In early November this year, the Australian Government announced that it was adopting all of the recommendations of the Hammond Review to help to facilitate growth in the cooperative and mutual sector.
The announcement means that cooperatives in Australia will have the potential to access new and additional capital for long term business investment that could potentially benefit all Australians.
This news comes as the result of two years’ work from the Australian Business Council for Co-operatives and Mutuals (BCCM); leading cooperative and mutual advocate Mutuo; and fifteen Australian mutuals. BCCM is the Australian peak body representing the cooperative and mutual models of enterprise. It is the only organisation uniting the entire and diverse range of member owned businesses in Australia. Mutuo is a leading advocate for mutuals, promoting all types of cooperative and mutual business through public affairs and political advocacy; policy development; and management consultancy for mutuals.
Until now, there has been no definition of mutual business in the Australian Corporations Act. According to BCCM, this is a problem because it means that cooperative and mutual businesses have to adopt company structures that are not designed for their business purpose. As a result, mutuals are often seen as ‘abnormal’ and have had to use legislation that was designed for shareholder owned companies.
The new options to invest in cooperatives and mutuals are:
- Government gives policy support to APRA work to authorise issuance of mutual equity Interests (MEIs) by mutual ADIs
- New legislation for a ‘mutual capital instrument’ that may be issued by any federally registered cooperative or mutual
Because cooperatives and mutuals use company legislation, they have not been able to attract investment by issuing ordinary shares without risking their mutual status. In other countries, this problem has been overcome by designing ‘mutual shares’ that have legally binding characteristics such as limitations on voting rights and to underlying assets.
New capital instruments allow individuals and institutions to take a stake in mutual businesses.
The announcement means that cooperatives will have the potential to access new and additional capital for long term business investment that benefits all Australians. It will create a new class of investing member that cooperatives and mutuals may choose to adopt.
The Government announcement is part of the formal response to the Senate Inquiry into cooperatives, mutuals and member-owned business, which called for these reforms to be enacted.
The new laws adopt all 11 of the recommendations made in the Hammond Review on regulatory or legislative changes to improve access to capital for cooperative and mutual enterprises (CMEs). Until these changes are approved, cooperatives and mutuals cannot raise capital by issuing securities without risking the loss of their mutual status.
Once they pass, however, member-owned businesses will be more able to make strategic investments while ensuring there is sufficient liquidity to meet any short-term obligations.
“This is a game changer that will unshackle the sector and allow the flow of billions of dollars of previously untapped investment to flow to Australian-owned businesses,” says Melina Morrison, CEO of the BCCM, whose organisation represents more than 2000 coops and mutuals.
“Our sector welcomes this move by the Federal Government.”
She said the reforms would also have implications across the nation’s economy, given that coops and mutuals already make up more than 8 per cent of Australia’s GDP.
“Money invested in cooperatives stays in the communities where the members are and flows through to surrounding businesses.”
“The move will also help to level the playing field for customer-owned banks, creating healthy competition for the listed, investor owned banks. Consumers will be the winners in this.”
“From an economy-wide perspective, investment in this sector represents a pivot to long-term thinking away from the sugar hits of the shareholder market.”
“The new law will allow capital to flow into sectors ranging from health insurance and aged care, right through to farming, and roadside assistance.”
“Better yet, because customer-owned businesses redeploy surpluses to benefit members, not shareholders, any additional money is guaranteed to stay in Australia and boost the Australian economy,” Ms Morrison says.
Mutuo’s Peter Hunt said, “This is a huge day for co-operatives and mutuals across Australia. Throughout this project we have sought to champion a better business environment for the sector and today’s announcement is a recognition of the critical impact of our sector on the wider Australian economy.
The creation of new capital instruments has the potential to build a strong new asset class to shake up the investment environment and allow co-operatives and mutuals issuing them to invest, innovate, grow and compete,” he concluded.
The proposed new capital instruments are similar to those that Mutuo developed for building societies and mutual insurers in the UK and form part of a global Mutuo campaign to give cooperative and mutual business more financing options and greater opportunity to compete.