Raising capital in mutuals

25 September 2019

By Greg Hammond OAM, Independent Facilitator, Report on Reforms for Cooperatives, Mutuals and Member-owned Firms

Mr Hammond delivered the keynote address at the Australian Friendly Societies Pharmacies Association Conference on 5 September 2019.


Thank you for the invitation to open this conference by sharing some thoughts about raising capital in mutuals – in part looking at what has been achieved to date and in part looking forward to the challenges of the future.

First, can I acknowledge the traditional custodians of the land upon which we meet, the Gadigal people of the Eora nation, and pay my respects to their elders, past, present and emerging.

Last Sunday I was having lunch with my elderly mother and I mentioned that I would be speaking at this conference this morning. My mother is a country girl who grew up in Bingara in northern NSW. Apparently, there was only one pharmacy in town but its impact on her was significant. On completing her leaving certificate, she went to the University of Sydney to study pharmacy. On Sunday, she rightly asked what I knew about pharmacies, let alone friendly society pharmacies.

The truth is not a lot, but I do know a little about the value of different forms of business organisation and structure.


In March 2017 I was appointed by the then Treasurer, The Hon Scott Morrison, to undertake a review of the March 2016 Senate Economic References Committee Report on Cooperative, Mutual and Member-owned Firms and the submissions which informed the Senate Report, as well as provide input into the Government Response to the Senate Report.

The Senate Report was not the beginning, but it highlighted a problem. In the second of 17 recommendations, the Senate Committee recommended that co-operative and mutuals sector be better represented in government policy discussions and be actively promoted as a possible option for service delivery particularly where community based initiatives are being considered.

The core issue was a problem of identity.

Co-operatives and mutuals were not well understood. Friendly societies are not well understood in modern Australia. Friendly society pharmacies are not well understood.

The Business Council of Co-operatives and Mutuals knew this before the Senate Committee was asked to review matters. The BCCM had conceived a strategy – to work with government and businesses across to help develop legislation to improve the business environment for co-operatives and mutuals. It was outlined in their 2013 Blueprint for an Enterprising Nation.

The BCCM approach was:

  • Strategic: a plan which was clear and understandable
  • Collegiate: working with co-operatives, mutuals and other partners, bi-partisan
  • Opportunistic: to build and leverage political support
  • Realistic: to present objectives which were thought through and achievable
  • Executable: a plan able to be delivered within targets adopted

The Senate Report was part of galvanising political support – there was a need to both educate parliamentarians about the sector and identify supporters.

My role was to help the Federal Government implement some of the Senate Report’s recommendations, particularly those related to capital. My task was not to consider all seventeen recommendations of the Senate Report but was limited to three recommendations regarding regulatory and legislative barriers impeding mutuals from accessing capital and related matters.

In part my role was also to be an agent provocateur, to challenge the thinking of the bureaucracy and government agencies about the mutual sector.

Before I go on, it might be helpful to say a quick word about terminology. Not only are co-operatives and mutuals not well understood, the terms themselves are not well understood. In my review I adopted a simple distinction: co-operatives are established under state or territory law modelled on the Co-operatives National Law, whereas mutuals are registered as companies under the Corporations Act. Mutuals may be companies limited by shares, by guarantee or by both shares and guarantee.

So, back to identity.


It was clear from the outset that the question of identity would be integral to my review. What is a mutual?

What does the world say about identity? There are undoubtedly many quotes which could be quoted at this point. Let me restrict myself to three of them.

Life isn’t about finding yourself. Life is about creating yourself.
George Bernard Shaw

Think about what people are doing on Facebook today. They’re keeping up with their friends and family, but they’re also building an image and identity for themselves, which in a sense is their brand. They’re connecting with the audience that they want to connect to. It’s almost a disadvantage if you’re not on it now.
Mark Zuckerberg

Your identity is your most valuable possession. Protect it.
Elastigirl in The Incredibles

The Senate Report had noted that the Senate Committee had “heard repeatedly that the lack of a legal definition of mutuals was hampering [their] recognition and development. The mutual model is different but currently the Corporations Act, and its consequent regulatory framework does not take account of the features that differentiate the sector from other companies.” (paragraph 3.47)

The case for defining a “mutual” (or a similar term) was, at least in part, an argument for recognition of the separate legal identity of mutuals.

Many submissions to my review referred to the need to recognise the separate legal identity of mutuals. For example, one of the submissions from the BCCM, stated:

“the very fact that mutual companies are not defined in law is indicative of a wider problem that the sector faces. It is not merely that the lack of recognition irritates mutuals, but rather that this has a real impact on the day to day business of mutuals … the lack of a definition amplifies problems that stem from a cultural view of what is a ‘normal’ company. It means that mutuals are not considered when other corporate rules are devised and implemented, and that there is a systemic ‘bias’ against the sector.”

My attention was also drawn to the March 2012 Report of the UK Ownership Commission Plurality, Stewardship & Engagement. I will paraphrase part of the executive summary to that Report:

“The [Australian] private sector is dominated by a single company organisational form, namely [a Corporations Act company limited by shares]. While [this form] has many advantages that should be celebrated, it has become the default corporate organisational form for risk-taking investors, financiers, regulators and government, to an extent that reduces opportunities for other ownership forms to grow and prosper. Plurality of ownership forms should be viewed as an economic good in its own right, increasing both choice and the variety of corporate forms available for varying business models and their investors while spreading risk more effectively … [I am] anxious that there is evidence that short termism is increasing, making it harder for [Australia] to have strong [organisations] where long termism is central to the business model … The regulatory and financial focus upon the [Corporations Act company limited by shares] hides the degree of ownership plurality that [Australia] already has. By failing to recognise alternative ownership forms as they do exist, policy-makers fail to offer them the supporting infrastructure that they need to grow.” 

The challenge for the mutual sector as a whole, and I suspect for friendly society pharmacies as part of the sector is to create a renewed focus on this diversity and the long-term benefits for stakeholders: members, risk-taking investors, financiers, regulators and government.

Being defined in law was a crucial step on the path to the mutual sector being recognised more broadly. It was required not only to identify the key features of mutuals to determine which entities would be permitted to access any new capital raising and investment opportunities, but also:

  • to provide clarity for stakeholders, including regulators, to distinguish mutual companies from investor-owned, non-mutual companies;
  • to improve capacity to promote the distinct identity, size, scope and contribution of the mutual sector;
  • to help courts and regulators make decisions regarding how legislation and regulation should be applied to mutuals in particular circumstances;
  • to assist in promoting the model as a competitive alternative to investor ownership; and
  • to enable elements of the Corporations Act and other legislation, both now and in the future, to be adapted to more appropriately apply to the mutual sector.

In considering this issue, I quickly found myself in agreement with the members of the Senate Committee and recommended to the Federal Government that the Corporations Act be amended to include a definition of a “mutual company”.

This was a different term to that recommended in the Senate Report and my report includes some commentary about terminology. I also discussed the possible components of a definition: one member, one vote governance principle, corporate purpose and economic relationships, among others.

Paramount, in my view, was that it was essential that any definition be clear and concise. Any definition must produce greater certainty, not more uncertainty.


The Federal Government accepted my recommendation and the Treasury Laws Amendment (Mutual Entities) Act 2019 was passed shortly before the last Parliament was prorogued before the recent Federal Election. I will refer to this legislation as the Mutual Reforms Act.

The Mutual Reforms Act included a definition of a “mutual entity”. The definition was drafted after detailed consultation with industry.

A company registered under the Corporations Act is a mutual entity if “the company’s constitution provides that a person has no more than one vote at a general meeting of the company for each capacity in which the person is a member of the company.”

A recognition of the one member, one vote governance principle, but no other requirements. A clear and concise approach.

The definition also determines which mutual entities are able to raise capital through the issuance of mutual capital instruments or MCI. Beyond this, the mutual entity definition does not create or alter any other rights for mutuals, including in relation to tax obligations or rights in relation to mutual receipts.

Much is still required to be done to enable mutuals to take advantage of the other changes brought in by the Mutual Reforms Act. There are three other key changes:

  • to provide for MCIs as a new bespoke capital instrument for mutual entities. MCIs can be issued by eligible mutual entities that are companies limited by shares, by guarantee or by both shares and guarantee. Under previous law, companies limited by guarantee did not have power to issue shares. The new law ensures that a mutual entity that is a company limited by guarantee has power to issue an MCI without changing its status;
  • to simplify the “demutualisation” regime in Part 5 of Schedule 4 of the Corporations Act and remove uncertainty for transferring financial institutions in respect of the transactions (including the issue of MCIs) which might have been treated as a “demutualisation”; and
  • To provide a special procedure for mutual entities to amend their constitutions to issue MCIs without demutualising. Mutual entities have until 6 April 2022 (and no more than three attempts) to amend their constitutions using the special procedure. Mutual entities have historically included strict demutualisation provisions in their constitutions. These provisions were based on historic legislative settings and may prevent some mutual entities from making use of the reforms in the mutual reforms Act and this special procedure is designed to facilitate constitutional amendments notwithstanding these strict demutualisation provisions.

The reforms have been collectively described as modernisation without corporatisation.

A few words about MCI?

Capital is one way that mutuals can strengthen their identity and their relationship with their communities:

  • it can enable the growth and expansion for a business to provide more services;
  • it can enable investment in new technology;
  • it can create deeper relationships with other sectors of the community – in the UK a regional building society issued the UK equivalent of MCI to a local council pension fund to allow new branches to be opened;
  • it can help secure a future for employees.

A mutual entity may issue an MCI provided it meets certain requirements. Some requirements relate to the mutual entity itself, while other requirements attach to the MCI.

The issuer of MCI must:

  • be a public company;
  • be a mutual entity – it’s constitution must provide that a person has no more than one vote at a general meeting each capacity in which the person is a member of the entity. This may require amendments to an entity’s constitution;
  • have a constitution that states the entity is intended to be an MCI entity for the purposes of the Corporations Act;
  • must not have voting shares (other than any MCIs) on a prescribed financial market; and
  • must not be a registered entity within the meaning of the of the Australian Charities and Not-for-profits Commission Act 2012.

MCI is described in the Explanatory Memorandum to the Mutual Reforms Act as a “bespoke” type of share. It is a ‘security’ for the purposes of the Corporations Act. Accordingly, MCIs are subject to the Corporations Act regulatory regimes that would ordinarily apply to the issuance of a share issuing including fundraising (prospectus) and disclosure requirements.

The constitution of the issuer must also:

  • provide MCIs can only be issued on a fully paid basis;
  • provide any dividends on MCIs are non-cumulative; and
  • set out the rights attached to the share with respect to participation in surplus assets and profits (which includes any rights of an MCI holder to repayment of the face value ahead of other claims to surplus assets in a winding up).

The other features (terms and conditions) of an MCI can be set out in the constitution or, as is usually the case with preference shares, determined by the board on an issue-by-issue basis. These features include:

  • voting – bearing in mind that the constitution must provide that no person has more than one vote at a general meeting for each capacity in which the person is a member. Will MCIs vote on all the same issues as ordinary members? Will MCI members have a vote in their capacity as an MCI member and as an ordinary member, if applicable? Are there some issues (e.g. “demutualisation”, merger or winding up) on which MCI members should not, or should, vote?
  • distributions – will MCIs have a fixed rate of return, a floating rate of return or a variable return based on profit or some other measure?
  • surplus assets – will MCI members be entitled to share in surplus assets of the mutual entity on winding up?

For mutual ADIs, APRA imposes some constraints about these features, but these should not constrain other mutuals.

I should also note that there is no minimum or maximum issue amount for an issue of MCIs.

In deciding whether to issue MCIs, the board will need to balance the rights of MCI members and the rights of the mutual entity’s ordinary. Part of this consideration will be whether the terms of the MCIs will be sufficient to attract investors while at the same time being acceptable to ordinary members and the mutual ethos of the mutual entity.

Looking forward – back to identity

However, having legal clarity about what characterises a mutual for the purposes of the Corporations Act and the key features of MCI is a crucial step, but only a first step.

An important next step is building the understanding of the investor and business community about mutuals and their business.

  • What makes mutuals distinctive? How is the mutual sector different from other business sectors?
  • What are the drivers of mutual business model?
  • What makes mutuals an attractive investment able to attract risk-taking investors?

Many of the recommendations in the Senate Report are focussed on building this understanding including:

  • statistics and data to provide an accurate picture of the scale and extent of the co-operative and mutual sector;
  • representation in government policy discussions;
  • a program of education and training to inform stakeholders about the role of mutuals; and
  • better education about mutuals in tertiary curricula and by professional accreditation bodies.

The identity challenge for the mutual sector as a whole and, based on my admittedly limited knowledge, friendly society pharmacies is to:

  • create and maintain the identity you want going forward;
  • build an image and brand that supports that identity; and
  • protect that identity.

An identity that not only resonates with members / customers (the present) but with both members / customers and investors of new capital (the future).

Another way of thinking about this question of identity is relationship management – why should providers of capital invest in a mutual entity and what relationship is needed to maintain their investment. This is not new. Any entity or sector approaching the investment markets for the first time needs to devote time and energy to this task.

The challenge is to address the identity and relationship management questions consistently and quickly.


Identity is not the only challenge. Another is complacency.

The tragedy of life is often not in our failure, but rather in our complacency; not in our doing too much, but rather in our doing too little; not in our living above our ability, but rather in our living below our capacities.
Benjamin Elijah Mays (a mentor of Dr Martin Luther King Jr.) 

Our lives begin to end the day we become silent about things that matter.
Martin Luther King, Jr.

Change before you have to.
Jack Welch

Some examples of potential complacency:

  • not participating in building the identity required for the sector to be able to access the capital raising opportunity created by the Mutual Reforms Act;
  • not amending your constitution to ensure that you are a “mutual entity”;
  • not taking advantage of the special procedure provided by the Mutual Reforms Act for amending the constitution of mutual entity to allow it to issue MCIs.

I am sure there are other issues where there is a danger of complacency.

The Senate Economics Reference Committee, my independent review of their Report and Federal Treasury’s consultations on draft legislation leading to the enactment of the Mutual Reforms Act all benefited from thoughtful submissions from, and dialogue with sector participants. Submissions and dialogue not just from and with industry associations – BCCM and AFSPA – but from and with individual mutuals and their advisers.

You can leave it to others, do too little and contribute below your ability and capacity. The outcome will be poorer if you adopt this attitude.

Everyone can contribute to the debates which are still required to enable mutuals to efficiently and effectively raise capital, but more widely for mutuals to be properly recognised as a legitimate and valuable sector of the economy which contributes to society. These contributions matter.

Concluding comments

The Mutuals Reform Act is a major step forward for Australia, delivering landmark laws for the first positive change to the Corporations Act for mutuals in 18 years. It creates new and unique ‘mutual capital instruments’ to help existing mutuals grow and innovate in sectors as varied as banking, agriculture and motoring and, yes, pharmacy

The Act also defines a mutual in the Corporations Act for the first time, demonstrating the importance of the mutual sector as part of a diverse economy. This has been achieved whilst adding new safeguards to mutual ownership by ensuring member control remains paramount.

The confusion over demutualisation for certain mutual financial institutions is resolved by this legislation. On its own that was a worthwhile objective.

Simply put, it creates a better business environment for co-operatives and mutual.

The enactment of the Mutual Reforms Act has been a long journey, but the destination has not yet been reached. The destination is to raise and use capital to expand and grow the mutuals model.

The mutuals sector will need to continue to be bold. Leadership by individuals and entities will be needed.

Thank you very much for listening this morning.




Summit 2019 Highlights – Greg Hammond OAM

BCCM is delighted to announce Greg Hammond, Independent Facilitator of the Hammond Review, will speak at the BCCM Summit on raising capital in mutuals. He will also join a plenary panel to debate the lessons learned from AMP’s demutualisation.

The Summit will bring together 150 leaders and 40 speakers to debate and discuss pressing issues for the CME sector across 12 conference sessions.

Explore the Summit Program.


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