Commonwealth Numbered Regulations - Explanatory Statements

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BANKS (SHAREHOLDINGS) REGULATIONS (AMENDMENT) 1996 NO. 257

STATUTORY RULES 1996 No. 257

Issued by the Authority of the Assistant Treasurer

Banks (Shareholdings) Act 1972

Banks (Shareholdings) Regulations (Amendment)

Section 10 of the Banks (Shareholdings) Act 1972 (the Act) generally limits the nominal amount of the voting shares of a bank in which a person (including a corporation) may have an interest to 10 per cent, or 15 per cent with the approval of the Treasurer, of the total nominal amount of the voting shares of the bank. Under subsection 10(4) of the Act the Governor-General may, after application made to the Treasurer by a person, if the Governor-General is satisfied that to do so is in the national interest, fix a higher percentage for that person by instrument published in the Gazette. Subsection 10(5A) provides that the Governor-General may, on the publication under subsection 10(4) of an instrument fixing a percentage applicable to a corporation in respect of a bank, after application made to the Treasurer by the corporation, by instrument in writing published in the Gazette, declare that the percentage so fixed is also applicable to the persons who are from time to time relevant officers of the corporation in respect of the bank,

Section 17 of the Act provides that the Governor-General may make regulations for the purposes of the Act.

The Colonial Mutual Life Assurance Society Limited (Colonial Mutual) is an Australian mutual life office that acquired the State Bank of New South Wales Limited from the State Government of New South Wales in December 1994.

Prior to the granting of the relevant approvals, Colonial Mutual was required to provide an undertaking that it would demutualise and list on the Australian Stock Exchange by December 1997 or December 1998 at the latest. Colonial Mutual is now seeking to demutualise and to effect a corporate restructuring that will involve the utilisation of a holding company arrangement. The Colonial Mutual Life Assurance Society Limited will be a wholly owned subsidiary of Colonial Limited following demutualisation.

The Emerald Holding Company Limited, which is a wholly owned subsidiary of Colonial Mutual and which holds 100 per cent of the voting shares of the State Bank of New South Wales Limited, will become a wholly owned subsidiary of Colonial Limited and will continue to hold 100 per cent of the voting shares of the State Bank of New South Wales Limited.

The Reserve Bank of Australia (RBA) and the Insurance and Superannuation Commission (ISC) support the proposed demutualisation and corporate restructuring, provided that Colonial Limited adheres to undertakings it has made on various prudential and supervision issues as defined in a supervision agreement with the RBA.

The proposed demutualisation and corporate restructure of Colonial Mutual is considered to be in the national interest as the demutualisation fulfils a Government policy requirement that Colonial demutualises by December 1997 or December 1998 at the latest. Demutualisation and public listing will also provide Colonial Mutual with greater flexibility in responding to the challenges of the market place thereby enhancing its ability to provide greater competition in the Australian financial sector.

Instruments have been gazetted in accordance with the Act, effectively fixing a percentage of 100 under subsection 10(4) for Colonial Limited and the Emerald Holding Company Limited in relation to their interests in the State Bank of New South Wales Limited.

Under section 9 of the Act the associates (including officers, partners, subsidiaries and related companies) of Colonial Limited and the Emerald Holding Company Limited would also be deemed to have the same interest in the State Bank of New South Wales Limited as those economic entities. In the case of officers of Colonial Limited and the Emerald Holding Company Limited, an instrument pursuant to subsection 10(5A) of the Act has been gazetted effectively fixing a percentage of 100 in relation to interests in the State Bank of New South Wales Limited for those persons who are from time to time relevant officers of Colonial Limited and the Emerald Holding Company Limited.

Under the Act, it is not possible to make a 'class' instrument for the interests of the associates of Colonial Limited and the Emerald Holding Company Limited, other than its relevant officers. These other associates represent a large and ever-changing group of persons and corporations.

The standard practice is for persons with direct shareholdings (and their officers) to be exempted under section 10 of the Act and for the interests of persons who do not have a direct shareholding, but who have an interest in shares in the bank by virtue of the deeming provisions of the Act, to be disregarded under section 8(9)(d) of the Act. Paragraph 8(9)(d) of the Act provides that a prescribed interest in a share that is an interest of such a person or class of persons as is prescribed shall be disregarded. The purpose of these regulations is to prescribe interests of that kind.

The normal approach is to apply Regulation 3 of the Banks (Shareholdings) Regulations (the Regulations) by making a regulation under section 8(9)(d) to amend Schedule 1. However, that approach is not considered appropriate on this occasion given the complexities associated with the proposed holding company arrangement.

It is therefore proposed that the Regulations be amended by the insertion of new Regulation 11 so as to provide that the interests in State Bank of New South Wales Limited shares that are deemed to arise under section 8 or 9 of the Act are disregarded (except for those that are held by shareholders in the relevant holding companies of the State Bank of New South Wales Limited - that is, Colonial Limited and the Emerald Holding Company Limited) for the purposes of section 10 of the Act.