Guest Blog: Mattila Lawyers on new co-op classification

01 April 2014

With the launch of Co-operatives National Law (‘CNL’) in New South Wales and Victoria in March, this month we welcome a guest blog from BCCM Associate Mattila Lawyers on the new classification of co-ops into ‘small’ and ‘large.’

Being classified as a Small Co-operative under the Co-operatives National Law (“CNL”)

By Simon Correggia and Andrew Kimbell, Mattila Lawyers

On March 3, the Co-operatives National Law (‘CNL’) came into effect in New South Wales and Victoria. One of the many changes was the classification of co-operatives into ‘small’ and ‘large’, and the different reporting requirements between the two. In essence, a small co-operative is cheaper to operate than a large co-operative; therefore it is useful to know what type of co-operative you are a part of.

STEP 1: ARE YOU A SMALL CO-OPERATIVE?

Regulation 1.4 of the National Regulations provides a definition for small co-operatives. Co-operatives must satisfy at least two of the following three requirements to be a small co-operative:

1. the consolidated revenue of the co-operative and the entities it controls (if any) is less than $8 million for the financial year (1.4 (1a) (i));
2. the value of the consolidated gross assets and the entities it controls (if any) is less than $4 million at the end of the financial year (1.4 (1a) (ii));
3. the co-operative and the entities it controls (if any) had fewer than 30 employees at the end of the financial year (1.4 (1a) (iii)).

In addition, even if two of the three requirements are satisfied, a co-operative will not be considered ‘small’ if it:

• issues shares to more than 20 prospective members during that year and the amount raised in that year by the issue of those shares exceeds $2 million (1.4 (2a)); or

• has securities on issue to non-members during that year, other than: shares in the co-operative; and securities issued in respect of the co-operative’s obligations under section 163 of the Law (1.4 (2b) (i-ii)).

Alternatively, under Regulation 1.4 (5), a co-operative can apply to the Registrar to have the co-operative be declared a small co-operative for that financial year. However, this will only be granted if the Registrar is satisfied that unusual and non-recurring circumstances have occurred to warrant such a decision.

STEP 2: IF YOU ARE A SMALL CO-OPERATIVE WHAT ARE YOUR FINANCIAL REPORTING REQUIREMENTS?

The main benefit of being a small co-operative is that it will not need an auditor/reviewer to audit its accounts. However a small co-operative’s rules can be drafted to require that all financial statements be audited in each financial year, and may require that additional financial reports be prepared.

If the co-operative is classified as a small co-operative it will be required to provide the following financial reports to its members:

1. An income and expenditure statement;
2. Balance sheet;
3. Statement of changes in equity;
4. Cash flow (cash flow is not required if (A) consolidated revenue of the co-operative and the entities it controls is less than $750,000 and (B) the value of the consolidated gross assets and the entities it controls is less than $250,000).

It should be noted that the Regulation 3.10 (4) (a-c), outlines the requirements for each of the financial statements.

A co-operative is required to inform its members, in writing, that:

1. The member may elect to receive, free of charge, a hard copy of the reports for each financial year; and

1. If the member does not so elect – the member may access the reports on a specified website; and

1. If the member does so elect and the co-operative offers to send the report either as a hard copy or electronic – it must send a hard copy or an electronic copy as per the members’ instructions. This election is a standing election for each later financial year until the member changes his or her election.

Directors must make a copy of the reports readily accessible on a website and notify all members in writing, who did not elect to receive the reports either in hardcopy or electronically, that they can access the reports on a website and specify the direct address.

The directors of a small co-operative, that is required to hold an annual general meeting, must lay before the AGM the financial reports (listed above) for the last financial year that ended before the AGM. The general rule is that a co-operative must report to members within 5 months after the end of the financial year, unless it is a disclosing entity for the purposes of the Corporations Act 2001 (Cth).

However, small co-operatives do not escape paperwork entirely. Small co-operatives must complete an annual return to lodge with the Registrar for each financial year within 5 months after the end of the Co-operative’s financial year; the requirements are outlined in table 1 below.

• 3.14 (a) – a statement confirming that particulars of the co-operative’s name, registered office, directors and secretary as recorded on publicly available registers of the co-operative are correct
• 3.14 (b) – a statement that the board has resolved that it is satisfied that it is a small co-operative for the financial year
• 3.14 (c) -a statement certifying whether there have been any directions by the members, to prepare additional financial reports under section 271 of the CNL and, if so, setting out the terms of the directions
• 3.14 (d) -a statement that the board has resolved that it is satisfied that the co-operative is solvent and the date of the resolution
• 3.14 (e) -a statement specifying the date of the last annual general meeting of the co-operative and the date when the financial reports were provided to members
• 3.14 (f) -a statement specifying the number of members of the co-operative as at the end of the financial year
• 3.14 (g) -any other information required under the local regulations.

STEP 3: HAVE YOU RECEIVED A DIRECTION FROM YOUR MEMBERS OR THE REGISTRAR TO PREPARE YOUR REPORTS IN ACCORDANCE WITH PART 3.3 OF THE CNL?

Whilst the new CNL has streamlined the reporting requirements for small co-operative’s and thus has reduced red tape and costs the flipside is that small co-operative’s are not as accountable to their members as they were under the previous Co-operative’s legislation. However, under section 271 of the CNL members of the small co-operative have the ability can give a direction to the co-operative to prepare a full set of financial reports and/or a director report. Section 271 states that the Co-operative’s members with at least 5% of the votes in the Co-operative may give the Co-operative a direction to:

1. prepare a financial report or director’s report or both for a financial year in accordance with all or a specific part of Part 3.3 of the CNL; and

1. send them to all members.

Section 271 (3-6) of the CNL outlines additional requirements of the direction by the members, these must be considered otherwise the direction will not be in accordance with the CNL and will be invalid.  In addition, under section 272 of the CNL, the Registrar may require a small co-operative to prepare a full set of financial/directors reports.

Please note that this advice does not deal with the financial reporting requirements for large co-operatives. Please contact us if you require further information on these additional reporting requirements.

Simon Correggia is a solicitor and Andrew Kimbell is a paralegal with Mattila Lawyers. Both specialise in the formation of Co-operatives and Mutuals. 

Mattila Lawyers is the only law firm whose main client focus is co-operatives and mutuals. As a leader in co-operatives law in Australia, we are committed to meeting our clients’ needs and often work on-site to provide workable solutions to complex legal and business issues. Our clients include co-operatives in a wide range of sectors such as agriculture and fishing, commodities handling and storage, irrigation, retail and wholesale, housing (including co-operative property development, holiday housing and low income rental accommodation), large and small scale infra-structure, renewable energy, transport, bulk buying as well as education and training. Please contact Mattila Lawyers on (02) 9252 7177 or at [email protected] if you wish to obtain expert advice.