PDF version: The establishment of a single representative body for the Victorian Abalone Industry Central Zone (44 pages, 1.5 MB, approximately 4 mins to download on a 56K modem)

REPORT TO THE MINISTER FOR AGRICULTURE AND FOOD SECURITY, ON THE ESTABLISHMENT OF A SINGLE REPRESENTATIVE BODY FOR THE VICTORIAN ABALONE INDUSTRY CENTRAL ZONE

This report has been prepared and submitted by Mike Stephens of Mike Stephens & Associates.   The principle investigator and writer was Mike Stephens.

Mike Stephens and Associates Pty Ltd
ABN 69 093 095 875
96 Harbours Rd
Yendon VIC 3352
P: (03) 5341 6100
F: (03) 5341 7630
Email MS&A Office: mstephens@msanda.com.au
 www.msanda.com.au

COPYRIGHT: The concepts and information contained in this document are the property of Mike Stephens and Associates Pty Ltd. Use or copying of this document in whole or in part without the written permission of Mike Stephens and Associates constitutes an infringement of copyright.

LIMITATION: This report has been prepared on behalf of and for the exclusive use of Mike Stephens and Associates Pty Ltd's Client, and is subject to and issued in connection with the provisions of the agreement between Mike Stephens and Associates and its Client. Mike Stephens and Associates accepts no liability or responsibility whatsoever for or in respect of any use of or reliance upon this report by any third party.

CONTENTS

1. EXECUTIVE SUMMARY
2. THE PURPOSE AND STRUCTURE OF THIS REPORT
3. BACKGROUND AND HISTORY
4. ADDRESSING THE TERMS OF REFERENCE
5. THE CONSULTATION PROCESS
6. RECOMMENDED APPROACH
7. THE INSTRUCTIONS FOR THE DRAFT MEMORANDUM
8. THE INSTRUCTIONS FOR THE DRAFT ARTICLES

   1. PRELIMINARY
   2. MEMBERSHIP
   3. GENERAL MEETINGS
   4. ROLE OF THE BOARD AND APPOINTMENT AND REMOVAL OF DIRECTORS
   5. BOARD SELECTION COMMITTEE
   6. EXECUTIVE OFFICERS
   7. SEAL
   8. WINDING UP
   9. MINUTES AND RECORDS
   10. NOTICES
   11. INDEMNITY INSURANCE
   Amendment of Rules
   By-Laws

9. THE VOTING SCHEDULE
10. RATIONALE FOR RECOMMENDING A COMPANY LIMITED BY GUARANTEE
11. AREAS OF RECOURSE

1. EXECUTIVE SUMMARY

Mike Stephens & Associates (MS&A) were commissioned by the Department of Environment and Primary Industries (DEPI), on the instruction of the Minister for Agriculture and Food Security, to develop advice on a formal, legal structure for a single representative body in the Victorian Central Zone Abalone fishery.

As a result of our consultations MS&A recommends that a new body to be known as Victorian Abalone Central Zone Limited (VACZ) be established.  The new body should be a company limited by guarantee and be established in three steps:

Step 1    The appointment by the Minister of an interim board which will have the responsibility of:

(a) managing a reconciliation process between VADA and VAC;

(b) agreeing to the principles set out for the drafting of the memorandum and articles of the new body;

(c) compiling a role of voters and their entitlements;

(d) conducting a plebiscite to determine whether VACZ should be formed; and

(e) managing the election process of the first VACZ board. 

Step 2    Finalise the Memorandum, Articles and By-Laws

Step 3    Elect the First Board

This report deals with step 1 only (see section 6 for more detail).

A Company Limited by Guarantee is recommended as the duties of office holders are much clearer than for an incorporated association, and is accompanied by Australian Securities and Investments Commission (ASIC) requirements. A summary of the key hallmarks of a Company Limited by Guarantee versus an Association are outlined in section 10.

2. THE PURPOSE AND STRUCTURE OF THIS REPORT

Purpose

The purpose of this report is to demonstrate that in conducting this consultancy MS&A has followed the Terms of Reference, consulted broadly with the industry and made a series of recommendations which if followed give the greatest opportunity for likely success in the establishment of a single representative body for the Victorian Abalone Central Zone. MS&A has gone beyond the Terms of Reference in one instance by recommending that consideration be given to the adoption of electronic monitoring as disputes over the veracity of data, and the ability to have it provided and considered without difficulty, are fundamental to the disagreement between the parties.

This report:

• provides a brief background and history of governance in the Victorian Abalone Central Zone;
• addresses the Terms of Reference for the consultancy;
• outlines the consultation process including issues, concerns, and proposed actions;
• summarises the discussions with industry, including amendments to address industry concerns;
• provides instructions for the draft memorandum to create a new representative body;
• provides instructions for the draft articles for a new body;
• provides a voting schedule to be used in relation to the Articles and the Memorandum;
• provides the rationale for recommending that a Company Limited by Guarantee is the appropriate vehicle;
• points to legal areas of recourse in the event that there are further disputes.

Structure

This report is structured to identify the key design aspects of a single representative body in the Victorian Central Zone Abalone fishery as recommended by MS&A.

Accordingly, section three provides a brief background and history to the governance arrangements in the Fishery and section four outlines how each Term of Reference has been addressed.

Section five describes the consultation process undertaken in the preparation of this report including how issues raised by industry have been addressed and general observations.

Section six outlines detail of the recommended structure and operation of the body. Section seven and eight then detail, respectively, instructions for drafting the memorandum to guide the establishment of the body and instructions for drafting the articles to guide the operation of the body. Section nine outlines the proposed voting schedule for the recommended body.

Section ten provides rationale for recommending a company limited by guarantee as the preferred structure in comparison to an incorporated association.

The report concludes with section eleven outlining potential means of recourse for disagreements between members in the proposed body.

3. BACKGROUND AND HISTORY

In late 2011 a split occurred in the representation of the Victorian Abalone Central Zone fishery.   As a result of the split, and concerns about inadequate governance for the expenditure of Grants Levy monies for the Abalone Central Zone, the Minister directed Grants Levy monies to be withheld until such time as a single representative organisation with appropriate governance had been established. This approach was confirmed at a meeting of parties with the Minister in September 2012 where it was agreed in principle that an independent expert would be engaged to develop proposed governance arrangements for a representative body.

Since the split in representation there has been a history of claim and counterclaim by Victorian Abalone Divers Association (VADA) and the Victorian Abalone Council (VAC). Each side blames the other for the current situation, each claims the other has lacked corporate governance and VAC claims that VADA has spent levy funds unwisely.  There is a high degree of mistrust and angst between the two sides with VAC believing that VADA is making claims about membership which cannot be substantiated and VADA claiming that VAC is a very small, minority organisation. 

As a result of our consultation, MS&A can confirm that VAC is a minority group but it has more members than VADA would like to admit. The number of quota unit holders in each group is open to some dispute.  Whilst VADA claims to have members, it hasn't sent out subscription notices since early 2012.  The status of those memberships is fertile grounds for legal argument.  VAC has a registered membership list and can demonstrate that subscriptions have been paid. 

4. ADDRESSING THE TERMS OF REFERENCE

The Terms of Reference for the consultancy are shown below with the action or recommendation addressing each following in bold italics.

This stage [Stage 1] will involve the preparation of a report by the Independent Expert(s), detailing:

i. the appropriate formal legal structure of a single entity representative of central zone entitlement holders (e.g. association, company etc.), including required office holders; (addressed through Company Limited by Guarantee, the draft instructions for the Memorandum and Articles and the Board Committee Structure)

ii. the basis on which entitlement holders can participate in the governance and operation (operational decisions) of the entity, including:

a. how decision-making should be conducted in the establishment and operation of the entity;

b. the means by which the rights of entitlement holders are recognised, including majority and minority interests, in collective decision-making and processes for conflict resolution; and

c. the process by which meetings are conducted to ensure reasonable standards of conduct of persons at meetings and in decision-making.

(a, b, and c will be addressed by the establishment of an interim board with an independent chair and a mixture of independent and industry directors, the first board with a similar structure to manage the reconciliation process, the plebiscite, and the establishment of the Practice and Conduct Committee and  the voting schedule.)

iii. the scope of operation, and role, of the entity relative to the role of Government as the regulator; (outlined in the committee structure and the voting schedule)

iv. the process by which the levy for the Central Zone Abalone Fishery is determined and amended over time; (outlined in the committee structure and the voting schedule)

v. the process by which the annual program of work for the entity is developed and approved; (outlined in the committee structure and the voting schedule)

vi. the processes by which the appropriate transparency and accountability to levy payers and to government for expenditure of the levy funds is ensured; (The ASIC reporting requirements and the duties of Directors and Officers required for a company limited by guarantee will address these issues as will the funding agreement made between the company and DEPI)

vii. the processes by which the performance of the entity will be measured (including documentation of key performance indicators); (Suitable processes will require development by the interim Board as part of the by-laws and will need to include limits to authority and delegation levels. The funding agreement made between the company and DEPI will also outline performance indicators.)

viii. processes to provide for capacity development and succession planning in the ongoing operation of the representative entity; and (The Nomination and Selection Committee will need to develop processes to provide for capacity development and succession planning. Directors involvement in establishing and operating the body will also provide a mechanism to build capacity. Fixed term nature of Board roles. )

ix. providing detailed instructions for drafting articles of association, rules or constitution as appropriate for the recommended entity structure. (See section 9)

The Independent Expert(s) is/are to work with the Department and consult with interested parties in addressing the above matters.  The Independent Expert(s) is/are to document how they have addressed the issues raised by those parties.

The preferred outcome is consensus about the design, establishment and operation of the entity.  The views of interested parties were sought on the proposed approach set out in this report.  Opportunity was also provided to take into account the views of non-aligned entitlement holders. There was broad consensus on the approach outlined in this report. This Stage One report sets out a preferred approach suitable for the circumstances to support a decision by the Minister and provide the direction to proceed with Stage Two.

5. THE CONSULTATION PROCESS

 In order to conduct this consultancy, MS&A consulted at length with the Department of Environment and Primary Industries (DEPI) and made extensive efforts to convene an industry meeting to listen to the issues and concerns of all industry members, and give some indication as to the direction of the MS&A thinking.  VAC and VADA could not be brought together for a single consultation meeting so, to give all participants in the industry an opportunity for participation, MS&A held an open forum (which many people saw as being a VADA forum) and a second open forum (which people saw as being a VAC forum).  The first forum was totally open to all industry members.  In the case of the second forum, the VAC executive was responsible for inviting participants to ensure broad coverage of industry members that may not have attended the first forum. 

In preparation for these two fora MS&A circulated a brief discussion paper and called for further submissions.  In response MS&A received a significant number of phone calls from industry participants including from VAC, VADA and nonaligned. As a result individual, confidential, interviews were conducted.  Many divers made it clear before they agreed to be interviewed that they required an assurance that there would be a high degree of confidentiality not only about what they said but about who they were.  It is fair to say that the level of trust and relationships in the industry is at a very low ebb.

Following the consultation meetings MS&A prepared and distributed a draft memorandum and articles, and a document (which became known as 'the handout') outlining underlying principles and draft recommendations for discussion. MS&A then conducted further consultation with industry participants, which led to further modifications to the MS&A recommendations. See Table 1 below for a summary of issues raised, the underlying concern, action taken to address the concern and proposed future action.

General observations from MS&A

A number of issues have arisen, during our consultation with industry which impact on the industry but are outside the MS&A terms of reference .These include:

Building trust

Because there is so little trust and confidence between some industry participants, a reconciliation process needs to be established. In the current situation there are many people who believe that they have been alienated and sidelined by the behaviour and actions of others and/or by the processes which have been put in place. 

It is clear that relationships have been damaged and that for the industry to move ahead reconciliation needs to occur.  An industry funded process is required to ensure that those alienated have the opportunity to confront individuals who they believe have acted in an inappropriate manner, in a managed and safe environment in order to reconcile the differences. The industry needs to reconcile differences and identify and embrace a workable set of options. Without a reconciliation process it is unlikely that a long term solution for unity in the industry can be found.

Monitoring

One of the consistent messages during the consultation process was that the Central Zone needs to lift its standard of corporate governance including addressing poor behaviour and pressure applied to restrict consideration of relevant information for management decisions.

The issues of corporate governance will be dealt with by the establishment of a Company Limited by Guarantee and the Memorandum and Articles of this body.

However, those initiatives by themselves will not ensure that all quota unit holders and divers use appropriate practices during their considerations. A key issue raised was the veracity, and ability to have considered, catch, effort and position information used ultimately for TACC setting. 

Following consultation with the Fisheries Research and Development Corporation, the Australian Seafood CRC, and participants in the Victorian Central Zone, MS&A recommends that the new body adopts a process and procedure for reporting catch, effort and size of catch which is:

• Transparent
• Scientifically sound
• Backed by contemporary observations
• Able to withstand interference
• Has the long term viability of the fishery and the industry in view

With the points above in mind it is appropriate that the new body considers the adoption of electronic monitoring. The potential benefits of using electronic reporting and monitoring (to be assessed on a case-by-case basis) would include:

• increased effectiveness of compliance resources
• more efficient and comprehensive reporting
• better information for research at less cost

6. RECOMMENDED APPROACH

A summary discussion paper was circulated to industry which outlined underlying principles and draft recommendations for discussion. This material was subsequently amended to address the issues raised by industry and the final version is presented below.

PRINCIPLES

1. A "Greenfield organisation" must be established which is independent of previous organisations.
2. Corporate governance principles as set out by ASIC or Consumer Affairs must inform and guide the decisions and the actions of the new entity.
3. The entity should develop its own strategic plan to reflect the interests of all stakeholders in the industry to ensure the long term sustainability of the abalone industry in the Central Zone. The entity's strategic plan must fit into the overall plan for the management of the fishery.
4. Annual operational plans for the entity should be developed which will deliver the strategic plan's objectives.
5. In providing input to the TACC setting process, a robust, agreed, evidence-based and scientifically verifiable process for providing advice to DEPI on the TACC must be established and implemented.
6. Appropriate transitional governance structures be put in place which lead to the formation of unified representative body for the Central Zone abalone fishery

RECOMMENDATIONS

1. That a new representative body for the Victorian Abalone Central Zone be formed with a new name; "Victorian Abalone Central Zone Ltd" (VACZ)

2. That an Interim Board be appointed by the Minister to oversee the establishment of the new body.

3. That the Interim Board should have an independent non-executive chair, three independent Board members with corporate governance skills and three Board members appointed by the Minister from within the existing groups of the Victorian Abalone Central Zone (VAC, VADA and non-aligned participants). The Interim Board will be required to appoint a part time Executive Officer ( to the interim Board).

The Interim Board will have the following tasks:

• To manage the reconciliation process.
• Agree to the draft Memorandum and Articles of the new body.
• To compile a roll of voters and their entitlements.
• To conduct a plebiscite to determine whether VACZ should be formed.
• To manage the election process of the first Board.  

4. Following the principles for the establishment of the rules of the new body (listed in 'principles' above), the Interim Board should be charged with the responsibility of finalising the rules (Memorandum, Articles of Association, By-laws) and the method of operation and election of the new Board.

5. The First Board which will be established following the reconciliation process should have an independent non-executive chair, two independent Directors and four Directors who are participants in the Victorian Abalone Industry.

6. The Board will have the responsibility of protecting the interests of all stakeholders, including minority stakeholders.

7. Terms of Directors should be limited to a maximum of three, two-year terms per Director. Half of the Board will be elected each year. At the first election, half Board members would be elected for one year and half for two years.

8. Whilst it is not appropriate to provide guidance for the draft of the rules at this stage there are some aspects which are essential for good governance including the establishment of Board Committees. As such, the following Committees should be established:

• Finance, audit and risk
• Board nomination and selection, and membership
• Executive Performance and Remuneration.

The  VACZ will also require the following Committees:

• Total Allowable Commercial Catch and Resource Development Committee (TACCRD)
• Practice and Conduct Committee (The Practice and Conduct Committee may refer disputes to the Law Institute of Victoria for mediation.)

Persons appointed to the Practice and Conduct Committee should be eminent individuals who have made a contribution to the industry over a long period of time but are no longer actively involved.  The role of the Practice and Conduct Committee is to sit in judgement on complaints about behaviour compliance or conformance of members and impose appropriate sanctions.

All other Board Committees should have one independent member with appropriate skills for the conduct of those committees.

Terms of reference must be developed for each Committee and ratified annually by the Board.

A further explanation of the role of each committee appears in 4.13 of the draft Memorandum

9. Election of office bearers should be by secret ballot conducted by an independent organisation such as a major accounting firm or the Electoral Commission.

10. All quota owners will receive a complimentary membership. Other participants will pay membership fees determined by ballot at the organisation's AGM. Decisions relating to the viability of the resource will be on the basis of one vote per quota unit and an agreed number of votes per active diver.

11. Decisions relating to the proposed levy will be decided by the quota unit holders. All other decisions (position to provide on TACC setting, commissioning research and other services, election of the board and Committee) will be made by members with a voting structure based on votes per quota unit and agreed votes for divers. The voting entitlements should give more influence to people/entities who/which have invested in the industry through quota units than those with a more modest investment.

12. The organisation will need to have powers to sanction participants in the industry who don't abide by the Rules and bylaws, and Code of Practice and Conduct. The development of a monetary penalty system, which is pre-agreed as part of the membership application process is recommended.

7. THE INSTRUCTIONS FOR THE DRAFT MEMORANDUM

1. BACKGROUND

i. MS&A undertook extensive consultations with participants in the Victorian Abalone Industry Central Zone for DEPI. The MS&A Terms of Reference for this project, amongst other things, instruct MS&A to develop the brief for the drafting of the rules of a new representative body. This section sets out the instructions for the Draft Memorandum.

ii. The working title of the new representative body should be Victorian Abalone Central Zone limited (VACZ).

iii. MS&A recommends that VACZ be a Company Limited by Guarantee.

MS&A has recommended a six step process for the establishment of VACZ.

Step 1   The appointment of an interim Board of seven.  The Board should be made up of an independent chair, three directors with corporate governance experience and three directors with experience from within the Victorian Abalone Industry - preferably from the Central Zone.  The role of the interim Board will be to manage a reconciliation process for the Victorian Abalone Industry Central Zone.

Step 2   Interim Board to manage the reconciliation process.

Step 3   Interim Board to approve the instructions for the drafting of the memorandum and articles of the new body.

Step 4   Interim Board to complete a roll of voters and their entitlements.

Step 5   Interim Board to conduct a plebiscite to determine whether VACZ should be established. 

Step 6   Interim Board to manage the election process of the first board.

2. GUIDELINES FOR THE DEVELOPMENT OF MEMORANDUM AND ARTICLES OF ASSOCIATION OF VACZ

1. The working name of the Company should be Victorian Abalone Central Zone Limited (VACZ) unless or until the members of the Company decide otherwise.

2. The objectives for which the Company are established should be related to the fishery, fishing, transport and sale to food processors or direct customers but should not extend beyond the sale of the raw product and should include but not be limited to:

(a) Ensuring the proper use of Abalone Central Zone Grants Levy funds.

(b) Ensuring the sustainable and efficient utilisation of the Central Zone abalone resource;

(c) Commissioning services and undertaking activities related to sustainability based research and development of the resource;

(d) Undertaking activities that support effective marketing and promotion of fish from the resource;

(e) Developing and implementing efficiency and effectiveness improvements in monitoring, catching, transport and storage of abalone;

(f)  Undertaking activities which promote and protect the interests of entitlements holders in the zone;

(g) Providing the collective views of entitlement holders on operational management of the resource to government;

(h) Operating to ensure transparency and accountability to Grants Levy payers;

(i) Meeting the requirements of the funding agreement with government.

3. MEMORANDUM OF UNDERSTANDING

Rules need to be established to ensure that the Company:

1. Carries out its objectives;

2. Exercises its powers for the purposes of its objectives; and

3. Applies its income and property towards the promotion of its objectives in a manner which is consistent with the Memorandum of Understanding.

4. Has appropriate governance structures

4. INCOME AND PROPERTY

The rules related to the income and property of the Company should dictate that income and property should not be paid or transferred directly by way of dividend, bonus or otherwise by way of profit to members of the Company, however, the Company may pay reasonable and proper remuneration to any member who is an officer or employee of the Company. 

5. LIABILITY OF MEMBERS

The liability of members should be limited.

6. CONTRIBUTION BY SUBSCRIBERS

The rules need to state that the initial subscribers of the Company will contribute a payment in the first year of $1, but that in the case of winding up the members should be required to pay no more than $5.

7. DEFINITIONS AND INTERPRETATIONS

The rules will need to ensure that all acronyms, names of organisations and government officials are spelt out in the memorandum. 

The memorandum should state the names, addresses and occupation of each subscriber who is listed as a subscriber wishing to form a Company pursuant to the Memorandum.  It will be important to ensure that the list of subscribers includes people who are currently associated with VADA with VAC and who are not aligned. 

8. THE INSTRUCTIONS FOR THE DRAFT ARTICLES

1. PRELIMINARY

All terms and definitions in the articles will need to be defined. 

2. MEMBERSHIP

2.1 Classes of Member

It is envisaged that there will be three classes of member.

(a) Quota unit holders.

(b) Divers.

(c) Associate members - shall be non-voting membership of VADZ and shall be open to any person who is actively engaged in business for profit within the Abalone industry including the harvest and post-harvest sectors, but such membership shall not be open to a person who otherwise meets the criteria under rules 2.1 (a) and (b) above.

2.2 Rights of Members

The rules should be drafted so as to ensure that the quota unit holders have the right to set the levy and any additional surcharge, and that the views of licence holders and divers are taken into account in relation to certain matters which will be outlined in further clauses.

2.3 Voting Rights

The voting rights for each class of member are shown in Schedule 1 (see section 9)

2.4 Membership Fees

Quota Unit Holders will receive complimentary membership.

Other members of the Company will pay an annual membership fee which will be determined from time to time.

2.5 Admission of Members

The rules should stipulate that membership of the Company is voluntary but that quota unit holders will be granted a complimentary membership. The following rules will be appropriate 

(a) Applications for membership as a quota unit holder must be accompanied by documentary evidence of the number of quota units which are held by the applicant. 

(b) Applications from divers must be accompanied by the membership fee and documentary evidence the applicant is a nominated operator on a current Abalone Fishery Access Licence, demonstrating that the applicant is authorised under the Fisheries legislation to carry out the abalone fishing activities.

(c) On application for membership, applicants must provide all the information requested in the application form for the appropriate category of membership.

2.6 Members to Notify Changes of Information

The rules should ensure:

(a) That members give the Company notice of any change in the members' contact details within a specified number of days of the change occurring.

 (b) That a member must, within a specified number of days of it being aware that it is ineligible to remain a member give the Company notice of the fact. (Ineligibility will occur if the member ceases to be a quota unit holder and/or a diver and/or a person with an interest in the industry)

2.7 Audit of Information                       

The rules should ensure that the Company is empowered to give notice to any member to demonstrate that the member remains eligible to be a member under the membership category in which the member is enrolled.

2.8 Subscribers to pay and be listed in the Company's Memorandum

A Company Limited by Guarantee needs to be established by subscription from a number of persons (nominally 10) involved in the industry.  The rules should ensure that those persons who subscribe to the Company's Memorandum and Articles of Association will cease to be a member automatically on the date that the Company commences a register of members' names and relevant categories. At that point the subscribers, other than quota unit holders, should apply to become members of the Company.

2.9 Expulsion of Members

If the rules need to ensure that the Directors may expel, remove from the register of members any person and the conditions under which this action could be taken, then the rules should show how the Directors satisfy themselves that the member has ceased to be eligible to be a member.  This may include:

(a) If the member is un-contactable as specified above through the contact details listed on the Company register.

(b) Has been found, by the independent Practice and Conduct committee to have failed to comply with the Company's rules and by-laws.

(c) If the member fails, after reprimand, to adhere to the Company's Code of Practice and Conduct.

(d) If the member fails to abide by a determination by VCAT.

(e) If the member becomes bankrupt insolvent or is wound up.

For the sake of clarity the rules should ensure that every reasonable effort is made to retain quota unit holders as members.

2.10 Cessation of Membership

The rules should identify the conditions under which membership ceases and the processes by which it would be determined that the member had ceased to be a member.  This would be expected to include resignation, death and failure to pay membership dues.

2.11  Transfer of Membership

The rules should indicate whether the membership for members other than quota holders is transferable. 

2.11.1  Equitable and other claims 

The rules need to be clear whether through the by-laws and articles the Company is required, if the Company has notice that a person is holding a membership through a Trust, to recognise the trust as a member 

2.12 Disputes and Mediation

The rules should identify a process for dispute resolution and mediation between members that includes requirements for:                           

(a) Parties to meet to discuss the matters in dispute.

(b) Parties to attend independent mediation if an initial meeting is unsuccessful.

The rules should also identify a process for parties to seek to resolve the dispute under the provisions of relevant legislation should the mediation process not result in the dispute being resolved.

The rules should specify the requirements and role of a mediator, the process of selecting mediators and guidelines for how mediation is to be conducted including the status of decisions made through mediation.

3. GENERAL MEETINGS

3.1 Convening of General Meetings

 The rules need to:

(a) Specify the number of Directors who may, whenever they think fit, convene a general meeting.

(b) The process by which quota unit holder members, divers and associate members may call a special general meeting.                       

(b) State that a meeting may be convened only as provided for in the Corporations Act.

(c)  ensure that Directors may postpone cancel or change the venue for general meeting but not a general meeting convened under division 2 Part 2G of the Corporations Act.

3.2 Notice of General Meetings

The rules need to:

(a) Ensure that advanced notice of annual, special and general meetings is given by causing a notice of meeting to be published, where it is to be published and the time, in days, before the meeting is held that the publication should occur.

(b) Specify how all notices should be given in relation to annual, special general meetings but in general terms should specify:

1. The day, time and place of the meeting.
2. The general nature of the business to be transacted at the meeting.
3. Advise whether the companies' register of members will close for the purpose of the meeting and if so the date of the closure.
4. Indicate who may be able to attend and vote at the meeting.

3.3  Admission to General Meetings

The rules need to consider whether to empower the Chairman of a general meeting to refuse admission or require persons to leave the meeting and the conditions under which this power may be exercised.  

(a)  For example, if they are in the possession of:

i. Video recorder or sound recording device;

ii. Placards or banners; and/or

iii. An object considered by the Chairman to be dangerous, offensive or liable to cause disruption. Or who refuses to permit examination of the contents of that object.  

(b) Who behaves or threatens to behave in a dangerous or offensive or disruptive matter.

(c) Who is not a member.

(d) Who is not a person holding a proxy of a member.

(e) Who is not an auditor of the Company.

3.4 Quorum for General Meetings

The rules should be specific that no business should be conducted at a general meeting until a quorum is present.  When the number for the quorum is set, consideration needs to be given whether or not attendance at the meeting can be via electronic means.

3.5 Chairman of General Meetings

The rules need to state who will be the Chairman of the general meetings and if that person is not present within a certain time after the due commencement time of the meeting, who else might be empowered to chair the meeting.

3.6 Conduct of General Meetings

It is normal for the Chairman of a general meeting to be responsible for the general conduct of the meeting and for the procedures to be adopted at the meeting. The rules will need to consider whether to prescribe these procedures or endorse the Chairman's prerogative to determine those procedures.

3.7 Voting Rights

The rules need to show whether or not voting will be done by show of hands or by a secret ballot, and need to be specific about the different voting entitlements of quota holders, licensees and diver members.

All matters relating to voting are dealt with in the attached Schedule (see Section 9).

3.8 Adjournment and Reconvening of General Meetings

The rules need to stipulate in what circumstances a general meeting can adjourn and reconvene.

4. ROLE OF THE BOARD AND APPOINTMENT AND REMOVAL OF DIRECTORS

MS&A' s recommendations in relation to the appointment of  directors are contained in section 6 of this report 'Recommended Approach'.

4.1  The rules need to indicate the:

(a) Number of Directors;

(b) Names of the Directors at the date of the adoption of the articles;

(c) The requirement for categories of Director;

(d) Whether additional Directors can be appointed;

(e) Commencement and finishing of terms of a Director;

(f) Point of retirement of Directors;

(g) Retirement of the founding Directors;

(h) Rotation of Directors/term of appointment;

(i) Payment of Directors;

(j) Removal of Directors;

(k) Retiring of Directors;

(l) Appointment of Directors;

(m) Appointment to casual vacancies;

(n) Office bearers (including the Chairs of Board committees) of the Board and the method and time of their election; and

(o) The role of the Board in the governance of the Company – e.g. budget approval, appointment of the Executive Officer, etc.

4.2 Vacation of office                       

The rules need to show in what circumstances Directors' positions become vacant and should include circumstances described by the Corporations' Act including circumstances where a Director becomes of unsound mind or is likely to be dealt with by law relating to mental health are applicable.  The rules may also consider that a Director's position becomes vacant if the Director fails to attend a specified number of meetings within a year.

4.3 Remuneration of Directors

The rules need to indicate what remuneration is available to Directors.  It is recommended that honoraria, and expenses only, be paid. 

4.4 Interested Directors

The rules need to state whether:

(a) A Director may hold office or place of profit, other than auditor, in a related body corporate in conjunction with his Directorship, and may be appointed to that office. 

(b) Directors may exercise the voting rights conferred by quota units or voting rights ascribed to other membership categories. 

(c) A Director should be disqualified as a Director because of entering into a contract with the Company in respect to any activity.

4.6 Proceedings of meetings of Directors

The rules need to:

(a) Show where the Directors may meet for the conduct of business and adjourn and regulate their meetings as they think fit.

(b) Whether the use of electronic means, including telephone video link and other electronic means is allowed for the conduct of meetings.

(c) Whether, where electronic means are used, that the Director is deemed to have been present at the meeting.

4.7 Convening of meetings of Directors

The rules need to show when and how Directors may convene a meeting of the Directors.

4.8  Notice of Meetings of Directors

The rules should ensure, subject to the articles, that notices of meetings are given to each person who is, at the time of notice, a Director, other than a Director on leave of absence, approved by the Chairman, and that the notice of meeting of Directors should specify:

1. The time place and purpose of the meeting.

2. Whether the notice may be given immediately before the meeting.

3. Whether the notice may be given in person electronically or by post, facsimile transmission or telephone or other means of written or audio visual communication.

In addition, the rules need to be clear about circumstances where the Chairman may elect to waiver the notice to an individual Director, the non-receipt of notice by an individual Director is accepted, and the circumstances under which a Director is excused for non-attendance.

4.9  Quorum at Meetings of Directors

The rules need to be clear about:

(a) The transaction of business without a quorum.

(b) What a quorum consists of.

(c) If there is a vacancy in the office then subject to the articles whether the remaining Directors may act. 

(d) If the number of Directors in office is less than the minimum numbers what the remaining Directors may do.

4.10 Chairman of Directors

The rules need to state how and when:

(a) The Independent Chairman of Directors of the first Board is to be appointed by the interim Board.

(b)  The Directors subsequently appoint the independent Chairman. 

(c)  The election of Board office holders is conducted.

(d) The Board positions may be changed.

If the Chairman of Directors is not present at meetings within a specified time the rules need to state whether the meeting is empowered to appoint another person to act as chair for the conduct of the meeting.   Also what to do in a meeting of Directors if the Chairman is present but not willing to act as Chairman at the meeting. 

4.11 Decisions of Directors

The rules need to show where a quorum is present, and the meeting is competent to exercise their authorities, whether votes will be taken on a simple majority and what questions arising at a meeting are to be decided by some other majority, and what to do in the case of equality of votes and whether the Chairman has an additional or casting vote (see section 9).

4.12 Written Resolutions

These rules need to cover the situation where:

(a)  All of the Directors other than Directors on leave of absence;

(b) A Director who disqualifies himself or herself from considering the matter of resolution; or

(c) Any Director, whom the Directors reasonably believe is not entitled in law to act [as a Director], are instructed how to deal with documents containing a statement to the effect that the Director should not act in the matter.

(d) A course of action has been taken or a resolution has been past, how to deal with the resolution of the matter.

4.13 Committees of Directors

The rules need to show whether the Directors can delegate any of their powers to a committee or committees as they think fit.  It is recommended that the rules instruct the Directors to establish Board Committees including the following three committees deemed essential for good governance:

(a) Finance, audit and risk. (It is not normal practice for the Chairman of the Company to sit on this committee.)

(b)  Board nomination, selection and membership. (The role of this committee is to ensure the maintenance of a skills-based board, which has proper corporate governance and is in tune with the industry; see 5. Board Selection Committee below.)

(c) Executive performance and remuneration. (This committee should have the responsibility for reviewing and overseeing all staff and contractor  remuneration.)

Two additional committees are required because of the nature of the industry and the history of the Central Zone:

(d) Total Allowable Commercial Catch and Resource Development (TACCRD). (This committee should be responsible for developing advice to government on TACC setting and related issues, and the commissioning of external services to support science and management activities.)

(e) Practice and Conduct. (The role of the Practice and Conduct Committee is to sit in judgement on complaints about behaviour compliance or conformance of members and impose appropriate sanctions. This committee may refer disputes to the Law Institute of Victoria for mediation. Initially this Committee will be charged with the responsibility for drafting the Code of Practice and Conduct for approval by the Board.)

The rules should specify:

(a) What powers may be delegated to, and exercised by, each committee.

(b) If the provisions of the articles applied to meetings and resolutions of Directors should, as far as they can, be applied to the meetings of Board committees.

(c) Whether, as recommended by MS&A that, persons who are not Board members can be members of Board committees.

(d) Each of the committees should have the power to develop its initial terms of reference, which should be submitted to the Board for approval.

4.14 Delegation to individual Directors

The rules need to indicate whether Directors may delegate any of their powers to one Director and the circumstances under which such delegation may be made.

4.15 Validity of Acts

The rules need to show whether a person acting as a Director either at a meeting of Directors or in a committee of Directors is invalidated by reason of:

(a) A defect in the appointment of the person as a Director, or the person being disqualified to be a Director, or having vacated the office.

5. BOARD SELECTION COMMITTEE

In order to ensure that a skills-based Board is established and maintained, the Board should appoint a selection committee for the purposes of reporting to the Company on the suitability of candidates for re-election or election to the office of Director at general meetings.  The rules need to show how the selection committee will be appointed.

5.1 The Terms of Reference and Constitution of the Selection Committee

Terms of reference for the selection committee will be required.

5.2 Proceedings of Selection Committee

The rules need to indicate who should be the chair of the selection committee (most likely the Chairman of the Company) and the powers of the selection committee.

5.3 Endorsements of Candidates of Election as Directed                       

The rules need to clearly state the period of time before the annual general meeting that the selection committee should have met and have made its recommendations.  The selection committee will need to be aware of which Directors are retiring from office, which are available for re-election, and make recommendations as to who should be elected from a list of new candidates and who should be re-elected.  The selection committee should ensure that a skills based Board is maintained. 

6. EXECUTIVE OFFICERS

The rules should clearly state whether any member of the Board can be an executive member. Our recommendation is that it is inappropriate to have executive Board members of the Company.

6.1 Auditor

The rules need to prescribe the process by which the Company's auditor is appointed.  This should include the required qualifications and the period of appointment.  

6.2 Provisions Applicable to Executive Officers

The rules need to be clear as to the appointment and duties of executive officers.

7. SEAL

The rules need to be clear about the safe custody of the seal and:

7.1         The authority under which the seal is used; and

7.2         The seal register.

8. WINDING UP

The rules need to be clear about the clauses relating to the Memorandum of Association regarding winding up of the Company. 

9. MINUTES AND RECORDS

The rules need to be clear to ensure that Directors cause minutes of all proceedings of annual, special and general meetings, and meetings and Directors and Directors of committees, to be entered within one month after the relevant meeting is held and the books kept for that purpose.

9.1 Signing of Minutes

The rules need to be clear that minutes which are taken under these articles must be signed by the Chairperson present at meeting or by the Chairman of the succeeding meeting.

9.2 Minutes and Evidence

The rules need to be clear that minutes may be required as evidence.

9.3 Inspection of records

The rules need to be clear to what extent, what time, and place, and under what conditions, the minute books, accounting records and other documents of the Company will be open to the inspection of members and other Directors.

9.4 Members Informed of Board Decisions

Whilst it is inappropriate to draft rules which instruct the Board to make all minutes available to the members, the rules should ensure that the decisions taken at Board meetings, records of financial transactions and other documents are communicated or available to the members in a convenient, accurate and timely manner.

10. NOTICES

The rules need to be clear on how and when notices will be given by or to the Company and whether they are served personally, by post, prepaid envelope, electronically etc. This will apply to

10.1     Notices by the Company to a Director

10.2     Notices by the Company to a Member

10.3     Notices by Members or Directors to the Company

10.4     Notices Addressed to Outside the Commonwealth

10.5     Time of Service

The rules should specify that where the notice is by the post, a certain number of days are allowed for the notice to be received by the intended recipient.

11. INDEMNITY INSURANCE

11.1 The rules need to be specific as to whom articles 11.2 and 11.4 apply

Articles 11.2 and 11.4 could apply to such other officers, or former officers, of the Company, or of its related bodies corporate, as the Directors in each case determine.

11.2 Indemnity

The rules need to be clear whether the Company should indemnify, on a full indemnity basis and to the full extent permitted by law, each person to whom this article 11.2 applies, for all losses or liabilities incurred by the person as an officer of the Company or of a related body corporate including, but not limited to, a liability for negligence or for reasonable costs and expenses incurred and the situations in which this indemnity is offered:

(a) In defending proceedings, whether civil or criminal, in which judgment is given in favour of the person or in which the person is acquitted; or

(b) In connection with an application, in relation to such proceedings, in which the Court grants relief to the person under the Corporations Act 2001.

11.3 Extent of indemnity

The rules need to be clear on whether the indemnity in article 11.2:

(a) is a continuing obligation and is enforceable by a person to whom article 11.2 applies even though that person may have ceased to be an officer of the Company or of a related body corporate;

(b) Operates only to the extent that the loss or liability is not covered by insurance.

11.4 Insurance

The rules should specify the level and scope of insurances taken out by the Company to protect Board members and executive officers to cover liability for negligence or for reasonable costs and expenses incurred in defending proceedings, whether civil or criminal and whatever their outcome.  The Company may, to the extent permitted by law:

(a) Purchase and maintain insurance; or

(b) Pay or agree to pay a premium for insurance,

For any person to whom this article 11.4 applies against any liability incurred by the person as an officer of the Company or of a related body corporate.

Nothing in this section should override the requirements of the funding agreement made with DEPI.

11.5 Rights in Respect to Loss

Nothing in article 11.2 or 11.4 should:

(a) affect any other right, or remedy, that a person to whom those articles apply may have in respect of any loss or liability referred to in those articles; or

(b) Limit the capacity of the Company to indemnify or provide insurance for any person to whom those articles do not apply.

Amendment of Rules

The rules should specify the basis by which the rules can be altered and the requirements of any relevant act. Voting thresholds are included in the attached schedule (see Section 9).

By-Laws

The rules need to stipulate whether The Board can make by-laws for, or with respect to, any act, matter or thing in respect of which the Board has had a function or power under these memorandum and Articles. This may include by-laws regarding:

• Processes by which the performance of the entity will be measured (including documentation of key performance indicators).
• Processes to ensure accountability of expenditure.
• Guidance relating to the appointment of officers and contractors.
• Appropriate levels of delegation of decision making and authorising of expenditure.

9. THE VOTING SCHEDULE

*Given the history of the fishery, it is recommended that decisions are made on the basis of eligible votes, rather on votes of meeting attendees. It should be stipulated that meetings can be attended electronically. Further the rules on proxies should allow for the appointment of a "Standing proxy until revoked", or alternatively a standing proxy for a defined period or until revoked.

**Exhaustive preferential voting will require a draw for positions on the ballot paper. Ballot papers will be issued to all members who will be required to cast a vote for all candidates, in order of preference with 1 being the most preferred. The candidate with the lowest score is the first appointed, the second lowest is next appointed and so on with further candidates appointed until all vacancies have been filled.

10. RATIONALE FOR RECOMMENDING A COMPANY LIMITED BY GUARANTEE

Companies limited by guarantee and incorporated associations are the most common structures through which not-for-profit organisations undertake their activities.

The reason for recommending a Company Limited by Guarantee is that the duties of office holders are much clearer than for an incorporated association (see Tables 2, 3 and 4). A summary of the key hallmarks of each follows.

Companies limited by guarantee

A company is a body corporate registered in Australia under the Corporations Act 2001 (Cth) and regulated by the Australian Securities & Investment Commission (ASIC).

All companies:

• Are bodies corporate created by law and are accepted as persons for legal purposes, meaning that companies:
  • Have all the powers of natural persons;
  • Can sue and be sued in their own right;
  • Can enter into contracts, own, buy and sell property in their own right;
• Have officeholders (Directors and Secretaries) and a registered office;
• Have members (called shareholders in a company limited by shares) who enjoy limited liability – this means that even where the company is wound up with debts that exceed its assets, the members' obligation to contribute is limited;
• Have perpetual succession – this means the company continues to exist even if members or officeholders die;

Companies limited by guarantee:

• do not have shares. The liability of its members is limited to the amount of their guarantee. The amount of the guarantee is usually set out in the Constitution, and is usually a nominal amount;
• cannot distribute the earnings of the company to its members.

Companies are recognised nationally and therefore can operate anywhere in Australia, including across state borders.

Companies can limit the exposure of their officeholders by indemnifying and/or insuring them.

Incorporated Associations

An incorporated association is a body corporate registered in Victoria under the Associations Incorporation Act 1971 (Cth) and regulated by the Registrar of Incorporated Associations through Consumer Affairs Victoria (CAV).

All incorporated associations:

• Are bodies corporate created by law and are accepted as a person for legal purposes, meaning that incorporated associations:
  • Have most of the powers of natural persons;
  • Can sue and be sued in their own right;
  • Can enter into contracts, own, buy and sell property in their own right;
• Have officeholders (called the Committee of Management in the Act);
• Have members who enjoy limited liability – this means that even where the incorporated association is wound up with debts that exceed its assets, the members' obligation to contribute is limited;
• Have perpetual succession as long as the Association has 5 members and lodges its annual returns;

Incorporated associations:

• Must have a Statement of Purposes and all activities must be undertaken in furtherance of those purposes;
• Members' liability is limited to any amount owing on their current annual subscription (if any);
• Cannot trade – this is a loose restriction, as trading for a profit can be approved by the Registrar as long as no distributions are made to members;
• Cannot distribute earnings its members.

Incorporated associations are state based and can have difficulty undertaking activities across state borders. Section 601CA of the Corporations Act provides that a 'registrable Australian body' must not carry on business in a state or territory other than its place of origin unless that body is registered under Part 5B.2 of the Corporations Act. An incorporated association falls within the definition of 'registrable Australian body' and ASIC Practice Note 47 (at para 47.85) suggests that there is a very low threshold for carrying on business.¹

Incorporated associations, depending on their size, income and assets, can find it difficult to obtain insurance, including for its officeholders.

A current legislative review for incorporated associations is aimed at:

• Reducing administrative burden;
• Improving governance, asset management, disclosure and record keeping; and
• Enhancing members' rights and the supervisory role of the Registrar.

11. AREAS OF RECOURSE

There are various avenues for recourse when disagreements arise between entity members.  See table five for areas of recourse related to specific issues.

1 Any incorporated Australian association may apply to become an Australian Registered Body (via an application to ASIC using ASIC Form 401).

The procedure involves the submission of a variety of papers to the ASIC and the payment of the application fees. The registered body is required to have a registered office and a principal place of business in Australia, notice of which is to be lodged with the ASIC.

Once registered, the Australian Registered Body may obtain a common seal.

An association which has become an Australian Registered Body will not be required to lodge an annual return with the ASIC. However, an annual return must continue to be lodged with the relevant State body governing the association.

All relevant changes must be notified to both the State body governing the association and the ASIC within the timeframe which applies to companies. These include any changes to the Body's registered office, principal place of business or officers.

The letterhead of an association which has become an Australian Registered Body must show both its Registration Number as an association and its ARBN. However, if the Australian Registered Body applies for an ABN, that number may be substituted for the ARBN.

Registration under the Corporations Act does not:-

• create a new legal entity. If the body was an incorporated association before the procedure, it will remain as an incorporated association afterwards; or
• affect the body's existing property, rights or obligations; or
• render defective any legal proceedings by or against the body or its members.

Once registered as an Australian Registrable Body, that entity may accept members from interstate or overseas and may conduct business interstate. All members will be treated equally, regardless of their State of residence.