House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Financial Services and Regulation, the Honourable J.B. Hockey MP and the Attorney-General, the Honourable Daryl Williams AM QC MP)

Chapter 5 - The Corporations Law as a Commonwealth Act

Short title and Commencement

5.1. The short title of the Act will be the Corporations Act 2001 (clause 1).

5.2. The Act will commence on a day to be fixed by Proclamation. Due to the uncertain timing of the passage of State reference legislation, this may not be within six months after the Bill receives Royal Assent. The Bill therefore does not provide for commencement on the earlier of proclamation or six months after Royal Assent (clause 2).

From eight Corporations Laws to one Corporations Act 2001

5.3. The Corporations Act 2001 will comprise the text of the current Corporations Law amended so that it may operate as an Act of the Commonwealth Parliament throughout Australia. Subject to the changes noted below, provisions in the Bill have the same numbers as the corresponding provisions of the Corporations Law.

The jurisdiction will be different

5.4. The operation of the new Corporations Act 2001 in the States will depend on State references, as well as the powers that the Commonwealth Parliament has apart from such references (clause 3).

5.5. Bill clause 5(4) is based on section 110D of the Corporations Law. It provides that Chapters 1 to 6C, and Chapters 9 and 10, of the Bill will apply according to their tenor in relation to all natural persons, bodies corporate, unincorporated bodies, and acts and omissions outside `this jurisdiction' (see below). These chapters largely cover the formation of companies and corporate regulation as well as machinery and transitional matters. Bill clause 5(6) provides that some provisions concerning the securities and futures industries will also apply in relation to all natural persons, bodies corporate, unincorporated bodies, and acts and omissions outside `this jurisdiction'. Bill clause 5(8) provides that the Bill will not apply to an act or omission in a State that is not a referring State to the extent that application would be beyond the legislative powers of the Parliament (including powers it has under Constitution, sections 51(xxxvii) and (xxxix)) (see below in relation to non-referring States).

5.6. The area covered by `this jurisdiction' will include the Australian Capital Territory, the Jervis Bay Territory, the Northern Territory and the referring States (clause 5(1)). Accordingly, `this jurisdiction' will consist of the whole of Australia if all the States are referring States, or Australia (other than any State that is not a referring State) if one or more States are not referring States. The Bill uses the expressions `this jurisdiction' or `State or Territory in this jurisdiction' in a number of places where the Corporations Law currently refers to Australia. The Bill makes it clear that the expressions:

•

'outside this jurisdiction' includes places outside Australia (clause 9 (definition of `outside this jurisdiction') and 102B(2)).

•

'Australia' means in Australia, as defined by the Bill (whether in this jurisdiction or not) (Clause 102C). Bill clause 9 provides that `Australia', when used in a geographical sense, does not include an external Territory. This definition will override the Acts Interpretation Act 1901 , section 17(a), which provides that Australia includes the Territory of Christmas Island and the Territory of Cocos (Keeling) Islands.

When will a State be a referring State and therefore in 'this jurisdiction'?

5.7. A State will be a referring State (clause 4) if the Parliament of the State has referred to the Parliament of the Commonwealth:

•

the matters that are necessary to enable the Parliament of the Commonwealth to enact the Bill and the ASIC Bill; and

•

the matters of the formation of corporations, corporate regulation and the regulation of financial products and services, to the extent to making laws with respect to those matters by express amendments of the Bills as enacted and as amended from time to time (clause 4(8)).

5.8. A State can remain part of the scheme if it terminates its amendment reference, but only if it gives at least six months notice of the termination and if every other referring State terminates its amendment reference on the same day (clause 4(7)). As mentioned above, it is assumed that Corporations Agreement will provide that if four States vote to terminate the amendment reference all referring States will terminate that reference.

5.9. A State will therefore cease to be a referring State if the reference by the State Parliament to the Commonwealth Parliament of either of the referred matters is otherwise terminated wholly or in part. However, it will not cease to be a referring State simply because the State reference legislation provides that the reference to the Commonwealth Parliament of either or both of the matters referred is to terminate in particular circumstances (see the preceding paragraph); or because the State reference legislation includes a general purpose or object provision of the kind mentioned at paragraph 4.11 above.

5.10. The Bill will generally require things (other than people) to be located or done in the referring States and Territories, and refer to things or people moving to and from the referring States and Territories, where the Corporations Law currently refers to Australia or to a particular State or Territory. In some cases the Bill changes the geographical focus of a provision from a particular State or Territory to the area comprising all of the referring States and Territories (clauses 142(1), 143(2),156, 172, 186, 206H, 251A(5)(b), 253M(3), 261(1) (definition of `property'), 285(2), 289, 291 (Table, Item 4), 348 (table, item 10), 411(3A) and (8), 416 (definition of `property'), 420(1), 486A, 486B(1)(b)(i), 487, 581(2), 583, 585, 588(1), 601CA, 601CC(14) and (15), 601CF(3), 601CG(1), 601CL, 601CM, 601CT(1), 601CZC(1), 610ED(5), 668A(2), 766I, 856(14), 881(1), 906, 923, 961D(4), 962(2), 995A, 1091C(1), 1097(1) (definition of `eligible body'), 1117(1)(b), 1141(1) and (2), 1209(3), (4) and (4A), 1213(8) and (9), 1238, 1268(1), 1271(1)(b), 1292(1)(ii), 1300(1), 1302(1) and 1304(2)).

5.11. Bill clause 1369A will allow regulations to be made addressing issues that might arise should a State cease to be a referring State. For example, the regulations could allow a period of grace to enable things that are required to be located in a referring State, like a registered office, to be relocated.

Only one Corporations Act 2001

5.12. The new Corporations Act 2001 and regulations made under it will replace the Corporations Law of the Capital Territory, each referring State and the Northern Territory, and the Corporations Regulations of the Capital Territory, each referring State and the Northern Territory. After commencement of the Act, it will therefore be necessary to refer to the Corporations Act 2001 where the current practice would be to refer to the Corporations Law. The Bill uses the term `this Act' (or a similar expression) in places where the Corporations Law refers to `this Law', `Corporations Law of this jurisdiction', `Corporations Law of this or any other jurisdiction' or `Corporations Law criminal proceedings'. It also defines the term `national corporate law' to mean the Bill and the ASIC Bill as enacted and amended from time to time (clause 9).

5.13. Section 8 of the Corporations Law ensures that a reference in the Corporations Law to that Law includes a reference to each of the eight existing Corporations Laws. Section 14 of the Corporations Act 1989 and corresponding provisions in the State Corporations Acts does this for all instruments. As there will only be one Corporations Act 2001 applying throughout the referring States, the Bill does not include provisions of this kind. Similarly, the following sections found in the Corporations Law are not included in the Bill because they are required solely to address issues arising from the fact that there is more than one Corporations Law:

9 definitions of:

`other jurisdictions'

`regulations'

58 defining `corresponding laws'

58A recognition of acts etc. done under corresponding laws

102A application not to be granted unless application also made under corresponding laws

415A enforcement of orders made in other jurisdictions

581(1)(b) courts to act in aid of each other

Part 5.7A, Division 1 application of Part 5.3A to matters arising under corresponding laws

938(4A) SEGC levies paid in other jurisdictions

954(2A) claims to SEGC previously allowed in another jurisdiction

954J nexus of participating exchange with this jurisdiction. See also the repeal of sections 954U, 954ZB, 961A and 966A of the Corporations Law.

965K preventing double recovery from SEGC in another jurisdiction. See also the repeal of sections 954V, 954ZC, 961B and 961H of the Corporations Law.

1108A effect of sections 1105 to 1108 on marketable securities and rights from another jurisdiction

1109H effect of sections 1109E, 1109F and 1109G on quoted securities and rights from other jurisdictions

1112C(4) civil liability of brokers under more than one Corporations Law

1310A offences under two or more Corporations Laws

1310B civil liability under two or more Corporations Laws

1313B when same offence committed under two or more Corporations Laws.

5.14. The following provisions have been amended or rewritten because there will only be one Corporations Act 2001 applying as a Commonwealth Act across a single jurisdiction (instead of the existing eight Corporations Laws applying in eight separate jurisdictions):

8A Corporations Regulations, and application orders, of a jurisdiction treated as part of that jurisdiction's Corporations Law (Bill clause 9 defines `this Act' to include a reference to the regulations.)

9 paragraph (b) of the following definitions:

`dealers licence'

`futures advisers licence'

`futures brokers licence'

`investment advisers licence'

`law'

`registered Australian body'

`registered body'

`registered company auditor'

`registered foreign company'

`registered liquidator'

9 paragraphs (b) and (d) of the definition of `banning order'

601CD when a foreign company carries on business in this jurisdiction

601CE(j) application for registration as a foreign company

604(1) extension of Chapter 6 to listed managed investment schemes registered in this jurisdiction

660B(1) extension of Chapter 6A to listed managed investment schemes registered in this jurisdiction

770A(2) omission of a cross-reference to section 102A, which is not included in the Bill (see above)

779B(2) omission of a cross-reference to section 102A, which is not included in the Bill (see above)

871(2)) trust money held by holder of dealers licence under any Corporations Law is not available in respect of dealer's own debts.

874(1) Court may freeze certain bank accounts of dealers and former dealers

920 definition of `fund provisions' no longer refers to the Corporations Law of other jurisdictions.

1308(3A) avoidance of double jeopardy for offences against Corporations Regulations and clause 1308(2).

No more 'recognised companies'

5.15. All companies will be incorporated (by registration) under a single Commonwealth Act, the Corporations Act 2001 , instead of under one of the eight existing Corporations Laws. A company that was registered under the Corporations Law will be taken to be registered under the Bill with the same attributes that it had when registered under the Corporations Law (including the date on which it was first registered) (clause 1378). A certificate issued by ASIC (or an earlier company law regulator) stating that a company was registered under the companies legislation of a referring State or Territory will be conclusive evidence that all the requirements of that legislation for the registration of the company were complied with, and that the company was duly registered as a company under that legislation (clause 1389).

5.16. The Bill does not include the following sections currently included in the Corporations Law solely because companies must be registered under one of a number of different Corporations Law:

276AA charges of company transferring jurisdiction

Part 5.7A Division 2 winding up recognised companies

606(1) omission of Note 1: `company' means a company incorporated in this jurisdiction

1362A recognition of companies from other jurisdictions

1362B transfer of registration to another jurisdiction.

5.17. The following provisions of the Bill also differ from the corresponding provisions in the Corporations Law whose drafting currently reflects the fact that a company is registered in any one of eight jurisdictions:

9 definitions of `administration', `company' and `public company'

57A omission of `recognised company' from the definition of `corporation'

117(2)(a) companies will be registered under the Bill as enacted

507 subsections (7) and (7A): law applying to a liquidator's arbitration

300(10) preparing financial reports of subsidiaries of a recognised company

977 subsections (2) and (2A): law applying to National Guarantee Fund arbitrations

1087(1) share certificate need not state jurisdiction in which company is registered

1091(1A) share transfer instrument to show prescribed details - see paragraph 5.25 below

1091 subsections (2) to (7) amended to allow shares etc. of dead shareholder to be dealt with in accordance with the law of the State or Territory in which the share is located.

Jurisdiction of incorporation and registration

5.18. A company registered under the Bill will be incorporated `in this jurisdiction' and taken to be registered in a particular referring State or Territory.

5.19. Bill clause 119A(1) provides that companies are incorporated `in this jurisdiction'. Accordingly they have the attributes conferred by the Bill throughout `this jurisdiction' even though they are taken to be registered in a particular State or Territory.

5.20. Some State legislation relies on companies being incorporated or registered in a particular State or Territory - for example, stamp duty is imposed on certain share transfers on the basis of the jurisdiction in which the company that issued the shares is incorporated or registered. In order to facilitate the continued operation of the State legislation, or to allow it to operate with only minor amendments, the Bill provides for new companies to be taken to be registered in the referring State or Territory specified in the application lodged with ASIC to incorporate the company (clauses 5H(4)(b), 117(2)(n)), 119A(2) and 601BC(2)(o)). Companies will be able to change the jurisdiction in which they are taken to be registered, with the approval of the relevant State or Territory minister of the State or Territory in which the company is taken to be registered, provided the procedures specified in the Corporations Regulations have been satisfied (clause 119A(3)). This is equivalent to provisions presently in section 1362B of the Corporations Law enabling companies to transfer their registration from the Law of one jurisdiction to the Law of another.

5.21. An application under sections 117 or 601BC of the Corporations Law for the registration of a company will lapse on the commencement of the Bill. Further, any fee paid towards any such registration must be returned to the applicant unless, with the applicant's permission, it is applied towards an application under the Bill (clause 1387).

5.22. Bill clauses 118(1)(c)(iv) and (v) and 601BD(1)(c)(iv) and (v) provide that ASIC must give new companies a certificate stating:

•

that the company is registered under the Corporations Act 2001 ; and

•

the State or Territory in `this jurisdiction' in which the company is taken to be registered.

5.23. Existing companies will be taken to be registered in the State or Territory under whose Corporations Law the company was registered immediately before commencement of the Bill (clause 1378(4)).

5.24. A company will continue to be registered under the Corporations Act 2001 and incorporated in this jurisdiction (that is, the Territories and the remaining referring States) even if the State in which the company is taken to be registered ceases to be a referring State (clause 119A(4)). If the State in which a company is taken to be registered ceases to be a referring State then the company will be able to nominate a referring State or Territory within this jurisdiction as the State or Territory in which it will be taken to be registered (clause 119A(3)).

5.25. The requirement in section 1091(1A)(b) of the Corporations Law that a proper instrument of transfer must show the company's jurisdiction of registration will be replaced with a requirement that the instrument show the particulars prescribed in the regulations. This provides the flexibility necessary to ensure that appropriate details are included on those instruments so as to facilitate the continued collection of stamp duty on off market transfers of securities.

Bodies formed under a law of a State or Territory

5.26. The Corporations Law of each jurisdiction currently includes a number of provisions concerning bodies incorporated or formed in another State or Territory.

5.27. The Bill will extend the definition of the term `corporation' to include all bodies incorporated or formed under the law of any State or Territory (clause 57A). The following definitions in section 9 of the Corporations Law, which relate to bodies originating in a particular State or Territory, are not included in the Bill:

`local corporation'

`registrable local body'

`local futures association'

`local futures exchange'

`local securities exchange'

`local stock exchange'.

5.28. Compensating amendments have been included in the following clauses of the Bill to substantially preserve the effect of the existing corporations legislation on bodies incorporated or formed under the law of a State or Territory:

9 definitions of:

`company' (omission of reference to `registrable local body' in subclause (b))

`exchange subsidiary' (omission of paragraph (c) relating to local securities exchanges)

`futures association' (omission of paragraph (b) relating to local futures associations)

`futures organisation' (omission of paragraph (c) relating to local futures exchanges)

`Part 5.1 body' (omission of reference to `registrable local body' in subclause (b))

`Part 5.7 body' (omission of reference to `registrable local body' in paragraph (a))

`place of origin' (extended to include unincorporated bodies)

`securities exchange' (omission of sub-paragraph (d)(i) relating to local stock exchanges)

`stock exchange' (omission of paragraph (d) relating to local stock exchanges)

190A for a registrable Australian body, Division 1 of Part 2D.1 concerning the general duties of the directors of a corporation, is confined to matters outside its place of origin

197(4) directors of registrable Australian bodies are not be liable under Bill clause 197 for debts incurred by the body as a trustee outside its place of origin

206HA for a registrable Australian body, Bill Part 2D.6 concerning disqualification from managing corporations, is confined to matters outside place of origin

261 subclause (a) of the definition of `property': in Bill Chapter 2K concerning charges `property' does not include property of a registrable Australian body inside its place of origin

416 subclause (c) of the definition of `property': in Bill Part 5.2 concerning receivers etc., `property' does not include property of a registrable Australian body inside its place of origin)

433 omission of subsection (1) relating to registrable local bodies: Bill clause 433 applies to all registered Australian bodies, but not to property inside their place of origin

583(d) winding up of registrable Australian body to deal only with affairs outside place of origin

588(1) vesting of property located outside place of origin of registrable Australian body that is wound up

601BC subclause (2)(c): registered Australian body registered under only one Act

601CA when a registrable Australian body may carry on business in this jurisdiction outside its State or Territory of origin

601 omission of reference to `registrable local body' in paragraph (d): registered Australian body to lodge details of charges over property located outside place of origin

601CC subclauses (1) and (1A): registered Australian body must deregister when it ceases to carry on business interstate outside its place of origin

601CW subclauses (1) and (1A): registered Australian body does not have to display its name outside places of business in its place of origin

708(2) prospectus not required in a referring State or Territory for an offer of securities of an exempt body in that State or Territory

984 omission of reference to `local Exchange subsidiary' in the definitions of `joining day' and `joining exchange'.

5.29. Section 601DD of the Corporations Law provides that a registered Australian body must not carry on business in a State or Territory under a name unless, among other things, the name is registered for it under the law of the State or Territory. Bill clause 601DD(3) provides instead that the body may use the name in the State or Territory in which it is incorporated or formed if use of that name is authorised by a law of that State or Territory concerning business names.

Application Orders

5.30. The Bill does not include provisions corresponding to Part 1.3 of the Corporations Law, concerning application orders, which provide a mechanism for permitting differences in how the Corporations Law applies in each State or Territory. The following clauses of the Bill instead contemplate that the Corporations Regulations will deal with the matters currently addressed through the application orders:

9 paragraph (c) of the definition of `managed investment scheme'

115 restriction on size of partnerships

273A to 273E (inclusive) replacing section 273 of the Corporations Law concerning the registration of charges under the law of a State or Territory.

5.31. The application order made under section 115 of the Corporations Law in relation to the members of partnerships will have effect after commencement of the Bill as a regulation made for the purposes of Bill clause 115 (clause 1388).

ASIC to administer the Act

5.32. Bill clause 5B is the same as section 2 of the Corporations Law, and provides for ASIC to administer the Corporations Act 2001 .

From Corporations Act 1989 to Corporations Act 2001

Regulations

5.33. Bill Part 9.12 is based on Part 5 of the Corporations Act 1989 , and provides for the making of regulations.

Jurisdiction of Courts

5.34. The Bill includes a new Part 9.6A entitled `Jurisdiction and procedure of Courts'. Division 1 of Part 9.6A of the Bill comprises clauses 1337A to 1337V (inclusive) concerning the vesting and cross-vesting of civil jurisdiction of courts under the Bill. Division 2 of Part 9.6A of the Bill comprises clauses 1338A to 1339B (inclusive) concerning the vesting and cross-vesting of criminal jurisdiction under the Bill. Part 9.6A is intended to produce substantially the same outcomes as Part 9 of the Corporations Act 1989 , entitled `Jurisdiction and procedure of Courts' and the corresponding provisions of the State Corporations Acts before the decision in Wakim . However, there are some variations in the way this is achieved as a result of the Bill being federal legislation and some existing uncertainty has been removed.

5.35. Bill Part 9.6A will not include provisions corresponding to sections 50, 56 and 63 of the Corporations Act 1989 . The definitions in section 50(1) that are required for the purposes of Part 9.6A have been moved to Bill clause 9. Sections 50(2) and 63 are no longer required because, unlike the Corporations Law, the Bill will not operate as an applied law in the States and the Northern Territory. The Bill does not include a provision corresponding to section 56 of the Corporations Act 1989 , because the jurisdiction will be federal jurisdiction and no question arises as to the exercise of State jurisdiction by federal or Territory courts.

5.36. Bill clause 1337A is based on section 49 of the Corporations Act 1989 . It provides that Division 1 of Part 9.6A operates to the exclusion of Judiciary Act 1903 , section 39B. Unlike section 49, Bill clauses 1337A(2) and (3) make it clear that the Division does not limit the operation of the Judiciary Act 1903 (other than section 39B) in relation to criminal matters.

5.37. Bill clause 1338A is based on section 62 of the Corporations Act 1989 . It notes that Division 2 of Part 9.6A operates to the exclusion of sections 68, 70 and 70A of the Judiciary Act 1903 in relation to the jurisdiction of courts in respect of criminal matters arising under the Corporations legislation. Unlike section 62, Bill clauses 1338A(2) and (3) make it clear that the Division does not limit the operation of the Judiciary Act 1903 (other than sections 68, 70 and 70A) in relation to criminal matters. In so doing, it is intended to make it clear that the reasoning of the majority of the court in ASIC v Vis & ors
[2000] SASC 258 (29 August 2000) concerning the jurisdiction of courts to hear appeals from summary dismissals is not to apply in relation to jurisdiction under the Bill as enacted. Rather, the position in relation to the corporations legislation should be the same as with other offences against other federal laws notwithstanding that some aspects are dealt with in the Bill rather than under the Judiciary Act 1903 itself.

5.38. Bill clause 1338B is based on section 64 of the Corporations Act 1989 . Bill clause 1338B(11) makes it clear that the conferral of jurisdiction in relation to appeals includes jurisdiction in relation to an application for a new trial and a proceeding to review or call in question the proceedings, decision or jurisdiction of a court or judge.

5.39. Bill clause 1338C is based on section 65 of the Corporations Act 1989 and section 56 of the State Corporations Acts. The existing provisions provide that the laws of the State in which the person is charged apply to the arrest, custody and criminal procedure relating to persons charged with offences. Subsections 65(1) and (2), and the corresponding provisions of the State legislation, have been simplified as Bill clause 1338C(1) because the Bill will not form part of an applied law scheme. Bill clause 1338C(1) makes it clear that the court to apply the rules of evidence applied in criminal procedure in the State or Territory in which the person is charged.

5.40. The Bill does not include provision corresponding to:

•

Section 59 of the Corporations Act 1989 , concerning the enforcement of orders of a federal court, because Federal Court Act 1976 and the Judiciary Act 1903 set out the necessary machinery for the enforcement of judgments of courts exercising federal jurisdiction; and

•

Subsection 61A(3) of the Corporations Act 1989 , concerning the rules of a State Family Court exercising jurisdiction under the Corporations Law.

Application of the Act to the Crown

5.41. Bill clause 5A will have the same effect as sections 16 to 18 of the Corporations Act 1989 .

Business names

5.42. Section 70 of the Corporations Act 1989 has been transferred to Bill clause 147(5), which allows the Minister to identify State and Territory business names registers for inclusion in the national business names register mentioned in clause 147(1)(a). A notice in force under section 70 will have effect as though it were made under clause 147(5) (clause 1391).

National Guarantee Fund

5.43. Bill clauses 925A and 925B will have the same effect as existing sections 67 and 68 of the Corporations Act 1989 concerning the nomination of a body corporate as the Securities Exchanges Guarantee Corporation, and the powers of the Securities Exchanges Guarantee Corporation respectively.

5.44. Bill clause 928B will continue in existence the National Guarantee Fund established by the SEGC under the Corporations Laws of the States and Territories. The nomination of a body corporate under section 67 of the Corporations Act 1989 , as the SEGC will have effect as a nomination under clause 925A (clause 1390). A person who has a right immediately before commencement of the Bill to claim against the National Guarantee Fund under the Corporations Law will be able to make that claim under the corresponding provision of the Bill (clause 1400(2)). Those persons will be able to make their claim even if it arises under Part 7.10 of the Corporations Law of a State that is not a referring State (clause 1400(4)).

Relationship with other Commonwealth Acts

5.45. The Commonwealth Parliament will have legislative power with respect to matters that are incidental to the matters referred to the Commonwealth by the States (Constitution, section 51(xxxix)). Existing Commonwealth Acts such as the Crimes Act 1914 and Evidence Act 1995 (as amended from time to time) will therefore apply to the matters under Bill and the ASIC Bill once enacted.

5.46. References in the Corporations Law to certain Commonwealth Acts `applying as a law of this jurisdiction' have not been included in the Bill as the Bill will operate as a Commonwealth Act (clause 9, paragraph (c) of the definition of `ancillary offence'; clause 437E(1)(a) in relation to Crimes Act 1914 , section 5; and clause 1317J(5) in relation to the Director of Public Prosecutions Act 1983 ).

Acts Interpretation Act 1901

5.47. The scope of what is referred by a State Parliament is determined by that Parliament. As the scope of the matters referred is in part determined by reference to a particular text, Bill clause 5C provides that the text referred is to be interpreted in accordance with the Acts Interpretation Act 1901 of the Commonwealth as in force on 1 November 2000. This is intended to preclude any argument that the matters referred differ from State to State (as a result of differences in the relevant interpretation legislation) or that the scope of the reference may change as a result of amendments of the Acts Interpretation Act 1901 . While the Bill applies the Acts Interpretation Act 1901 as at 1 November 2000, it is envisaged that changes to that Act could be applied to the interpretation of the legislation by an appropriate amendment of clause 5C in reliance on the amendment reference (see paragraph 4.10 above).

5.48. The Bill does not address a number of matters that are currently addressed in both the Corporations Law and the Acts Interpretation Act 1901 , on the basis that they will now be covered by the Acts Interpretation Act 1901 . In particular, sections 109A to 109Z (inclusive, but excluding sections 109Q and 109X) and section 338 of the Corporations Law have not been included in the Bill. In addition, some definitions in section 9 that are no longer required have not been included in the Bill (for example, the definitions of `Account', `calendar month', `calendar year', `Consolidated Revenue Fund', `contravene', `Department', `document', `estate', `Executive Council', `foreign companies law', `foreign country', `Gazette', `Government Printer', `individual', `Jervis Bay Territory', `justice of the peace', `land', `magistrate', `month', `office', `originating provision', `Parliament', `Proclamation', `record', `statutory declaration', `swear' and `writing').

5.49. Bill clause 334(2) provides that the Acts Interpretation Act 1901 , section 46A (as in force on 1 November 2001), applies to a standard made under clause 334(1) as if it were a disallowable instrument for the purposes of that section. The Acts Interpretation Act 1901 will therefore apply to accounting standards as though the standards were regulations made under an Act of the Commonwealth Parliament.

Crimes Act 1914

5.50. As the Crimes Act 1914 will apply of its own force to offences arising under the Bill, the Corporations Law definition of `penalty' has been omitted from the Bill. Instead, the definition in Crimes Act 1914 , as amended from time to time, will apply. This will effectively change the value of a penalty unit from the $100 currently specified in Corporation Law, section 9, to the $110 specified in Crimes Act 1914 , section 4AA. A criminal liability that exists under the Corporations Law immediately before commencement (other than a liability that arises under a court order) will be taken to exist under the corresponding provision of the Bill (clause 1440(2)). However, the amount of a penalty unit applying under the Bill to those offences will be the amount that applied under the Corporations Law (that is, $100), despite the effect of Crimes Act 1914 , section 4AA (clause 1375).

Constitutional Matters

Acquisition of property on just terms

5.51. Bill clause 1350B will preserve the effect of section 1362BA of the Corporations Law requiring just terms to be provided for compulsory acquisitions of property made under the new Corporations Act 2001 where this is required under section 51(xxxi) of the Constitution.

Fees and levies

5.52. In order to comply with section 55 of the Constitution, the Bill does not include a number of provisions that currently relate to the imposition of fees. (Sections 902(3), 904(5), 919, 940(6), 941(6), (8) and (9), 942, 1236(1) and (2), 1351 and 1352). It is expected that these fees will be imposed as taxes by the following Bills (as enacted):

•

Corporations (Fees) Bill; and

•

Corporations (Securities Exchanges Levies) Bill; and

•

Corporations (Futures Organisations Levies) Bill; and

•

Corporations (National Guarantee Fund Levies) Bill.

5.53. A fee or deposit paid under the section 1351 of the Corporations Law of a State or Territory in relation to a particular matter will satisfy any liability under clause 1351 arising in relation to the same matter (clause 1393).

5.54. The Bill does not include provisions corresponding to:

•

section 1352(1) of the Corporations Law to the effect that the part of any fee exceeding $25,000 is not payable (however, it is expected that of the Corporations (Fees) Bill will impose a $25,000 limit on the fees that may be imposed under that Bill and will therefore have the same effect as section 1352(1)); and

•

sections 1355(b), 1357 and 1358 of the Corporations Law, allowing ASIC to collect a deposit towards a fee in certain circumstances.

5.55. The term `chargeable matter' will have the meaning that it has in the Corporations (Fees) Bill 2001 (clause 9, definition of `chargeable matter'). ASIC will be able to recover unpaid fees on behalf of the Commonwealth as a debt (clause 1360).

5.56. Bill clauses 902, 904, 938, 940, 941, 1229(b), 1234 and 1235, concerning contributions to the fidelity fund of a securities or futures exchange, reflect the requirement in section 81 of the Constitution, that all revenues or moneys raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund, to be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by the Constitution. The Bill provides for the collection of the tax by the exchanges as agent for the Commonwealth. The Financial Management and Accountability Act 1997 will not apply in relation to the payment of an amount of levy under this section to an exchange as agent for the Commonwealth. The payment of the tax to the Commonwealth by the exchange will be set off against a corresponding appropriation of the same amount to the exchange for inclusion in its fidelity fund. The Bill does not include provisions corresponding to sections 903(2) and (8) of the Corporations Law as these rules will be in the Corporations (Securities Exchanges Levies) Bill. These provisions concern the suspension of securities exchange fidelity fund levies when fund balance exceeds $2 million and the resumption of the levy when the balance falls below $1 million.

5.57. An amount paid before the commencement of the Bill under the Corporations Law of a State or Territory towards the membership of a securities or future exchange, or a contribution towards a fidelity fund of a securities or futures exchange, will be taken to satisfy any liability in relation to that matter arising under the Bill (clauses 1394, 1395 and 1396). The assets comprising the fidelity fund of a securities or futures exchange immediately before the Bill commences will become the assets of the fund immediately after that commencement (clauses 896(aa) and 1229(1)(a)).

Judicial power of the Commonwealth

5.58. As the new Corporations Act 2001 will be an Act of the Commonwealth Parliament, Chapter III of the Constitution - which provides for the exercise of federal judicial power - will be directly relevant.

5.59. The following changes to provisions of the Corporations Law have been made to ensure conformity with the requirements of Chapter III of the Constitution:

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Bill clause 206F(2)(b)(ii), which expressly enables ASIC to have regard to the public interest in determining whether to disqualify a person from managing a corporation, further distinguishes ASIC's administrative power from the judicial power to disqualify conferred on the court under clause 206D;

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Bill clauses 422(3), 438D(3) and 533(3) will not allow the Court on its own motion to direct a receiver, administrator or liquidator to lodge a report about offences committed by officers of a company; and

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Bill clause 1322(6)(a)(iii) requires the court to apply a `just and equitable' test rather than a `public interest' test in exercising its power under clause 1322 to remedy defects in the holding of meetings.

Inconsistent State laws

5.60. Section 109 of the Constitution provides that when a law of a State is inconsistent with a law of the Commonwealth, the Commonwealth law prevails and the State law, to the extent of the inconsistency, is invalid. The Bill provides for the concurrent operation of State legislation (ie, where there is no indirect inconsistency). It also provides an automatic `roll-back' to accommodate certain State and Territory legislation, and a regulation-making mechanism to `roll-back' additional aspects of the new Corporations Act 2001 . Accordingly, the Bill does not include provisions corresponding to section 1277 of the Corporations Law and sections 9 to 11 (inclusive) of the Corporations Act 1989 dealing with potential inconsistency between the Bill and a law of a State or Territory.

5.61. The relationship between the Bill and State and Territory legislation is addressed in Part 1.1A, entitled `Interaction between Corporations legislation and State and Territory laws', comprising clauses 5D to 5H (inclusive). Part 1.1A of the Bill applies only to laws of a Territory or referring State (clause 5D(1)). Further, it will apply only to a potential inconsistency between those laws and the Bill or Part 3 of the ASIC Bill, and regulations made for the purposes of the Bill or Part 3 of the ASIC Bill (clause 5D(2)). However, it will not apply to the provisions of Part 3 of the ASIC Bill, or to regulations made under Part 3, to the extent that they operate in relation to a contravention of Division 2 of Part 2 of that Bill (concerning unconscionable conduct and consumer protection in relation to financial services). The aspects of the ASIC Bill to which Part 1.1A do not apply presently operate as federal law. The provisions of the Bill and the ASIC Bill to which Part 1.1A applies are referred to in the Part as the `Corporations legislation'.

5.62. The Corporations legislation is not intended to limit the concurrent operation of any law of a referring State (clause 5E). Clause 5E(1) is in terms similar to those of several other Commonwealth provisions, such as section 75 of the Trade Practices Act 1974 ,.

5.63. Bill clause 5G will limit or qualify the operation of the Corporations legislation so that it no longer purports to have an operation that would be directly inconsistent with a relevant State or Territory law. A provision of the Corporations legislation does not prohibit the doing of an act or impose a liability for doing an act if a provision of a relevant State or Territory law specifically authorises or requires the doing of that act (clause 5G(4)).

5.64. It does not apply to a provision of a law of a State or Territory that is capable of concurrent operation with the Corporations legislation (see clause 5E).

5.65. Clause 5G will allow the Corporations legislation to make way for a provision of a State and Territory law, where:

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it is enacted and comes into force before the commencement of the Bill, but is not materially amended after commencement of the Bill (a `pre-commencement (commenced) provision'(clause 5G(12)); or

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it is enacted before, but comes into force on or after, the commencement of the Bill, and is not materially amended after commencement of the Bill (a `pre-commencement (enacted) provision' (clause 5G(13)); or

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it is enacted and comes into force on or after the commencement of the Bill, is not materially amended after commencement of the Bill, and is declared by the State or Territory law to be a Corporations legislation displacement provision for the purposes of clause 5G (a `post-commencement provision' (clause 5G(14)); or

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it is materially amended after commencement of the Bill but the amendment was enacted before the Bill commenced; or

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it is materially amended after commencement of the Bill and the amendment is enacted on or after the Bill commenced, and is declared by the State or Territory law to be a Corporations legislation displacement provision for the purposes of clause 5G.

5.66. Clause 5G(15) provides that a provision of a State or Territory law is `materially amended after commencement' if an amendment of the provision commences on or after the commencement of the Bill. However, a provision in a State or Territory law is not materially amended after commencement if it merely:

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changes a reference to the Corporations Law or ASC Law (or a provision) to a reference to the Bill or the ASIC Bill (or a provision), a penalty for a contravention of State or Territory law or a reference to a particular person or body to another person or body;

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adds a condition to rights or powers conferred, or obligations imposed; or

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adds criteria to be taken into account before a power is exercised (clause 5G(16));

or if:

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the amended provision would be inconsistent with a provision of the Corporations legislation in the absence of clause 5G, but would not materially reduce the range of persons, acts or circumstances to which the Corporations legislation applies if clause 5G applied to it as amended (clause 5G(17)).

5.67. The relevant State or Territory laws whose operation is facilitated by clause 5G will be those that:

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expressly authorise or require the doing of an act (clause 5G(4)). For example, a director who is required by a law of a State to exercise their power for an improper purpose will not be liable for any penalty (whether civil or criminal), despite Bill clauses 181(1)(b) and 184(1)(d) concerning the duty of directors to exercise their powers for a proper purpose.

•

authorise a person to give instructions to the directors of a company or body, or require the directors to comply with instructions given by a person, or to have regard to matters communicated to the company or body by a person (clause 5G(5)). For example, despite clause (b)(ii) of the definition of `director' at Bill clause 9, a person will not be a director of a company for the purposes of the Bill if they are authorised by a law of a State to give directions to the directors of a company, or the directors are required to comply with, or have regard to, the person's directions.

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authorise or require a company or other body to use a word, or to use a word as its name (clause 5G(6)). For example, a company will be able to include a word in its name if the inclusion of that word in its name is authorised or required by a law of a State, despite the word not being available to the company under Bill clause 147(1).

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deal with the calling and conduct of a meeting of a company (clause 5G(7)). For example, despite Bill clause 249J(1), a resolution passed at the member's meeting for which notice had not been given to all members of the company will be valid as if the meeting had been called and conducted in accordance with the Bill, if the failure to give the notice was required or authorised by a law of a State.

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concern a scheme of arrangement, receivership, winding up or other external administration of a company (clause 5G(8)). For example, despite Bill clause 583, Bill Chapter 5 does not apply to the winding up of a Part 5.7 body to the extent that the winding up is carried out in accordance with a provision of a law of a State.

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provides for the inclusion of a provision in a company's constitution (clause 5G(9)). For example, despite Bill clause 648G, the constitution of a company may continue to include proportional takeover approval provisions if a law of a State provides that the provisions are included, or are taken to be included, in the company's constitution.

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provides that additional requirements must be met for an alteration of a company's constitution to take effect (clause 5G(10)). For example, despite Bill clause 246B, the consent of a particular person may be required to alter the constitution of a company if a law of a State provides that the company's constitution may not be altered without the consent of that person.

5.68. Bill clause 5G(11) has the effect that if a provision of a law of a State or Territory would, but for that clause, be inconsistent with a provision of the Corporations legislation, the provision of the Corporations legislation does not operate in the State or Territory to the extent necessary to ensure that no inconsistency arises between the provision of the law of the State or Territory and the provision of the Corporations legislation.

5.69. Regulations made under the Corporations legislation will be able to declare that clause 5G does not apply to particular provisions. The States and Territories will also be able to pass a law declaring that Bill clause 5G does not apply to a specified provision.

5.70. The Bill will allow regulations to be made modifying its operation so that the Corporations legislation does not apply to a matter dealt with by a State or Territory law, or is not inconsistent with the operation of a State or Territory law specified in the regulations (clause 5I).

5.71. The regulation making power is intended to apply to laws of a State or Territory in force (or proposed) immediately before the Bill commences, and also to laws of a State or Territory proposed after the Bill commences. The Bill will therefore allow regulations to be made narrowing the operation of the Bill to make way for the existing or proposed State or Territory law to operate, thus avoiding any inconsistency.

5.72. Bill clause 224(9) provides that it applies subject to Bill Part 1.1A. This is not intended to preclude the application of Part 1.1A in relation to other clauses of the Bill that are not expressed to apply subject to Part 1.1A.

5.73. In addition to the issues arising from the potential operation of section 109 of the Constitution, there are also issues arising from the fact that it is not generally within the competence of a Parliament of a State to amend or modify the operation of legislation of the Commonwealth (or vice versa). States have from time to time enacted legislation that modifies the operation of the Corporations Law of the State concerned; and there are provisions of the Corporations Law that modify the operation of other legislation of the relevant State. However, provisions of this kind would not generally have effect once the corporations legislation is enacted as federal law.

5.74. In order to ameliorate this outcome in relation to State and Territory laws:

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a provision of a State or Territory law may declare a matter to be an excluded matter, in relation to either the whole of the corporations legislation or a specified provision of the legislation. As a result, the corporations legislation (or the provision specified) will not apply in the State or Territory in relation to the declared matter (clause 5F). It will then be open for the State or Territory to regulate the matter concerned.

•

States will be able to pass laws deeming bodies to be registered as companies and those laws will have effect by force of the federal law (clause 5H). State legislation deeming bodies to be registered as companies is not uncommon in connection with the corporatisation or privatisation of government business enterprises.

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companies will be able to transfer their basis of incorporation from the Corporations Act 2001 to a State/Territory statute of their jurisdiction of registration (Bill Part 5A.2). This will accommodate the continued operation of State and Territory statutes enabling companies to assume another corporate form (eg, by becoming an incorporated association) although minor amendments of those statutes may be required.

5.75. In addition, some provisions of the Corporations Law that in their present form disapply other State and Territory laws in particular circumstances have been recast in order to achieve substantially the same effect in combination with section 109 of the Constitution (clauses 778, 995A and 1141).

5.76. Furthermore, certain provisions of the Corporations Law contemplating the making of regulations modifying the operation of certain State and Territory personal property securities legislation have not to that extent been replicated in the Bill (Corporations Law, paragraphs 273(3)(e) and (4)(b); cf clause 273C). However, it is noted that no modifications have been prescribed for the purposes of the existing provisions.

Jurisdiction of High Court

5.77. Clause 659B(5) makes it clear that the jurisdiction conferred on courts under clause 659B in relation to takeover matters is not intended to affect the jurisdiction of the High Court. This is presently done by section 59A(4) of the Corporations Act 1989 .

Effect on non-referring States

5.78. The Bill has been drafted so that it will operate satisfactorily should one or more States not participate in or subsequently withdraw from the new arrangements.

5.79. The principal technique for distinguishing between referring and non-referring States is the use of the term `this jurisdiction'. Provisions in the Bill that apply only in `this jurisdiction' will not apply to any State that is not a referring State.

5.80. The following paragraphs outline the more significant consequences should a State not participate in, or withdraw from, the referral of power.

5.81. The Bill would require a body corporate incorporated or formed under a law of the non-referring State, such as the company law of that State, to register with ASIC as a registered Australian body before carrying on business in a referring State or Territory (clause 9, definitions of `foreign company' and `registrable Australian body').

5.82. It would no longer be possible to locate or do in a non-referring State things that the Bill will require to be located or done in a referring State or Territory (for example, the keeping of registers under Bill Chapter 2C) (clauses 172, 856(14) and 881(1); see also paragraph 5.11 above). Nor would a company be able to keep a branch register of members in a non-referring State (clause 178). However, a company would continue to satisfy the directors' residency requirement if at least one of its directors resides in the non-referring State (clause 201A). Similarly, the alternative address specified by a director may be in a non-referring State (clause 205D(2)).

5.83. A disclosing entity formed in a non-referring State would continue to be bound by Chapter 2M concerning financial reports and audit (clause 285(2)). A company would have to keep within the referring States and Territories sufficient records to enable financial statements to be prepared (clause 289).

5.84. The Bill would require the external administrator of a company that carried on business in a non -referring State to publish notices in either a national newspaper or a newspaper that circulates generally in that non-referring State (clauses 436E(3)(b)(ii), 439A(3)(b)(ii), 445F(2)(ii), 446A(5)(b)(ii), 449C(5)(b)(ii), 450A(1)(b)(ii) and 450B(b)(ii)).

5.85. The Court would be able to make an order preventing a person from leaving the referring States and Territories, in addition to retaining its existing power to restrain a person from leaving Australia (clauses 486A, 486B, 487 and 1323(1)(k)).

5.86. The qualified privilege given to an auditor under Bill clause 601HH(4) would not apply to proceedings in a court of a non-referring State.

5.87. A Minister of a non-referring State would not be able to commence court proceedings under the Bill in relation to a takeover bid, or a proposed takeover bid, before the end of the bid period (clause 659B(1)).

5.88. The laws of a non-referring State in relation to gaming and wagering would apply to options contracts to which clause 778 applies and futures contracts to which clause 1141 applies.

5.89. The prohibition on operating an unregistered managed investment scheme would only apply in the referring States and Territories (clause 901ED(5)).

5.90. Bill Chapters 6, 6A and 6C, concerning takeovers, would continue to apply to a body incorporated or formed under a law of a non-referring State that is included in the official list of a securities exchange in a referring State or Territory (clauses 603, 660A and 671A).

5.91. Bill Chapter 6D, concerning fundraising, would not apply to offers of securities that are received in a non-referring State (clause 700(4)).

5.92. Significant provisions dealing with the securities and futures markets will not apply in a non-referring State. This include provisions concerning access to the National Guarantee Fund and other fidelity funds (although accrued rights to make claims under the Corporations Law of non-referring States will be honoured).

5.93. The Auditor-General of a non-referring State would not be deemed to be registered as an auditor (clause 1281(b)).