Bills Digest 115 1996-97
AIDC Sale Bill 1997
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
AIDC Sale Bill 1997
Date Introduced: 27 February 1997
House: Representatives
Portfolio: Minister for Finance
Commencement: Royal Assent for the Act but with a Proclamation
date to be fixed for the commencement of the main provisions dealing with
the sale of this Commonwealth asset.
To provide for the sale of Australian Industry Development Corporation
Limited (AIDC Ltd), which is a subsidiary of the Australian Industry Development
Corporation (AIDC), and to wind-down the operations of the AIDC.
The AIDC was established in 1970.As a generalisation, it was mainly
the initiative of The Rt Hon J. McEwen, then Minister for Trade and Industry,
who saw the need to counter Australia's growing dependence on foreign
capital to support its enterprises and industries.The AIDC is an investment
bank which finances Australian industries and which also participates
in enterprises and projects.McEwen was not opposed to foreign investment
per se and, in fact, he acknowledged the importance of the availability
of such capital to Australia.The AIDC was created to assist Australian
residents match the share of capital required to create or maintain enterprises
so as to avoid too often becoming the minor partner in an enterprise which
was the target of foreign investment or takeover.At that time, the Australian
motor vehicle industry was nearly 90% foreign controlled.The industrial
and heavy chemicals industry, and the pharmaceutical industries were over
80% foreign controlled.Overseas ownership of the electrical and electronic
industries was around 50%.(1)
The AIDC was created to fill a gap not then adequately covered by the
banking and other financial lenders.The AIDC was there to assist in cases
where the development would not otherwise take place, or would only be
possible in circumstances where, unless local finance was available, ownership
and control would go to foreign investors.(2)
The Australian Industry Development Corporation Act 1970 (the
Principal Act) received the Royal Assent on 10 June 1970 and commenced
on 1 October 1970.A key provision in the Principal Act is section 35 which
provides a guarantee by the Commonwealth for all borrowings by the AIDC
group.
Financial performance of the AIDC is largely assessed by analysis ofthe
activities of its main operating subsidiary, AIDC Ltd.The AIDC is majority
owner of AIDC Ltd.According to the 1996 Annual Report for the AIDC,
the AIDC now holds 99.98% of the issued share capital of AIDC Ltd.AIDC
Ltd, in turn, holds the issued share capital of certain other controlled
entities in the AIDC group.The AIDC's almost complete ownership of the
shares in AIDC Ltd follows from a takeover offer by AIDC in November 1995
for all of the ordinary shares then listed on the Australian Stock Exchange.The
takeover offer closed on 16 January 1996 and AIDC Ltd was delisted on
8 February 1996.According to the Australian Securities Commission's current
database, AIDC Ltd's issued share capital is 139,337,655 shares (with
a face value of 50 cents) of which 139,311,653 shares are held by the
Australian Industry Development Corporation on behalf of the Commonwealth.
It is noted that there is a very small number of AIDC Ltd shares held
by private individuals.The sale of AIDC Ltd may involve the necessity
of compulsory purchase of those shares.If compulsory acquisition is invoked,
the private shareholder must be given compensation at a fair value.
AIDC Ltd's profit after tax for the year ended 30 June 1996 was $45.4
million (i.e. AIDC Ltd in its capacity as a separate entity subsidiary).The
AIDC, as a chief entity, returned a net consolidated loss after tax of
$7.9 million in the same year.(3)
The buy-back of the shares in AIDC Ltd by the previous Labor Government
will now be reversed by this Bill.The history of the AIDC has been somewhat
turbulent in recent years.In 1989, the Labor Government sold about 20%
of the Commonwealth's shares in AIDC Ltd.The Labor Government had subsequently
(April 1994) decided on a full sale (hoping for a return of $180 million)
but the AIDC group's performance faltered in 1995 with heavy losses.
A separate problem arose after the initial partial sale in 1989 and
came to a head in 1994.The issue was whether the Commonwealth as majority
shareholder could (via the Department of Finance) seek privileged financial
information from the board of AIDC Ltd.Two government-nominated directors
were common directors on the boards of the AIDC and its subsidiary AIDC
Ltd.These two directors were also senior government officials.Understandably,
they appeared to be in a difficult position.They believed that they were
precluded by the Corporations Law from disclosing, as directors,
information confidential to the board of AIDC Ltd, back to the AIDC for
the benefit of the Department of Finance.They resigned from AIDC Ltd to
enable legal clarification of the impasse.(4)
In much the same period, the board of AIDC Ltd also voted to give massive
pay rises to its executives.In an answer to a Question Without Notice
by the Hon Tim Fischer to Hon Kim Beazley MP on 18 October 1995, Mr Beazley
noted with concern the salary increases but advised that it had been suggested
to the Government by AIDC Ltd that it would be necessary to offer such
incentives to retain quality staff in the competitive merchant banking
sector.Mr Beazley said that he had been advised that the salary structures
resulted from consultations that the board of AIDC Ltd had with a number
of private advisers elsewhere in the private sector who were on equivalent
salaries.(5)
Some financial commentators have been forthright in their observations
about various aspects of this turbulent period for the AIDC, on issues
such as the enhanced staff remuneration and the confused approach in recent
years to the proposed sale of this Commonwealth asset.These comments include
those by Rowena Stretton in her article Inside the AIDC(6) and
Pierpont in his article Relax! It's the day for playing games.(7)
On 18 December 1996, in a joint press release, Ministers Hon John Fahey
and Hon John Moore announced a call for expressions of interest in the
acquisition of AIDC Ltd.The final date for the lodgment of indicative
proposals was 27 January 1997.Media reports indicate that most of the
interest in acquiring AIDC Ltd is from foreign investors but there is
speculation that the Australian private investment bank, Macquarie Bank,
is one of the interested parties.(8)Another media report indicates that
AIDC Ltd believes that it is on track to earn a record profit (estimated
at $60 million) this financial year.The same report speculated on an unconfirmed
asset sale value of $200 million to a high of $400 million for AIDC Ltd.(9)
This Bill provides for the sale of AIDC Ltd, the main operating subsidiary
of the AIDC, and then the progressive winding-up of the chief entity,
the AIDC.
Reader's Note: The proposed amendments are included in Schedules
to the Bill.The terminology to be used therefore is 'Item' in the Schedule
in lieu of 'Clause' in the Bill.
Schedule 1
Items 1-15 are minor amendments to the Principal Act to recognise
the proposed separation of AIDC Ltd from the AIDC.For convenience, the
legislation, when relevant, refers to the AIDC as the 'Corporation'
and AIDC Ltd ( the subsidiary which is to be sold) as the 'Company'.
Item 16 is a key provision.Under the existing Principal Act,
section 9 states that the Corporation is not subject to direction by the
Commonwealth Government.Section 9 is repealed by Item 16 and a
replacement section now empowers the Minister to direct the Board of the
Corporation in relation to specified powers and functions resulting from
the winding-down of the activities of the Corporation.
Digest Comment: The new Ministerial power of direction proposed
by Item 16 is not a disallowable instrument, unless the Legislative
Instruments Bill 1996 (now before the Senate) is passed by the Parliament
and enacted as law.
Item 17 replaces the existing term and ex officio appointments
specified as required for the composition of the Board of the Corporation
in section 11 of the Principal Act, with a power for the Minister to appoint
the Board membership at his or her discretion.It is accepted that such
an arrangement is sensible and practical given the clear intention to
wind-down the activities of the Corporation.
Digest Comment:It is noted that the Bill reverts to the use
of 'Chairman' of the Board in lieu of the gender neutral 'Chairperson'.This
development in the language used in recent Bills introduced into the
Parliament has been the subjectof Parliamentary and media comment.(10)
Item 21 replaces section 16 of the Principal Act with a revised
provision which recognises that the composition of the Board will change
(e.g. no longer will there be ex officio directors), but, consistent
with the previous provision, the new section 16 utilises the Remuneration
Tribunal's determinations to fix the remuneration of the Chairman and
directors.Where no determination is in place, the remuneration and allowances
are to be prescribed under Regulations.
Item 24 repeals existing section 19 (Termination of appointment)
in the Principal Act.The existing section 19 is now redundant given the
Minister's proposed new power in revised section 11 (see Item 17,
above), to appoint the Board membership at his or her discretion.
Items 30 and 31 confine delegations by the Corporation and its
Chief Executive, respectively, to an officer or employee of a defined
subsidiary of the Corporation.These proposed amendments are necessary
to ensure that delegations by the AIDC can only be utilised by subsidiaries
which are notified, by the Minister, in the Gazette and which satisfy
the additional requirements of section 29B of the Principal Act.
Item 32 repeals existing section 24A (Payment of dividends
to the Commonwealth) in the Principal Act.That section provided authority
for the payment by the AIDC of a dividend to the Commonwealth but limited
to its after-tax profit for the year.The proposed new section 24A will
empower the Minister to direct the Corporation to pay a specified amount
to the Commonwealth within a specified period of time.In recognition of
the fact that the Corporation is being wound-down, there is no restriction
on the amount that the Minister may specify.
Items 34 and 35 recognise that it is necessary to exclude the
application of the mobility provisions contained in Part IV of the Public
Service Act 1922, when the Corporation separates from one of its subsidiaries.This
means that persons who are employed by the corporate entity which loses
subsidiary status in relation to the AIDC no longer retain the right of
return to the Public Service under the mobility provisions.
Item 39 is an important provision.It provides the statutory mechanisms
for the sell-down of the assets of the Corporation, principally AIDC Ltd.In
other words, it is a Commonwealth asset sale.A key provision is the proposed
new section 33E which empowers the Minister, before 1 July 1998, to declare
that all shares in AIDC Ltd held by other than the Corporation belong
to the Corporation.A proposed new section 33H provides that compensation
of a reasonable amount is payable to the private shareholder.If an amount
of compensation is not agreed between the parties, the private shareholder
has to make an application to the Federal Court for recovery of compensation
(being an amount the Court then determines).
Proposed new section 33D provides the Minister for Finance with the
trigger to declare the sale day for AIDC Ltd.This is the day on
which the majority of the shares in AIDC Ltd pass from the Commonwealth
(via the Corporation) to a person or persons other than the Commonwealth
(or Corporation).The declaration of that date is made by the Minister
for Finance in the Commonwealth Gazette.In turn, this declaration
triggers the transitional and saving provisions relevant to the employment
conditions and leave entitlements of staff (see proposed new sections
34ZA to 34ZX).
Another key provision is the proposed new section 33T (Transfer of
Commonwealth guarantees) which continues Commonwealth backing for
any existing liabilities or obligations which, in the selling-down process,
pass to a purchaser or transferee, provided there is no other variation
to the liability or obligation.
Proposed new section 33U authorises the Minister for Finance to direct
any AIDC body to pay to the Commonwealth an amount equal to any consideration
received as a result of the selling-down process.
Proposed new sections 33V and 33W provide for the adjustment of the
dividend franking account balances of companies that cease to be wholly-owned
subsidiaries of the Corporation.
Proposed new section 34B is an appropriation to enable the Commonwealth
to make payments to discharge any obligations it has accepted arising
from taking over any obligations of AIDC bodies.
Proposed new section 34E is a protection for specified persons involved
in, or associated with, AIDC bodies to enable those persons to use or
disclose internal company information, provided that the use or disclosure
of the information is related to the selling-down process.Without this
statutory protection, it is arguable that disclosure of such information
may contravene the Corporations Law and common law.(See also, the
agreements for the protection of information contained in proposed new
section 34F).A further provision, at proposed new section 34G, exempts
those involved or associated with the selling-down process from any obligation
to disclose particular aspects of the same information to the Australian
Stock Exchange (e.g. exemption from those obligations which may otherwise
have arisen under the continuous disclosure regime (the necessary disclosure
of information about events likely to materially affect the price of publicly
listed shares) specified in the Corporations Law and the Listing
Rules of the Australian Stock Exchange).
To avoid doubt, any sale or transfer of assets of AIDC bodies which
would result in the acquisition of property of a person otherwise than
on just terms, is subject to compensation in accordance with section 51(xxxi)
of the Constitution (see proposed new section 34V).
Digest Comment:It is noted that proposed new section 34S exempts
any instruments, such as a Ministerial direction to transfer or sell
AIDC assets, from the provisions of the as yet unenacted Legislative
Instruments legislation.This means that such instruments are not
a disallowable instrument.This exemption is restricted to the new Part
VI (Transfer of assets of AIDC bodies) - see also, comment against
Item 16, above.
Items 40-44 deal with the Commonwealth's financial guarantee
for the AIDC group, as specified in section 35 of the Principal Act.It
is this guarantee which gives the AIDC group its AAA credit rating.This
existing guarantee applies to all agreements entered into by the Corporation
before 1 July 1998.New subsections are added (proposed new subsections
35 (11) to 35(15)), which empower the Minister for Finance to determine
a date in lieu of 1 July 1998 to be the date at which this Commonwealth
guarantee will cease to apply to any further obligations.This amendment
is necessary to recognise the winding-down of the Corporation and the
sale of AIDC Ltd.The declared date is notified in the Commonwealth Gazette
and that date must be before 1 July 1998.
Schedule 2
The proposed minor amendments contained in Schedule 2 affect a number
of statutes including the Administrative Decisions (Judicial Review)
Act 1977, Freedom of Information Act 1982, Loans (Australian Industry
Development Corporation) Act 1974, National Crime Authority Act 1984,
Occupational Health and Safety (Commonwealth Employment) Act 1991
and taxation-related provisions in the Principal Act.These are consequential
amendments which recognise that the AIDC is to be abolished.
There is media speculation of interest from foreign financial institutions
in the acquisition of AIDC Ltd.(11)The Bill does not contain any special
provisions to deal with foreign ownership issues.Foreign investors who
are interested in acquiring AIDC Ltd will, of course, be required to comply
with existing Australian laws on foreign investment, such as the Foreign
Acquisitions and Takeovers Act 1975.The provisions of the Corporations
Lawwill also apply.
- See second reading speech to the Australian Industry Development Corporation
Bill 1970, Hon J McEwen, Minister for Trade and Industry, Hansard, House
of Representatives, 5 May 1970: 1597–1603.
- Ibid.
- Annual Report 1996, Australian Industry Development Corporation, November
1996: 6–7.
- See Tingle, Laura, 'Bureaucracy pressure worried AIDC directors',
The Australian, 11 March 1996.
- House of Representatives, Hansard, 18 October 1995: 2341.
- Stretton, R. 'Inside the AIDC', Australian Financial Review, Sydney,
8 March 1996.
- Pierpont 'Relax! It's the day for playing games' Australian Financial
Review, 20 September 1996.
- Allard, T. 'Macquarie Bank has eyes on AIDC', The Sydney Morning Herald,
Sydney, 23 January 1997.
- Blue, T. 'AIDC poised to earn record $60m', The Australian, 27 January
1997.
- See Question Without Notice from Senator Margetts to Hon Senator Amanda
Vanstone, Senate, Hansard, 3 March 1997: 981; Farr, M. 'Chairman John:
Howard's revolt against "PC" titles', The Daily Telegraph,
4 March 1997.
- See Allard, T. 'Macquarie Bank has eyes on AIDC' at Endnote 8, above,
and Hogan, R. 'AIDC may be sold to overseas investors', Australian Financial
Review, 19 December 1996.
Recommended Reading
The Explanatory Memorandum to the Bill is well written and provides
useful information on the legislative changes proposed in the Bill.
Brendan Bailey
12 March 1997
Bills Digest Service
Information and Research Services
This Digest does not have any official legal status. Other sources should
be consulted to determine whether the Bill has been enacted and, if so,
whether the subsequent Act reflects further amendments.
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 1323-9031
Commonwealth of Australia 1996
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Published by the Department of the Parliamentary Library, 1997.
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Last updated: 9 April 1997
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