Harmonisation of cooperative legislation can be significant boost for coops, says BCCM

26 Feb 2020

Last year the Australian Federal Parliament passed landmark legislation for mutuals. These are the first amendments to the Corporations Act for 18 years that relate to the cooperative and mutual sector.

Santosh Kumar talked to Anthony Taylor, Policy Officer at the Business Council of Co-operatives and Mutuals (BCCM), a Member of the ICA, which was at the forefront of conceiving the amendments and proposing them at the appropriate forums, to find out a little more about the landmark development in the cooperative and mutual legal landscape concerning in the country.

Santosh Kumar: Could you very briefly explain how cooperatives and mutuals are defined and are understood in Australia?

Anthony Taylor: In Australia we have a federal system of government with both the states and the Commonwealth playing a role in lawmaking and policy.

Parts of the cooperative and mutual sector are regulated at these different levels of government.  

Cooperatives legislation is managed by the states. All states except Queensland have adopted harmonised legislation called the Co-operatives National Law. This legislation enshrines the international cooperative principles at Section 10.

The Corporations Act 2001, which is designed primarily for investor-owned companies, is managed at the Commonwealth level. Financial cooperatives and mutuals generally are required to register as companies under this legislation (some, such as the credit unions and mutual banks, may have started life under cooperatives legislation before they were transferred to the companies legislation). Some cooperatives and mutuals from other sectors are also registered under this legislation by choice. There was until recently no definition for cooperatives and mutuals in this legislation.

Santosh Kumar: What are the main elements of the reform?

Anthony Taylor: At a Federal level, cooperatives and mutuals have had to register as companies under the Corporations Act since 2001. This is a problem because there has been no recognition of the different nature of mutually owned businesses.

It means that corporate law doesn’t work well for cooperatives and mutuals.

In April 2019, the BCCM’s Mutual Reforms Bill was approved by Parliament.

The new amendments to the Corporations Act include:

• Introducing a definition of ‘mutual entity’ into the Corporations Act; 

• Allowing the issue of Mutual Capital Instruments (MCIs) as a specialised capital instrument for mutual entities; and 

• Introducing a standard process of member approval to allow eligible mutual entities to amend their constitutions to allow the issue and operation of MCIs without causing a demutualisation or requiring special compliance measures.

Santosh Kumar: How are cooperatives and mutuals going to be immediately impacted?

Anthony Taylor: A key issue that had been identified by the sector was that mutual entities had historically been constrained in their flexibility and speed of growth. This is because they have generally only been able to access capital through retained earnings or debt. The result was that many mutual entities were at risk of demutualising if they sought to raise permanent capital from external sources.

The amendments to the Corporations Act allow mutual entities to raise permanent capital without demutualising.

These changes will remove a significant barrier to investment and growth and provide mutual entities with access to a broader range of capital-raising options.

Santosh Kumar: What were the restrictions in the previous law?

Anthony Taylor: Previously, the only mention of mutual business in the Corporations Act was a regime to permit demutualisation! These changes provide a new section in the Act to improve law for federally registered cooperatives and mutuals that can be built on in the future.

Santosh Kumar: What was the role of the BCCM in the whole process of amendment?

Anthony Taylor: BCCM worked with Government and businesses across the mutual sector to help develop new legislation that improves the business environment for federally registered cooperatives and mutuals.

The legislation was conceived by BCCM to create new and unique ‘mutual capital instruments’ to help existing mutuals grow and innovate in sectors as varied as banking, agriculture and motoring.

BCCM began work in 2013 to help to prepare the ground for reforms in favour of cooperatives and mutuals in Australia, and the strategy commenced with the publication of a policy blueprint, then helping to establish a formal Senate Inquiry into Co-operatives and Mutuals. These measures helped to educate our target politicians and identify who would be our champions.

At all points we were keen to stress the centrality of cooperatives and mutuals to the Australian economy and demonstrate how they are a force for fairness and shared prosperity. We worked with global mutual policy experts, Mutuo, to find the most appropriate way to make changes in Australia.

We also worked with member businesses to identify sensible amendments to the

Corporations Act to help improve the business environment for mutually owned firms. This work received the support of the bipartisan Senate Economics References Committee in 2016.

Government subsequently ordered a review of the recommendations from the Senate Committee, conducted by Greg Hammond OAM. The Federal Treasurer accepted all of the recommendations of the Hammond Review.

BCCM worked hard to build a true bi-partisan consensus in favour of the reforms. The changes were championed both by members of the Liberal-National Coalition and the opposition Labor Party.

BCCM led the project to work with the Treasury to develop the draft legislation that implemented these changes and resulted in the Treasury Laws Amendment (Mutual Reforms) Act 2019, which received Royal Assent on 5 April 2019.

Santosh Kumar: We learnt about BCCM facilitating the creation of “Friends of Cooperatives & Mutuals” in the Australian Parliament. What is it, and how do you think the FOCM helped the BCCM in pursuit of the recent legislative change?

Anthony Taylor: The FOCM is a voluntary Parliamentary group, open to all MPs and Senators, to show their support for cooperative and mutual business and to engage with business leaders from the sector.

The FOCM has been pivotal in enabling BCCM to identify its supporters in Parliament and to present the legislative reforms in a truly bi-partisan way.

The joint leaders of the FOCM have been instrumental in ensuring that their parties provided support to the initiative.

Santosh Kumar: What were, in your view, the main challenges in your extensive journey from 2013 (when BCCM started its advocacy work) that shaped the strategy to develop cooperatives into a concrete legal instrument?

Anthony Taylor: The biggest challenge has been the lack of a clear identity for cooperatives and mutuals.  Because there is a dual legal regime, with state-registered cooperatives and federally registered cooperatives and mutuals, there has been confusion about the business form.

This was not helped by the lack of a national peak body for cooperatives and mutuals, where they could come together and speak with one voice.

On the other side, in Government, there has been a real lack of knowledge of what the purpose of cooperative business is. We have put considerable effort into educating our target audience, providing clear statistical evidence of the size and scope of the sector (such as the annual National Mutual Economy Report), and explaining the value of cooperative business to the Australian economy and society.

Santosh Kumar: How important do you think harmonisation of legislations (in Australia) and their enforcement is in this context?

Anthony Taylor: Ensuring there is well-designed legislation for cooperatives and mutuals is very important. It then needs to be backed up with proper guidance, information and modern administrative processes from regulators.

Queensland is currently considering adopting Co-operatives National Law in line with all other Australian states. Adoption by Queensland would complete the project of harmonising cooperatives legislation in Australia.

Harmonisation of cooperatives legislation would represent a significant boost for existing cooperatives and make the cooperative option more attractive for groups starting enterprises.

Santosh Kumar: As a lawyer yourself, what do you think of harmonisation of cooperative laws in the context of application of the ICA Statement on Cooperative Identity by cooperatives in different countries?

Anthony Taylor: The cooperative movement should be proud that it has global harmonisation through its principles.

The mapping work being done currently to understand the legal environment for coops across the Asia-Pacific is important. We can learn from what is working well in each country, what approach to cooperatives law allows cooperatives to best put their principles into practice.

Santosh Kumar: Will there be an impact on the Fourth Cooperative Principle now that the Mutual Capital Instrument will be put into practice?

Anthony Taylor: It is important that member control is maintained and that autonomy and independence is not compromised.

In the same way as Rabobank has opened up its member certificates to investors, MCI will provide important capital to improve the performance of the business on behalf of all members.

No investor will receive more than one vote, regardless of their investment, and dividend payments are discretionary, under the control of the membership through their Board.