Second Reading SpeechMr Bowen (Minister for Financial Services, Superannuation and Corporate Law and Minister for Human Services)
I move: That this bill be now read a second time.
Today I introduce a bill which will amend the Corporations Act 2001 to improve Australia's corporate reporting framework by reducing unnecessary red-tape and regulatory burden on companies, improving disclosure requirements and implementing a number of other important refinements to the corporate regulatory framework.
Australia has a robust and generally well-regarded financial reporting framework; however, opportunities do exist to cut red-tape in several areas. The reforms contained in this bill will ensure that Australia's financial reporting framework remains strong and in line with world's best practice.
The bill will establish a tailored financial reporting regime for small companies limited by guarantee. These entities are predominantly relatively small and serve a not-for-profit purpose. They include some types of companies limited by guarantee, many sports and recreation organisations, community service organisations and education related institutions.
The proposed amendments introduce a three-tiered differential reporting framework exempting small companies limited by guarantee from reporting and auditing requirements and providing other companies limited by guarantee with streamlined assurance requirements and simplified disclosures in the directors' report. This will significantly reduce the regulatory burden on small companies limited by guarantee.
The process for companies limited by guarantee to distribute annual reports to their members will also be streamlined. Companies will only be required to provide copies of their financial reports if a member elects to receive a copy.
Companies limited by guarantee will also be prohibited from paying a dividend, as their corporate structure means that they are not suited for conducting for-profit activities which could legitimately warrant the payment of dividends to members.
Some types of companies limited by guarantee will have a higher level of public interest due to the nature of their activities. Charities, for instance, generally fall within this category because of their public fundraising activities and the significant amount of community involvement. Such factors need to be considered when differentiating between companies limited by guarantee for reporting purposes. That is why companies that are deductible gift recipients will continue to prepare a financial report, irrespective of whether they fall above or below the threshold.
These measures will ensure that larger companies, or those that seek tax deductible donations from the public, are still subject to appropriate levels of transparency and accountability.
This, in turn, will ensure that appropriate governance standards are maintained, particularly in cases where there is a need for greater public accountability due to the size or nature of the company limited by guarantee.
The bill will also streamline parent-entity reporting. Parent entities will be relieved of the requirement to prepare financial statements for both the parent entity and the consolidated group. Instead the bill will allow companies to disclose summary parent-entity financial information. The corporations regulations will specify the supplementary information about the parent entity that is to be included in a note to the consolidated financial statements.
In addition, the bill relaxes the statutory requirement that companies may only pay dividends from profits, replacing the profits test with a more flexible solvency based requirement. This test will allow a company to pay a dividend if:
- the company's assets exceed its liabilities and the excess is sufficient for the payment of the dividend;
- it is fair and reasonable to the company's shareholders as a whole; and
- it does not materially prejudice the company's ability to pay its creditors.
The new test is designed to ensure that creditors and shareholders who are not entitled to dividends are sufficiently protected. Consequentially the bill contains amendments to the income tax law to ensure there is no change to taxation arrangements as a result of the reform.
In addition the bill facilitates an easier change of a company's balance date by allowing a financial year subsequent to the first year to last for a period less than 12 months.
In order to enhance the transparency and utility of disclosures contained in the directors' report, the bill extends the requirement to disclose a review of operations and financial conditions to all listed entities. This follows the recommendation of the Corporations and Markets Advisory Committee's report The social responsibility of corporations and will provide stakeholders with an overview which would enable users to understand the performance of a business and the factors underlying its results and financial position.
The bill also refines the statement of compliance with International Financial Reporting Standards (IFRS) contained in the directors' declaration. This will enhance international recognition of Australia's IFRS adoption and allow Australia to realise the full benefits to foreign investment that IFRS provides.
Other amendments contained in the bill include:
- clarifying the circumstances in which a company can cancel its share capital;
- removing obsolete provisions in the Australian Securities and Investments Commission Act 2001 relating to certain functions of the Financial Reporting Council; and
- improving the Companies Auditors and Liquidators Disciplinary Board processes, including by extending immunities for pre-conference hearings and improving the appointments process.
In summary, these reforms will reduce unnecessary red tape and regulatory burden on companies, improve disclosure requirements and implement a number of other important refinements to Australia's corporate reporting framework.
Finally, I can inform the House that the Ministerial Council for Corporations was consulted in relation to the amendments to the laws in the national corporate regulation scheme, and has approved them as required under the Corporations Agreement.
I commend the bill to the House, full details of which are contained in the explanatory memorandum.
Debate (on motion by Mrs Gash) adjourned.