be reviewing their constituent documents and managerial and operational processes and procedures to ensure that they too are encouraging competition and efficiency. All organisations meander off track, away from their initial objectives, from time to time, or even just go stale. The possible introduction of a whole new framework under which to operate signals a prime time for a spring-clean or thorough audit.
It will be interesting to analyse the success of any national legislative framework over the coming years. One obvious measure of its success will be the rate of atrophy within the sector; if it continues on its current course, the costs, in time and money, spent on introducing and implementing a national system may all be too little, too late.
