Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)2 Regulation Impact Statement and Financial Impact Statement
Regulation impact statement
3.1. 2.1 The proposals known as Streamlined Lodgments and Compliance or CLERP 7, form part of the Governments Corporate Law Economic Reform Program. The purpose of the program is to ensure that current regulation is consistent with the Governments economic objectives. In particular, it seeks to improve the efficiency of corporate regulation and reduce regulatory burdens on business. The CLERP 7 reforms are aimed at facilitating a more efficient and competitive business environment.
2.2 The Corporations Act contains a range of requirements under which companies are required to lodge information with the Australian Securities and Investments Commission (ASIC).
2.3 Currently, all companies are required to lodge information about changes to directors, other company officers and the registered office of the company as the changes occur. In addition, each year companies are required to lodge a return which, among other things, is used to confirm the information already entered on ASICs database about Australian companies.
2.4 Compliance with these requirements has the potential to impose an unnecessary regulatory burden on companies.
2.5 The following identifies problems with existing regulation, the key drivers for changes in these areas and the proposed solutions to meet these problems. Where applicable the options that were available to the Government are discussed.
2.6 Information lodged with ASIC is included on its database about Australian companies and is used by members of the business community to obtain information about companies with which they conducting, or propose to conduct, business (including names of directors and address of the registered office). It may also be used by regulatory agencies for enforcement purposes.
2.7 It is, therefore, important that ASICs database be accurate and up-to-date.
2.8 In addition, it is important that the accuracy of the database be achieved and maintained at minimum cost to business.
2.9 The Corporations Act currently requires all Australian companies to lodge an annual return with ASIC by 31 January each year. A significant number of returns lodged with ASIC each year repeat information already on the ASIC database, indicating that the companies lodging such returns either have already provided information about changes to company particulars through the year in accordance with legislative requirements, or have not had any changes since the previous return was lodged.
2.10 Where information in the annual return has already been provided to ASIC and entered on its database, the need for the preparation of an annual return can be an unnecessary regulatory burden on the company preparing the return. Equally, the receipt of the return by ASIC and its subsequent processing can be unnecessary administrative burdens on the regulator.
2.11 There are three basic options available to the Government for dealing with annual returns:
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- maintain the existing requirements;
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- introduce a requirement under which companies would be provided with an extract of information about the company currently held by ASIC and would only have to lodge information with ASIC if the information in the extract was incorrect or required updating; and
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- do away with the requirement for companies to confirm, at least once each year, the information held on ASICs database.
Impact analysis (costs and benefits) of each option
2.12 Maintaining the existing requirements causes the least risk to the accuracy of the ASIC database. Because companies are under an obligation to lodge the return with ASIC, the vast majority of companies seek to ensure that information in their returns is correct, with consequential benefits for the database. However, for those companies that have no changes to report to ASIC, the requirement to complete the return and lodge it is, for practical purposes, an unnecessary requirement. Similarly, the need for ASIC to process returns containing no changes represents a use of resources that could be more productively employed on other enforcement or regulatory activities.
2.13 The second option, providing companies with an extract of information but only requiring information to be lodged where there are changes to be notified, also poses minimal risks to the accuracy of the ASIC database. Companies would be required to check the information on the extract and those with no changes to report would benefit from this option through not having to lodge documents. ASIC would benefit through a reduction in the number of company documents that it has to process each year.
2.14 While adoption of the second option would pose only minimal risks to the accuracy of the ASIC database, over a period of time there is, nevertheless, potential for deterioration in the accuracy of information about some companies. To minimise any risks to the database, it is proposed that ASIC would have the power to ask a company to confirm its particulars where ASIC has reason to believe its database is no longer accurate, or where no documents have been lodged by the company for an extended period of time. While the adoption of such a checking mechanism would impose compliance costs on the companies that are being checked and administrative costs on ASIC, these costs are outweighed by the benefits of having an accurate database. These checks would not be frequent and would not impose a greater cost than annual reporting.
2.15 The third option places total reliance on the legislative provisions requiring companies to notify ASIC of changes in particulars as they occur. Adoption of this option would minimise the regulatory burden imposed on the business community, as documents would only have to be prepared and lodged when there were changes in company particulars. ASIC would also benefit through only having to provide the level of resources needed to process documents being lodged by companies. However, the benefits to be gained through adoption of this option are likely to be offset by a significant deterioration in the accuracy of the database. Experience indicates that many companies, primarily through oversight or inadvertence, fail to notify ASIC of changes as they occur. Consequently, the accuracy of the database could be expected to decline over a relatively short period of time thus resulting in added costs and inconvenience to those businesses that use the database in the course of their normal activities and a reduction in business confidence and ASICs regulatory effectiveness. Currently, there are 2,800,000 paid searches of the database each year and 3,200,000 free on-line searches.
Conclusion and recommended option
2.16 The second option, under which companies would be provided with an extract of information each year and would only be required to lodge information with ASIC where changes have occurred, is preferred. This option provides an appropriate balance between the objectives of reducing the regulatory and administrative costs associated with providing information to ASIC and the benefits of having an accurate database of company information. It delivers a reduction in regulatory burdens on business in their dealings with ASIC.
2.17 The Corporations Act requires companies to notify ASIC of various changes affecting the company, including information about a companys officers and the address of its registered office. As the legislation is currently formulated, separate forms have to be lodged for each change and for each company affected by the change.
2.18 Experience indicates that there are often circumstances in which a number of changes occur at about the same time (for example, when a company is first registered or when there is a subsequent change of ownership), requiring two or more forms to be lodged. The need to complete a separate form for each change is time consuming for the companies preparing them and for ASIC when processing them.
2.19 As it is essential that information about changes be lodged with ASIC in order to ensure the continued accuracy of the corporate database, the options available to the Government in respect of such lodgments are to maintain the existing arrangements with separate forms for each change and for each company affected by the change, or a single form which can be used for multiple changes.
Impact analysis (costs and benefits) of each option
2.20 Lodging a separate form for each change and for each company affected by the change imposes a regulatory burden on the business community because of the costs associated with preparing them. The processing of multiple forms from the same company or group of companies also imposes an administrative burden on ASIC.
2.21 The use of a single form to notify multiple changes would reduce the regulatory burden on the business community through requiring fewer forms to be completed. The use of a multiple change form would also facilitate the processing of changes by ASIC.
2.22 The use of separate forms for each change or multiple change forms would not affect the accuracy of ASICs database.
Conclusion and recommended option
2.23 The adoption of a multiple change form for notifying changes would streamline existing lodgment requirements. It has the potential to both reduce the regulatory burden on the business community and increase the administrative efficiency of ASIC.
2.24 The existing corporations fees regime is document based, with the main source of corporations fees being from the lodgment of company annual returns. Australias 8,000 public companies currently pay an annual return lodgment fee of $900 while about one million proprietary companies (including small businesses) pay a fee of $200, generating total annual return fees revenue of approximately $200 million.
2.25 Consequently, to safeguard revenues received by the Government from corporate regulation, the abolition of company annual returns will need to be accompanied by an alternative mechanism for collecting fees.
2.26 For many years the fee for lodging a company annual return has been the only fee imposed on companies. Other company documents, such as notices of change, have not been subject to a lodgment fee (although such lodgments may incur penalty fees for failure to lodge within the period of time specified in the legislation). As a result, fees for lodging annual returns have, for all practical purposes, been regarded as an annual fee.
2.27 With the abolition of company annual returns, there is potential for a significant reduction in corporate revenue unless alternative arrangements are put in place. The principal options identified by the Government are the reintroduction of fees on individual company documents or an annual fee.
Impact analysis (costs and benefits) of each option
2.28 At present there are just over one million companies registered with ASIC. To generate revenue of $200 million per annum, it is envisaged that public and proprietary companies would pay annual fees similar in quantum to their current annual return lodgment fees. The imposition of an annual fee on all companies could be regarded as an unnecessary cost burden for those companies that have not had to lodge any documents during the year. On other hand, all companies benefit from operating in a well-regulated market. The most equitable means of funding such a market is through contributions by all companies.
2.29 An annual fee of $200 for small proprietary companies could be regarded as imposing a higher than necessary cost burden on such companies. However, because of the relatively small number of large proprietary companies (about 5,000 in terms of the Corporations Act definition) and public companies, any fees reduction for small proprietary companies would need to be off-set by significant fees increases for large proprietary companies and public companies.
2.30 Currently 400,000 notice of change in particulars documents are lodged with ASIC each year. To generate revenue of $200 million per annum, there would need to be a lodgment fee of $500 for each document. The use of a document-based fees system would effectively operate as a user pays arrangement and would minimise regulatory costs for those companies that did not have to lodge documents. However, a document-based fees regime would have the potential to be inequitable, as companies not having changes to notify would benefit from operating in a well regulated market funded by companies that have advised changes. Setting fees at the level necessary to generate the required level of revenue would also result in companies being reluctant to lodge details of changes, with a resultant deterioration in the accuracy of information on the database.
Conclusion and recommended option
2.31 A fees regime in which all market participants contribute to the cost of regulating the market is considered to be the most equitable.
2.32 Accordingly, it is proposed that the Corporations (Fees) Act 2001 be amended to enable annual review fees to be imposed.
Consultation
2.33 A policy paper containing detailed proposals for streamlining lodgment requirements and a number of related matters was released for public comment in February 2000. A series of information seminars were then held in all capital cities and major regional centres. Written submissions, and comments at the information seminars, were generally supportive of the proposals.
2.34 Input was also provided by the Governments Business Regulation Advisory Group (BRAG).
2.35 The States and the Northern Territory have also been consulted under the Corporations Agreement.
Implementation and Review
2.36 It is proposed that the reforms be implemented through changes to the Corporations Act and the Corporations (Fees) Act.
2.37 The effectiveness of the reforms will be the subject of ongoing monitoring by ASIC. However, there are no immediate plans for a substantive post-implementation review of the amended requirements.
Financial impact statement
2.38 The Bills do not have any direct financial impact. However, fees may be imposed under regulations made pursuant to the Bills.
2.39 ASIC was allocated funding supplementation for implementation of the CLERP 7 reforms in a previous budget.