Mutuals seek leeway to reorganise

A number of credit unions are pushing for permission to waive a rule that at least a quarter of their members need to vote on any proposal to demutualise.

The Australian Securities and Investments Commission disclosed yesterday that it had "received a small number of requests from individual credit unions to publish and deliver a written notice to cease the effect of the demutualisation approval procedure rules contained in their constitutions."

ASIC said that "to date, we have not issued a notice." ASIC said it was "not satisfied that the circumstances of the credit union making the request have shown that it would be necessary for prudential reasons." It added, "We consider that members are entitled to expect that the demutualisation approval procedure rules will have effect in accordance with their terms."

Under the Corporations Law, ASIC is able to provide relief from a credit union's demutualisation approval rules.

ASIC said that about 40 per cent of credit unions registered with the Australian Prudential Regulation Authority contain demutualisation approval procedures.

The rules provide that particular types of transactions can only proceed if approved by a postal ballot before a general meeting is convened to vote on the proposed transaction.

The rules include a minimum member participation requirement for the postal ballot, which is usually 25 per cent.

One application of the rules arises for mutuals looking to raise innovative tier-one capital.

Another theory circulating yesterday was that the Australian Prudential Regulation Authority needed leeway to steer the restructure or amalgamation of one or more small credit unions in a manner made difficult by their constitutions.

Louise Petschler, chief executive of the industry association, Abacus, said in an emailed statement that Abacus had been liaising with ASIC on the issue.

She said the rule around demutualisation "does capture a wide range of possible restructures because of its broad drafting, and this can cause technical headaches at times."
 
"The rationale for the rule is that a representative sample of members of a mutual should participate in and support any member vote that could trigger a demutualisation. Abacus strongly supports this principle."

"In discussions with ASIC we've stressed that we will not support any process that encourages carpet-baggers or demutualisation votes without real member input, and I am very confident that ASIC appreciates these issues."