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Pooled Development Funds Act - Pooled Development Funds Registration Board - Report - 1994-95


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INDUSTRY, SCIENCE

TECHNOLOGY

P O O L E D

D E V E L O P M E N T

F UNDS R E G I S T R R T I O N

BOARD

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I ·

H N N U R L R E P O R T

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PDF REGISTRATION BOARD

ANNUAL REPORT

1994-95

THE

POOLED DEVELOPMENT

FUNDS PROGRAM

A ustralian G overnm ent Publishing Service C anberra

© Commonwealth of Australia 1995

ISSN 1320-7636

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Australian Government Publishing Service. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Commonwealth Information Services, Australian Government Publishing Service, GPO Box 84, Canberra ACT 2601.

This work was produced from camera-ready copy. There has been no input by the editorial section of the Australian Government Publishing Service.

Please direct any enquires concerning this Report to:

The PDF Registration Board c/- Finance Policy Section Department of Industry, Science and Technology PO Box 9839 CANBERRA ACT 2601

Ph: (06) 276 1217 Fax: (06)276 1851

Produced by the Australian Government Publishing Service

D epartm ent o f Departm ent o f Industry, Science and Technology

INDUSTRY,

S C IE N C E 51 Allara Street, Canberra ACT 2601. GPO Box 9839, Canberra ACT 2601

Telephone: (06) 276 1000 Facsimile: (06) 2761111

T E C H N O L O G Y

PDF REGISTRATION BOARD

Senator the Hon Peter Cook Minister for Industry, Science and Technology Parliament House CANBERRA ACT 2600

Dear Minister

I have pleasure in submitting the PDF Registration Board’s third Annual Report, for the year ended 30 June 1995.

In its second annual report the Board welcomed the changes to the Pooled Development Funds (PDF) Program announced in Working Nation on 4 May 1994 by the Prime Minister. The changes resulted in more Ilexible operational rules applying to Pooled Development Funds and improved tax incentives to investors under the Program. The legislative changes came into effect on 1 July 1994.

Since the changes to the Program were announced there has been a substantial increase in interest in the Program. The Board has received and processed many applications and handled numerous inquiries about establishing PDFs.

During the year 15 PDFs were registered. Since 30 June 1995 three more have been registered, bringing the total registered pooled development funds at the time of this report to twenty nine. A number of applications for registration are being considered.

During the year 4 PDFs raised $26 million in capital, bringing the total capital raised to $61 million at 30 June 1995 by only 6 out of the 26 PDFs, with an additional $10 million capital committed to one more PDF. This could only be described as a modest inflow of capital.

Out of the $61 million capital raised $35 million had been invested by PDFs in 59 investee companies and there is a number of investment opportunities under evaluation.

However, since 30 June 1995 a further $47 million has been added to the Program. This brings the total capital raised to dale to $108 million by 8 PDFs. The Board is encouraged by the total capital raised under the Program at this stage and views as significant the over

$80 million either raised or committed since its last report.

The Board is disappointed that the number of PDFs which have been able to raise capital is relatively small, being only about 25%. However the Board is also aware that some PDFs have been unable to raise any capital, where public prospectuses were planned as the capital raising vehicle.

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The nature of the Program is long term. Capital raising is also proving to be a longer-term process. Last year I commented that “only time will tell if the changes have been sufficient to attract a substantial flow of equity capital from investors and in particular whether superannuation funds trustees will find PDFs attractive investments for their funds.” I am pleased to report that the increase in both the number of registered PDFs and the capital raised are strong indications that the changes have had a positive impact on the flow of patient equity capital that is available for investment in SMEs through the Program, although the recent inflow of capital probably reflects the general capital raising climate as much as the impact of the Program’s tax concessions.

In general superannuation funds have chosen not to invest in PDFs. The Board met with representatives of the superannuation industry and their asset consultants in July 1995. The meeting discussed the industry’s views on investment in PDFs and the extent to which the investment strategies of the superannuation funds are in some aspects incompatible with investment in PDFs. One reason given for the reluctance of some superannuation funds to invest in PDFs is the relatively unproven financial performance of PDFs to date. Also, superannuation funds are under pressure to produce good returns on a short-term (often quarterly) basis. This requirement is considered to be at odds with the strategy of making long-term investments whose return is uncertain with respect to both the timing and amount.

The Board retains its belief that a development capital program for Australia is needed for the "long haul", and hopes that the Program will ultimately encourage a much greater level of investor interest in development and venture capital. Should the Board form the view that the Program’s incentives are proving inadequate for this purpose, it will advise the Government accordingly.

The Board continues to view its role as a facilitator when considering the registration of PDFs. The Board has continued to administer the Act, as amended, and to exercise its discretion in a manner supportive of applications while complying with the legislative requirements. The discretions available under the PDF Act (the Act) have been important for the effective administration of the Program.

The Board has exercised its discretion on many occasions under numerous sections of the Act in response to requests from both PDFs and applicants. The PDFs have requested discretion to enable them to operate in situations where some provisions of the Act would otherwise constrain those operations. Where a request had merit and was consistent with

the object of the Act the Board generally agreed to exercise its discretion. Discretions are given on a case-by-case basis and most discretions were subject to a condition requiring the PDF comply with the Act within a specified, short-term period.

The exercise of discretion has been of particular importance in two key areas which would constrain PDFs during their initial capital raising stage. One area of discretion is to allow a shareholder or associated shareholders to be the lead investor, holding more than 30% of the issued shares during the formative stage of the PDF. The second area of discretion is to allow a PDF to invest more than 30% of its committed capital in an investee company, so that it can make investments of appropriate size. As the capital base and diversity of investors of each PDF increase the impact of these constraints is expected to diminish. It is anticipated that mature funds will not require these discretions.

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The Board notes several significant achievements by PDFs. Of the $26 million raised during 1994-95 First Resources Limited raised $20 million through a public prospectus in late 1994. Since 1 July 1995 Greenchip Emerging Growth Limited and First Western Fund Limited have raised a total of $47 million capital. The Board is greatly encouraged by the $10 million investment by the Superannuation Trust of Australia in Greenchip Emerging Growth and hopes that other superannuation funds will see fit to follow with investments in PDFs.

Overall, the increased interest in PDFs, as evidenced by 18 PDFs being registered since the changes to the Program became effective, is encouraging. Several PDFs have succeeded in significant capital raisings since the last report. The Program is evolving, and PDFs are emerging as important sources of equity capital for small and medium sized businesses, as the financial markets become more familiar with the Program.

The members of the Board would like to take this opportunity of expressing their sincere appreciation for the assistance given to them throughout the year by the Assistant Secretary and staff of the Finance and Investment Policy Branch in the Department.

Yours sincerely

M J Astley Chairman / O November 1994

CONTENTS

Page

1 BOARD MEMBERSHIP 1

2 PROGRAM OBJECTIVES 2

3 PROGRAM REVIEW 3

APPENDICES

A PDFs in existence during 1994-95 7

B Companies that became PDFs during 1994-95 10

C Companies that ceased to be PDFs during 1994-95 12

D Directions by the Minister 13

E Freedom of Information Act 1982: Section 8 Statement 14

F Statements of Board Policy 16

G Administrative Support 19

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1 BOARD MEMBERSHIP

The members of the PDF Registration Board during 1994— 95 were:

Mr M J Astley (Chairperson)

Company Director

Mr P D Agars, AM Partner

Coopers and Lybrand

Mr P V Martin Chairman

Micromedical Industries Limited

Ms B K Ward Chief Executive

Ansett Worldwide Aviation Services

Mr G A Weaven Managing Director

Industry Fund Services Pty Ltd

Dr D M S Brunker Assistant Secretary

Department of Industry, Science and Technology

1

2 PROGRAM OBJECTIVES

The object of the Pooled Development Funds (PDF) Act 1992 is to encourage the provision of patient equity capital to small and medium-sized Australian companies whose primary activities are not excluded activities. Excluded activities are retail sales operations and the development of land.

Under the PDF Program, qualifying companies (Pooled Development Funds) that provide patient equity capital to small or medium sized Australian companies receive concessional tax treatment. Shareholders in PDFs also receive tax concessions.

3 PROGRAM REVIEW

1 Amendments to the PDF Program

The changes to the PDF Program were announced in Working Nation (May 1994) and came into effect from the beginning of the 1994-95 year.

The Government believed that the changes it introduced, which included increased taxation incentives to PDFs and a greater flexibility in the Program’s operational rules, would increase the capacity of the Program to create a significant pool of investment funds available for investment in eligible Australian small and medium­

sized companies.

Under the revised taxation arrangements, the concessional tax rate on PDF profits from investee businesses is 15% (a reduction from the previous rate of 25%), and 25% for PDF profits from all other sources (essentially interest income). These rates apply to 1994-95 and subsequent years.

In the light of two years experience of the Program and having regard to the views of the development capital industry, the Government also revamped the Program by freeing up the rules under which PDFs operate. The rules were relaxed in the following ways:

(a) a PDF can invest in companies with total assets up to $50 million. The previous limit on investee businesses size was $30 million in total assets;

(b) a PDF is no longer restricted in its investments in start-up businesses;

(c) a PDF can invest up to 30% of its issued capital in any one investee business. This is an increase from the previous 20% limit;

(d) the PDF Registration Board now has discretion to allow PDFs to invest more than 30% of their raised capital in any one investee under conditions agreed in advance with the Board; and

(e) the upper limit on individual ownership in PDFs has been raised from 20% to 30%, except for banks and life offices for whom there is no limit. The Board’s discretionary power to vary this restriction has been retained.

The amendments also increase the percentage of issued capital that a PDF must invest in investee companies from 50% to 65% within five years of having raised the capital.

3

The eligibility criteria for registration as a PDF are essentially unchanged. A company applying for registration must satisfy the PDF Registration Board that it can and will raise capital and use that capital to purchase new equity in Australian companies in a manner consistent with the rules applying to PDFs. An applicant must provide the PDF Registration Board with investment and capital raising plans. The new arrangements also apply to existing PDFs.

The Industry, Science and Technology Amendment Act (No 2) 1994, which introduced the White Paper changes to the PDF operational rules, came into effect on 1 July 1994. The Taxation Laws Amendment Bill (No 4) 1994, which changed the taxation rates applying to PDFs, was approved by Parliament in December 1994. The taxation changes relate to the income year 1994-95 and subsequent years.

2 PDF registrations

There has been a substantial increase in interest in the Program and an increase in the number of applications applying for registration following the changes to the Program.

Between 1 July 1994 and 30 June 1995, fifteen PDFs were registered by the Board (see Appendices A and B) bringing the number of PDFs to 26 at 30 June 1995.

3 Revocation of registration

There were no revocations of registrations during the year.

4 Capital raisings and investments

During the year $26 million was raised by PDFs. At 30 June 1995 $61 million had been raised by 6 PDFs and another PDF had received a commitment for $10 million capital.

First Resources Development raised $20 million through a public prospectus during the latter part of 1994. Retirewise Capital Limited, Hartley Poynton Pooled Development Limited and Resource Equities Limited all raised initial capital during the year.

H-GV Development Fund Limited has a commitment for capital subscription of $10 million.

By 30 June 1995 $35 million capital had been invested in 59 investee companies by 5 PDFs.

4

Capital Raised & Invested by PDFs

B Capital raised B Capital invested

Y e a r e n d e d 30 June

5 Taxation Aspects of the Distribution of Dividends and Capital Gains

The changes to the taxation rates applying to PDFs and the increase in the company tax rate to 36% have changed the effective tax rates facing investors. The revised table below illustrates the effective rates, based on the changes, for two classes of

potential PDF shareholders - the high marginal tax rate individual (who faces a 47% tax rate excluding the Medicare Levy) and a superannuation fund (which is already concessionally taxed at 15%).

A PDF can receive dividend income from an investee business, and it can derive a capital gain from the sale of its shares in the investee business. A PDF can also earn income from funds on deposit where those funds have not yet been invested in investee companies.

A shareholder in a PDF can receive income by way of dividends, and can realise a capital gain on the sale of the PDF shares.

The benefits of the concessional PDF tax rates will vary, depending on the source of PDF income, the standard rate of tax applicable to the shareholder, and whether the dividend paid by the PDF is franked or unfranked.

5

These effective rates apply to income realised by the PDF (as either capital gain, interest, franked or unfranked dividends from the investee company) and subsequently passed on to shareholders in the form of dividends.

The concessional rate illustrated in the table results from the payment by a PDF of dividends where part of the dividend is franked and part is unfranked.

E ffective Tax R ates A pplicable to In v esto rs in PDFs on d ivid en d s paid by PDFs

Form of income received by PDF Capital Gain from Equity

In te re st Income

F ranked Dividend

Unfranked Dividend

High M arginal Tax Rate Individual (47% *)

15% 25% 36% 0%

Superannuation Fund (15%) 6% 10% 15% 0%

* Rate excludes Medicare Levy

Only two investor types are illustrated in the table, however all investors are exempt from capital gains tax on the disposal of their shares in a PDF. The table illustrates that:

1 Where PDFs derive profits from capital gains in SMEs there are significant gains for shareholders, with high marginal tax rate individuals being taxed at 15% (a concession of 32%) and superannuation funds at 6% (a concession of 9%).

2 Where a PDF receives income from franked dividends from SMEs, franked at the company tax rate of 36%, the maximum tax paid by a high marginal tax rate individual will be 36% (a concession of 11%), and less where the taxpayer faces a lower tax rate (such as super funds).

3 Where a PDF receives income from unfranked dividends from SMEs, the dividend is not taxed at all in the hands of PDF shareholders.

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APPENDIX A

PDFs IN EXISTENCE DURING 1994-95

Date registered

AUS ASEAN AGRIBUSINESS INVESTMENTS LIMITED Level 3 50 Carrington Street SYDNEY NSW 2000

25 Feb 1993

AUS ASEAN EXPORTERS FUND LIMITED Level 3 50 Carrington Street SYDNEY NSW 2000

23 Sept 1992

AUSASEAN MULTIMEDIA CAPITAL LIMITED Level 150 Carrington Street SYDNEY NSW 2000

20 July 1994

AUSASEAN RESOURCES LIMITED Level 1 50 Carrington Street SYDNEY NSW 2000

6 Apr 1995

AUSTRALIAN BUSINESS EQUITIES LIMITED c/- Jones Condon & Co Suite 501, Level 5, 5 Elizabeth Street SYDNEY NSW 2000

12 Jan 1995

CONTINENTAL POOLED DEVELOPMENT CAPITAL LIMITED Level 20 56 Pitt Street

SYDNEY NSW 2000

3 June 1993

FIRST RESOURCES DEVELOPMENT FUND LIMITED Level 7 44 Pitt Street SYDNEY NSW 2000

14 July 1994

7

3 May 1995 FIRST WESTERN FUND LIMITED Level 17, QV1 Building 250 St George’s Terrace PERTH WA 6000

GREENCHIP DEVELOPMENT CAPITAL LIMITED Level 15 600 Bourke Street MELBOURNE VIC 3000

GREENCHIP RESOURCES LIMITED Level 15 600 Bourke Street MELBOURNE VIC 3000

H-GV DEVELOPMENT FUND LIMITED Level 14 50 Bridge Street SYDNEY NSW 2000

HARTLEY POYNTON POOLED DEVELOPMENT LIMITED Level 21, Allendale Square 77 St George’s Terrace PERTH WA 6000

HUNTER FIRST LIMITED PO Box 678 NEWCASTLE NSW 2300

INTEGRATED DEVELOPMENT CAPITAL LIMITED 5 William Street DOUBLE BAY NSW 2028

MEDIA & COMMUNICATIONS INVESTMENTS LIMITED Level 4312 St Kilda Road MELBOURNE VIC 3004

MERCURY POOLED DEVELOPMENT FUND LIMITED 12th Floor 185 Macquarie Street

SYDNEY NSW 2000

11 Dec 1992

17 Feb 1993

9 Feb 1995

12 Jan 1995

11 July 1994

26 Oct 1994

12 May 1994

12 July 1993

8

20 Dec 1993 NANYANG AUSTRALIA LIMITED Level 19 255 George Street SYDNEY NSW 2000

NORTHERN TECHNOLOGY DEVELOPMENT LIMITED 6 Peter Sellers Court ARUNDEL CREST QLD 4214

OBELISK CAPITAL FUND LIMITED Level 23 135 King Street SYDNEY NSW 2000

PIRIE POOLED DEVELOPMENT LIMITED 2nd Floor 12 Pirie Street ADELAIDE SA 5000

POOLED MINING INVESTMENTS LTD 5th Floor Edgecliff Centre EDGECLIFF NSW 2027

RECOVERY & DEVELOPMENT FUND LIMITED 5th Floor Edgecliff Centre EDGECLIFF NSW 2027

RESOURCE EQUITIES LIMITED 3rd Floor 263 Adelaide Terrace PERTH WA 6000

RETIREWISE CAPITAL PTY LTD 4/21 Binney Road KINGS PARK NSW 2148

SMALL COMPANIES DEVELOPMENT FUND LIMITED Level 744 Pitt Street SYDNEY NSW 2000

STRATEGIC POOLED DEVELOPMENT LIMITED Level 2 578 St Kilda Road

MELBOURNE VIC 3004

22 Sept 1994

11 May 1995

15 Aug 1994

20 Dec 1993

7 Mar 1994

6 April 1995

22 Aug 1994

14 July 1994

5 Nov 1993

9

APPENDIX B

COMPANIES THAT BECAME PDFs DURING 1994-95

Date registered

AUSASEAN MULTIMEDIA CAPITAL LIMITED Level 1 50 Carrington Street SYDNEY NSW 2000

20 July 1994

AUSASEAN RESOURCES LIMITED Level 1 50 Carrington Street SYDNEY NSW 2000

6 Apr 1995

AUSTRALIAN BUSINESS EQUITIES LIMITED c/- Jones Condon & Co Suite 501, Level 5, 5 Elizabeth Street SYDNEY NSW 2000

12 Jan 1995

FIRST RESOURCES DEVELOPMENT FUND LIMITED Level 744 Pitt Street SYDNEY NSW 2000

14 July 1994

FIRST WESTERN FUND LIMITED Level 17, QV1 Building 250 St George’s Terrace PERTH WA 6000

3 May 1995

H-GV DEVELOPMENT FUND LIMITED Level 14 50 Bridge Street SYDNEY NSW 2000

9 Feb 1995

HARTLEY POYNTON POOLED DEVELOPMENT LIMITED Level 21, Allendale Square 77 St George’s Terrace PERTH WA 6000

12 Jan 1995

HUNTER FIRST LIMITED PO Box 678 NEWCASTLE NSW 2300

11 July 1994

10

INTEGRATED DEVELOPMENT CAPITAL LIMITED 5 William Street DOUBLE BAY NSW 2028

NORTHERN TECHNOLOGY DEVELOPMENT LIMITED 46 Peter Sellers Court ARUNDEL CREST QLD 4214

OBELISK CAPITAL FUND LIMITED Level 23135 King Street SYDNEY NSW 2000

PIRIE POOLED DEVELOPMENT LIMITED 2nd Floorl2 Pirie Street ADELAIDE SA 5000

RESOURCE EQUITIES LIMITED 3rd Floor 263 Adelaide Terrace PERTH WA 6000

RETIRE WISE CAPITAL PTY LTD 4/21 Binney Road KINGS PARK NSW 2148

SMALL COMPANIES DEVELOPMENT FUND LIMITED Level 7 44 Pitt Street

SYDNEY NSW 2000

26 Oct 1994

22 Sept 199

11 May 1995

15 Aug 1994

6 April 1995

22 Aug 1994

14 July 1994

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APPENDIX C

COMPANIES THAT CEASED TO BE PDFs DURING 1994-95

There were no companies that ceased to be a PDF during the year.

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APPENDIX D

DIRECTIONS BY THE MINISTER

Section 75(2)(d) of the Pooled Development Funds Act 1992 requires the Board to include in its annual report particulars of any directions given by the Minister to the Board during the year. No directions were given by the Minister to the Board during the year.

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APPENDIX E

FREEDOM OF INFORMATION ACT 1982: SECTION 8 STATEMENT

Establishment

The PDF Registration Board was established in July 1992 under section 5 of the Pooled Development Funds (PDF) Act 1992.

Organisation

The Board consists of a Chairperson and four members appointed by the Minister for three year terms. The Assistant Secretary of the Finance and Investment Policy Branch in the Department of Industry, Science and Technology is also a Board member.

The Board is supported by staff from the Finance and Investment Policy Branch of the Department of Industry, Science and Technology.

The staff assist the Board in the administration of the PDF Act, including registration of PDFs and monitoring the PDF Program. The staff also provide policy advice and secretariat services to the Board.

Functions and Powers

Under the PDF Act the PDF Registration Board has the following powers and functions:

• consideration of applications for registration as PDFs; • registration of PDFs; • determination that specified information is to be included in registration applications; • examination of variations to a PDF's investment plan; • issuing directions relating to PDFs; • monitoring of PDFs’ compliance with the legislation; • examination of PDFs’ annual returns; • revocation of registration; and • provision of advice to the Minister on the operation of the PDF Program and

related tax provisions.

The Board may publicise the advantages that flow from a company being a PDF and the requirements for becoming and remaining a PDF.

The Board also has the power to do whatever is necessary or convenient for performing its functions.

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Powers of Board Members

The powers of the Board derive from the PDF Act and most Board powers may be delegated to Board members, except the Board’s power to make and revoke registration declarations.

Categories of documents

The Board holds the following categories of documents:

• agendas, minutes and records of meetings; • Board papers on matters relating to the Program; • annual reports; • correspondence with interested parties;

• applications for PDF registration, and Board papers relating to the consideration of such applications; • annual returns from PDFs; • documents relating to Board administration; • promotional literature on the PDF program.

Facilities for access: FOI procedures and initial contact points

General inquiries concerning access to documents or other matters relating to freedom of information should be directed to:

Assistant Secretary Finance and Investment Policy Branch Department of Industry, Science and Technology 51 Allara Street

CANBERRA ACT 2600

GPO Box 9839 CANBERRA ACT 2601

Telephone: 06 276 2200

This statement is correct at time of printing in November 1995.

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APPENDIX F

STATEMENT OF BOARD POLICY

POLICY PAPER No 1 [9 December 1992]

DEFINITION OF EQUITY

PURPOSE

This paper sets out the policy of the PDF Registration Board with respect to the types of shares which it considers to be appropriate for the purposes of s20(l)(b) of the Pooled Development Funds Act 1992.

BACKGROUND

2 Section 20(1 )(b) of the Act provides that a PDF must invest in an Australian company by subscribing for or buying ordinary shares in a company or . some other kind of shares in a company . . . that the Board approves the PDF investing in.’.

3 PDFs do not have to seek Board approval for investment in ordinary shares. The Board wishes to avoid the situation where PDFs have to seek Board approval for every investment that does not involve ordinary shares. For this reason, the Board has established some principles to guide PDFs in making investments in investee businesses.

4 In determining suitable shareholdings under s20(l)(b) of the Act, the Board believes that the object of the Act is of paramount importance. The object of the Act is:

to encourage the provision o f patient equity capital to small or medium-sized Australian companies whose primary activities are not excluded activities.

5 The key considerations are patience and equity. At the same time the Board would be reluctant to allow any shareholding arrangements which could threaten the long-term survival of the investee business. Additionally, as a general rule, the Board will not judge commercial arrangements between PDFs and investee companies. The terms of a PDF’s investment are matters to be agreed between PDFs and their investee companies.

POLICY

6 Against this background, the Board makes the following general observations:

• Shares which are preferential as to dividend, be they cumulative or not, will be acceptable regardless of voting rights. Shares that are preferential as to

16

the return of capital in the event of liquidation will be acceptable, but shares that are preferential as to the return of capital in other circumstances will not be allowed automatically;

• Redeemable shares will be acceptable provided the non-redemption period is no less than five years;

• Shares which are convertible from preference (as to dividend) to ordinary, or between classes of ordinary shares will be acceptable;

• Shares issued at a premium will be acceptable; and

• The PDF Board will consider requests by PDFs to invest by way of any other types of shares on a case-by-case basis.

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STATEMENT OF BOARD POLICY

POLICY PAPER No 2 [9 December 1992]

SUBSTITUTION OF EQUITY FOR DEBT FINANCE

PURPOSE

This paper sets out the Board’s policy on the use of equity capital for the purpose of substitution for debt finance under the Pooled Development Funds (PDF) Program.

BACKGROUND

2 The object of the PDF Program is to establish a mechanism by which qualifying companies (PDFs) that provide long-term patient equity capital to small or medium sized Australian companies receive concessional tax treatment.

3 Section 21 of the Pooled Development Funds (PDF) Act 1992 specifies (essentially) that unless otherwise approved by the PDF Registration Board, the PDF must believe that the money it invests in a company will be used solely or principally for one, or more, of the following purposes:

• the establishment of an eligible business, either alone or with another party or parties;

• substantially expanding production capacity or the capacity to supply services of an established eligible business; and

• substantially expanding existing markets, or developing new markets for goods and services of an established eligible business.

4 PDFs invest in companies by way of purchasing shares. The investee company is likely to have acquired a range of debt finance. In some instances the debt of investee companies may be a constraining factor to the expansion of the investee company. Accordingly, there may be a need to use a portion of the funds from the equity injection to restructure the financial position of the company. For instance for the purpose of retiring debt finance.

POLICY

5 The PDF Registration Board views equity for debt substitution activity under the PDF Program with caution. The Board considers that equity for debt substitution meets the object of the PDF legislation only if the equity is used for one or more of the purposes specified in s21 of the PDF Act.

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APPENDIX G

ADMINISTRATIVE SUPPORT

Administrative support to the PDF Registration Board is provided by staff in the Finance Policy Section of the Department of Industry, Science and Technology. The Finance Policy Section provides policy advice to the Department and Ministers in relation to finance issues of relevance to the Industry, Science and Technology

portfolio.

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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

PARLIAMENTARY PAPER No 352 of 1995 ORDERED TO BE PRINTED

ISSN 0727-4181

Department of INDUSTRY. "iciENCE- Z2SEZ TECHNOLOGYA61614