Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)Chapter 3 - Financial Sector (Shareholdings) Act 1998
Outline of chapter
3.1 Schedule 3 to this Bill amends the Financial Sector (Shareholdings) Act 1998 (FSSA) so that persons who do not hold a direct control interest in a financial sector company will no longer be deemed to have a stake in that financial sector company solely as a consequence of their associates' direct control interest in the company.
3.2 This has implications for determining the stake held by a person where the person acquires a direct control interest in a financial sector company.
3.3 The amendments will mean that where the associate of the person does not have a direct control interest in a financial sector company, it is no longer necessary to include the associate's interest with the aggregate direct control interest held by a person.
Context of amendments
3.4 Under the existing law, a person must obtain approval from the Treasurer to hold a stake in a financial sector company of more than 15 per cent. A stake is defined in clause 10 of Schedule 1 of the FSSA as the aggregate of the direct control interest held by that person and the direct control interest held by associates of that person.
3.5 'Associates' is widely defined in clause 4 of Schedule 1 of the FSSA to include a person's relatives, partners, related companies and other parties.
3.6 Where a person acquires a direct control interest in a financial sector company of more than 15 per cent, the associate of the person is also required to also obtain approval to exceed the 15 per cent shareholding limit. This can be despite the associate holding no direct control interest (or indeed any interest) in the financial sector company. This imposes a burden for associates to reasonably comply with the law, particularly where associates are not aware of the requirement to seek the Treasurer's approval.
3.7 This Schedule will remove the requirement on associates with no direct control interest in a financial sector company to seek the Treasurer's approval for a shareholding in excess of 15 per cent.
Summary of new law
3.8 The amendments in this Bill refine the definition of stake.
3.9 A person who does not hold a direct control interest in a financial sector company will no longer be deemed to hold a stake in that company solely as a consequence of their associates' direct control interest in the company.
3.10 Only where a person holds a direct control interest of any size would the interest be aggregated with that of the person's associates to determine the total stake held.
3.11 For an associate holding a direct control interest in a financial sector company, the associate's stake is equivalent to the aggregate of their own stake, and other associates, including the person acquiring the actual direct control interest. The associate is required to seek the Treasurer's approval where the aggregated stake exceeds the 15 per cent shareholding limit.
Comparison of key features of new law and current law
| New law | Current law |
| A person holds a stake in a company at a particular time only if the person holds a direct control interest in that company. | A person with no direct control interest is deemed to hold a stake in a company in addition to the stake held by the associates of the person at a particular time. |
Detailed explanation of new law
3.12 The amendments change the law so that a person holds a stake in a financial sector company only if the person holds a direct control interest in the financial sector company.
3.13 A new definition of hold is inserted before subclause 10(1) of Schedule 1 and the heading in clause 10 of Schedule 1 is repealed and substituted with 'Holding a stake in a company'. [Schedule 3, items 15 and 16, clause 10 of Schedule 1 (heading), and before subclause 10(1) Schedule 1]
3.14 This has implications for an associate of a person, where a person acquires a direct control interest in a financial sector company.
3.15 The simplified outline has been replaced to reflect the change that a person will not be deemed to have a stake in a financial sector company, where the person does not have a direct control interest. The simplified outline is intended to assist readers in understanding the substantive provisions, but should not be considered as comprehensive. [Schedule 3, item 1, section 8]
3.16 Subparagraphs 23(1)(b)(i) and (ii) are amended to require that a person hold a stake, according to the new definition in subclause 10(1A) of Schedule 1 of the FSSA, and not merely have any stake in a financial sector company. The change emphasises that the 15 per cent shareholding limit only applies to persons with a direct control interest, and stake in a financial sector company. [Schedule 3, items 2 and 3, subparagraphs 23(1)(b)(i) and (ii)]
3.17 Similarly, the subparagraphs of 24(1)(c)(i) and (ii), 25(1)(c)(i) and (ii), and 25(1)(f)(i) and (ii) are amended so that a stake is held, to ensure consistency with the new definition of stake. Paragraph 31(1)(c) is also amended. [Schedule 3, items 4 to 9, subparagraphs 24(1)(c)(i) and (ii), 25(1)(c)(i) and (ii), 25(1)(f)(i) and (ii), and paragraph 31(1)(c)]
3.18 The anti-avoidance provisions are amended so that stakeholders must hold a stake for the shareholding limit to apply rather than having a non-direct control shareholding. [Schedule 3, item 10, paragraph 31(1)(c)]
3.19 For consistency, the definition of hold is inserted into the anti-avoidance provisions, and is given the same meaning as in Schedule 1. The definition of stake is similarly amended so that a stake is held in relation to a company. [Schedule 3, items 11 and 12, subsection 31(3)]
3.20 The ownership definition of hold is inserted in Schedule 1 to have the meaning given by subclause 10(1A) in Schedule 1. [Schedule 3, item 13, subclause 2(1) of Schedule 1]
3.21 The definition of increase is amended so that a stake must be held in a company. [Schedule 3, item 14, subclause 2(1) of Schedule 1 (definition of increase)]
3.22 The amendments made by this Schedule apply for the purposes of determining, whether a person holds a stake in a company and if the person does, the percentage stake. [Schedule 3, item 17]
Consequential amendments
3.23 None.
Application and transitional provisions
3.24 These amendments commence on the day this Bill receives Royal Assent.
STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Financial Sector (Shareholdings) Act 1998
3.25 This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
3.26 Schedule 3 to this Bill amends the Financial Sector (Shareholdings) Act 1998 so that where the associate of the person does not have a direct control interest in a financial sector company, it is no longer necessary to include the associate's interest with the aggregate direct control interest held by a person.
Human rights implications
3.27 This Schedule does not engage any of the applicable rights or freedoms.
Conclusion
3.28 This Schedule is compatible with human rights as it does not raise any human rights issues.