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1
Corporations (Commonwealth Powers) Bill 2001
CORPORATIONS (COMMONWEALTH
POWERS) BILL 2001
EXPLANATORY NOTES
GENERAL OUTLINE
Objectives of the Legislation
The object of this Bill is to refer certain matters relating to corporations,
corporate regulation and financial products and services to the
Commonwealth Parliament, so as to enable the Commonwealth Parliament
to make laws about those matters. The proposed Act will be enacted for the
purposes of section 51 (xxxvii) of the Commonwealth Constitution, which
enables State Parliaments to refer matters to the Commonwealth
Parliament.
The Bill operates by reference to the text of the following proposed
Commonwealth Bills tabled in the Legislative Assembly of New South
Wales:
· Corporations Bill 2001
· Australian Securities and Investments Commission Bill 2001.
The Corporations Bill 2001 and the Australian Securities and
Investments Commission Bill 2001 were introduced into the
Commonwealth Parliament on 4 April 2001 following commencement of
the New South Wales referral legislation.
Reasons for the objectives and how they will be achieved
The Commonwealth Constitution gives the Commonwealth Parliament
limited powers to regulate corporations under section 51 (xx) of the
Commonwealth Constitution. That provision allows the Commonwealth
Parliament to legislate with respect to "foreign corporations, and trading or
financial corporations formed within the limits of the Commonwealth".
The Commonwealth Parliament also has other legislative powers under the
Commonwealth Constitution that assist it to regulate corporate activities,
such as the interstate trade and commerce power (section 51 (i)), and the
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Corporations (Commonwealth Powers) Bill 2001
postal, telegraphic, telephonic, and other like services power (section 51
(v)).
However, the High Court has held that the Commonwealth's
constitutional powers do not extend to regulating aspects of a number of
important commercial areas such as the incorporation of companies,
certain activities of non-financial and non-trading corporations, and certain
activities of unincorporated bodies that engage in commerce.
In contrast, the States have broad powers to regulate corporations and
corporate activities (subject to the Commonwealth Constitution).
As a result of the restrictions on the powers of the Commonwealth
Parliament, a national scheme of corporate regulation requires co-operation
among the Commonwealth and the States and Territories. Several different
schemes of co-operation have been implemented at different times since
1961.
The current scheme commenced on 1 January 1991. Under that scheme,
the substantive law of corporate regulation (known as the Corporations
Law) is contained in an Act of the Commonwealth enacted for the
Australian Capital Territory and the Jervis Bay Territory (the Capital
Territory). Laws of each State and the Northern Territory apply the
Corporations Law of the Capital Territory (as in force for the time being) as
a law of the State or the Northern Territory. The effect of this arrangement
is that, although the Corporations Law operates as a single national law, it
actually applies in each State and the Northern Territory as a law of that
State or Territory, not as a law of the Commonwealth.
The Corporations Law is administered by a Commonwealth body, the
Australian Securities and Investments Commission (ASIC) established by
the Australian Securities and Investments Commission Act 1989 of the
Commonwealth (ASIC Act). Each State and the Northern Territory have
passed legislation applying relevant provisions of the ASIC Act as a law of
that jurisdiction (known as the ASC Law or ASIC Law).
Legislation of each State and the Northern Territory confers functions
relating to the administration and enforcement of the Corporations Law on
ASIC, the Commonwealth Director of Public Prosecutions and the
Australian Federal Police. These bodies are responsible for the
investigation and prosecution of offences under the Corporations Law.
As part of the Corporations Law scheme, the Commonwealth, the States
and the Northern Territory established a regime of vesting and cross-
vesting jurisdiction between the Federal Court and the State and Territory
Supreme Courts. Under this arrangement, the Federal Court could exercise
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Corporations (Commonwealth Powers) Bill 2001
the jurisdiction of the State Courts, and the State Courts could exercise the
jurisdiction of the Federal Court.
The Corporations Law scheme is underpinned by an intergovernmental
agreement (the Corporations Agreement), to which the Commonwealth, all
the States and the Northern Territory are parties. The Agreement
establishes a process for amending the Corporations Law by which any
changes proposed by the Commonwealth to the core company law aspects
of the Corporations Law require approval from the Ministerial Council for
Corporations.
High Court decisions affecting the Corporations Law
Recent decisions of the High Court have cast doubt on the constitutional
validity of important elements of the Corporations Law scheme.
In Re Wakim; Ex parte McNally (1999) 163 ALR 270, the High Court
held that State jurisdiction could not be conferred on federal courts. The
High Court decided that the Commonwealth Constitution permits
jurisdiction to be conferred on federal courts in matters arising under laws
made by the Commonwealth Parliament only, and not under laws made by
State Parliaments. As a result, only State courts can exercise jurisdiction in
Corporations Law matters that arise under State laws. Territory courts
continue to exercise jurisdiction in Corporations Law matters that arise
under Territory law.
In The Queen v Hughes (2000) 171 ALR 155, the High Court indicated
that, where a State gave a Commonwealth authority or officer a power to
undertake a function under State law together with a duty to exercise the
function, there must be a clear nexus between the exercise of the function
and one or more of the legislative powers of the Commonwealth set out in
the Commonwealth Constitution.
If this view prevails, the Commonwealth would not be able to authorise
its authorities or officers to undertake a function under State law involving
the performance of a duty (particularly a function having potential to
adversely affect the rights of individuals) unless the function could be
supported by a head of Commonwealth legislative power.
Although the Court found that the particular exercise of the prosecution
function by the Commonwealth Director of Public Prosecutions in question
in Hughes was valid, it made no finding about the validity of the conferral
of the prosecution function generally, or of other functions under the
Corporations Law scheme.
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Corporations (Commonwealth Powers) Bill 2001
The reference of Corporations Law matters to the Commonwealth
The effect of Wakim, Hughes and other cases has been to create
uncertainty and inefficiency in the regulation of a wide range of corporate
and commercial activities. In order to overcome these perceived
constitutional gaps in the Corporations Law scheme, the States have agreed
with the Commonwealth that the States will in effect refer the Corporations
Law to the Commonwealth Parliament as a matter about which the
Commonwealth Parliament has power to legislate.
This is made possible by section 51 (xxxvii) of the Commonwealth
Constitution, which gives the Commonwealth Parliament the power to
legislate with respect to "matters referred to the Parliament of the
Commonwealth by the Parliament or Parliaments of any State or States". A
Commonwealth law made with respect to a referred matter only extends to
States by whose Parliaments the matter is referred, or which afterwards
adopt the law.
The overall effect of the proposed State, Territory and Commonwealth
Bills is that the Corporations Law will be re-enacted as a law of the
Commonwealth, rather than as laws of the Commonwealth, the States and
the Northern Territory. There will therefore be no barrier to
Commonwealth legislation incorporating companies, or conferring
jurisdiction with respect to the Corporations Law on the Federal Court, or
conferring functions and powers with respect to Corporations legislation on
Commonwealth authorities and officers.
The Bill operates by reference to the proposed Commonwealth Bills
mentioned above in the Overview. They are defined collectively in the Bill
as the tabled text, and when enacted will be defined collectively as the
Corporations legislation.
Because the Commonwealth Bills contain matters that are not within the
legislative competence of any of the States or of any one of the States, the
Bill contains a definition of referred provisions, which means the tabled
text to the extent to which that text deals with matters that are included in
the legislative powers of the Parliament of the State.
The Bill makes two references of matters to the Commonwealth
Parliament:
(a) The first reference (the initial reference) is of the matters to
which the "referred provisions" relate, but only to the extent of
the making of laws with respect to those matters by including the
referred provisions in Acts enacted in the terms, or substantially
in the terms, of the "tabled text". This ensures that the text of the
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Corporations (Commonwealth Powers) Bill 2001
new Commonwealth Acts will be substantially the same as the
existing Corporations Law and ASIC Law, together with changes
preserving the operation of other State and Territory laws and
changes consequential on the Corporations Law and ASIC Law
becoming Commonwealth Acts.
(b) The second reference (the amendment reference) is of the
matters of the formation of corporations, corporate regulation
and the regulation of financial products and services, but only to
the extent of making "express amendments" to the proposed
Corporations legislation. The expression express amendment is
defined as the direct amendment of the text of the Corporations
legislation, but as not including enactment of a provision having
substantive effect otherwise than as part of the text of the
Corporations legislation. This ensures that the matters covered by
the second reference cannot be the source of power for other
Commonwealth legislation.
The amendment reference is intended to enable the Commonwealth
Parliament to amend all aspects of the tabled text from time to time,
including by way of enacting legislation dealing with the matters dealt with
in the draft Financial Services Reform Bill released for public comment by
the Commonwealth Minister for Financial Services and Regulation on 11
February 2000. The Bill contains an objects clause to the effect that the Bill
is not intended to enable the making of a law pursuant to the amendment
reference with the sole or main underlying purpose or object of regulating
industrial relations matters.
The Bill makes it clear that instruments affecting the operation of the
Corporations legislation will be able to be made under that legislation, but
not instruments making express amendments to that legislation.
It is intended that the Corporations Agreement will ensure that future
amendments to the Corporations legislation are made by the
Commonwealth after examination by the Ministerial Council for
Corporations. If the Commonwealth Parliament makes amendments to the
Corporations legislation that do not comply with the Corporations
Agreement, a State could respond by terminating its references.
The references relate only to matters that are within the legislative
powers of the State and are not within the legislative powers of the
Commonwealth. That is, the Bill does not refer matters with respect to
which the Commonwealth Parliament already has power to legislate.
Substantial parts of the Corporations Law could currently be enacted by the
Commonwealth Parliament relying on the existing heads of power in the
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Corporations (Commonwealth Powers) Bill 2001
Commonwealth Constitution. These parts of the proposed Corporations
legislation will be supported by those heads of power, not by the referred
matters, though future amendments in this area are intended to be the
subject of provisions in the Corporations Agreement. At the same time, the
specific limitation of the references to matters that are within the legislative
powers of the State gives recognition to the fact that certain matters simply
cannot be referred by the State, particularly as determined by Wakim.
Termination of references
The Bill provides that the references can terminate in one of two ways:
The references will terminate 5 years after the proposed Corporations
legislation commences. However, the Governor can extend the date of
termination by a proclamation before the references would terminate.
The Governor may proclaim that the references terminate on an earlier
day, or that the amendment reference terminates on an earlier day. The
earlier day must be at least 6 months after the date of publication of the
proclamation.
The Bill provides that early termination of the amendment reference
does not affect the Corporations legislation as then in force.
Effect of references on State and Territory legislation
The proposed Corporations legislation contains provisions that will
allow the continued operation of State and Territory laws that may
otherwise be affected by the federalisation of the Corporations Law (such
as legislation dealing with co-operatives and incorporated associations).
The Corporations legislation will be wound back to avoid conflicts with
State or Territory laws. Regulations may also be made under the
Corporations legislation modifying its operation so that no inconsistency
arises between it and the operation of a State or Territory law specified in
the regulations.
Administrative cost to Government of implementation
The Bills will not impose any additional financial burdens on the
Government. The current arrangements for the sharing of revenue received
from the Corporations Law scheme (primarily from the collection of
registration and related company fees by the Australian and Securities
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Corporations (Commonwealth Powers) Bill 2001
Commission) as prescribed under the current Corporations Agreement will
be maintained.
Fundamental legislative principles
The Bill is consistent with the fundamental legislative principles
outlined in section 4 of the Legislative Standards Act 1992.
Consultation
This Bill was prepared through the Standing Committee of Attorneys-
General and the Ministerial Council for Corporations, in conjunction with
the Special Committee of Solicitors-General and the Parliamentary
Counsel's Committee.
All Government Departments were consulted during the preparation of
the Bill.
NOTES ON PROVISIONS
Clause 1 sets out the name (also called the short title) and the purpose of
the proposed Act.
Clause 1 (3) provides that nothing in the proposed Act is intended to
enable the making of a law pursuant to the amendment reference with the
sole or a main underlying purpose or object of regulating industrial
relations matters.
Clause 2 provides for the commencement of the proposed Act on assent.
Clause 3 defines certain words and expressions used in the proposed
Act.
Clause 4 deals with the references described in the Overview. Clause 4
(1) makes the references.
Clause 4 (1) (a) in effect refers the text of the current Corporations Law
(with appropriate amendments) to the Commonwealth Parliament, and
provides for the inclusion of the referred provisions in Acts enacted in the
terms, or substantially in the terms, of the tabled text (i.e. the text of the
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Corporations (Commonwealth Powers) Bill 2001
Corporations Bill 2001 and the Australian Securities and Investments
Commission Bill 2001). The expression "substantially in the terms" of the
tabled text will enable minor adjustments to be made to the tabled text.
Clause 4 (1) (b) in effect refers matters to the Commonwealth Parliament
in connection with the future amendment of the Corporations legislation.
Clause 4 (2) makes it clear that the reference of a matter has effect only
to the extent that the matter is not otherwise within the legislative power of
the Commonwealth Parliament and to the extent that the matter is within
the legislative power of the State Parliament.
Clause 4 (3) removes a possible argument that one of the references
might be limited by the other.
Clause 4 (4) makes it clear that the State Parliament envisages that the
Corporations legislation can be amended or affected by Commonwealth
legislation enacted in reliance on other powers (though this may be the
subject of provisions in the Corporations Agreement), that instruments
under the Corporations legislation may affect the operation of that
legislation otherwise than by express amendment, and that the references
are not subject to any condition relating to either of those matters.
Clause 4 (5) specifies the period during which a reference has effect.
Clause 5 provides that the references terminate on the fifth anniversary
of the commencement of the proposed Corporations legislation, unless a
proclamation is made that fixes an earlier or a later date of termination.
Clause 5 (4) makes it clear that the separate termination of the amendment
reference does not affect laws already in place or the making of instruments
under laws already in place.
Clause 6 empowers the making of one or more proclamations to extend
the term of the references.
Clause 7 empowers the making of one or more proclamations to reduce
the term of the references. Such a proclamation must be published at least
six months in advance of the date of termination.
Clause 8 provides for the accuracy of a copy of the tabled text
containing the proposed Corporations legislation to be certified by the
Clerk of the Legislative Assembly of New South Wales. Such a certificate
is evidence of the accuracy of the tabled text and that the text was in fact
tabled as contemplated by the Bill.
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Corporations (Commonwealth Powers) Bill 2001
Clause 9 provides that the proposed Act has effect despite any provision
of the Corporations (Queensland) Act 1990 or of the laws applied by that
Act, and avoids a possible argument that section 5 of that Act would
otherwise prevent the Bill from affecting the operation of that Act.
© State of Queensland 2001