Bills Digest 41 1996-97 CFM Sale Bill 1996

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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.


Passage History

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.

Main Provisions

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'


  1. Stott, Diane, and Trueman, Justine, 'CFM fails to excite buyers', Sydney Morning Herald, 8 May 1996.
  2. Commonwealth Funds Management, Annual Report 1994-1995; p.35
  3. 'Union Seeks Safeguards on Sale of Funds Manager', Press Release, Sally O'Loughlin, 7 May 1996.
  4. 'Two steps forward: financial advice service and super news', Bulletin, Community and Public Sector Union, 18 September 1996.
  5. 'Appointment of advisers: sale of Commonwealth Funds Management Ltd', Press Release, John Fahey MP, 28 June 1996.
  6. 'Sale of Commonwealth Funds Management Limited: Registration of Interest', Press Release, John Fahey MP, 8 August 1996

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14 October 1996
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ISSN 1323-9031
© Commonwealth of Australia 1996

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Published by the Department of the Parliamentary Library, 1996.

This page was prepared by the Parliamentary Library, Commonwealth of Australia
Last updated: 18 October 1996

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