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Schedule 2—Mutual capital instruments (MCIs)

Schedule 2 Mutual capital instruments (MCIs)

Part 1 Amendment of the Corporations Act 2001

Corporations Act 2001

1  Section 9

Insert:

MCI (short for mutual capital instrument) has the meaning given by section 167AD.

MCI amendment resolution has the meaning given by section 167AI.

MCI mutual entity has the meaning given by section 167AC.

non-shareholder mutual member of an MCI mutual entity means a person who is a member of the entity otherwise than as a holder of a share (whether or not the person also holds one or more shares in the entity).

2  At the end of section 48

Add:

             (6)  Any shares in the first body that are MCIs, and any powers exercisable by a person by virtue of such shares, are to be disregarded.

3  At the end of section 124

Add:

             (4)  Subsection (1) does not prevent a mutual entity that is a company limited by guarantee issuing MCIs.

4  At the end of Chapter 2B

Add:

Part 2B.8 Mutual capital instruments (MCIs)

Division 1 Preliminary

167AB   Simplified outline of this Part

This Part provides for mutual capital instruments (MCIs).

An MCI is a share in a mutual entity that meets requirements relating to voting rights and other matters. Certain kinds of mutual entities may issue MCIs and become MCI mutual entities.

Division 3 sets out a special procedure for amending the constitution of a mutual entity that proposes to issue MCIs.

Division 2 MCI mutual entities and MCIs

167AC   Meaning of MCI mutual entity

                   A mutual entity is an MCI mutual entity if:

                     (a)  the entity is a public company; and

                     (b)  the entity does not have voting shares (other than MCIs) quoted on a prescribed financial market; and

                     (c)  the entity is not a registered entity within the meaning of the Australian Charities and Not-for-profits Commission Act 2012 ; and

                     (d)  the entity’s constitution states that the entity is intended to be an MCI mutual entity for the purposes of this Act; and

                     (e)  the entity has issued one or more MCIs.

167AD   Meaning of MCI

             (1)  A share in a mutual entity is an MCI (short for mutual capital instrument) if:

                     (a)  paragraphs 167AC(a), (b), (c) and (d) apply to the entity; and

                     (b)  the share meets the requirements in sections 167AE and 167AF.

             (2)  To avoid doubt, if a share that is an MCI ceases to meet one or more of those requirements, the share ceases to be an MCI.

             (3)  Nothing in this Division requires an MCI mutual entity to treat the holders of MCIs in the same way as members of the entity who do not hold MCIs.

Note:          For example, this Division does not require an MCI mutual entity that provides services to a class of members to provide those services to holders of MCIs.

167AE   MCI requirements—class rights

                   A share in a mutual entity meets the requirement in this section if the rights attached to the share can be varied or cancelled only by special resolution of the company and either:

                     (a)  by special resolution passed at a meeting of the class of members holding shares in the same class; or

                     (b)  with the written consent of members with at least 75% of the votes in the class.

167AF   MCI requirements—other requirements

                   A share in a mutual entity meets the requirements in this section if the entity’s constitution:

                     (a)  provides that the share can only be issued as a fully paid share; and

                     (b)  provides that dividends in respect of the share are non-cumulative; and

                     (c)  sets out the rights attached to the share with respect to participation in surplus assets and profits.

167AG   MCIs must be cancelled before MCI mutual entity demutualises

                   A resolution of an MCI mutual entity that would result in the entity ceasing to be an MCI mutual entity can only take effect if:

                     (a)  there are no MCIs in the entity; or

                     (b)  the resolution provides for each MCI to be cancelled at or before the time the entity ceases to be an MCI mutual entity (whether or not the holders of the MCIs to be cancelled are to receive other securities in respect of those MCIs).

Division 3 Special procedure for amending constitution of mutual entity that proposes to issue MCIs

167AH   Purpose and application of this Division

             (1)  This Division sets out a special procedure for the constitution of a mutual entity to be amended to provide for the entity to issue MCIs.

             (2)  This Division applies to a mutual entity that:

                     (a)  is a public company; and

                     (b)  does not have voting shares quoted on a prescribed financial market; and

                     (c)  is not a registered entity within the meaning of the Australian Charities and Not-for-profits Commission Act 2012 .

167AI   MCI amendment resolution

             (1)  An MCI amendment resolution is a resolution of the mutual entity to amend the entity’s constitution for one or more of the following purposes, and for no other purpose:

                     (a)  to include a statement that the entity is intended to be an MCI mutual entity for the purposes of this Act;

                     (b)  to provide for the entity to issue MCIs;

                     (c)  to provide for the rights and obligations attached to MCIs;

                     (d)  to make changes that are incidental or ancillary to the purpose in paragraph (a), (b) or (c).

             (2)  An MCI amendment resolution must not result in the mutual entity ceasing to be a mutual entity.

167AJ   Procedure for MCI amendment resolution

             (1)  This section applies to a meeting of the mutual entity’s members if:

                     (a)  notice of an MCI amendment resolution to be proposed at the meeting is given in accordance with paragraph 249L(1)(c); and

                     (b)  the meeting is held during the period of 36 months beginning on the day this section commences; and

                     (c)  no more than 2 MCI amendment resolutions have been considered at previous meetings of the mutual entity’s members.

             (2)  The MCI amendment resolution:

                     (a)  must be passed at the meeting by at least 75% of the votes cast by or on behalf of members who are present at the meeting (including members who have appointed proxies who are present at the meeting) and entitled to vote on the resolution; and

                     (b)  if so passed—has effect as a special resolution despite subsections 136(3) and (4) and anything in the mutual entity’s constitution.

             (3)  Despite section 135 and anything in the mutual entity’s constitution, section 249T (quorum) applies to the meeting to the extent that the meeting is considering or voting on the MCI amendment resolution.

5  At the end of Part 2F.2

Add:

246H   Application of this Part to MCI mutual entities that are companies limited by guarantee

                   For the purposes of applying this Part to an MCI mutual entity that is a company limited by guarantee, treat the entity:

                     (a)  in relation to a person who holds MCIs in the entity—as a company with a share capital; and

                     (b)  in relation to a non-shareholder mutual member—as a company without a share capital.

6  At the end of Part 2H.5

Add:

254WA   Application of this Part to MCI mutual entities

             (1)  Section 254SA does not prevent an MCI mutual entity that is a company limited by guarantee paying a dividend in respect of an MCI.

             (2)  Without limiting section 254T, an MCI mutual entity must not pay a dividend unless the payment of the dividend is fair and reasonable to the entity’s members as a whole.

7  At the end of Part 2J.1

Add:

Division 4 Application of this Part to MCI mutual entities

258G   Application of this Part to MCI mutual entities

             (1)  For the purposes of applying this Part to an MCI mutual entity, a reference (other than in section 258B) to a shareholder of the entity is taken to include a non-shareholder mutual member of the entity.

             (2)  For the purposes of applying Division 1 to an MCI mutual entity:

                     (a)  any reduction of the entity’s share capital that relates to MCIs is taken to be a selective reduction; and

                     (b)  the reference to all ordinary shareholders in paragraph 256C(2)(b) is taken to be a reference to all members of the entity.

             (3)  For the purposes of applying Division 2 to an MCI mutual entity:

                     (a)  any scheme to buy back MCIs is taken not to be an equal access scheme; and

                     (b)  subsections 257B(4) and (5) (the 10/12 limit) have effect in relation to MCIs issued by a mutual entity as if each MCI were a voting share with one vote attached to it; and

                     (c)  the reference to all ordinary shareholders in paragraph 257D(1)(b) is taken to be a reference to all members of the entity.

             (4)  To avoid doubt, this section does not have the effect of treating a non-shareholder mutual member’s membership of an MCI mutual entity as a share.

8  At the end of Part 2J.3

Add:

260DA   Application of this Part to MCI mutual entities

             (1)  For the purposes of applying this Part to an MCI mutual entity:

                     (a)  a reference to a shareholder of the entity is taken to include a non-shareholder mutual member of the entity; and

                     (b)  the reference to all ordinary shareholders in paragraph 260B(1)(b) is taken to be a reference to all members of the entity.

             (2)  To avoid doubt, this section does not have the effect of treating a non-shareholder mutual member’s membership of an MCI mutual entity as a share.

9  After section 605

Insert:

605A   Chapter does not apply to MCIs

                   This Chapter does not apply to MCIs.

10  After section 660B

Insert:

660C   Chapter does not apply to MCIs

                   This Chapter does not apply to MCIs.

11  Section 910A (paragraph (b) of the definition of control )

After “either profits or capital”, insert “, and not including MCIs”.

Part 2 Consequential amendments of other Acts

Financial Sector (Shareholdings) Act 1998

12  After paragraph 9(4)(b) of Schedule 1

Insert:

                 or (c)  is an MCI mutual entity (within the meaning of the Corporations Act 2001 );

Income Tax Assessment Act 1936

13  At the end of subsection 121AB(1)

Add:

               ; or (d)  if the insurance company is a mutual entity (within the meaning of the Corporations Act 2001 )—that would be covered by paragraph (a), (b) or (c) if the following were disregarded:

                              (i)  any MCIs (within the meaning of that Act) issued by the entity;

                             (ii)  any dividends or profits paid or payable in respect of such MCIs;

                            (iii)  any members of the entity who are members by virtue of holding such MCIs.

14  Section 121AC

Before “A”, insert “(1)”.

15  At the end of section 121AC

Add:

             (2)  If the company is a mutual entity (within the meaning of the Corporations Act 2001 ) then, for the purposes of subsection (1), disregard the following:

                     (a)  any MCIs (within the meaning of that Act) issued by the company;

                     (b)  any dividends or profits paid or payable in respect of such MCIs;

                     (c)  any members of the company who are members by virtue of holding such MCIs.

16  After subsection 326-10(1) of Schedule 2H

Insert:

          (1A)  If the entity is a mutual entity (within the meaning of the Corporations Act 2001 ), then, for the purposes of subsection (1), disregard the following:

                     (a)  any MCIs (within the meaning of that Act) issued by the entity;

                     (b)  any dividends or profits paid or payable in respect of such MCIs;

                     (c)  any members of the entity who are members by virtue of holding such MCIs.

Income Tax Assessment Act 1997

17  Section 11-55 (table item headed “mutual receipts”)

After “to members”, insert “or issue of MCIs”.

18  Paragraph 25-75(1)(e)

After “to members”, insert “or issue of MCIs”.

19  Section 59-35 (at the end of the heading)

Add “ or issue of MCIs ”.

20  Paragraph 59-35(a)

Repeal the paragraph, substitute:

                     (a)  the amount would be a mutual receipt, but for:

                              (i)  the entity’s constituent document preventing the entity from making any * distribution, whether in money, property or otherwise, to its members; or

                             (ii)  the entity’s constituent document providing for the entity to issue MCIs (within the meaning of the Corporations Act 2001 ) or to pay * dividends in respect of MCIs; or

                            (iii)  the entity having issued one or more MCIs (within the meaning of the Corporations Act 2001 ) or having paid dividends in respect of one or more MCIs; and

21  Subparagraph 118-12(2)(a)(ia)

After “to members”, insert “or issue of MCIs”.

22  Subsection 995-1(1)

Insert:

demutualise : a mutual entity (within the meaning of the Corporations Act 2001 ) that issues one or more MCIs (within the meaning of that Act) is taken not to demutualise by doing so.

Note:          MCI is short for mutual capital instrument (see section 167AD of the Corporations Act 2001 ).

Insurance Acquisitions and Takeovers Act 1991

23  After paragraph 13(4)(b)

Insert:

                 or (c)  is an MCI mutual entity (within the meaning of the Corporations Act 2001 );