Regulation

Examinations

In 2015–16 ORIC completed 39 examinations.

The Registrar has the authority under the CATSI Act (section 453-1) to examine a corporation’s books and records at any time. The purpose of an examination is to assess a corporation’s financial health and corporate governance standards. For example, an examination checks that a corporation is:

• running in accordance with the CATSI Act and its rule book
• keeping up-to-date financial records and is managing its finances correctly, in line with proper policies and procedures
• handling appropriately any conflicts of interest and benefits to related parties.

Each year the Registrar conducts a routine program of examinations. Some initiated by the Registrar are in response to potential governance issues raised about a corporation.

Examinations contribute to the intent of the CATSI Act as a special measure to advance and protect the interests of Aboriginal and Torres Strait Islander people and their respective cultures. They also perform an important function in detecting early signs of potentially troubling issues at a corporation.

Equally, corporations that are running well often view examinations as very positive experiences. To receive a favourable examination report can be very reassuring or confirm what they already know—that they are managing their corporation’s affairs to a high standard.

For more information see ORIC’s policy statement PS-25: Examinations available on the ORIC website.

During the financial year the Registrar started 44 examinations and completed 39, as set out in tables 7 and 8.

Table 7: Examinations completed by state/territory 2015–16

The examination program for the 2015–16 financial year covered corporations with the following activities:

Table 8: Examinations completed by activities 2015–16

Outcomes of examinations

The outcomes of the 39 examinations completed over 2015–16 were:

• 6 corporations (15 per cent) were found to be operating well and required no further action. They were each sent a management letter.
• 27 corporations (69 per cent) were required to rectify less serious matters which were settled through the issue of a compliance notice [3] under section 439-20 of the CATSI Act.
• 4 corporations (10 per cent) had serious findings and were issued with a ‘show cause notice’ under section 487-10 of the CATSI Act. These corporations were required to explain why they should not be placed under special administration.
• 2 examinations (5 per cent) were completed for subsidiaries of a parent corporation, and as such comments on the findings were sent to the parent corporation for consideration.

Five examinations were still in progress as at 30 June 2016.

Table 9: Outcomes of examinations 2010–11 to 2015–16

[3] Compliance notices provide direction for corporations on how to improve their standards of corporate governance and financial management after an examination is done.
Compliance notices are made available on the public Register of Aboriginal and Torres Strait Islander Corporations. They provide valuable information to a corporation’s members and other stakeholders (such as funding agencies and creditors) about the standards of corporate governance and financial management within a corporation at a given point in time.

Special administrations

In 2015–16:

• 5 special administrations continued from the previous year.
• 10 special administrations were started.
• 11 special administrations were completed, with all handed back to members’ control.
• 4 special administrations were still in progress as at 30 June 2016.

Special administrations are a form of external administrations unique to the CATSI Act. They allow the Registrar to provide early and proactive regulatory assistance to corporations experiencing financial or governance difficulties.

The Registrar appoints an independent, suitably qualified person (the special administrator) to work with a corporation to fix its internal problems and to restore it, as soon as possible, to good health. Once this is achieved, the special administrator returns full control of the corporation to its members. In all cases the special administrator works in the best interests of the corporation and its members.

Special administrations are quite different to receiverships, liquidations or voluntary administrations as defined under the Corporations Act 2001, which are usually driven by the interests of creditors.

There are several grounds on which the Registrar can decide to place a corporation under special administration. As outlined at section 487-5(1) of the CATSI Act, the grounds are not restricted to insolvency or the inability to pay a debt.

For more information please see the Registrar’s policy statement, PS-20: Special administrations.

Four of the 10 new special administrations (or 40 per cent) in 2015–16 were started after the directors wrote to the Registrar asking for assistance.

Before any corporation is placed under special administration, however, the Registrar usually accords it a period of natural justice. Through a ‘show cause’ procedure the corporation is asked to explain why it should not be put into special administration. The time the corporation takes to respond depends on its particular circumstances but the Registrar usually allows at least 14 days.

The aim of every special administration is to achieve one or both of the following:

• restoration of good operational order—usually after a corporation has not complied with a provision of the CATSI Act or its rule book, has experienced financial difficulties or there has been a dispute
• a restructure—usually after the directors or members have asked the Registrar to intervene to review governance standards or organisational structures.

Eleven special administrations ended during 2015–16. Six were completed within six months in line with ORIC’s key performance indicator. A successful business turnaround was achieved in all 11 corporations (100 per cent) in that they were handed back to members’ control.

Table 10: Corporations placed under special administration in 2015–16

Table 11: Corporations with a special administration continuing from last year

Special administration communications

During the course of a special administration the Registrar expects the special administrator to communicate regularly with members and stakeholders. This is to keep members, former directors, funding agencies, creditors, employees and other interested parties up to date with progress. The special administrator must explain the changes that have to be made as well as outline the plans for the corporation’s future.

To do this special administrators send out regular newsletters and hold community information meetings.

To support the special administrators in this task the Registrar’s office contributes writing and graphic design expertise.

Below is an email received by the special administrator of Lirrwi Yolngu Tourism Aboriginal Corporation.

4 May 2016

Hi Brian

Thank you so much for the Special Administration Newsletter - and huge compliments on the clarity of the information and the language used in describing the situation addressed by the Special Administrator and the actions being taken as part of the second and third phases of the Special Administration.

I have always been an admirer of Plain English in its most eloquent form which is a very inclusive way of communicating, especially for people whose first language is not English. So many thanks for this next step in communication re the Special Administration processes which will be of great assistance to Yolngu stakeholders.

Warm regards

Robyn

Case study: Special administration—big lift for WDLAC

On 29 February 2016 the special administration at the Western Desert Lands Aboriginal Corporation (Jamukurnu-Yapalikunu) RNTBC (WDLAC) ended.

This large and important corporation holds and manages the native title rights and interests of the Martu people, including exclusive use, occupation, possession and control of 136,000 square kilometres in the central western desert region of Western Australia. ‘It also delivers cultural, social and economic benefits for the Martu people,’ said the Registrar.

In July 2015, after it became clear that WDLAC could not solve its deep governance and financial problems on its own, the Registrar placed the corporation under special administration.

In consultation with the members, the special administrators, Jack James and Paula Cowan from Palisade Business Consulting, worked through challenging issues to achieve a remarkable turnaround for WDLAC.

‘This was a particularly successful special administration,’ said the Registrar. ‘In just seven months the special administrators completely reversed WDLAC’s fortunes so that, once again, the corporation is looking at a healthy future.’

Among the special administration’s achievements:

• reduction of WDLAC’s operating costs and a return to profitability. In the 2013–14 financial year WDLAC incurred a $1.8 million loss followed by a $2.4 million loss in 2014–15. In a significant turnaround WDLAC recorded an operating surplus of $348,044 in the first half of the 2015–16 financial year
• finalisation and registration of an Indigenous Land Use Agreement (ILUA) with Newcrest Mining Limited which will provide the Martu people with $18 million and employment and business opportunities over the next six years. The ILUA had been under negotiation for eight years
• arrangements made for an independent trustee to manage approximately 75 per cent of the funds received under the Newcrest ILUA
• re-establishment of the trust of the traditional owners and Martu communities in WDLAC and the rebuilding of relationships with WDLAC’s major stakeholders
• review of WDLAC’s operations and disposal of unprofitable business ventures
• introduction of innovative management and service arrangements. From 1 July 2012 to 30 June 2015 WDLAC incurred costs of $4,721,145 for a CEO, a CFO and legal services. The special administrators engaged native title representative body, Yamatji Marlpa Aboriginal Corporation, to provide management, administration, accounting and legal services to WDLAC at one tenth of the cost of the previous arrangements
• creation of a new position (liaison officer) for a Martu person in the community of Parngurr as a result of savings made in WDLAC’s administration and management costs
• appointment of a smaller board of new directors, which includes an independent director (a first for WDLAC). The new member directors are representatives of the six areas of country within the Martu determination area—Karlamyingurrara, Ngayunanalku, Pilakaja, Pitijikarli, Rirrakaja and Walakaja.
• several important changes to the corporation’s rule book, including ensuring improved reporting to members and directors.

The Registrar continues to monitor WDLAC closely. The Registrar also ensured that in April 2016 the new directors received corporate governance training.

For more information see the Registrar’s media releases:

• 13 July 2015 MR1516-02: WDLAC under special administration
• 9 February 2016 MR 1516-14: WDLAC back in Martu hands