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 7 - Transitional Provisions

Previous amendments to the Corporations Law

7.1. Detailed transitional provisions dealing with previous amendments to the Corporations Law are not necessary. Therefore, all current transitional provisions and current transitional aspects of these provisions have been omitted from the Bill. This includes all references to a `corresponding previous law', `corresponding previous provision' and the definitions of these terms in sections 58(3) and (4) of the Corporations Law. However, the Bill will have the effect that it would have had if those transitional provisions had been part of the Bill and had the effect they had under the Corporations Law. In particular, any right or liability (whether civil or criminal) that existed under the transitional provisions will be continued under the Bill (clause 1408). Clauses that refer to the omitted transitional provisions have been amended to take account of the omission, without any change in effect (clauses 9 (definitions of `old Division 11 of Part 11.2 transitionals ` and `old Division 12 of Part 11.2 transitionals'), 283G(5)(c), 601QA(5)(c), 655A(6)(c), 669(5)(c), 673(6)(c) and 741(5)(c)).

7.2. The Bill does not include:

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Division 1 of Part 7.1A, of the Corporations Law of the Capital Territory, which enabled the Australian Stock Exchange Limited to change its type from a company limited by guarantee to a company limited by shares, because the conversion has been completed; and

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section 268A of the Corporations Law, concerning the assignment of charges under the State Bank (Corporatisation) Act 1994 of South Australia.

7.3. Bill clause 1087(2) will provide that a certificate issued in accordance with clause 1087(1) specifying shares held by a member of a company is prima facie evidence of the title of the member to the shares. Bill clause 1087(1) provides that the certificate must state that the company is registered under the Bill. Section 1087(1) of the Corporations Law provides that the certificate must state the company's jurisdiction of registration. A certificate issued under section 1087(1) will meet the requirements of Bill clause 1087(2) because of clause 1403. Bill clause 1403 will preserve for the purposes of clause 1087(2) the significance (that is, its evidentiary value) that a certificate issued under section 1087(1) had because of section 1087(2).

7.4. Bill Schedule 4 retains the operative provisions in Schedule 4 of the Corporations Law (concerning the transfer to the Corporations Law of entities formerly registered under the Friendly Societies Codes and the Financial Institutions Codes of the States) with the changes required to reflect the constitutional basis of the Bill as a law of the Commonwealth. Bill Schedule 4 does not include a number of spent transitional provisions included in the Corporations Law, and acts done under those spent provisions will be saved by other provisions included in Bill Schedule 4 or by the general transitional provisions (see Bill Chapter 10).

Transition from the current scheme to the new scheme

Overview

7.5. It is envisaged that provisions repealing the Corporations Act 1989 will be included in the Corporations (Consequential Amendments) Bill of the Commonwealth. On repeal of that Act, the Corporations Law of the ACT will cease to exist, along with the Corporations Laws of other jurisdictions.

7.6. Chapter 10 of the Bill deals with the transition to the regime to be established by the Bill. It is expected that complementary provisions will be enacted by the States and the Northern Territory. It is expected that complementary provisions needed for the ACT will be included in the Corporations (Consequential Amendments) Bill.

7.7. Broadly, the object of Bill Chapter 10 is to provide for a seamless transition from the Corporations Law to the Bill. Individuals, bodies corporate and other bodies are, to the greatest extent possible, to be put in the position they would have been in if their rights and liabilities under the current Corporations Law had arisen under the Bill (clause 1370). The effect of the transitional provisions will not be affected by a State subsequently ceasing to be a referring State (clause 1376).

7.8. The key elements of the transitional provisions are as follows:

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Bill Clause 1400 will substitute for existing rights and liabilities under the old corporations legislation (not being rights or liabilities arising from a court order) equivalent rights and liabilities under the new corporations legislation.

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Bill Clause 1383 will substitute for non-`federal' proceedings on foot under the old corporations legislation (not being proceedings where rights or liabilities have been determined, or proceedings arising from such proceedings) equivalent federal proceedings under the new corporations legislation.

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Bill Clause 1384 will continue `federal' proceedings on foot under the old corporations legislation as federal proceedings under the new corporations legislation.

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State and Territory interpretation laws are not expected to save the effect of a court order already made in the exercise of State or Territory jurisdiction with respect to rights or liabilities under the old corporations legislation. State and Territory `consequential' legislation would on that basis need to include savings provisions. The Corporations (Consequential Provisions) Bill will include equivalent savings provisions in relation to orders already made in the exercise of federal jurisdiction.

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State and Territory `consequential' legislation will need to authorise further State and Territory proceedings in relation to orders made in a State or Territory (it will also need to provide for Commonwealth officers and agencies to perform functions in relation to those proceedings). Further proceedings within federal jurisdiction will be continued as federal proceedings under 1384 if they are `federal corporations proceedings' (which may involve substituted rights or liabilities under the new corporations legislation).

7.9. Division 1 of Chapter 10 sets out the interpretation provisions for that Chapter. Divisions 2 to 5 (inclusive) of Chapter 10 deal with a range of specific transitional issues. Division 6 deals with transitional issues on a more general level. Division 7, comprising clause 1409, provides for the making of regulations addressing transitional issues (including regulations having a retrospective effect). Division 6 is subject to Divisions 2 to 5 and the regulations made under Division 7 (clause 1397(1)). Divisions 2 to 4 (inclusive) are subject to the regulations made under Division 7 (clauses 1377, 1379, 1381 and 1386). The provisions in Division 6 deal with issues at the broader level necessary to achieve the seamless transition to the Bill mentioned in clause 1370 and are not intended to operate to the exclusion of the provisions of Division 7. In some circumstances more than one provision will apply to a particular issue (clause 1398).

7.10. ASIC will not be required to remove from its database the records it holds under the Corporations Law of a State that becomes a referring State (clause 1392).

Existing companies

7.11. Bill clause 1378 will expressly carry over the registration of companies from the Corporations Law to the Bill. The effect of existing certificates of registration are preserved by clause 1389.

Payment of fees and levies

7.12. Liabilities to pay fees or to pay levies for the National Guarantee Fund or a fidelity fund before the commencement of the Bill will be carried forward. Persons with such liabilities are placed in the same position after commencement as they would be before commencement (clauses 1393 to 1396).

Regulations

7.13. Bill clause 1380 will deem the Corporations Regulations as in force immediately before its commencement to have effect as if they had been made for the purposes of the Bill.

Existing right and liabilities

7.14. Things done under, or for the purpose of, the Corporations Law that have an ongoing significance immediately before commencement of the Bill will be taken to have been done under, or for the purposes of, the Bill (clause 1399). For example:

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an accounting standard made under section 334(1) of the Corporations Law that is in force immediately before the Bill commences will be taken to have been made under Bill clause 334(1);

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a statutory demand served on a company under section 459E(1) of the Corporations Law that is in effect immediately before the Bill commences will be taken to have been served on the company under Bill clause 459E(1);

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an exemption or declaration made by ASIC under section 655A(1) of the Corporations Law in relation to Chapter 6, concerning takeovers, that operates immediately before the Bill commences will be taken to have been done under Bill clause 655A(1);

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a banning order made by ASIC under section 829(1) of the Corporations Law that is in effect immediately before the Bill commences will be taken to have been made by ASIC under Bill clause 829(1).

7.15. The Bill will create rights and liabilities (civil or criminal) equivalent to those that existed immediately before its commencement under the Corporations Law (clause 1400). For this purpose, a liability includes a duty or obligation (clause 1371, definition of `liability'). For example:

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if a corporation has a liability immediately before the Bill commences under section 588W of the Corporations Law it will have an equivalent liability under Bill clause 588W after commencement;

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if a person does an act before commencement that renders them liable to be prosecuted for an offence against a provision of the Corporations Law before commencement, they will have an equivalent liability to be prosecuted after commencement; and

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if a person has an obligation immediately before the Bill commences under section 1314 of the Corporations Law to do an act, the person will have an equivalent obligation to do the act under Bill clause 1314 after commencement.

However, the liability to pay a contribution, levy or fee under the sections 902, 904, 938, 940, 941, 1234, 1235 or 1351 of the Corporations Law will be preserved as a tax liability under the associated tax Bills (see paragraph 2.2 above) (clause 1397(3)).

7.16. The Bill will also create rights and liabilities equivalent to existing rights and liabilities acquired under provisions of the Corporations Law that are not in force immediately before commencement of the Bill (clause 1401). For example, the Bill will create, despite the repeal of Corporations Law, Chapter 11, rights and liabilities equivalent to existing rights and liabilities established under provisions of the Corporations Law that have been repealed prior to commencement of the Bill.

7.17. The creation of rights and liabilities will extend to rights and liabilities that have been `validated' under the State validation legislation (see above) (clause 1372(1)). These rights and liabilities will be taken to have been acquired under the Bill (clause 1372(2)). Bill clause 1373 provides that the transitional provisions are to apply as if the things that have been validated actually occurred. This clause will also have the effect that things that are deemed by a law of a State or Territory to have happened under the Corporations Law of a State, such as the registration of a body corporate as a company, will be treated as though they had actually happened for the purposes of the transitional provisions.

7.18. It is envisaged that there will be State and Territory legislation that has the effect of ensuring the extinguishment of any rights and liabilities that existed under the Corporations Law (including by force of the State validation legislation) where equivalent rights and liabilities are created by the transitional provisions of the Bill.

7.19. Clauses 1400 and 1401 do not apply in relation to rights or obligations arising under or in relation to court orders (see clause 1397). It is envisaged that provisions in complementary State and Territory laws will instead ensure simply that such rights and liabilities are not affected for the purposes of State or Territory law by the repeal of the Corporations Act 1989 . Provisions in the Corporations (Consequential Provisions) Bill will do the same for the purposes of federal law. This approach avoids any risk these clauses might otherwise infringe the requirements of Chapter III of the Constitution.

7.20. If the Corporations Law has the effect that a thing happened under the Corporations Law of more than one State or Territory, the transitional provisions will apply as though the thing had happened only once for the purposes of the Bill (clause 1374).

7.21. The Bill will preserve any time limits relating to the preserved rights and liabilities (clause 1402). Similarly, a process or status that commenced under the Corporations Law at a particular time before the Bill commenced, and is continued under the Bill, will be taken to have commenced at the time it commenced under the Corporations Law.

7.22. An event or circumstance that occurred before the commencement of the Bill that has a particular significance for the purposes of a provision of the Corporation Law will have the same significance for the purposes of the corresponding provision in the Bill (clause 1403). For example:

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a change before the Bill commences in a director's interests in securities of the company will have the significance for Bill clause 205G(4) that it had for section 205G(4) of the Corporations Law;

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conviction before the Bill commences for an offence of the type mentioned in Bill clause 206B(1)(a) will have the significance for Bill clause 206B(1) that it had for section 206B(1) of the Corporations Law;

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the service of statutory demand on a company under section 459E of the Corporations Law before the Bill commences will have after the Bill commences the significance for Bill clauses 459A and 459C(2)(b) that it had for sections 459A and 459C(2)(b) of the Corporations Law - but note the effect of Bill clause 1397, discussed below;

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if, immediately before the Bill commences, a company's annual return is at least 6 months late, it will have the significance for Bill clause 601AB, concerning the deregistration of companies, that it had for section 601AB of the Corporations Law.

7.23. References in the Bill to the happening of a particular kind of thing will be taken to include a reference to the happening of those things before the Bill commences (clause 1404). For example:

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the reference in Bill clause 170(2) to the grant of an option includes an option granted before the Bill commences;

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the reference in Bill clause 205B(1) to the appointment of a director will be taken to include the appointment of a director before the Bill commences;

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the reference in Bill clause 206B(1)(a) to a person being convicted of certain offences will be taken to include a reference to convictions for those offences that occurred before the Bill commences;

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the reference in Bill clause 249H(2)(b) to members having 95% of the votes agreeing to the calling of a meeting on short notice includes an agreement made before the Bill commences;

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the reference in Bill clause 631(1) to a person having publicly proposed a takeover bid includes a proposal made before the Bill commences.

7.24. References in the Bill to another provision in the Bill will be taken, in relation to events that happened before the Bill commences, to include a reference to the provision of the Corporations Law that corresponds to that other provision (clause 1405). For example:

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the reference in Bill clause 249O(1) to the giving of a notice under Bill clause 249N will be taken to include a notice given under section 259N of the Corporations Law before the Bill commences;

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the reference in Bill clause 256B(1)(c) to shareholders having approved a share buy-back under Bill clause 256C will be taken to include an approval given by shareholders under section 256C of the Corporations Law before the Bill commences;

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the reference in Bill clause 650C(2) to a notice published under Bill clause 630(1) will be taken to include a reference to a notice published under section 630(1) of the Corporations Law before the Bill commences;

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the reference in Bill clause 826(1)(h)(ii) to an order made under Bill clause 830 against a director will be taken to include a reference to an order made against the director under section 830 of the Corporations Law before the Bill commences.

7.25. References in the Corporations Law to a previous corresponding law have not been taken up in the Bill. However, if a provision in the Corporations Law contains a reference to a corresponding previous law, then the corresponding provision in the Bill will be taken to include an equivalent reference (clause 1406). For example:

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the reference in Bill clause 1229(2) to the payment of an amount under Bill clause 1229(1)(b) will be taken to include a reference to an amount paid under a previous corresponding law to section 1229(1)(a) of the Corporations Law (Bill clause 1405 will require the reference to a amount paid under Bill clause 1229(1)(b) to include a reference to an amount paid under section 1229(1)(a) of the Corporations Law);

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the reference in Bill clause 1285(1)(e) to particulars of the suspension of a person's registration as an auditor under Division 2 of Part 9.2 of the Corporations Law will be taken to include a reference to the particulars of the suspension of the person's registration as an auditor under a previous corresponding law to Division 2 of Part 9.2 of the Corporations Law.

Court proceedings

7.26. Federal corporations proceedings as defined in clause 1382(1) will continue after the Bill commences in the same court as if the previous proceedings (including any orders) under the Corporations Law had been proceedings under the corresponding provision of the Bill (clause 1384). These proceedings may relate to the rights and liabilities created under clause 1400. Equally they may relate to rights or liabilities under or in relation to court orders.

7.27. In relation to other proceedings on foot under the Corporations Law immediately before the commencement of the Bill, the Bill creates a new proceeding in the same court, exercising federal jurisdiction, under the corresponding provision of the Bill (clause 1383(3)). These new proceedings relate to the new rights and liabilities created by clause 1400. The court will be obliged to treat the steps taken before the Bill commences as though they were taken for the new proceedings (clause 1383(4)). Further, if the earlier steps included an interlocutory order, the rights and liabilities of all persons will be those that they would have had if the order been had been made by the same court, in the exercise of federal jurisdiction, as part of the new proceedings (clause 1383(5)). These arrangements apply to both civil and criminal proceedings. It is expected that State and Territory law will make it clear that the existing non-federal proceedings do not continue.

7.28. Consideration is currently being given to the decision of the High Court in ASIC v Edensor Nominees Pty Ltd
[2001] HCA 1 , any implications it may have for the operation of the transitional provisions and any consequential changes that may be desirable.

7.29. Clause 1383 does not apply to certain proceedings relating to court orders, or where there has been a final determination (see paragraph 7.19 above). It is envisaged that complementary provisions in State and Territory legislation will authorise State and Territory proceedings in these circumstances. State and Territory provisions will also make provision for ASIC, the Commonwealth DPP and the AFP, where appropriate, to continue to perform functions in relation to those proceedings.

7.30. The following table illustrates how the transitional provisions apply to court proceedings:

Other transitional measures

7.31. A reference in an instrument to a provision of the Corporations Law will be taken to include a reference to the corresponding provision in the Bill (clause 1407). Bill clause 9 defines `provision of a law' to include a subsection, section, Subdivision, Division, Part or Chapter of the law; and a Schedule, or an item in a Schedule, to the law. Similarly, a reference in the Bill to the taking of a proceeding in a court under the Bill will be taken to include a reference to proceedings taken before the Bill commences under the corresponding provision of the Corporations Law (clause 1385).

7.32. For the purposes of Bill clause 1407, an instrument is an instrument of a legislative or administrative character, and includes any other document (clause 1371, definition of `instrument'). The provision therefore extends to Acts of the Commonwealth Parliament, and regulations and other instruments made under Commonwealth Acts. The provision does not extend to Acts of the States or Territories (or an instrument made under such an Act) (clause 1407(1)(a) and (b)). It is expected that each of the States and Territories will enact a similar provision in relation to their Acts, and instruments made under those Acts.