Indigenous governance reforms left in limbo

Review of CATSI Act must wait for new Parliament.

Indigenous affairs had little discussion during the early part of the federal election campaign from both political sides. But strengthening the CATSI Act to benefit Aboriginal and Torres Strait Islander corporations could be a priority for the incoming Federal Minister for Indigenous Affairs.

CATSI reforms could also be a priority for advances in Indigenous governance, given the proposals affect aspects of Indigenous boards and have implications for their directors.

To recap, the Corporations (Aboriginal and Torres Straight Islander) Act 2006 (CATSI Act) is a Commonwealth law and special measure for Australian Indigenous people. The Office of the Registrar of Indigenous Corporations (ORIC) regulates corporates registered under CATSI.

CATSI requires that Indigenous corporations have at least three and no more than 12 directors (without exemption); that the majority of them are Aborigines or Torres Strait Islanders; are members of the corporation; and that they are not employees of the corporation.

CATSI also requires the Indigenous corporations to have a rule book that, at a minimum, has the corporation’s name and objectives, a record of board meetings and a dispute-resolution process. Indigenous corporations lodge reports with ORIC according to their size and income.

Much is at stake: the top 500 CATSI Act corporations earned a collective $1.92 billion in FY16, according to a Federal Govement discussion paper in August 2018.

The Government argued the CATSI Act framework had been “very successful” and “improved the efficiency, sustainability and accountability of Indigenous corporations”.

But after 10 years of CATSI’s operation, Senator Nigel Scullion, Minister for Indigenous Affairs (who subsequently announced his resignation from politics) announced a review of the CATSI Act to ensure it remained relevant and effective for Indigenous corporations and the communities they serve.

Over two years, the Federal Government consulted on reforms (through two rounds) to reduce red tape for Indigenous corporations, especially smaller ones. Other reforms sought to increase transparency for members and streamline and clarify parts of CATSI.

Reviewing and changing CATSI was a complex, lengthy process and the plan was for reforms to take effect by July 1, 2019 after the Bill went through the House of Representatives.

The Government in December 2018 introduced the Corporations (Aboriginal and Torres Strait Islander) Amendment (Strengthening Governance and Transparency) Bill 2018 into Parliament but there was no debate or discussion and the Bill lapsed.

When the federal election was announced in April, the House of Representatives was dissolved, meaning all proceedings ended and all Bills lapsed. The Government was then subject to caretaker conventions and an important Bill that was two years in the making went nowhere.

Should the incoming Federal Minister for Indigenous Affairs want to pursue amendments to CATSI, he or she will need to recommence the process through Parliament.

Proposed reforms

The CATSI Bill had several proposed reforms for Indigenous governance. Had it been adopted, it would have strengthened the regulatory framework for Indigenous corporations, increased transparency and improved flexibility for smaller corporations, according to the Government.

Fundamentally, the Bill sought to better balance the characteristics of and challenges of Indigenous corporations with the desire to improve governance and performance.

The changes would have been particularly useful for Indigenous corporations with less than $250,000 of annual revenue. And ORIC would have had more power to respond to lower-level cases of non-compliance from Indigenous corporations.

Chief among the changes was a “simpler sizing” reform to determine whether a corporation is large, medium or small. An Indigenous corporation’s size is linked to its governance reporting and meeting obligations; the new test would have reduced the reporting obligations for some Indigenous corporations and required others to provide a directors’ report for the first time.

The introduction of a more useful rule book was another proposed reform. It would have required Indigenous corporations to keep all their rules in one place – making it easier for boards to follow them – and given ORIC power to initially refuse to register a rule book if it is not fit for purpose (it would still have to be registered if members wanted their rule book).

The reforms also required Indigenous corporations to table their reports at the annual general meeting rather than only making them available to members. AGM flexibility was enhanced; smaller corporations would be allowed to skip one or two consecutive AGMs to avoid the cost of holding them; and AGM deadlines could be extended by up to 30 days for unforeseen causes, such as a member’s death.

In other proposed reforms, medium and large Indigenous corporations would have to report salary and benefits for senior executives in aggregated bands, and 10-year employment history of senior managers. This would have provided useful comparison data.

Importantly, related third-party rules would have been relaxed to help corporations, especially those in smaller communities with kinship ties and limited purchasing options. A third-party transaction of up to $5,000 per party per year, without member approval for following strict provisions in the CATSI Act, was proposed.

Improved compliance power for ORIC was another reform. Currently, ORIC’s only option for taking action against officers and corporations that breach their obligations under the CATSI Act is to prosecute through a court or appoint a special administrator – serious steps that are not always appropriate or are too onerous for lower-level breaches.

Under the proposed reform, ORIC would have had power to introduce discretionary fines and accept enforceable undertakings from directors or corporations that breached the Act.

From a governance perspective, other proposed reforms included:

• making it easier to create wholly-owned subsidiaries, joint venture organisations between Indigenous and non-Indigenous entities or entities with corporate members;
• allowing corporations to appoint independent directors without having to have a rule about it in their rule book;
• adding insolvency to the grounds for putting corporations into special administration.