Report on the Draft Second Corporate Law Simplification Bill 1996
Table of Contents




1.1 In October 1993, the Commonwealth Attorney-General established a Corporations Law Simplification Program. The aim of the Program was to rewrite the Corporations Law (the Law) to make it easier to understand, and to remove unnecessary business regulation.

1.2 The Program is carried out by the Corporations Law Simplification Task Force, working closely with a private-sector Consultative Group. This Group includes representatives of small and large business, private and institutional investors, and the legal and accounting professions. The Task Force also consults directly with all relevant parties, including the Australian Securities Commission (ASC) and the Australian Stock Exchange (ASX). [1]

1.3 The first stage of the Program was completed in December 1995 with the commencement of the First Corporate Law Simplification Act 1995. This Act, which was considered by this Committee in March and August 1995, sought to improve a number of aspects of the Law including company share buy-backs, the accounting and audit requirements imposed on proprietary companies, and company registers. [2]

1.4 The Second Corporate Law Simplification Bill 1996 (the Bill), which has not yet been introduced into Parliament, represents the Program's second stage. In general terms, it seeks to improve those provisions of the Law which deal with company formation, company meetings, share capital, financial statements, annual returns, the deregistration of defunct companies and company names. [3]

1.5 In June 1995, an Exposure Draft of the Bill was released for public comment. The Bill in its current form represents, in essence, a second Exposure Draft, incorporating the comments and submissions made on the June 1995 Draft.


The Committee's inquiry

1.6 This Committee's consideration of the Bill was requested by the then Parliamentary Secretary to the Treasurer, Senator the Hon Brian Gibson AM, on 26 June 1996.

1.7 On 5 July 1996, the Committee advertised its inquiry in The Australian and the Australian Financial Review. Twenty-six written submissions were received in response to these advertisements.

1.8 The Committee also held public hearings in Canberra on 13 September 1996, and in Sydney on 2 October 1996. A list of those organisations and individuals who provided written submissions is included at Appendix 1 to this Report. A list of those who gave verbal evidence is included at Appendix 2.


Structure of this Report

1.9 The remainder of this Chapter outlines some of the major provisions of the Bill, based on the discussion in the Explanatory Memorandum accompanying the Bill.

1.10 Chapter 2 discusses and analyses the major issues which arose out of the Committee's inquiry. Chapter 3 refers to a number of additional matters which arose during the inquiry but which are outside the scope of the Bill.


Proposed changes to company formation

1.11 The Bill seeks to streamline the process for setting up a company. It abolishes the memorandum of association, and removes the need for companies to have articles of association. It places the basic rules of internal management normally found in a company's articles in the Law itself, as `replaceable rules' - companies will be able to adopt a constitution which displaces some or all of them. These rules are based on Table A, which currently provides model articles, and will operate in essentially the same way.

1.12 Companies limited by guarantee will be able to convert into companies limited by shares, provided that the rights of creditors are not materially prejudiced. Future registrations of companies limited by both guarantee and by shares will not be permitted, nor (with the abolition of the concept of par value of shares) will it be possible to register no liability companies. The Explanatory Memorandum observes that all companies will now be able to take advantage of the main benefit of no liability companies, namely the capacity to issue shares without the price constraint of an arbitrary par value. [4]

1.13 Proprietary companies will no longer be required to keep their registered offices open to the public, and companies will no longer need to have a common seal.


Proposed changes to company meetings

1.14 The Bill facilitates the use of electronic technology to hold meetings, whether of directors or members. For directors' meetings, it will be possible to use any form of technology agreed to by the directors. For members' meetings, it will be possible to use any form of technology that gives members a reasonable opportunity to participate in the meeting.

1.15 All general meetings will require the giving of at least 21 days notice to all members, although members may agree to shorter notice for most matters. A general meeting will have to be held at a reasonable time and place.

1.16 Members holding at least 5% of the votes, or 100 members entitled to vote at a general meeting, will be able to require:

1.17 The Bill also recognises the right of the members as a whole to ask questions about, or comment on, company management at an annual general meeting (AGM) of a public company. It also recognises the right of members to question auditors about their audit report at an AGM.

1.18 The process for appointing a proxy is to be streamlined, and members will have the flexibility to appoint 1 or 2 proxies. They will also be able to specify the proportion or number of votes that the proxy may exercise.Proxy documents may be faxed to a company, and electronic lodgment will be valid if it is permitted by, and complies with, certain requirements in the company's constitution or the notice of meeting.A proxy will be able to vote on a show of hands, unless the company's constitution provides otherwise. If an appointment specifies the way the proxy is to vote on a particular resolution:

1.21 The quorum for any general meeting will be 2 members. A body corporate will be able to make a standing appointment of an individual to represent it at company meetings.The minimum number of members for both public and proprietary companies will now be 1, however single member companies will not be able to hold meetings and any decisions required to be made by a general meeting can be made by the member recording the decision and signing the record.


Proposed changes to share capital

1.22 As noted above, the Bill abolishes the par value [5] of shares. This abolition will cover all shares, whether issued before or after the commencement of the new provisions. However, transitional provisions will preserve the effect of existing contractual arrangements that refer to par value. Streamlined provisions will be introduced to deal with the issue of shares (including bonus shares), the conversion of shares, the redemption of redeemable preference shares, [6] partly paid shares and dividends.

1.23 Capital reductions will no longer require court confirmation, but rather must be fair and reasonable to all shareholders, must not materially prejudice the company's ability to pay its creditors, and must be approved by the company's shareholders.

1.24 The rules against companies acquiring their own shares will now focus on the company's actual control over those shares. The meaning of 'control' will be clarified to accord with the use of the concept in the accounting standards.

1.25 Where a company provides financial assistance for the acquisition of its own shares, shareholder approval will only be required if the assistance would materially prejudice the company's or shareholders' interests, or the company's ability to pay its creditors.


Proposed changes to financial statements and audit

1.26 The Bill provides for more comprehensive financial disclosure by including a requirement that companies prepare a cash flow statement in addition to a profit and loss statement and a balance sheet.

1.27 Directors' reports to members will now have to include a general discussion and analysis of the business performance of the company, and of the factors underlying the company's results and financial position.

1.28 A company will be able send its members a concise version of its annual report. However, members will be entitled to request a copy of the full report from the company without charge.


Proposed changes to annual returns

1.29 The Bill removes more than half of the items currently required to be included in annual returns. It also facilitates the electronic lodgment of returns with the ASC.


Proposed changes to company deregistration and company names

1.30 The Bill seeks to streamline the process for deregistering defunct companies. Newspaper advertisement of a proposed deregistration is no longer required, and ASC deregistration procedures are to be streamlined. The Bill also proposes to rewrite the rules for obtaining and using company names and Australian Company Numbers.



[1] Corporations Law Simplification Task Force, Second Corporate Law Simplification Bill 1996: Explanatory Memorandum, July 1996, para 2.5.

[2] Explanatory Memorandum, para 2.2.

[3] Explanatory Memorandum, para 2.7.

[4] Explanatory Memorandum, para 3.4.

[5] A company limited by shares has its nominal capital divided into shares of a fixed pecuniary amount. Thus a share is a fractional part of the capital. Each share has a par or nominal value (ie the fractional part into which the capital is divided): Burnett B, Australian Corporations Law Guide, 5th edition, CCH, Sydney (1995) para 540.

[6] A preference share usually confers on its holder some form of preferential right (eg, to be paid a dividend, or to have priority when a company is wound up). Redeemable preference shares either give their holders the right to be repaid their capital at a specified date, or give the company the right to repay the capital after a specified time or within a specified period: Burnett B, Australian Corporations Law Guide, 5th edition, CCH, Sydney (1995) para 543.