WARNING:
This Digest is prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments.
This Digest was available from 16 October 1996.
CONTENTS
CFM Sale Bill 1996
Date Introduced: 19 September 1996
House: House of Representatives
Portfolio: Finance
Commencement: Royal Assent, with the exception of
Items 3 and 4 of Schedule 1 (which are taken to have commenced
immediately after the commencement of Part 2 of the
Commonwealth Funds Limited Management Act 1990, ie. 1
March 1991.). The remaining
items in Schedule 1 are to commence on a day or days to be fixed by
Proclamation.
To implement a process for the sale of Commonwealth Funds
Management Ltd and its subsidiaries.
Commonwealth Funds Management Ltd (CFM) was established by the
Commonwealth Funds Management Act 1990 (the CFM Act) on 1
July 1991 as a public company wholly owned by the Commonwealth. Its
predecessor was the Superannuation Fund Investment Trust (SFIT), a
statutory authority that acted as trustee and fund manager of the
Commonwealth Superannuation Scheme (CSS).
CFM manages the day-to-day investment activities of the
superannuation schemes under its control. The major superannuation
schemes under CFM's control are the CSS, the Public Sector
Superannuation Scheme (PSS), and the Telstra and Australia Post
superannuation schemes. In respect of the CSS and PSS, CFM manages
these funds in close consultation with the CSS and PSS Boards.
The CFM Act provided CFM with an exclusive mandate to manage the
CSS and PSS, which lapsed on 30 June 1995. In addition, the
Commonwealth guaranteed the repayment of the first $20 million
borrowed by CFM for the purpose of carrying out any of its
objectives. Five million dollars was repaid in the 1992-93
financial year; the balance was repaid in 1993-94.
In preparation for the loss of its exclusive mandate, CFM
established a subsidiary company, Total Risk Management Ltd (TRM
Ltd). TRM is primarily responsible for the investment management of
the CSS and PSS; its roles include asset allocation, portfolio
structuring, manager selection, and client reporting. However,
despite the restructure, CFM is reported to have lost 45 percent of
the public service superannuation funds under its management to
other funds managers.(1) Although CFM has launched a line of retail
investment products, and has gained a number of private sector
clients, the revenue gained has not been sufficient to offset the
loss of a proportion of CSS and PSS funds.
- CFM continues to derive the majority of its revenue from fees
relating to the management of the CSS and the PSS.(2)
The loss of CSS and PSS funds is probably due to the lesser rate
of return gained by CFM investment funds relative to investment
funds of other companies; the InTech Superannuation Performance
Survey ranked CFM No 32 from 37 superannuation funds in
investment returns in the twelve months to 31 March 1996. The
Sedgwick Noble Lowndes Superannuation Investment Performance
Monitor (September Quarter 1995) ranked CFM Managed Growth
Fund 34th out of 37 balanced funds in terms of the average annual
return for the period ending 30 September 1995. The return on the
CFM Managed Growth Fund for that period was 7.2%; the return gained
by the first ranked investment fund - ANZ - was 14.2%.
Sale of CFM
After discussions in Federal Cabinet, the sale of CFM was
announced by a spokesperson for the Minister for Finance, the Hon
John Fahey MP, on 7 May 1996, subject to the holding of a scoping
study to determine the extent of commercial interest in the sale.
At that stage, it was anticipated that a sale Bill would be
introduced during the Budget Sittings.
The announcement of the sale gave rise to concerns from the
Community and Public Sector Union (CPSU). The CPSU, in its press
release, urged the Government to establish safeguards to ensure
that Government employees whose superannuation contributions were
subject to management by CFM did not 'lose out' as a result of the
sale.(3) The CPSU has since announced that it has entered into a
formal agreement with Lend Lease Corporation; should Lend Lease be
the successful bidder, the union will provide advisory services on
superannuation issues to the former on a commercial basis.(4)
On 28 June 1996, the Minister announced the appointment of KPMG
Corporate Finance (Victoria) as business advisers to the sale, and
Allen Allen and Hemsley and Arthur Robinson and Hedderwicks as
joint legal advisers. It was stated that these advisers would be
working closely with the CFM Sales Team in the Department of
Finance, and with the management of CFM on the scoping
study.(5)
On 8 August 1996, the Minister announced that the Government was
seeking expressions of interest for the purchase of CFM; the
scoping study had indicated that there was 'keen commercial
interest'.(6) CFM is to be put to tender; indicative bids have been
submitted, and it is anticipated that a successful bidder will be
announced by the end of 1996.
The Department of Finance has advised that CFM will not
necessarily go to the highest bidder; other factors, such as the
capacity to undertake CFM's funds management function, will be
taken into account. In addition, given that the decision to place
funds with funds managers rests with the trustees, any potential
bidder would need to be acceptable to the trustees.
It should be noted that the details of the sale process are not
contained in the Bill; these are actually set out in a Summary
Information Brochure, available from KPMG Corporate Finance. This
brochure is available on a confidential basis.
CFM Sale Bill
The CFM Sale Bill was introduced into the House of
Representatives on 19 September 1996. The purpose of the Bill is
set out in the Explanatory Memorandum to it; it is designed to
provide for:
- a flexible disposal strategy which allows for the
establishment, under Ministerial direction, of CFM subsidiaries and
the transfer of those subsidiaries to the Commonwealth (to create a
transferred body) prior to sale and the transfer of appropriate CFM
staff to a CFM subsidiary or a transferred body;
- the sale of CFM and the transferred bodies. The Bill allows for
the sales to take place on different days and to different
buyers;
- continuity of employment terms and conditions and accrued
entitlements for CFM staff transferring to CFM subsidiaries and
transferred bodies. For the purposes of determining accrued long
service leave and sick leave entitlements post sale, recognition
will be given to periods of employment with CFM, CFM subsidiaries
and transferred bodies; and
- the transfer, under Ministerial declaration, of specified
assets, liabilities, rights and obligations of CFM bodies to
specified transferees on specified days This will allow for the
sale or transfer of matters that do not constitute subsidiaries or
transferred bodies to take place on different days to different
recipients and for the relevant matters to vest in the specified
transferees.
The Bill is divided into a number of Divisions, each of which
pertains to a particular aspect of the sale.
Part 2, Division 1 of the Bill deals with the
Transfer of CFM subsidiaries from CFM to the Commonwealth so that
they may be sold under Part 3 of the Bill.
Clause 2 provides for the commencement of
various provisions of the Bill, and of amendments to the
Commonwealth Funds Management Limited Act 1990 which are
specified in Schedules 1 and 2 to
the Bill.
Clause 4 of the Bill will operate, subject to
clause 2, to progressively amend or repeal the CFM
Act in the form and manner set out in Schedule 1 to the Bill. As
will be discussed below, the Bill proposes amendments to the CFM
Act for the purpose of preserving the basis of its incorporation
during the process of transfer of shares and assets from CFM to the
Commonwealth. The amendment or repeal of most of these provisions
is due to take place either on a day or days to be proclaimed, or
at the end of 6 months after the Bill receives Royal Assent.
Examples of provisions that are to be repealed include those
amended by clauses 15, 16, 17, 18 and 19 of the
Bill. The nature and effect of these clauses is discussed
below.
A significant exception to this is the proposed repeal of
section 47 of the CFM Act; this provision prevents the transfer of
the shareholding in CFM a person other than the Commonwealth, a
body corporate established for a public purpose by a law of the
Commonwealth, or to the Minister for Finance (the Minister).
Item 10 of Schedule 1 to the Bill
will operate to repeal section 47 on the day that the Bill receives
Royal Assent.
Amendments to the memorandum of association and articles of
association are effected by subclause 25(4); this
will be discussed below.
Clauses 6 and 7 provide that the Minister may,
in writing, direct CFM to establish subsidiaries as well as direct
CFM to transfer to the Commonwealth all of the shares in a CFM
subsidiary, including a subsidiary that existed before the
commencement of the Act. An example of such a subsidiary would be
Total Risk Management.
- These provisions confer broad powers upon the Minister to
direct CFM to do certain things. It is arguable that the width of
the power is justified by the need to have flexibility in the sale
process. However, it should be noted that the tender process for
CFM has not been legislated for, and the power to make directions
is not contingent upon the satisfaction of specified legislative
criteria.
Clause 8 provides for an exemption from stamp
duty and other taxes that would ordinarily be payable under
Commonwealth, State or Territory Law in relation to share
transfers.
Division 2, Part 2 of the Bill deals with the
terms and conditions of employment of 'transferred employees' (ie.
employees of CFM Ltd whom the Minister has declared to have ceased
employment with CFM Ltd, and taken to have been engaged by a CFM
subsidiary or a specified transferred body (ie. a body whose shares
have been transferred to the Commonwealth under clause
7) pursuant to clause 9.
Clause 10 is aimed at ensuring that employees
of CFM who have been engaged by the CFM subsidiary or transferred
body are paid the same terms and conditions as applied to them
immediately before their transfer, and retain entitlements accrued
before the transfer. These terms and conditions of employment may
be varied in accordance with relevant laws, awards, orders or
agreements (clause 11).
Division 3, Part 2 of the Bill deals with the
application of the Commonwealth Funds Management Limited Act
1990 (CFML Act), in relation to CFM subsidiaries and
transferred bodies.
Clause 14 extends the application of the
definition of 'protected body' in section 4 of the CFML Act to
include a reference to the transferred body, or a wholly owned
subsidiary of the transferred body. ('Protected body' is a group
company that is a trading or financial corporation within paragraph
51(xx) of the Constitution).
Subclause 15(a) extends the application of
section 15 of the CFML Act to a transferred body under this Bill.
Section 15 of the CFML Act provides, in the case where all shares
in CFM or a subsidiary are beneficially owned by the Commonwealth,
that the Corporations Law will operate to deem the Commonwealth as
the holding company for CFM, in relation to the requirements as to
the number of directors and shareholders.
Subclause 15(b) refers to the commencement of
Part 3 of the CFML Act. Part 3, which came into force on 1 July
1991, deals with the conversion of CFM (the structure of which had
been established by Parts 1 and 2 of the Act) from a statutory
authority into a public company. Subclause 15(b)
deems a reference to the commencement of Part 3 to be a reference
to the transfer of all of the shares in the CFM subsidiary in
question by CFM to the Commonwealth.
Clause 16 deals with the application of Part 4
of the CFML Act in relation to a transferred body. Part 4 of that
Act allows a 'protected body' (ie a group company that is a trading
or financial corporation within paragraph 51(20) of the
Constitution) to operate under a protected company or business
name, despite anything to the contrary in any law of a State or
Territory, even if the name has not been registered under such a
law. The Part also prescribes a penalty in cases where a protected
company or business name is used without the written permission of
the Company. The exception to this is where such a name was already
registered either as a trade mark under the Trade Marks Act
1955, or as a design under the Designs Act 1906.
Clause 16 extends the application of Part 4, as if a reference
to 'protected were a reference to the transferred body, or a
wholly-owned subsidiary thereof. References to 'protected company
name' and 'protected business name' are taken to be references to
the name of a transferred body, or of a wholly owned
subsidiary.
Clauses 17 and 18 extend the operation of
relevant provisions of the CFML Act to transferred employees of a
transferred body, to ensure that employees of a transferred body
retain mobility rights under Part IV of the Public Service Act
1922 (the PS Act). Part IV of the PS Act confers mobility
rights to employees of approved statutory authorities that are
staffed outside the PS Act.
However, it should be noted that clause 57 of
the Bill provides for the cessation of mobility rights under
Divisions 2, 3 and 4 of the PS Act and the Officers' Rights
Declaration Act 1928 once a CFM body is sold. The effect of
this is that should an employee of a (privatised) CFM body decide
to leave his or her employment, they will lose special
consideration for reappointment to the Australian Public
Service.
Part 3 of the Bill deals with the sale of CFM
and transferred bodies. Once a majority of the voting shares in CFM
are no longer held by the Commonwealth or one of its nominees,
clause 25 requires the Minister to declare, by
notice in the Gazette, that day to be the sale day for CFM.
- At present, CFM's memorandum of association, and the
'Overriding Principle' in its articles of association, provide that
the shareholding in CFM may not be transferred to a person other
than the Commonwealth, a body corporate established for a public
purpose, or a Minister. The memorandum and articles may not be
amended to allow for the transfer of CFM's shareholding to persons
other than those already specified, unless an amendment to the CFML
Act expressly provides for it. Subclause 25(4)
states that clause 25 constitutes such an
amendment.
Clause 26 applies to transferred bodies. Once a
majority of the voting shares are acquired by a person or persons
other than the Commonwealth or its nominees, then the Minister must
declare, by notice in the Gazette, that day to be the sale day for
the transferred body.
Division 4 of Part 2 (clauses 20-23), and
Divisions 2, 3 and 4 of Part 3 (clauses 27-55) of
the Bill contain transitional provisions in relation to the
operation of the following legislation relating to Commonwealth
employment, both in respect of the transfer of CFM bodies to the
Commonwealth, and after their sale:
- Crimes (Superannuation Benefits) Act 1989;
- Defence Force Retirement and Death Benefits Act
1973;
- Long Service Leave (Commonwealth Employees) Act
1976;
- Safety, Rehabilitation and Compensation Act 1988;
- Superannuation Act 1976; and
- Superannuation Act 1990.
Clause 56 deals with refunds of contributions
paid for the administration of the Occupational Health and
Safety (Commonwealth Employment) Act 1991 by a CFM body in
respect of the financial year in which its sale occurs.
Clause 58 provides for the continuing
application of the Director of Public Prosecutions Act
1983 to certain acts or omissions that occurred in relation to
a CFM body before its sale day, as well as to civil remedies in
respect of relevant matters.
Clause 60 provides that, unless a law (of the
Commonwealth, State or Territory, or regulations made pursuant to
such a law) expressly provides otherwise, a CFM body, after it is
sold, ceases to be either; a Commonwealth authority, or established
for a public purpose or for a purpose of the Commonwealth, or a
public authority or an agency or instrumentality of the Crown.
Clause 61 deals with the operation of section
48(2) of the Acts Interpretation Act 1901 in respect of
regulations made pursuant to other Acts that are connected with the
sale of a CFM body (and declared by the Governor-General to be so
connected), and which are expressed to take effect on the body's
sale day.
- Section 48(2) of the Acts Interpretation Act 1901
states that a regulation which is expressed to take effect before
the date of notification (ie retrospectively) has no effect if, as
a result, the rights of a person (other than the Commonwealth or an
authority of the Commonwealth) as at the date of notification would
be affected to their disadvantage, or, liabilities would be imposed
in respect of anything done or omitted to be done before the date
of notification. Clause 61 is designed to enable
other portfolios to make regulations to operate
retrospectively.
Clause 62 provides for the cessation of
specified provisions of the CFML Act upon the day of sale of CFM
itself, and on the sale day of a transferred body.
Part 4 of the Bill deals with the transfer of
assets, liabilities, rights and obligations of CFM bodies to the
Commonwealth, a CFM subsidiary or a transferred body ('specified
transferees'). Such transfers are to be effected by Ministerial
declaration.
Division 2 of Part 4 governs the transfer of
assets (ie any legal or equitable interest in personal property,
any right, privilege or immunity, including a contingent or
prospective one) by Ministerial Declaration. The exception to this
is shares in the CFM body. In this context, the operative provision
is clause 65.
Division 3 of Part 4 deals with the transfer of
rights and obligations by Ministerial declaration; the operative
provision is clause 68.
Division 4 of Part 4 deals with the transfer of
liabilities by Ministerial declaration; the operative clause is
clause 71.
In transfers under clauses 65, 68 and
71, such a declaration is to be in writing, and is
to be published in the Gazette no later than 21 days after it has
been made.
Clause 74 provides that transfers under clauses
65, 68 and 71 are exempt from stamp duty or other tax ordinarily
payable under Commonwealth, State or Territory law.
Clause 75 basically ensures that the Income
Tax Assessment Act 1936 applies to a transferee of an item as
it stood in the hands of the CFM body to which it belonged
immediately before the transfer in such a way that the recipient
takes the item as it stood in the hands of the CFM body before the
transfer.
Clauses 76, and 78 deal with registration of
transfers of CFM land, and certificates in relation to assets other
than land. The purpose of both of these clauses is to allow those
assets which have been transferred pursuant to Ministerial
declaration to be registered, and subsequently dealt with in the
way that transfers of land and other assets would ordinarily be
dealt with.
Clause 77 exempts transactions carried out
under Part 4 from the operation of the Lands Acquisition Act
1989. This legislation imposes certain procedural requirements
that the Commonwealth or Commonwealth authority must satisfy when
it seeks to acquire land, or interests in land.
Part 5 of the Bill contains a number of
miscellaneous provisions. Subclause 79(1) provides
that if the legislation were to operate so as to result in the
acquisition of property from a person on otherwise than just terms
(ie in contravention of paragraph 51(xxxi) of the Constitution),
the Commonwealth is liable to pay a 'reasonable amount of
compensation' to the person in relation to the acquisition. In the
case of disagreement as to what constitutes a 'reasonable amount'
of compensation, subclause 79(2) provides that the
person may institute proceedings in the Federal Court of Australia
for the recovery from the Commonwealth of such reasonable amount as
the Court determines.
Subclause 79(3) is designed to prevent
'double-dipping'. Where damages or compensation has already been
recovered in respect of the same transaction, by means other than
an action under clause 79, this amount is to be taken into account
by the Court in its determination of 'reasonable compensation'
- Stott, Diane, and Trueman, Justine, 'CFM fails to excite
buyers', Sydney Morning Herald, 8 May 1996.
- Commonwealth Funds Management, Annual Report
1994-1995; p.35
- 'Union Seeks Safeguards on Sale of Funds Manager', Press
Release, Sally O'Loughlin, 7 May 1996.
- 'Two steps forward: financial advice service and super news',
Bulletin, Community and Public Sector Union, 18 September
1996.
- 'Appointment of advisers: sale of Commonwealth Funds Management
Ltd', Press Release, John Fahey MP, 28 June 1996.
- 'Sale of Commonwealth Funds Management Limited: Registration of
Interest', Press Release, John Fahey MP, 8 August 1996
Elen Perdikogiannis Ph. 06 277 2699
14 October 1996
Bills Digest Service
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ISSN 1323-9031
© Commonwealth of Australia 1996
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Published by the Department of the Parliamentary Library,
1996.
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Last updated: 18 October 1996
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