Bills Digest No. 160  1998-99 Wool International Privatisation Bill 1999


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details

Passage History

Wool International Privatisation Bill 1999

Date Introduced: 30 March 1999

House: House of Representatives

Portfolio: Agriculture, Fisheries and Forestry

Commencement: Clauses Royal Assent except for Schedule 2 which commences on a day to be fixed by proclamation. If that does not occur within 6 months of Royal Assent, then Schedule 2 commences 6 months and 1 day after Royal Assent.

Purpose

To provide for the corporatisation and privatisation of Wool International.

Background

Basis of policy commitment

The official wool stockpile accumulated as a result of purchasing in order to support the wool reserve price scheme. It grew from a negligible level at the start of the 1989-90 season to a peak of just under five million bales in 1990-91. In the subsequent eight years, despite several changes to the stockpile disposal mechanism, a steady reduction in the stockpile was achieved. For most of the period the disposal program was accompanied by a rising trend in wool prices. The stockpile's current level is just over one million bales.

The disposal program came under increasing pressure in 1997-98 with the Asian crisis and weaker European demand pushing down wool prices. The Eastern Market Indicator fell from 738 cents/kg clean in 1997 to 544 cents/kg at the start of the 1998-99 season and under 500 cents/kg before climbing again, to 534 cents/kg in early April 1999.

Wool International

Wool International is a statutory authority established by the Commonwealth Government under the Wool International Act 1993. Its mission was to sell the official wool stockpile, subject to certain conditions (outlined below), and to undertake these sales in a manner which maximised the net return to the Australian wool growing industry from sales of new, as well as stockpile, wool.

From 1994 to 1996, Wool International was required to sell wool from the stockpile according to a fixed schedule. A new, more flexible, wool stockpile disposal schedule was introduced with the Wool International Amendment Act 1996. That Act required Wool International:

  • to dispose of all of the stockpile wool by 31 December 2000
  • to impose lower and upper caps on its quarterly sales of stockpile wool of 90 000 and 350 000 bales per quarter, respectively, and
  • to retire the debt associated with the stockpile by the end of 1998.

In the Second Reading Speech for the Wool International Amendment Act 1996, the then Minister for Primary Industries and Energy noted the target date set for the final repayment of the debt associated with the stockpile. The Minister said that, when repayment of the debt was achieved, the Government's debt guarantee arrangements would also end and that this underlined the Government's view that it needed to continue to withdraw from the industry to allow the industry to determine its own future direction.

In March 1998 the target date for repayment of the wool stockpile debt was extended for up to six months.

In October 1998 the Government announced its decision to:

  • legislate to freeze sales from the stockpile, and
  • privatise the wool stockpile from 1 July 1999.

On 21 December the law was enacted to officially freeze sales of wool from the stockpile until the end of June 1999, when Wool International is to be replaced by a private company, WoolStock Australia Limited.

The liabilities of Wool International in December 1998 were $212 million, with a value of net assets of $471 million.(1)

An estimated increase in interest rate payments of at least $21 million from December until July 1999 has been reported.(2) The current stockpile represents about one quarter of annual production in the past. Production in 1998 was at a long-time low, and is expected to decrease further over the next five years.(3)

WoolStock Australia Limited

The proposed new corporate structure has the following major characteristics:

  • a trust is to be set up, TrusteeCo, which will hold all units of equity in Wool International, prior to the date on which Wool International becomes WoolStock Australia Limited
  • shares in WoolStock Australia are to be distributed to registered equity holders, including TrusteeCo, according to unit holdings in Wool International
  • conditions applying to units in Wool International (such as charges) are to be transferred to WoolStock Australia shareholders
  • the issues of shares will not attract Capital Gains Tax
  • units of equity issued under the Wool International Act 1993 after the conversion, in respect of wool tax payed by a person in the course of carry on a business, will be treated as income derived from the carrying on of a business of primary production
  • Commonwealth guarantees in respect of amounts owing by WoolStock Australia Limited, where the obligations were incurred before the conversion from Wool International to WoolStock Australia Limited, and where an obligation has not been varied after the conversion time without the written consent of the Minister who administers the Financial Management and Accountability Act 1997, are to be continued
  • costs incurred by WoolStock Australia for the purpose of marketing, administrative and financial management cannot be treated as tax deductions, and
  • a constitution for WoolStock Australia is to be approved by the Minister before acceptance. Two issues to be covered in the Constitution are:
  • the Chairman of the Board and an additional two directors are to be appointed by the Minister. These three people then appoint the other members to the Board, following consultation with the industry, and
  • up to $300 million, approximately 0.6 per cent of the estimated net value of the stockpile, can be used for the purpose of investigating and sponsoring new business activities.

Position of significant interest groups/press commentary

To date, there appears to be little industry or media comment on the measures proposed by the Bill. The main concerns voiced to date stem from the manner in which the Board of WoolStock Australia Limited is to be appointed. The difficulty is seen especially in the appointment on the Board by the Government of the first three positions, while the rest of the Board is to be appointed by the first three directors. In theory, this enables the Government to have considerable influence over the company. On the other hand, as it cannot be expected that shareholders have in place an elected Board in the first few months of the Company's existence, a Board appointed for a limited time span arguably is appropriate.

The National Farmers Federation president, Ian Donges, is reported as having said that many in the industry had hoped that the process of change would provide an opportunity to restructure the industry, but that he can only see '...WI being reincarnated'. Others quoted in the article express similar opinions.(4)

Some papers(5) report that around 40 per cent of the shares in Wool International are not allocated at present, and are therefore going to be held by TrusteeCo. If this were to be the case, TrusteeCo can have a rather powerful position, as this entity will need less than 20 per cent of the rest of the votes to obtain a majority. It is therefore important to know who will hold the rights of voting for TrusteeCo.

Main Provisions

Major Definitions

'Conversion time' is defined by clause 7 to mean the date on which Schedule 2 of the Bill commences. Schedule 2 of the Bill commences on a day to be fixed by proclamation. If that does not occur within 6 months of Royal Assent of the Bill, then 6 months and 1 day after Royal Assent.

Registration as a public company

Clause 8 requires Wool International to register as soon as possible after the commencing time as a public company. The application for registration must be accompanied by a copy of Wool International's proposed constitution. That constitution must be approved by the Minister. Wool International will be exempt from certain requirements under the Corporations Law, namely:

  • the application for registration state the name and address of each member of the company
  • the application for registration state the number and class of shares each member (shareholder) already holds or has agreed, in writing to take up
  • the application for registration state the amount each member has already paid or agreed, in writing, to pay for each share
  • the application for registration state the amount unpaid on each share
  • the application for registration will not need to be in the form prescribed by the ASIC (Australian Securities and Investments Commission)
  • lodgment with the application for registration of a certified copy of a current certificate of the body's incorporation in its place of origin, or of a document that has a similar effect, any other documents that are prescribed, and any other documents that the ASIC requires by written notice given to the body, and
  • lodgement with the application for registration of evidence that under the law of the body's place of origin that the body's type is the same or substantially the same as the proposed type specified in the application, and the members have consented to the transfer by a resolution that has been passed at a meeting by at least 75% of the votes cast by members entitled to vote on the resolution and were given 21 days notice of the meeting and the proposed resolution.

Nomination of TrusteeCo to hold shares etc

Clause 9 provides for the establishment of a trust company, TrusteeCo, prior to the conversion time. TrusteeCo must be wholly owned by Wool International. All units (ie. a unit of equity in Wool International allocated under the Wool International Act 1993) registered in the name of the Chief Executive (eg. those belonging to putative equity holders) will be taken to be registered in the name of TrusteeCo immediately before the conversion time (clause 10). In addition, any property held by the Chief Executive before the conversion time will also transfer to TrusteeCo at the conversion time.

Share capital

Clause 13 provides that immediately before the conversion time Wool International is taken to have a share capital of $349 403.18 which will be divided into 349 403 180 shares.

Conversion of Wool International into WoolStock Australia Limited

At the conversion time the ASIC will be taken to have registered Wool International as a public company with the name WoolStock Australia Limited (clause 14).

Shares in Wool International

Clause 16 deals with the issue of shares in WoolStock Australia Limited to registered equity holders. At the conversion time, each registered equity holder will receive one share in WoolStock Australia Limited for each unit of equity that they hold. A person to whom shares are issued becomes a member of WoolStock Australia Limited, and will have the same rights, privileges, duties, liabilities and obligations in respect of that membership as if they had become a share holder under the constitution of WoolStock Australia Limited.

Charges on shares

Shares taken to be issued under clause 16 will be subject to the same charges, if any, as they were subject to immediately before the conversion time (clause 17). As noted in the Explanatory Memorandum to the Bill, this is intended [and will] preserve the value of any security which has been obtained by chargees over units of equity. WoolStock Australia Limited must issue separate share certificates for shares subject to a charge and those not so subject. Chargees will be entitled to WoolStock Australia Limited dividends where a WoolStock Australia Limited share is subject to a charge/s and the registered equity holder has authorised WoolStock Australia Limited to make such dividend payments up to the amount of the debt secured by the charge/s.

Dealings by TrusteeCo with unclaimed units or wrong-name units

Clause 19 deals with the treatment of unclaimed units of equity and wrong-name units of equity held by TrusteeCo. TrusteeCo will hold such shares on trust until they are transferred to the correct person who is entitled to be registered in respect of the units. The clause also provides for dividends from unclaimed and wrong-name units to be transferred to TrusteeCo, at the finalisation time (ie. one month after the final distribution of equity units), where the holders cannot be identified. Where the holders of such units are identified, before the finalisation time, TrusteeCo must transfer the shares to the person and pay any dividends received in respect of the shares.

Capital gains tax

Clause 20 deals with capital gains tax and the privatisation of Wool International. The clause provides that certain events flowing from the Bill's provision will not attract capital gains tax, including the issue of shares in WoolStock Australia Limited and the establishment of charges over shares and the transfer of units of equity and property to TrusteeCo.

Exemption from income tax

WoolStock Australia Limited is provided with an exemption from income tax in respect of amounts derived from wool stockpile activities (clause 22).

Commonwealth guarantee

Clause 26 provides for the continuation of Commonwealth guarantees in respect of WoolStock Australia Limited debts where:

  • the amount payable by WoolStock Australia Limited was incurred before the conversion time, and
  • the obligation to pay the amount has not been varied, after the conversion time, without the written consent of the Minister for Finance.

Schedule 2 - Amendments to the Wool International Act 1993

Item 3 of Schedule 2 substitutes a new section 3 in the Wool International Act 1993 (the Principal Act) which provides that the main object of the Act, from conversion time, is to provide for units of equity for contributions made to WoolStock Australia Limited from payments of wool tax.

The effect of item 16 of Schedule 2 is to require TrusteeCo to transfer unclaimed units of equity to the person/s who is entitled to be registered in respect of such units where the person/s is identified.

A new section 22MA is inserted in the Principal Act by item 39 of Schedule 2 which will allow WoolStock Australia Limited to transfer to the ASIC for disposal certain units of equity which it has held for at least 6 years. The conditions precedent for such a disposal are that WoolStock Australia Limited:

  • has reasonable grounds for believing that the equity holder was not residing at the address shown in the register as the person's address and
  • on each occasion during the six year period, when it tried to communicate with the equity holder, have been unable after exercising reasonable diligence to do so.

A new section 22P, dealing with the distribution of surplus money by WoolStock Australia Limited, is inserted in the Principal Act by item 42 of Schedule 2. The surplus money of WoolStock Australia Limited is to consist of any money of WoolStock Australia Limited that in its opinion is not needed to be set aside for its operations. WoolStock Australia Limited must distribute surplus money by way of either interim distributions and a final distribution as soon as practicable after the end of the financial year in which the last stockpile wool is disposed of. The amount of each distribution is to be determined by WoolStock Australia Limited.

Endnotes

  1. Wool International, Quarterly Report, December 1998.

  2. A Wahlquist and S. Marris, 'Pile of Trouble', The Australian, 8 April 1999, p.30.

  3. ABARE, 'Agriculture', Outlook 99, Vol.2, p.287.

  4. A Wahlquist and S. Marris, 'Pile of Trouble', The Australian, 8 April 1999, p.30.

  5. Ibid.

Contact Officer and Copyright Details

Ian Ireland and Els Wynen
19 April 1999
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 1999

Except to the extent of the uses permitted under the Copyright Act 1968, no part of this publication may be reproduced or transmitted in any form or by any means, including information storage and retrieval systems, without the prior written consent of the Parliamentary Library, other than by Members of the Australian Parliament in the course of their official duties.

Published by the Department of the Parliamentary Library, 1999.

Back to top


Facebook LinkedIn Twitter Add | Email Print