Select commentary on the CATSI Act Report

This articles provides a summary of the draft report on the review of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (“the CATSI Act” or “the Act”). The draft report (“the Report”) requests feedback on ideas and proposed changes to the Act. The following summary provides select commentary in response to the Report.

Background to the review

The Report builds on the work of earlier reviews that were carried out between 2016–2018. For example, an amendment bill incorporating recommendations made in the previous reviews was introduced to Parliament in 2019, however the bill was not passed before Parliament dissolved for the 2019 general election. Concerns were raised that the scope of earlier reviews had been too narrow and there had not been enough consultation. To address these criticisms, the National Indigenous Australians Agency (NIAA) was engaged to carry out a comprehensive review that will consider:

whether the CATSI Act is meeting its objects and continues to be desirable as a special measure for the advancement and protection of Indigenous people as set out in the Act’s preamble;
whether the functions and powers of the Registrar of Indigenous Corporations are appropriate, effective and adequate; and
possible amendments to the CATSI Act to better support the regulation of CATSI corporations.

This review is also considering the consistency and interaction of the CATSI Act with other relevant legislation, including the Corporations Act, Australian Charities and Not-for-profits Commission Act 2012 (Cth) and Native Title Act 1993 (Cth).

The Report incorporates suggestions and ideas received through online surveys, written submissions, consultations with ORIC staff and contractors who undertake examinations and special administrations. Feedback was requested on proposals and ideas on what should change in the CATSI Act and what issues should be taken into consideration when making such changes. Relevant feedback will be incorporated into a final report and presented to the Federal Government (Government) in October 2020.

Summary of review findings to date

Findings from review so far are that the protections for Aboriginal and Torres Strait Islander people included in the CATSI Act can be strengthened. Respondents to the NIAA’s online survey raised a number of questions that they suggested should be considered as part of the review including:

whether the CATSI Act is meeting the needs and expectations of Aboriginal and Torres Strait Islander people;
whether the CATSI Act is putting CATSI corporations on an even playing field with companies incorporated under the Corporations Act;
whether changes can be made to the regulatory and enforcement powers of the Registrar with particular consideration to the traditions and circumstances of Aboriginal and Torres Strait Islander people;
whether the CATSI Act is flexible enough to meet the needs of a whole range of different Aboriginal and Torres Strait Islander corporations; and
how can the Registrar and ORIC better support corporations to pursue economic and community development opportunities?
How can the Registrar and ORIC further develop the capacity of corporations, including ensuring that directors and members have a sound understanding of their rules as well as those of others.

Previous reviews of the CATSI Act

Background on previous reviews of the CATSI Act

In 2016, the Commonwealth Government engaged KPMG to review the CATSI Act and identify opportunities to improve the effectiveness of ORIC and to strengthen the Act. The KMPG report ‘Regulating Indigenous Corporations’ concluded that there were significant opportunities to enhance ORIC’s contribution to better governance of Indigenous corporations in the future. The report recommended a technical review of the CATSI Act to look at changes to the legislation that should be made to better align the Act with mainstream corporate regulation. A comprehensive “technical review” (Technical Review) was completed in 2017 and made 69 recommendations across a broad range of issues (See DLA Piper, Technical Review of the Corporations (Aboriginal and Torres Strait Islander) Act 2006, ORIC, 2017, available from <https://www.oric.gov.au/catsi-review> (‘DLA Technical Review’)). The review also highlighted the difficulty and tension between getting the regulatory balance right so that interest of members and local communities are safeguarded, while also ensuring that regulation does not impose an excessive burden on CATSI corporations.

In December 2018, the Corporations (Aboriginal and Torres Strait Islander) Amendment (Strengthening Governance and Transparency) Bill 2018 was introduced to the Senate (“the Bill”). The Bill was scrutinised by an internal Government committee who received submissions from stakeholders, many of whom called for greater consultation on the changes. Despite this, the Committee recommended that the Bill be passed, however the Bill was not passed before Parliament dissolved for the 2019 general election and the Bill lapsed in July 2019.

Summary of findings of Technical Review

In late October 2017, the Technical Review of the Corporations (Aboriginal and Torres Strait Islander) Act 2006 report was provided to the Registrar. The Technical Review made 69 recommendations, across a broad range of issues arising from the terms of the review. It also identified a number of themes that emerged from stakeholder consultation including that:

Indigenous corporations play a unique role in Indigenous communities and in the provision of services to Indigenous peoples;
there is no ‘single’ form of CATSI corporation, and ‘one size does not fit all’;
smaller CATSI corporations require additional support, and it is appropriate to reduce the regulatory burden that is imposed upon small CATSI corporations;
while CATSI corporations look to the Registrar and ORIC for assistance and support, the autonomy of CATSI corporations requires that regulation is often based upon additional disclosure; and
the Registrar can play a greater role with respect to certain matters relating to native title regulation.
Supporting corporations

CATSI corporations play an important role in support of Indigenous communities. The Report acknowledges that this role is very important in remote areas. Feedback was requested on how the CATSI Act can better support corporations in remote areas, how the Registrar can develop the capacity of corporations and work that should be done to build directors and members understanding of their roles and rights.

Our view is that there needs to be significantly more financial support for Registered Native Title Body Corporates (RNTBCs). RNTBCs play a critical role in facilitating the native title system and require more support so that they can support communities to realise their aspirations, goals and achieve self-determination.

Overview of the Registrar of Aboriginal and Torres Strait Islander Corporations

The Registrar is appointed by Government and is responsible for Office of the Registrar of Indigenous Corporations (ORIC), a Commonwealth Government agency that is responsible for the CATSI Act. The Registrar is responsible for administering the Act; the role of ORIC staff is to assist the Registrar to perform their functions (CATSI Act s 673-1). ORIC staff carry out the day-to-day regulatory work under delegations of authority from the Registrar and Deputy Registrar (CATSI Act ss 668-1 and 673-1).

The Registrar’s powers include the ability to:

call Registrar-initiated general meetings and meetings of interested persons (CATSI Act ss 668-1 and 673-1);
direct a CATSI corporation to change its name (CATSI Act s 88-5);
apply various enforcement powers, including issuing compliance notices, appointing someone to examine a corporation’s books, requiring attendance to answer questions and applying for a warrant to seize books (see Part 10-3 of the CATSI Act);
appoint a special administrator (CATSI Act s 490-1);
fulfil outstanding obligations of a deregistered CATSI corporation (CATSI Act s 546-30); and
Intervene in court proceedings relating to a matter arising under the CATSI Act (CATSI Act s 581-1).
Other functions a performed under the CATSI Act to support corporations to:
manage their membership bases;
establish appropriate corporate structures and consider their corporation size;
manage their meeting and reporting obligations; and
develop and utilise their rule books (See CATSI Act ss 658-1 and 658-5 setting out the functions and aims of the Registrar. In carrying out those functions and aims, the Registrar supports and regulates corporations by: providing advice in relation to incorporation requirements; training directors, members and key staff on good governance practices; monitoring compliance with CATSI Act requirements; and intervening when needed).

The Registrar also provides factual and procedural advice about registration, rules and operation of the corporation (CATSI Act s 658-1(1)(d)). These functions are intended to help resolve disputes and establish the Registrar as a source of information and advice about the CATSI Act. The Registrar’s dispute resolution functions also include referring parties to mediation and arbitration and investigating complaints made about corporations (by members or others).

Select commentary on some of the proposals

Issue 1: RNTBCs report on native title benefits

Neither the CATSI Act nor the PBC Regulations address how native title benefits must be reported and there is no express statutory requirement to keep separate records or report to common law holder beneficiaries about these holdings.

Currently, there is no requirement for Registered Native Title Body Corporates (RNTBCs) to report on native title monies, except where monies are allocated for corporate use (i.e. meeting costs). The report that occurs depends on legal requirements that apply. For example, if it is an ASIC corporation, financial reports must be given to the shareholders (who may be a single corporate member). For trust structures, joint ventures and commercial enterprises, there may be no or limited requirement to report to native title holders.

The proposal is to establish regulatory requirements for reporting about native title benefits. The Report asks for feedback on whether reporting on native title benefits (including non-cash benefits) is appropriate and if so, whether there should be a threshold amount that triggers the reporting requirement.

More commentary on this proposal is at the end of this article.

The requirement to report on native title benefits may improve clarity and transparency about native title benefits. The goal of empowering native title holders to participant more actively in the management of benefits is supported. However, it is not clear how the cost of reporting will be met. We consider that this invites tension and dispute. The requirement for additional reporting to the regulator is not consistent with the principle of self-determination.

Issue 2: Change Regulations to include native title benefit decisions as ‘native title decisions’

Under the Native Title (Prescribed Body Corporate) Regulations 1999 (“the Regulations”), the RNTBC must consult and seek consent from native title holders in relation to all native title decisions. The Regulations state that the RNTBC have to invest (or apply) native title monies (held in trust) as directed by the native holders, but do not outline how these directions need to be given. In addition, the PBC regulations do not apply to decisions about native title monies held outside of the RNTBC. Often, this means that requirements for consultation under the Regulations do not apply in relation to benefits held in trusts and other benefit management structures.

Currently, matters involving native title benefits are not covered by the definition of “native title decision”. The proposal is to amend the PBC regulations so that RNTBCs must consult and seek the consent of common law holders before native title benefits can be invested or otherwise applied.

In many cases, the cost of meetings to bring native title holders together to consider decisions about things that impact or impair native title are borne by project proponents. If the concept of a “native title decision” is extended to cover native title benefits, the costs of those meetings are likely to be borne by the corporation. This has the potential to significantly increase the costs of administering native title benefits.

Issue 3: Allowing trusts under the CATSI Act

Regulatory oversight of RNTBC benefit management structures is fragmented. They may be regulated by ASIC, the ACNC, state and territory jurisdictions (for charitable trusts) or have no external regulator, such as for private discretionary trusts. These arrangements can be costly to establish and maintain.

The Report asks for feedback on the idea of allowing for the creation of trusts under the CATSI Act. In turn, the Registrar could hold a Register of Trust Deeds ensuring accessibility and transparency for members and common law holders and could require regular reporting on trust activity.

ORIC is not a trusts regulator and is not experienced administering or regulating trust structures. A register of trust deeds gives transparency, however that can be achieved without widening the regulator’s functions. It is also unclear if existing trust structures would be transitioned to ORIC. If so, we have concerns as to the capacity of ORIC to competently oversee trusts that are subject to varying legal requirements across different jurisdictions.

Issue 4: Membership details and application timeframes

Feedback was requested about whether the corporation should be able to determine what kind of contact is acceptable. For example, should email or phone only be allowed for certain kinds of notices or events? When might a community notice board and social media be acceptable forms of contact? If alternative forms of contact are accepted, how should the corporation make this decision – through resolution at a general meeting?

It is proposed that alternative contact details do not need to be published on the public register, but that corporations may be required to keep record of alternative contacts information, where provided.

Many people use email and most people have a mobile phone. Enabling corporations to use other methods such as email or phone to notify members may result in more effective and timely communication.

It is not clear when one method of communication would be required or when different forms of contact might be optional, and whether letters (i.e. meeting notices) would still be required. If a member provides someone else’s email address, the person who receives a meeting notice via email may think they are invited to attend a members’ meeting.

Currently the public register has details of members’ addresses and other personal information. The proposal was that this information should be removed if it is in the interests of ensuring safety of a member, or members.

If the removal of personal information is requested by the individual or the corporation, it would be appropriate for the personal information not to be published. One way to implement this could be for members to “opt out” of the publication of personal information when a person applies for membership, or, when members “sign in” when attending corporation meetings.

Feedback is requested on whether there should be a timeframe for assessing memberships.

The timeframe for assessing memberships should be determined by the corporation. If a timeframe was set, it could be linked to two cycles of the minimum number of directors’ meetings. For example, if there is a requirement in the rule book for the directors to meet at least every three months, six months is likely to be reasonable.

Issue 5: Membership cancellation and appeals

Feedback was requested on whether a person who has had their application refused should be able to have their membership application presented and considered by the members at a general meeting.

Allowing aggrieved persons, whose membership has been cancelled or refused (on the basis that they are ineligible) to put forward their membership application at a meeting of members may increase politicking and lead to public disputes about an individual’s identity, including public shaming. For many RNTBCs, membership assessments require interpretation of complex laws and customs, which may require the knowledge of elders. If there is a need for public deliberation about a person’s identity under law and custom, this may breach traditional law and custom. There may be a risk of breaching traditional laws and customs by the imposition of a public deliberation of a person’s identity. That could, in turn, lead to cultural punishments for those in attendance at the meeting.

Grounds for cancelling membership in s 150-25(3) of the CATSI Act include where members are not contactable and unable to contact member at the registered address for period of two years and there has been two or more reasonable attempts to contact member during that period. The proposal is to reduce period that member must be not contactable for to 12 months. Feedback was requested on these processes.

For RNTBCs that have members who live in remote locations, contact can be difficult – members in these areas may have limited phone and internet access and may not have fixed addresses. We consider that 18 or 24 months is an appropriate amount of time and a minimum of three attempts to contact them should be made.

Issue 6: “Examinable affairs” and broadening grounds for administration

After completing examination of the “affairs of the corporation” the examiner gives a report to the Registrar. Section 700-1 of the CATSI Act defines “affairs” of the corporation. Section 453-1 of the CATSI Act sets out the issues that the examiner reports to the Registrar on. It was proposed to include “irregularity in financial affairs” as one of the issues that can be reported on.

Although it is not explicit that the examiner can report on financial irregularities, in practice any financial irregularity is reported. Note that the definition of “examinable affairs” in s 700-1 of the CATSI Act includes a broad range of matters, which include “profits and other income, receipts, losses, outgoings and expenditure”. Therefore, we are of the view that the proposed amendment does not impact the substance of what the examiner considers or the content of the examination report in a material way.

To place a corporation in special administration, the Registrar must decide that one of the criteria listed in s 487-5 of the CATSI Act has been met. Currently, one ground for appointing a special administrator is if the Registrar believes the corporation has traded at a lost for at least six of the last 12 months (CATSI Act s 487-5(1)(a)). In practice, this is difficult to establish, particularly where there is poor record keeping.

It was proposed that the requirement that the corporation must have traded at a loss should be replaced. Instead, a corporation can be placed into special administration when there has been “irregularity” in management of the corporation’s affairs.

The proposal lowers the threshold for special administration from “trading at a loss” to any “irregularity in management of financial affairs”. “Irregularity in management of financial affairs” is not a term used in accounting standards. If the legislation does not define the criteria or principles that must be applied, the Registrar will have a broad discretion to place a corporation into special administration.

We note that the Act provides a definition for “business affairs” and “affairs” but not financial affairs (CATSI Act ss 694-15, 700-1). It is unclear how the phrase “financial affairs” is to be defined. Noting that the definition of “examinable affairs” extends to the “business affairs” of connected entities, there is a risk that financial irregularities of connected entities may be grounds for special administration.

In our view, affairs that are examinable (which extend to connected entities) must be distinct from “financial affairs”.

Issue 7: Show cause notices

Under the CATSI Act, before placing a corporation into special administration, the Registrar must first issue a “show cause” notice. The purpose of this notice is to give the corporation an opportunity to respond and provide evidence to show why there is good cause that the corporation should not be put into administration.

The requirement to issue a show cause notice where all directors have requested special administration creates an unnecessary step in the process that may negatively impact some corporations that require urgent help.

The Report asks for feedback on whether it is appropriate that there be no “show cause” notice where a majority (most but not all) of the directors made a request to the Registrar asking that the corporation be placed into special administration.

The show cause notice is an important mechanism for making sure the corporation can respond to claims against it. Removing the requirement for a show cause notice where only a majority have requested may impact on minority directors. If only a majority of directors have made the request, this suggests there may be a disagreement. In those circumstances, a show cause notice is appropriate.

Issue 8: Presumption of insolvency

To wind up a CATSI Corporation, a court must be satisfied that one of the grounds listed in s 526-5 of the CATSI Act exist. The proposal was to broaden the criteria for winding up of the corporation to include circumstances where the examiner or special administrator has concluded that the corporation failed to keep adequate financial records. Feedback was requested on whether this is appropriate, and whether this should apply to records within the last seven years or at any time whatsoever. We understand that this change has been proposed by ORIC because there are a large number of ‘ghost’ corporations that are inactive but cannot be deregistered.

In our view, although this lowers the threshold for insolvency significantly, the presumption of insolvency is rebuttable with evidence showing that the corporation is able to pay its debts as they fall due in the ordinary course of business. Also note that the orders to wind up can only be made the court; this helps to safeguard corporations from being wound up involuntarily.

We support this proposal on the basis the presumption applies only where an examiner or special administrator (or other authorised person) has formed an opinion that the corporation failed to keep adequate financial records for the last seven years.

Issue 9: Registrar power to call or cancel a meeting

The purpose of the general meeting is to keep members informed of the corporation’s activities and obtain feedback / decisions on major plans or projects. An annual general meeting must be held once a year, but meetings may be held at other times when there are issues to discuss. Sometimes, meetings may be delayed or held in a way that means people were not given an opportunity to ask questions or obtain all the information they are entitled to.

The power for the Registrar to require directors to hold a general meeting is subject to the condition that “it is reasonable to do so”. This means that the Registrar must have a good reason for exercising the power – examples of this might be where members did not have a reasonable opportunity to ask questions of the Board or answers to questions raised by members were not provided at the meeting or in the annual report.

The requirement of reasonableness gives the Registrar wide discretion, which is consistent with the nature of a regulator’s powers. For many RNTBCs, the costs of holding a general meeting are significant and are logistically extremely challenging. We note that s 201-5 of the CATSI Act also allows members to require the directors to call and arrange to hold a general meeting. It is unclear whether members are expected to first petition the directors for a meeting, or, whether it is intended that members’ can informally request the Registrar to use this power to require directors to hold a meeting.

Issue 10: Corporation cancelling or delaying a meeting

Feedback is requested on whether the CATSI Act should be amended to define circumstances in which a meeting can be cancelled (once notice has been sent), and when the meeting be cancelled.

A further proposal is to allow a corporation to notify the Registrar (do not need to request exemption) that an AGM is being delayed by 30 days where there has been death, natural disaster, cultural activity or unavoidable delay but the corporation must not have notified Registrar of extension for more than three years in row.

If the time is extended, directors can issue updated meeting notice within 30 days of original meeting date if there has been a death, natural disaster, cultural activity that has impacted date, time or place of the meeting.

Small corporations can pass a special resolution not to hold AGM for up to three years but directors must not vote on that resolution.

We support this proposal.. Meetings in remote areas involve significant costs. Flexibility to cancel meetings is important when there are important cultural practices that must be observed and respected. We consider that one week is a reasonable amount of notice to cancel a scheduled meeting.

Issue 11: Wholly owned subsidiaries

The proposal is to change the CATSI Act rules to remove the requirement that a majority of directors must also be members and that directors must be natural persons to make it easier to establish wholly‑owned subsidiaries or joint ventures. Subsection 246-5(3) of the CATSI Act requires that the majority of directors are members and the Revised Explanatory Memorandum to the CATSI Act states that this is to ensure that members’ interests are protected. The proposal will allow a corporation to establish wholly-owned CATSI Act subsidiary (unless rule book does not allow), and, allow a group of corporations to establish a CATSI corporation (similar to a joint venture) where the ‘parent entities’ meet the indigeneity requirement (that a majority of corporate members must be Indigenous).

These issues are discussed further at the end of this article.

Although not immediately relevant to all RNTBCs at this time, we support these changes because they promote greater flexibility in the structures that are allowed to be registered under the CATSI Act.

Issue 12: Director remuneration

The proposal is that the annual report to ORIC will include information about corporate structure, such as where the CATSI corporation has “associated” subsidiaries and/or trusts. Annual reports will also need to include the names of key management personnel (CEO, Chief Financial Officer etc.).

It is also proposed that information about director sitting fees and salary packages (remuneration) of key personnel (including key personnel of entities in the corporate structure) is reported in financial reports that are lodged with the Registrar. Information about remuneration of individuals will not be publicly available, but de-identified figures what is reasonable for different sectors, industries or areas will be published by ORIC to provide guidance to boards on what is a reasonable.

The requirement for reporting on corporate structures, executive officer salaries and director sitting fees aims to improve transparency for members.

Many RNTBCs do not yet have executive staff positions in its governance structure, but it is likely that members would want information about their salaries reported if executive officers were employed. Currently there is no guidance for boards or members about what a reasonable level of remuneration might be given the corporation’s circumstances and the skills, experience, and performance of the executive in question. Publishing of de-identified salary information will assist Boards to make informed decisions about salary packages for executive managers.

The Report also identified the apparent inconsistency in the CATSI Act about membership approval for director remuneration.

Our experience is that most RNTBCs seek membership approval for the payment of meeting attendance fees. Indeed, membership approval can be a good indicator of what is ‘reasonable’ in the circumstances. In saying this, readily accessible and publicly available information about CATSI Act director remuneration would be useful to inform reasonableness of remuneration. We consider that a clarification of the relationship between subsections 252-1(2) and 287-1(2) would be helpful.

Issue 13: Board composition and independent directors

The Report invites comment on whether there should be legislated board membership and composition controls.

Many RNTBCs already have rules about board composition. However, flexibility is required to adapt and update these rules as expectations and standards change. Indeed, it is consistent with self-determination to allow the corporation to make its own rules about board composition.

The Report also invited comments on whether the CATSI Act should make it easier for corporations to appoint independent directors, and, whether there should be legislated requirements for independent directors for large corporations.

We consider that independent directors can add significant value to the effectiveness of a corporation and is good governance. Independent directors complement the principle of skills-based director appointments. However, the decision for a corporation to have independent directors, and the rules around the necessary qualifications, appointment, and roles of those directors, should be a decision for each corporation.

Issue 14: Incorporation of traditional law

The Report invites comment on how the incorporation of laws and traditions into the operation of the corporation would work in practice.

We are aware of several RNTBCs that have attempted to incorporate laws and traditions in its rules in relation to issues like membership. In our experience, this has proved to be very difficult. The incorporation of laws and traditions into the operation of the corporation risks complexity, issues with interpretation and is indicative of the inherent tension between differing legal systems. We consider that the appropriateness of the incorporation, and the extent of the incorporation, will vary significantly. We consider caution should be exercised so as not to inadvertently undermine traditional laws and traditions by attempting to codify and incorporate a traditional legal system that is different to the Australian legal system.

Issue 15: Arbitration of RNTBC disputes

The Report invited comment on whether a new arbitration function would assist in resolving RNTBC disputes.

We consider there is a risk that arbitration may be misused by disgruntled members. Arbitration may also be inconsistent with self-determination by the imposition of a decision that was not reached by the corporation and members on their own accord. On the other hand, it may promote resolution of disputes. In any event, we consider that it may be preferable to utilise dispute resolution specialists approved by the Federal Court of Australia on the Federal Court’s list of approved external mediators, who are assessed through a robust and transparent court managed registration process.

Further special commentary: Governance and reporting on subsidiaries, executive officers and payments to directors

A wholly owned subsidiary is a corporation or other entity that is controlled by another corporation (the ‘parent’ entity).

Under s 246-5(3) of the CATSI Act, the majority of a corporation’s directors must also be members and a majority of directors must be individuals (natural persons). Consequently, a CATSI corporation could not be established as a subsidiary with only one corporate member unless a class of members is established for individuals who can be directors. This makes it difficult to establish wholly-owned subsidiaries, particularly where the corporation will be established as a subsidiary with only one corporate member. A way around this is for CATSI corporations to establish subsidiaries by ensuring the majority of directors are members of the subsidiary for the term of their directorship, and the sole corporate member is the only member with voting rights. While effective, this solution imposes unnecessary administrative burden on corporations.

Depending on their size, corporations are required to prepare specific reports within six months of the end of their financial year, unless granted an extension or exemption from the Registrar. Small corporations are required to prepare a general report while large corporations are required to prepare a general report, financial report, audit report and directors’ report.

Where there are complex entity structures, members may be given little information about the structure itself or the business of entities (trusts or other corporations) within the structure. The Report suggested that consideration needs to given to supporting more flexible corporate structures while also providing transparency to members about these structures.

The proposed changes aim at improving visibility of structures that co-exist with CATSI corporations, by requiring that certain information about subsidiaries and trusts are included in annual reports to ORIC:

information about their corporate structure, for example, where the CATSI corporation has associated subsidiaries and/or trusts; and
the names of the key management personnel such as the Chief Executive Officer (CEO), Chief Operating Officer and Chief Financial Officer within that structure.
In addition, it was also proposed that reports to ORIC include:
salary packages of key personnel (of CATSI corporations and subsidiaries), and.
directors’ sitting fees.

For further information, contact Kai Sinor (kai@mpslaw.com.au) or Michael Pagsanjan (michael@mpslaw.com.au).