House of Representatives

Explanatory Memorandum

(Circulated by authority of the Minister for Agriculture, Fisheries and Forestry, the Hon Warren Truss MP)

1. General Outline

1.1 The Australian Wool Research and Promotion Organisation ( AWRAP ) is a Commonwealth statutory corporation, established under the Australian Wool Research and Promotion Organisation Act 1993 ( AWRAP Act ). AWRAP's functions include undertaking the generic promotion of wool and wool products and providing funds for research and development in relation to the wool industry. AWRAP is funded by wool tax, which is levied by the Commonwealth on sales of wool under the Wool Tax Acts (Nos 1-5) 1964 and by a 'matching' Commonwealth research and development contribution. Woolgrowers who pay the wool tax do not currently hold shares or have any other proprietary interest in AWRAP. Wool tax payers are, however, able to participate in an annual general meeting of AWRAP under special provisions contained in the AWRAP Act .

1.2 On 30 November 1998 wool tax payers passed a motion of no confidence in AWRAP at its annual general meeting. Following this vote, the Commonwealth established a task force to enquire into the future direction of the wool industry. The Future Directions Taskforce submitted a report (the McLachlan Report ) in June 1999. The McLachlan Report included recommendations that AWRAP be replaced with a Corporations Law company limited by shares owned by woolgrowers. Following the receipt of the McLachlan Report, a voluntary woolgrower poll, known as Wool Poll 2000, was held in March 2000 to determine growers' wishes about the appropriate future level of wool tax (if any) and the services woolgrowers wished AWRAP or its successor to provide.

1.3 On 8 August 2000 the Commonwealth announced new arrangements to apply to the Australian wool industry. The Commonwealth announced that AWRAP would be converted from a statutory corporation into a Corporations Law company limited by shares, with shares in the new Corporations Law company to be issued to Australian woolgrowers. The Commonwealth also announced that the converted AWRAP would have two main subsidiaries. One of the subsidiaries would be responsible for commercial activities, including the commercial development of the Woolmark and its sub-brands and the commercialisation of intellectual property (referred to in this Explanatory Memorandum as CommercialCo ). The other subsidiary would manage the proceeds from the wool levy and outsource research and development and intellectual property management (referred to in this Explanatory Memorandum as R & D FundCo ). The announcement also foreshadowed that after a transition period, the Board of the converted AWRAP may consider the option of dissolving the converted AWRAP, leaving the two subsidiaries as separate commercial companies.

1.4 To give effect to the Commonwealth's announcement, this Bill provides for the privatisation of AWRAP and related matters.

1.5 Part 1, Preliminary, contains provisions dealing with the short title, commencement and application of the Bill.

1.6 Part 2, Privatisation of the Organisation, deals with the privatisation of AWRAP. The Divisions of Part 2 are briefly described below.

1.7 Division 1, Interpretation, sets out certain definitions that apply in Part 2.

1.8 Division 2, Application for registration under the Corporations Law, provides for AWRAP to apply for registration as a Corporations Law company.

1.9 Division 3, Transfer of Assets etc, before the conversion time, allows the Minister by declaration to transfer assets, contracts and liabilities from AWRAP or a subsidiary to AWRAP or another subsidiary. The division could be used, for example, to facilitate the separation of AWRAP's assets, liabilities and operations between the two main subsidiaries proposed, CommercialCo and R & D FundCo.

1.10 Division 4, Registration of HoldCo as a Corporations Law company, provides for the registration by ASIC of AWRAP as a Corporations Law company. AWRAP's name on conversion will be Australian Wool Services Limited. The legal entity, which is AWRAP prior to conversion and Australian Wool Services Limited after conversion, is referred to in the legislation and in this Explanatory Memorandum as 'HoldCo'. The conversion of AWRAP will occur on a date to be fixed by proclamation (a precise date has not been specified so as to allow a comprehensive due diligence process to be completed before privatisation) ( conversion time ). The effect of converting AWRAP into a Corporations Law company will be that there is no change in the legal identity of AWRAP. This means the assets, liabilities, agreements and employees of AWRAP immediately before the conversion time will remain assets, liabilities, agreements and employees of Australian Wool Services Limited immediately after the conversion time.

1.11 Division 5, Shares in HoldCo, provides for shares in HoldCo to be issued at the conversion time in accordance with a List of Eligible Woolgrowers. The List of Eligible Woolgrowers must be certified by the Minister as having been prepared in accordance with regulations. It is proposed that the regulations would set out, amongst other things, the rules about eligibility for shares.

1.12 Division 6, Taxation, contains provisions designed to ensure that Commonwealth income tax and State and Territory stamp duty and other taxes do not arise in relation to certain steps to be taken as part of the AWRAP privatisation.

1.13 Division 7, Commonwealth funding for research body, allows the Minister to declare a body to be the 'research body' and then enter into a contract with that research body under which the Commonwealth may pay amounts in line with wool tax or wool levy collections, together with a 'matching' research and development contribution, to the research body. The initial research body could be R & D FundCo.

1.14 Division 8, Miscellaneous, deals with a variety of matters, including HoldCo's status after conversion, the operation of the Archives Act 1983, a Constitutional saving provision, certification, delegation and regulations.

1.15 Schedule 1 sets out amendments and repeals of a variety of Acts. The schedule provides, amongst other things, for the repeal of the AWRAP Act . It is also proposed that at the time AWRAP is converted into a Corporations Law company, wool tax (which is collected by the Australian Taxation Office) will cease to be imposed on transactions occurring after that time. It is envisaged that from the conversion time a new wool levy or charge (collected by Levies and Revenue Service of the Department of Agriculture, Fisheries and Forestry) will be imposed, at the first point of sale or use in a manufacturing process, by regulations made under the Primary Industries (Excise) Levies Act 1999 and the Primary Industries (Customs) Charges Act 1999 .

Financial Impact Statement

1.16 There will be a negative impact on the Commonwealth fiscal balance of $87 million and on the underlying cash balance of $9 million from converting AWRAP to a Corporations Law company. Other Commonwealth expenditure will be borne by AWRAP under section 6(1B) of the AWRAP Act .