House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Scott Morrison MP)

Chapter 3 - Board of the National Housing Finance and Investment Corporation

Summary of new law

3.1 Part 3 of the Bill establishes the Board, and provides for its membership and meetings.

Detailed explanation of new law

Establishment and functions of the Board

3.2 Division 1 of Part 3 provides for the establishment of the Board of the NHFIC. As discussed above, the NHFIC is a corporate Commonwealth entity. As a consequence, by operation of the PGPA Act, the Board as the governing body is the accountable authority of the NHFIC (subsection 12(2) of the PGPA Act).

Establishment of the Board

3.3 The Bill provides that the Board of the NHFIC is established. [Clause 15]

Functions of the Board

3.4 The functions of the NHFIC Board are:

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to make decisions about the strategies and policies that the NHFIC is to follow, within the scope of the Investment Mandate;

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to ensure the proper, efficient and effective performance of the NHFIC's functions; and

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any other functions that the Board has under the Bill.

[Subclause 16(1)]

3.5 The Board has power to do all things that are necessary or convenient to be done relating to the performance of its functions to ensure that it can effectively carry out its functions. [Subclause 16(2)]

3.6 Anything done in the name of, or on behalf of, the NHFIC by the Board, or with the authority of the Board, is taken to have been done by the NHFIC. This ensures it is clear that actions of the Board or with the authority of the Board are treated as having been undertaken by the NHFIC. [Subclause 16(3)]

Board members

Membership

3.7 The Board will comprise the Chair and a minimum of four members but no more than six other members. This is considered appropriate so that the Minister can appoint a Board with the breadth of skills, qualifications and experience required to oversee NHFIC's functions. [Clause 17]

3.8 The Minister must appoint one of the Board members as the Chair by written instrument. The instrument of appointment is not a legislative instrument under the Legislation (Exemptions and Other Matters) Regulation 2015. [Clauses 17 and 19]

3.9 The Minister can by written instrument also make an acting appointment of a Board member to be the Chair. This ensures that there is flexibility to have an alternative Board member appointed as the acting Chair as required, and supports the continued effective functioning of the Board. An acting appointment can be made for:

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the period of any vacancy in the office of Chair (including where the position has not previously been filled); or

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any period during which the Chair is absent from duty, is not in Australia or cannot otherwise perform the duties of the office.

[Clause 21]

3.10 The Acts Interpretation Act (sections 33A and 33AB) contains provisions dealing with acting appointments that have effect in relation to acting appointments made under this Bill as follows:

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in the event that the occasion for the appointment has not arisen, or there was a defect or irregularity in connection with a person's appointment, or the appointment had ceased to have effect, a person's appointment to act under will not invalidate anything done by the person;

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an acting appointment may be expressed to have effect only in the circumstances specified in the instrument of appointment;

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the appointer may determine the terms and conditions of the appointment, including remuneration and allowances, and terminate the appointment at any time;

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where the appointment is to act in a vacant office, the appointee must not continue to act in the office for more than 12 months;

•

where the appointee is acting in an office other than a vacant office and the office becomes vacant while the appointee is acting then, unless his or her instrument of appointment provides otherwise, the appointee may continue to act until the appointer otherwise directs, the vacancy is filled, or a period of 12 months from the day the vacancy ends, whichever happens first;

•

the appointment ceases to have effect if the appointee resigns in writing directed to the appointer; and

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while the appointee is acting in the office, he or she has and may exercise all the powers, and is to perform all the functions and duties, of the holder of the office and this Act and any other legislation will apply in relation to the appointee as if the appointee were the holder of the office.

3.11 Board members are to be appointed by the Minister by written instrument, on a part-time basis. The instrument must set out the period, which must not be for more than five years, for which a Board member holds office. [Subclause 18(1) and 20]

3.12 A term of up to five years for NHFIC Board members is provided for two main reasons. Firstly, it provides capacity to stagger the appointment periods of board members to enable the transfer of corporate knowledge. Secondly, it encourages long-term planning and provides for continuity of management which is important given the investment related activities of the NHFIC may occur over a significant period, such as the issue of long-term bonds.

3.13 It should also be noted that members can be reappointed if the Minister considers it appropriate. Section 33AA of the Acts Interpretation Act provides that any power to appoint in legislation is treated as including a power to reappoint an office holder. [Note to Clause 20]

3.14 To ensure that Board members have relevant expertise, a person cannot be appointed as a Board member unless the Minister is satisfied that the person has appropriate qualifications, skills or experience in:

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banking and finance;

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law;

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housing, including social or affordable housing;

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infrastructure planning and financing;

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local government;

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public policy; or

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expertise prescribed by the rules made by the Minister under the rule-making power in Clause 58 of this Bill.

[Subclause 18(2)]

Conditions of appointment

3.15 A Board member is to be paid the remuneration that is determined by the Remuneration Tribunal. If no determination of remuneration is made, the member is to be paid the remuneration that is prescribed by the rules. Allowances may be payable to Board members as prescribed solely under the rules. [Subclauses 22(1) and (2)]

3.16 Any rules that are prescribed for Board member remuneration are subject to the operation of the Remuneration Tribunal Act. [Subclause 22(3)]

3.17 The Minister may grant leave of absence to the Chair on the terms and conditions that the Minister determines. In turn, the Chair may grant leave of absence to another Board member on the terms and conditions that the Chair determines. [Subclauses 23(1) and (2)]

3.18 The Chair must notify the Minister if the Chair grants another Board member leave of absence for a period that exceeds 3 months. This ensures that the Minister is informed of significant periods of leave of absence by Board members that are granted by the Chair. [Subclause 23(3)]

3.19 A Board member can resign their appointment by advising the Minister in writing of their resignation. The resignation has effect from the day it is received by the Minister or if the resignation specifies a later day, that later day. [Clause 24]

3.20 The Bill ensures that the Minister can terminate the appointment of any Board member in appropriate circumstances to ensure that good governance standards apply. The PGPA Act also contains rules that apply to terminating the appointment of an accountable authority, or a member of an accountable authority, for contravening general duties of officials. Termination of appointment may occur under the Bill if the Board member:

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misbehaves;

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cannot perform their duties of office due to physical or mental incapacity;

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applies under the law for relief of bankrupt or insolvent debtors;

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compounds with their creditors;

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assigns their remuneration for the benefit of their creditors;

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does not attend (other than if on a leave of absence) three consecutive Board meetings; or

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has, in the Minister's assessment, demonstrated unsatisfactory performance for a significant period.

[Clause 25]

3.21 The Minister's assessment that a Board member' performance has been unsatisfactory for a significant period will depend on the circumstances, however unsatisfactory performance for a period of three months or more is likely to be sufficient for a Minister to exercise his or her powers to terminate the appointment of a Board member.

3.22 The Minister may also determine other terms and conditions upon which a Board member holds office. [Clause 26]

Observer

3.23 The Bill also provides scope for the appointment of a Commonwealth government official as an observer, on an exceptions and time-limited basis. A person appointed as observer is entitled to be notified of Board meetings and to attend and participate in those meetings as they choose, but may not participate in voting at such meetings. Not being a Board member, the presence of an observer at a meeting does not count towards the quorum requirement. The observer may also report to the Minister on matters relating to the operations of the NHFIC or the Board; and is entitled to relevant information for the purposes of taking part in Board meetings or to report to the Minister. [Subclause 27(1)]

3.24 The 2003 Uhrig review of Corporate Governance of Statutory Authorities and Office holders noted concerns with departmental appointments to Boards, as they may create conflicts of interests and compromise governance arrangements.

3.25 The capacity to appoint an observer strikes a balance to support appropriate Government oversight of NHFIC at critical times, while maintaining Board independence. It is particularly important when the Commonwealth is guaranteeing the NHFIC's liabilities, as a way of providing oversight of the Commonwealth's financial exposure. This position is intended to support Government visibility of decision making, particularly in exceptional circumstances such as the establishment phase of the NHFIC and/or during periods of financial market uncertainty. The Board would however remain the decision maker in all circumstances relating to the performance of the NHFIC's functions.

3.26 Any appointment of an observer must be time limited. An observer may be appointed by the Minister on a part-time basis for a period not exceeding six months (but may be re-appointed). As part of good practice, it is intended that the Minister will notify the Chair of the Board before making the appointment. The appointment must be made by written instrument, and may be terminated by the Minister at any time. [Subclauses 27(2) to (4)]

3.27 The Minister has the power to grant an observer leave of absence on terms and conditions that the Minister considers appropriate. [Subclause 27(5)]

3.28 An observer can resign by written notice to the Minister, effective on the day it is received by the Minister (or such later day specified in the resignation). [Subclause 27(6)]

3.29 As an observer will be a Commonwealth official, he or she will be an official for the purposes of the PGPA Act while performing the functions of NHFIC observer. Accordingly, the observer is subject to duties including to exercise reasonable care and diligence, to act in good faith and for proper purpose, not to use the office to gain an advantage, and to disclose interests.

3.30 An observer would not be remunerated by the NHFIC.

Meetings of the Board

3.31 The Board is required to hold meetings to ensure the efficient performance of its functions. [Subclause 28(1)]

3.32 The Chair has the power to convene a meeting at any time, but must convene:

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at least four meetings each calendar year; and

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a meeting within 30 days of receiving a request in writing from another Board member for a meeting.

[Subclause 28(2)]

3.33 The Chair must preside at all meetings at which he or she is present, and if the Chair is not present the other Board members present must appoint one of themselves to chair the meeting. [Clause 29]

3.34 A majority of Board members need to be present at a meeting of the Board to form a quorum. However if a Board member is required not to be present because of a material personal interest in a matter, and if when that member has left the meeting there is no longer a quorum, the remaining members present constitute a quorum for the purpose of any deliberation or decision in respect of the matter concerned. [Clause 30; section 29 PGPA Act; Rule 15 PGPA Rule]

3.35 A question arising at a Board meeting must be determined by a majority of the votes of the members present and voting at that meeting. However, the person presiding at the meeting of the Board (generally the Chair) has a deliberative vote and, if the votes are equal, a casting vote. This ensures that the Board has the capacity to decide matters that need to be determined at Board meetings. [Clause 31]

3.36 The Board may, subject to the other provisions of the Bill regarding Board meetings, conduct meetings as it considers appropriate. Further information about the ways in which Board members may participate in meetings is set out in section 33 of the Acts Interpretation Act. [Clause 32]

3.37 The Board must keep minutes of all its meetings to ensure that matters considered and decisions taken at meetings are properly recorded. [Clause 33]

3.38 The Board is treated as having made a decision at a meeting if:

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without meeting, a majority of the Board members entitled to vote on the proposed decision (and who would have been entitled to vote on it if the matter had been considered at a meeting) advise they agree with the decision;

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that agreement has been provided in accordance with any method determined by the Board for the making of decisions of that kind; and

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all the Board members were informed of the proposed decision (or reasonable efforts were made to inform them of it).

[Subclauses 34(1), (2) and (3)]

3.39 The Board must keep a record of decisions made that are taken without Board meetings. This ensures that both decisions at formal Board meetings and those made without a meeting are recorded. [Subclause 34(4)]

Reporting obligations of the Board

3.40 Section 46 of the PGPA Act requires the Board to prepare annual reports and to provide them to the responsible Minister. Under the Bill, a NHFIC annual report for a period must include:

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details of changes to the Investment Mandate during the period (if any) and their impact on the operations of the NHFIC;

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for each type of financial support provided by the NHFIC during the period, a summary of:

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the amount of that financial support; and

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the risks and returns to the Commonwealth.

[Clause 56]

3.41 Under section 19 of the PGPA Act, the Board as accountable authority also has a duty to:

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keep the responsible Minister informed of the activities of the NHFIC;

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give the responsible Minister or the Finance Minister any reports, documents and information in relation to those activities as that Minister requires;

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notify the responsible Minister as soon as practicable after it makes a significant decision in relation to the entity or any of its subsidiaries;

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give the responsible Minister reasonable notice if it becomes aware of any significant issue that may affect the entity or any of its subsidiaries;

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notify the responsible Minister as soon as practicable after it becomes aware of any significant issue that has affected the entity or any of its subsidiaries.

3.42 The Board must comply with a requirement to give the responsible Minister or the Finance Minister any reports, documents and information in relation to its activities within the time limits set by the Minister concerned.