Part II - Review of Co-op Laws in Australia (1997)

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This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
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Part II - Review of Country Laws - Australia (1997)

Source: Co-operative Laws in Asia and the Pacific
by G.K. Sharma (pp.36-51)

Australia
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Australia is perhaps the first country in Asia and Pacific to have
a co-operative as early as in 1849 in New South Wales by the name
of Australian Mutual Provident Societies a Life Insurance Co-operative
followed by an Industrial Consumer Co-operative namely Adelaide
Co-operative Society in 1866. By 1889 there were two co-operative creameries exporting butter to UK along with another co-operative, 
namely Farmers Co-operative Society. These and many other
co-operatives were registered under the Companies Act.

The first co-operative law was enacted in 1923-24 by New South
Wales Government which enabled many cooperatives to re-register
under the co-operative laws. But not all subsequently got re-registered.
Thus, there are co-operatives, co-operative companies and some are
friendly co-operative societies. 

Australia has federal system of government like India and the
co-operatives come under the authority of the states. Thus all the six
states and two union territories have their own co-operative laws. There
is no federal cooperative law in Australia like India but cooperatives can
also be registered under the corporation law which is a federal law. Under
the federal tax laws of Australia, co-operatives registered under
co-operative law as also under the corporation law  are entitled to
tax benefits if 90% or more business is done with members only.
Seventy percent of registered cooperatives in Australia are reported
to be in the eastern states of New South Wales (NSW) Victoria and
Queensland. The first co-operative law in Australia was in NSW passed
in 1923 which became operative in 1924.  This act was called
co-operation, community settlement and credit act 1923 and
became operative on December 31, 1924.

There were many amendments to the provisions of this act which
were consolidated in 1964 under a new title, `Co-operation
(Amendment) Act 1964 which remained operative with further
amendment from time to time till it was replaced in 1992  by a
new `Co-operatives Act 1992' which became operative in May 1993.
While commissioning this NSW Report the Government according to
C.J. Taylor, Department of Legal Studies and Taxation University of
NSW sought to achieve the following objectives: 

a.	The flexible and efficient business operation of co-operatives. 

b. The protection of the rights and interests of members of
	co-operatives. 	

c. The accommodation of inter and intra-state mergers of
	co-operatives. 

d. The provisions for enhanced capital raising by co-operatives
	including identifying the desirability of the transferability and
	redemption of shares and securities.

e. The provisions of appropriate accountability and reporting
requirements for co-operatives. 

In introducing the bill for this Act in the parliament of NSW on
April 9, 1992 the Minister of Local Government and Minister for
Co-operatives, stated the policy intentions of the Bill  as : 	

(a) provide that incorporation as a co-operative be a right available

(b) to any group wishing to have the benefits of co-operation and
willing to abide by traditional co-operative principles; 

(c) enable co-operatives to have wider corporate powers, by providing
them with the powers of a natural person, a situation equivalent to
corporations. Such powers to be exercised within traditional
co-operative principles; 

(d) maintain the principle of active member control of co-operatives
including one member one vote as central to the operation and
control of co-operatives; 

(e) provide for co-operatives to have similar general standards to
those applying to corporations in regard to dealings with, or
reporting on activities concerning, third parties this includes
providing for similar general standards for directors of
co-operatives as those applying to directors of similar size
corporations; 

(f) provide co-operatives with a clearer range of alternatives in
regard to determining the optimal capital structure to best service
the needs of the members, so ensuring that co-operatives remain
competitive with other forms of incorporation. Alternatives
provided for include allowing, within carefully defined limits, a
form of non-active member capital known as cooperative capital
units;

(g) enable co-operatives to be capable of merging or being wholly
acquired, but only if the substantial majority of active members,
when fully informed, desire such a course and regardless of
whether the other party is local or interstate, another co-operative
or a corporation; 

(h) provide for New South Wales co-operative legislation to 
pecifically recognise the separate registration and operation of
interstate co-operative organisations in this State; and

(i) provide that the Registrar, the Co-operatives Council (formerly
the Advisory Council) and the Minister have fewer general
discretionary powers to intervene in the day-to-day running
co-operative matters which are more properly left to the well
informed membership. However, the Registrar's powers to
undertake investigations and enforcement are strengthened so
as to ensure that the interests of cooperatives, their members
and the public generally are protected.

	This new law is a very comprehensive law and has 446  articles
applicable to all types of cooperatives in New South Wales and is divided
into 17 parts against 122 articles in the old law of 1924  in 8 parts. 	

The important contents of the law and the major changes from the earlier
law are narrated henceforth. 

Part I - Preliminary 
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There are two important additions in this Act which were not in the
earlier act. They are objects of act and division of functions. Under
Article 3 the objects of this Act are as follows: 

a. to enable the formation, registration and operations of
co-operatives;

b. to promote co-operative philosophy, principles, practices
and objectives; 

c. to protect the interests of co-operatives, their members and
the public, in the operations and activities of the co-operatives
and the co-operative sector; 

d. to encourage and facilitate self-management and self-regulation
by co-operatives, at all levels; and

e. to encourage the development and integration of the co-operative sector.
Division of functions are as under: 

1. The Minister has the function of determining policies for the
administration of this Act. 

2. The Registrar is to exercise the functions of Registrar in
accordance with the policies determined by the Minister for
the administration of this Act. 

3. The Council is in the exercise of its functions to have regard to the
policies determined by the Minister for the administration of this
Act and is to exercise its functions in a manner that is consistent
with those policies. 

Article 5 deals with definitions. Two important definitions included are
regarding a foreign cooperative and  "Holding Co-operative". Also
under Article 6 are included Co-operative Principles as adopted by ICA
before Manchester ICA Congress in 1995. Another important addition
under Article 7 relates to formation and functioning of subsidiaries by
co-operatives as also position of the main cooperative vis--vis
subsidiaries. 

Part 2 - Formation of Co-operatives 
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This part deals with registration of primary, secondary as also
foreign co-operatives. One important provision in registration is
that Registrar himself can-not refuse registration of a co-operative.
Under Article 12 either he may register a co-operative or in case he is
not satisfied, refer the application to the council whose advice is
binding on the Registrar.

Another important addition in the law is the provisions for registration
of foreign co-operatives under Article 22. A foreign cooperative has
been defined as a co-operative registered outside the state or outside
Australia.

Another important provision under articles 26-28 provides detailed
procedure for conversion of a company into a co-operative.

Part 3- Legal Capacity, Powers, etc. 
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Part 3 of the law is classified under 7 divisions covering articles 29-61.

One significant provision in this division under article 30  is that a
Co-operative can form a body corporate (company), unit trust, joint
venture, partnership etc.

Division 2 of this part provides that the doctrine of `ultra-vires' does
not apply to co-operatives and articles 32-35 deal in detail about its
implications particularly with regard to property dealings by
co-operatives. The chapter also includes procedures of civil law relating
to property matters and civil contracts and co-operatives. 

Part 4 - Membership
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This part of the Act is classified under 5 divisions and covers articles
62-105. The first division under heading `General' deals with the
membership qualifications which could be individual and, unless the
rules of the cooperatives provide otherwise, may be joint (Art 63). 

Article 64 (1) also states that a person is not qualified to be admitted
unless there are reasonable grounds for believing that the person will be
an active member of the cooperative. The minimum membership for a
primary co-operative is five and secondary two. Carrying business with
less than prescribed minimum is an offence for the members of managing
committee.

The division also deals with representation from one co-operative to
another.

Division 2 deals with Right and Liability of members

It includes imposition of fines on a member for any infringement of
the rules and bye-laws of a co-operative (Article 79).

Division 3 deals with transfer of shares in case of death of a member.

Division 4 provides for arbitration by the Registrar for disputes between
the members or past members of a co-operative and procedure with
regard to arbitration. 

Division 5 deals with oppressive conduct of affairs. This is another new
significant provision by which members have been given right to represent
to RCs/Court in case of omission/commission by any co-operative against
the interest of members or oppressive, unfairly, prejudicial, or
discriminatory acts against a member or members. But action for active
membership requirement does not come as an offence. The RCs/Court can
order winding up the co-operative for these offences under certain
conditions. 

Part 5  - Rules 
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This part provides guidelines and directions with regard to Rules of
the Co-operatives (Bye-Laws) including the contents, procedure and
other requirement as also provisions of fines on members in case of
certain offences. 

Part 6 - Active Membership Requirement 
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This part is most important and has unique provisions which is not
provided so explicitly in other  Asia-Pacific co-operative laws and
perhaps even beyond. This part is included in 29 articles starting
from article 115 to 143. Under Articles 116 and 117 active
membership provisions have been explained as under:

For the purpose of this Act under article 116 (a), a member of
a co-operatives is an active member, if he/she:

(a) utilises or supports an activity of, or maintains a relationship or
	an arrangement with, the co-operative in connection with the
	carrying on a primary activity of the co-operative, in the manner
	and to the extent which the rules of the co-operative provide is
	sufficient to establish active membership; or 

(b) maintains such other relationship or arrangement with the
	co-operative in connection with the carrying on of a primary
	activity of the co-operative as the regulations provide is sufficient. 

	Active membership provisions and resolutions - explanation:

1. Active membership provision in the rules of a co-operative are
	provisions in the rules which specify:

a. which of the activities of the cooperative are the primary activities
	of the co-operative; and

b. the manner in which and the extent to which a member of the
	co-operative is required to utilise or support an activity of or
	maintain a relationship or an arrangement with, the co-operative
	in connection with the carrying on of a primary activity of the
	co-operative in order to establish active membership of the
	co-operative.

	The law provides detailed provisions on this subject and failure to
	cancel membership of a not active member is an offence for board
	and directors who could be fined for the offence. This part of the
	act also deals with the implication and follow up of financial
	matters relating to expelled members including share, deposits and
	other claims of either side. 

Part 7 - Shares 
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This part of the law deals comprehensively with the matters relating to
shares particularly keeping in view the challenges the co-operatives have
to face in a free market economy. The issues dealt are:

Article 145 :	Restriction on conversion to a co-operative capital base
without share capital;

Article 146 :	Nature of shares in a co-operative;

Article 147 :	Issue of shares and shares at premium;
Article 152 : 	Joint ownership of shares. Shares in a co-operative can
be held by two or more persons, except in case rules
provide otherwise;

Article 153 :	Payment of dividend with conditions prescribed by the
Minister;

Article 154 :	Issue of shares to active members in exchange of property;

Articles 155 & 156: 	Members required to take additional 	shares and
issue of Bonus shares;

Article 157: 	Beneficial and non-beneficial interest in shares;

Article 164:	Registration of trustee etc. on death of owner of shares;

Articles 170-174   	Sale, repurchase and cancellation of shares.

Part 8 - Voting
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This part is divided in 2 divisions. The first division deals with voting
right, including proxy which could be authorised to only active members
(Art. 179) vote in case of joint shares (178) and restrictions on voting
entitlements under power of attorney (183);

Article 180 debars voting right to defaulter and article 181 to inactive
members;

Article 193  also allows postal ballots. In case the rules of a co-operative
allow otherwise the law provides only one member one vote only. 

Articles 196 and 197 allow resolution by circulation.

Articles 198-202 deal with AGMs quorum, and convening of General
Meetings on requisition by either at least 50 members or 50% of total
members of the Board. 

Part 9 - Management and Administration of Co-operatives
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This part is divided in 7 divisions and covers from articles 204-261. 

Division -1 Board
Under Article 203 (1) the business and operations of a co-operative are
to be managed and controlled by the Board and is to exercise such
powers as expressed by the general meeting subject to Act and rules of
the society.

The Article 205 (2) provides that a cooperative must have at least 3
directors but no maximum limit is prescribed. The procedure of
election has to be provided in the rules of the society. 

Article 206 provides qualifications for directors. Along with other
qualifications the law states that "for each director who is not an active
member of the co-operative, there must be at least 3 directors who are
active directors."

Article 208 provides disqualifications for being a director.
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Under article 209, the board must meet at least once a quarter and quorum
has to be minimum of half the members. Article 210 allows transaction of
business outside meeting by circulation of papers, by telephone, closed-
circuit television or other means but only if any member who speaks can
be heard by other members and for this purpose papers may be circulated
by facsimile or other transmission. The act also provides appointment of
Dy. Director in the absence of director and under article 212 vacancy in
the Board could be filled even by postal ballot. 

Under article 215 the minister is authorised to appoint a director in a
co-operative who is indebted to the crown in respect of loan or grant.
Such a director will have the same powers and functions as of an elected
director, and the co-operative has to pay his fees and allowances if so
decided by the minister. 

In addition under article 216 one employee can also be elected as director
even he or she is not a member of the society. However, such an employee
for election in general body has to be nominated by the Directors of the
co-operatives and as such he does not really represent the employees but 
is selected by the Board.

Article 218 provides conditions under which a director can be removed. 

Division 3  deals with duties and liabilities of directors, officers and
employees. 

Director's Remuneration
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Article 230 provides that a director cannot be paid remuneration more
than approved by general meeting and cannot exceed the maximum
amount fixed by the council.

Further under article 232 advancing any loan or extend guarantee to a
director or his near relative is an offence if done with the intention to
deceive or defraud the co-operative with a penalty of 200 units and/or
imprisonment of 5 years. The division also prescribes transparency
norms in the financial affair between cooperatives and  directors.

Division 5 under heading accounts and audit detailed accounting
requirements have been prescribed and any default in this regard
has a penalty of 20 units. 

Article 247 provides protection to auditors against defamation case
for certain oral and written statements made during the course of audit. 

The division also prescribes under article 251 certain information to
be provided to the registrar, which include:

i. Information about appointment and cessation of any director,
principal, executive officer and secretary within 14 days of such
a change 

ii. Similarly a cooperative must send information  including accounts
and audit report to Registrar at least 14 days before the date of
AGM 

iii. Registrar may ask for list of members and a special return in a
prescribed manner (253-254).

Non-compliance of the above attracts a penalty of 20 penalty units for
each offence. 

Part 10 - Funds, Property etc.
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Some of the important provisions in this division include: 

1. Power of registrar to give directions concerning fund raising
(article 264).

2. Application of corporation law (Company Law) to the co-operative
(article 266):

a. issue of securities and prescribed interests 
b. 
	b.	re-issue of redeemed debentures
3. Compulsory loan by members to co-operatives: An important and
unique provision in the law is provision of co-operative capital
units. (CCUs) in detail (articles 269-277). The CCU has been
defined in the law as `A co-operative capital unit' is an interest
issued by a co-operative confirming an interest on the capital (but
not the share capital) of the co-operative. The CCUs can be issued
to non- members also. The terms of CCUs have to be with the
approval of registrar.

Division 3 defines surplus, provides for distribution of surplus which
include dividend, patronage, rebate, bonus to employees, bonus to
non-members who can be potential members for business done by them,
donation for charitable purpose, promotion of co-operative principles and
community development. 

Division 5 provides that rules may be made in certain matters to prescribe
prudential standards. 

Part 11 - Restrictions on the Acquisition of Interest of Co-operatives
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As the law has provided various options to raise capital, this part provides
provisions for safeguarding the interest of co-operatives and investors in
articles 286 to 308 divided into two divisions. Division 1 deals with
restrictions on shares and voting rights, maximum permissible level of
shares, forfeiting of shares, to remedy contravention, powers of board
in response to suspected contravention, powers of court with respect to
contravention, unlisted companies to provide list of shareholders etc. to
the co-operative, excess share interest not to effect loan liability etc.

Division 2 deals with offering of shares, requisitioning of special postal
ballot, expenses involved in special ballot etc for registration under
corporation law or convert a co-operative into a company.

Part 12
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It deals with amalgamation, transfer of engagement, winding up etc.
The act allows amalgamation of local and foreign cooperatives (Article
310) as also change of a co-operative into:
a.	company under corporation law; 
b.	association incorporations act 1984; 
c.	a society under permanent building societies act 1967; 
d.	a credit union under credit union act;
e.	a friendly societies under friendly societies act 1989; and 
f.	any other body corporate.

Division 4 deals with winding up. It is interesting to note that there s
no procedure provided for liquidation and it provides that the provisions
of part 5.45.7 of the corporation law in respect of the winding up or
dissolution of a company under that law apply to the winding up or
dissolution of a co-operative (Article 325). However article 325 (3) does
provide some modification when applying corporation law in winding up
a co-operative.

The Registrar is also empowered to appoint an administrator with the
approval of the council in certain circumstances under articles 333-343
if grounds exist for winding up, amalgamation, conversion etc.

Part 13 - Arrangement and Reconstructions
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This part deals in detail the procedure for compromise with the
creditors with the approval of court order where required/possible. 

Part 14 - Supervision and Protection of Co-operatives
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This part first defines a cooperative venture which means:

a. any body corporate or unit trust formed by a co-operative or
in the formation of which a co-operative participated and

b. any partnership, joint venture or association of persons or bodies
formed or entered into by a co-operative. 

In addition under this part co-operative also includes a foreign
co-operative, a subsidiary of co-operative or a foreign co-operative,
a co-operative venture including any of them under liquidation. The
law under this part gives to the registrar power to appoint inspectors
and carry out inspection under division 1 and hold enquiry through
investigations on affairs of a co-operative (articles 385-396) and based
on the investigations may order winding up and/or institute legal action
against concerned persons. 

Division 3 (articles 397-401) deals with prevention of frauds or
misappropriation and punishment for such acts. Division 4 provides
special general meeting to be convened by the Registrar on request of
majority of Board Members or not less than one-third of the members of
the co-operative. 

Part 15 - Administration of the Act
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One important feature of the act is the provision of the "co-operative\
Council" consisting of a person to be nominated by the minister. Details
about the method of constitution and functions of the council have also
been included in the law (article 414- 419). Division 3 deals with
evidence regarding records of the co-operatives etc.

Part 16  - Offences and Proceedings
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This last part deals with the proceeding for action with regard to
offences under this act and available civil remedies.

Part 17 - General
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An important provision in this part relates to interpretation of applied 
provisions of corporation law (article 436) along with other legal
provisions.