Australian Business Growth Fund (Coronavirus Economic Response Package) Bill 2020 - Commentary on Ministerial Responses [2020] AUSStaCSBSD 83 (13 May 2020)

• Australian Business Growth Fund (Coronavirus Economic Response Package) Bill 2020

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Australian Business Growth Fund (Coronavirus Economic Response Package) Bill 2020

Purpose	This bill seeks to appropriate $100 million from the Consolidated Revenue Fund for Commonwealth investment in the Australian Business Growth Fund
Portfolio	Treasury
Introduced	House of Representatives on 23 March 2020
Bill status	Received Royal Assent on 24 March 2020

Parliamentary scrutiny

Significant matters in delegated legislation ^[4]

2.8 In Scrutiny Digest 5 of 2020 the committee requested the Treasurer’s advice as to the intended operation of the Australian Business Growth Fund, any limits to the Fund’s investments in relation to an individual enterprise, the eligibility criteria and prioritisation method for investment applications. The committee also requested the Treasurer’s advice as to the governance arrangements for the Fund, and the types of matters that are likely to be included in rules made under clause 16 of the bill.^[5]

Treasurer’s response^[6]

2.9 The Treasurer advised:

How the Fund will operate
The Fund will be set up as a corporation formed under the Corporations Act 2001. In addition to the Commonwealth, entities who will participate in the formation of the Fund and will constitute the founding shareholders include the National Australia Bank, the Commonwealth Bank of Australia, Westpac, ANZ, HSBC and Macquarie. The Fund will have an initial investment capacity of $540 million and will operate independently to make equity investments in eligible businesses.
The Act provides the authority for the Commonwealth to invest in the Fund and for the governance of that investment. The Act is not designed to define the operating characteristics of the Fund, such as the governance around how the Fund itself will operate, the investments that it will make, or the rights and obligations of its shareholders. Rather, these aspects will be settled as part of commercial negotiations between the Commonwealth and the other shareholders as the Fund will be a commercial enterprise separate from the Commonwealth.
In respect of the investments of the Fund and the investment criteria, it is anticipated that the Fund will provide eligible businesses with long-term capital investments of between $5 million and $15 million, representing a minority equity interest in those businesses of between 10 and 40 per cent. The Fund will be set up with an investment mandate agreed by the Fund’s shareholders that will define the characteristics of the types of businesses in which the Fund can invest. Those characteristics include businesses that have revenue of between $2 million and $100 million per year, that want funding of minority stakes between 10 and 40 per cent and that have a three year track record in revenue growth and profitability (appropriately adjusted to take account of the economic effects of the COVID-19 pandemic). Eligible businesses can be from a range of industries, be at different stages in their development and come from around the country. The Fund will also provide other services, such as advice and mentoring.
Investments of the Fund will be based on criteria specified in the investment mandate. The responsibility of investment decisions by the Fund rests with the Fund, and its investment decisions will be made in line with the Fund’s investment mandate.
The governance arrangements for the Fund
Governance arrangements will be in place to protect the Commonwealth’s and other participants’ interests in the Fund, and will ensure that the Fund is, and its investments are, appropriately managed.
The Fund will employ an executive team to independently manage the corporation, with oversight from a Board of Directors (the Board). A Chief Executive Officer (CEO) will be appointed and will be responsible for the day to day management of the Fund.
The Board will generally comprise nominees from the Fund’s shareholders, and three independent directors. The Commonwealth, being a founding shareholder and providing an initial commitment of $100 million, will be entitled to appoint one nominee director.
The role of the Board will be to oversee the management of the Fund to make sure that the capital and investments of the Fund are being managed in a way that is consistent with the investment mandate and with the legislative requirements for the Fund.
It is intended that the Fund operate independently of its shareholders. The Commonwealth will not have a role in the day-to-day operations of the Fund or in individual investments made by the Fund. On this basis, it was appropriate that the Act only provide for the authority for the Commonwealth to make an investment in the Fund, and leave the further operational aspects and governance arrangements to be determined by all the Fund’s shareholders by commercial arrangement.
The Commonwealth continues to have reporting requirements on its investment in the Fund in accordance with section 20 of the Act. Further, the Minister is required, under section 72 of the Public Governance, Performance and Accountability Act 2013, to inform the Parliament of certain events, such as the Commonwealth’s participation in the formation of a company, or its acquisition of shares in a company. Arrangements will be in place with other shareholders of the Fund to ensure the Commonwealth will have the necessary information to properly provide these reports.
The types of matters likely to be included in the rules
Section 16 of the Act provides that rules may make provision for, or in relation to, the exercise of rights, responsibilities, duties and powers by the Minister under the Act. The powers the Minister has under the Act include the power to participate in the forming of the Fund, acquiring shares in, or debentures of, the Fund, the power to make arrangements relating to the operation of the Fund, and the powers that come with these actions (for example, the power of the Minister as a shareholder in the Fund).
It is anticipated that the rules could be used to make further provisions in relation to the governance, integrity and clarity of the use of the Minister’s powers under the Act, where necessary. For example, the rules could be used to govern the use of the Minister’s powers, set the Minister’s expectations on the use of those powers, or put in place limitations, if such powers are delegated in accordance with the Act.
The scope of the rule making power has been limited and ensures that the rules cannot create an offence or civil penalty, provide coercive enforcement powers, impose a tax, appropriate an amount from the Consolidated Revenue Fund or directly amend the text of the Act.

Committee comment

2.10 The committee thanks the Treasurer for this response. The committee notes the Treasurer's advice that the Act provides the authority for the Commonwealth to invest in the Australian Business Growth Fund (the Fund) and for the governance of that investment. The committee also notes the Treasurer's advice that the Act is not designed to define the operating characteristics of the Fund, such as the governance around how the Fund itself will operate, the investments that it will make, or the rights and obligations of its shareholders, and that these aspects will be settled as part of commercial negotiations between the Commonwealth and the other shareholders as the Fund will be a commercial enterprise separate from the Commonwealth. In this respect, the committee notes that the Commonwealth will not have a role in the day-to-day operations of the Fund or in individual investments made by the Fund.

2.11 The committee further notes the Treasurer's advice that it is anticipated that the Fund will provide eligible businesses with long-term capital investments of between $5 million and $15 million, representing a minority equity interest in those businesses of between 10 and 40 per cent. An investment mandate agreed by the Fund’s shareholders will define the characteristics of the types of businesses in which the Fund can invest, including businesses that have revenue of between $2 million and $100 million per year, that want funding of minority stakes between 10 and 40 per cent and that have a three year track record in revenue growth and profitability. The committee notes that the investment mandate is not a legislative instrument and is therefore not subject to Parliamentary scrutiny.

2.12 In relation to the types of matters likely to be included in the rules, the committee notes the Treasurer’s advice that it is anticipated that the rules could be used to make further provisions in relation to the governance, integrity and clarity of the use of the Minister’s powers under the Act. The committee also notes the Treasurer’s advice that scope of the rule making power has been limited, however the committee notes that these are standard limitations included in almost all rule-making powers.

2.13 The committee reiterates its view that significant matters, such as how a fund to which the Commonwealth will invest a significant amount of public money is to operate, should be included on the face of primary legislation.

2.14 The committee considers that some of the matters that are to be left to the Fund's investment mandate (such as the core eligibility requirements for businesses to receive investment from the Fund) should have been included on the face of the primary legislation, particularly in circumstances where the governance arrangements for the Fund mean that the Commonwealth will have little direct control over the $100 million that it has committed to the Fund.

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[4] Clause 7. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv) and (v).

[5] Senate Scrutiny of Bills Committee, Scrutiny Digest 5 of 2020, pp. 11-12.

[6] The minister responded to the committee's comments in a letter dated 11 May 2020. A copy of the letter is available on the committee's website: see correspondence relating to Scrutiny Digest 6 of 2020 available at: www.aph.gov.au/senate_scrutiny_digest