Chris Bowen (Prospect, Australian Labor Party, Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

by leave—I present a supplementary explanatory memorandum to the Corporations Amendment (Corporate Reporting Reform) Bill 2010 and move government amendments (1) to (4):

(1)    Schedule 1, item 52, page 21 (after line 23), after subsection 1510B(1), insert:

     (1A)    The amendment made by item 6 of Schedule 1 to the amending Act applies in relation to a company limited by guarantee incorporated on or after the commencement of that item.

(2)    Schedule 1, item 52, page 21 (line 24), omit “6,”.

(3)    Schedule 1, item 54, page 23 (after line 23), after subsection 1515(1), insert:

     (1A)    The amendment made by item 6 of Schedule 1 to the amending Act applies in relation to a company limited by guarantee incorporated on or after the commencement of that item.

(4)    Schedule 1, item 54, page 23 (line 24), omit “6,”.

Among its red-tape-reducing changes this bill contains measures to significantly reduce the regulatory burden on companies limited by guarantee. Consistent with this objective and in order to avoid disrupting existing and, in some cases, longstanding corporate arrangements, I am moving amendments to grandfather the prohibition on companies limited by guarantee paying dividends to their members. The corporate structure of companies limited by guarantee means that they are not well suited to conducting activities involving the payment of dividends to members. This is because members are not shareholders, generally invest only nominal amounts of capital into the company and do not expect financial returns from the company. For example, in the case of a small sporting club, members receive returns in the form of access to facilities and discounted goods and services.

Almost all companies limited by guarantee have a not-for-profit focus and will not pay dividends to their members in any case. While the structure of such companies is not suited to the distribution of dividends it is still technically possible for a company limited by guarantee to pay dividends. Recently some stakeholders have raised concerns with the proposed prohibition as the constitutions of a very small number of companies enable them to pay a dividend and the prohibition had the potential to inconvenience the longstanding arrangements. For example, these companies would be required to change their corporate structure should they need to pay dividends. This in turn would increase their regulatory burden.

This issue was not identified during the public consultation process but was raised more recently. After giving these issues due consideration, the government recognises the merits of making amendments at this stage. Consequently I am moving minor amendments to ensure that prohibition will only apply to companies limited by guarantee incorporated on or after the commencement of the bill. This grandfathering avoids adversely affecting the existing arrangements that a small number of companies limited by guarantee may have in place for the payment of dividends.

Question agreed to.

Bill, as amended, agreed to.