Co-ops struggle for recognition in Australia

  • The Australian
  • April 1, 2016 12:00AM

http://www.theaustralian.com.au/business/legal-affairs/coops-struggle-for-recognition/news-story/ea01a5d5d3f4880a5c1b20891bbbe03f

Co-operative and mutual enterprises still remain influential in some sectors of the Australian economy, and yet the federal corporations law, and legal and accounting professions, often fail to recognise their existence.

The Corporations Act refers only to these businesses in the context of demutualisation, while professional bodies do not include the laws governing these businesses in their accreditation ­standards.

But a recent Senate economics committee report has put forward a sweeping law reform agenda so that these entities can operate alongside other corporations when it comes to the law and attracting investment.

The report tabled last month with the support of both major parties, and the minor parties, says the government should amend the Corporations Act so that mutual enterprises are explicitly recognised.

It recommended that the government amend the Corporations Act to allow these enterprises to access a broader range of capital raising opportunities.

Regarding the professions, the committee recommended that professional accreditation bodies, such as the Law Society and Institute of Chartered Accountants, require “a demonstrated knowledge of the co-operatives and mutual structure before it will ­license its members to practise accounting or law”.

While some CMEs like Murray Goulburn have tapped equity markets, such initiatives have proved to be onerous.

While many of Australia’s health, insurance, and banking co-operatives have demutualised in recent decades, these enterprises remain particularly strong in sectors such as grain marketing. The attempted takeover of West Australian grain handler CBH Group attests to this fact.

British consultant Peter Hunt, who advises co-operative groups globally on law reform, says Australia’s problems stem from having imported laws from Britain.

“We started the problem in the UK. We exported our legislation all over the world,” he said.

The biggest problem facing the sector globally was capital raising. This presented a “conundrum” for these enterprises because they need capital to grow, but they don’t want to risk takeover.

“These mutual businesses don’t have the capacity to issue instruments like shares that can be bought in the same way as companies do. The reason for that is you don’t want them to be demutualised,” he said.

But the idea of a “hybridity of ownership is catching on”.

In Australia, he said that as CMEs were state-registered, this created an “anomalous situation” where they had to become federally incorporated companies to raise capital.

Murray Goulburn did this via a “tortuous process”. It is a company with listed shares that also has a co-operative constitution.

In his advice to the newly formed peak body, the Business Council of Co-operatives and Mutuals, Mr Hunt says Australia should amend the Corporations Act so that it defines the type of securities they can issue while restricting the ability of the new shareholders to subvert the purpose of the business.

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Alex Bird is an experienced co-operative business adviser/consultant @coopalex3
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