Australian Regulatory Compliance Review

Government Response to the Productivity Commission Annual Review of Regulatory Burdens

The Federal Government has responded to the Productivity Commission report – Annual Review of Regulatory Burdens on Business: Social and Economic Infrastructure Services .

The Productivity Commission's concerns covered a wide range of regulated schemes and activities relating to the social and economic infrastructure sector, including: aged care; child care; information media and telecommunications; electricity, gas, water and waste services; transport; education and training; and medical services.

Of the Productivity Commission's 42 recommendations, the Government has accepted 21 and accepted a further 5 in principle. Of the remaining responses 12 were noted, mainly reflecting the Government’s existing reform agenda, while four responses were not accepted.

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Companies limited by guarantee: draft Corporations Amendment (Corporate Reporting Reform) Bill 2010 released

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP,has released the draft Corporations Amendment (Corporate Reporting Reform) Bill 2010 and the accompanying Regulations for comment.

Companies limited by guarantee

The main change affects Australia's 11,000 companies limited by guarantee, many of which are sports and recreation related organisations, community service organisations, education-related institutions and religious organisations.

A three tiered differential reporting framework will be introduced 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. In addition, the process for companies to distribute the annual report to their members will be streamlined.

Companies limited by guarantee will be prohibited from paying a dividend, as the government believes the corporate structure of companies limited by guarantee means that they are not suited for conducting for-profit activities which could legitimately warrant the payment of dividends to members.

Under the first tier, companies would be exempt from preparing the financial report and the directors’ report. This tier comprises of companies limited by guarantee with annual revenue less than $250,000 which do not have deductible gift recipient status.

Under the second tier, companies would:

• prepare a financial report, which they could elect to have reviewed rather than audited;
• prepare a streamlined directors’ report, rather than a full director’s report; and
• be subject to a streamlined process for distributing the annual report to members.

The second tier comprises of the following companies limited by guarantee:

• companies with an annual revenue of less than $250,000 that are a deductible gift recipient; and
• companies with an annual revenue of $250,000 or more but less than $1 million, irrespective of whether the company is a deductible gift recipient.

Under the third tier, companies would:

• continue to prepare an audited financial report;
• prepare a streamlined directors’ report, rather than a full director’s report; and
• be subject to a streamlined process for distributing the annual report to members.
• The third tier comprises of companies limited by guarantee with an annual revenue of $1 million or more, irrespective of whether the company is a deductible gift recipient.

Other changes

The other key measures include:

• streamlining parent-entity reporting;
• providing greater flexibility for companies to pay dividends, by replacing the profits test with a solvency-type test; and
• allowing companies to more easily change their year-end date.

The reforms will also implement refinements to the regulatory framework, including:

• improving disclosure of non-financial information in the directors' report;
• protecting solicitors' representation letters from disclosure to enable auditors to properly verify a company's contingent liabilities;
• refining the statement of compliance with International Financial Reporting Standards contained in the directors' declaration; and
• clarifying the circumstances in which a company can cancel its share capital.

The closing date for submissions is 3 February 2010.

Unconscionable conduct regulation

Treasury has prepared an issues paper concerning various options for clarifying the scope of the unconscionable conduct provisions of the Trade Practices Act 1974 (TPA).

The issues paper is part of a process which will examine two options for clarifying the application of the TPA’s unconscionable conduct provisions:

1. The first option is the introduction in the TPA of a list of examples of conduct that is universally agreed to be unconscionable.
2. The second is the introduction of a statement of principles of unconscionable conduct.

If the panel is satisfied that either or both of these options would make the provisions more effective, it is then to consider the content of a list of examples or statement of principles.

The panel has also been asked to consider issues associated with conduct in franchising relationships and, in particular, whether specific inappropriate conduct can be identified and — if the panel considers it necessary — whether measures can be introduced into the Franchising Code of Conduct to prevent them. The panel will conduct its work on possible amendments to the Franchising Code of Conduct as a separate process.

Submissions close on 18 December 2009.

Spam Act action by ACMA: Vodafone and 3 others

The Australian Communications and Media Authority (ACMA) has accepted enforceable undertakings and payments from three companies—Vodafone Hutchison Australia Pty Limited (VHA), New Dialogue Pty Ltd (New Dialogue), Big Mobile Pty Ltd (Big Mobile)—and issued a formal warning to Coca-Cola South Pacific Pty Ltd (CCSP) arising from alleged breaches of the Spam Act 2003 in a marketing campaign that promoted certain Coca-Cola products through SMS.

VHA's enforceable undertaking included a financial component of $110,000. The undertaking was offered by VHA in response to three ACMA investigations into alleged breaches of the Spam Act (including the Coca-Cola marketing campaign). VHA has undertaken to appoint an independent auditor to monitor Spam Act compliance and to make recommendations to improve Spam Act compliance, to be implemented by VHA. VHA has also undertaken to provide Spam Act training for all employees.

The ACMA has also accepted enforceable undertakings from media agency New Dialogue and content aggregator Big Mobile in relation to the Coca-Cola marketing campaign. In accordance with its enforceable undertaking, New Dialogue has paid an amount of $22,000. Big Mobile has undertaken to pay compensation to each recipient of any SMS message that breaches the Spam Act during the term of the enforceable undertaking (12 months).

ACMA has also a formal warning to CCSP for causing commercial electronic messages to be sent without an unsubscribe facility and not providing contact information, as required under the Spam Act.

Regulation of food safety

The Productivity Commission has published a draft research report on the Regulation of Food Safety.

The Report highlights the lack of uniformity in food safety standards and the administration and enforcement of food safety regulation in all levels of Australian government.

The Report also analyses meat, egg, dairy and seafood production.and import and export regulations.

The final report will be prepared after submissions have been received and will be forwarded to the overnment by 16 December 2009.

Australian Consumer Law update: deferral to 1 July 2010 and other amendments

The Trade Practices Amendment (Australian Consumer Law) Bill 2009 has been introduced into the Senate.

The Government has tabled amendments proposing that the provisions concerning the national unfair contract terms law will not commence before 1 July 2010.

Other proposed amendments to the unfair contract terms provisions:

• provide that a term in a consumer contract can only be unfair if it would cause financial or non-financial detriment to a party;
• remove the consideration of whether a term would cause detriment, or a substantial likelihood thereof, from the considerations that a Court must have regard to in determining whether a term of a consumer contract is unfair;
• remove the power for the Minister to prohibit terms by regulation;
• provide that the Minister must take into account certain factors in prescribing by regulation an example of an unfair term;
• clarify that the unfair contract terms provisions apply to consumer contract terms varied on or after commencement as varied.

ACCC trade practices compliance update

ACCC Enforcement Commissioner Sarah Court's speech on compliance provides a number of reasons why compliance, especially voluntary compliance, makes good sense for any business. Highlighting a number of case studies, she provides some guidance on how the ACCC may react to certain breaches: will it litigate, accept a court enforceable undertaking or resolve the matter administratively?

Report on regulation of not-for-profits

The Productivity Commission has released its draft research report on the contribution of the not-for-profit sector.

The report recommends, amongst other things, clearer governance and accountability of NFP's via a consolidated regulatory framework that provides a simple one-stop-shop for Commonwealth registration and tax endorsement for NFPs. This would bring together the multiplicity of governance, taxation and fundraising regulatory arrangements, especially at the Commonwealth level.

The Commission proposes the establishment of a ‘one-stop shop’ for Commonwealth regulation in the form of a Registrar of Community and Charitable Purpose Organisations. This could be a new organization or a statutory division of the Australian Securities and Investments Commission, and would replace the equivalent functions in existing regulators, including incorporating the Office for Registrar of Indigenous Corporations.

The Registrar would:
• register and regulate a new Commonwealth Incorporated Associations regime, Companies Limited by Guarantee, and Indigenous Corporations
• register and endorse NFPs for all Commonwealth tax concessions
• potentially register NFPs for cross-jurisdictional fundraising
• establish a single portal for the lodgement, maintenance and access to public record corporate and financial information, proportionate to size and risk-based on the principle of ‘report once use often’. Such a facility could be used as a single place for corporate and basic financial ‘health checks’ for government contracting purposes and/or by prospective donors.
• investigate complaints
• provide education and guidance on governance issues.

About not-for-profits

According to the Productivity Commission:

• On a rough estimate, there are 600 000 NFPs (excluding body corporates such as for strata titles). The majority, about 440 000, are small unincorporated organisations (such as neighbourhood tennis, babysitting, or card clubs).
• Of the remainder, the ABS classifies 58 779 as ‘having an active tax role’ (on the basis that they employ staff or access tax concessions). These ‘economically significant’ NFPs employed 889 900 staff, around 8 per cent of employment, and contributed just under $43 billion to Australia’s GDP in 2006-07.
• The ratio of the NFP contribution to GDP has increased from 3.3 to 4.1 per cent between 1999-00 and 2006-07.

Calculating monetary penalties

The Commonwealth and most states express monetary penalties for breaches of laws as penalty units.

The amount of one unit is then set out in a separate Act allowing for easy adjustment when necessary.

The amount of a Commonwealth penalty unit is currently prescribed by section 4AA of the Crimes Act as $110. The amount of penalty units in the states are similar but do vary.

The Commonwealth Attorney-General has published a helpful penalty unit conversion table.