Two recent announcements reminded me that mutual friendly societies are facing similar issues to other mutuals: firstly it was announced that the Friendly Societies of Australia had joined Abacus – Australian Mutuals and secondly Manchester Unity Health Benefits Fund announced that it had entered an agreement to demutualise and merge with private health insurer, HCF of Australia Ltd.

If approved, HCF will pay $256 million and Manchester Unity 80,000 members will receive between $200 and $3000 each depending on their type of policy and length of membership.

Friendly societies were established by community and national groups in Australia in the 1830s for social reasons and to provide aid to their members in need.

Friendly societies now offer a wide range of services ranging from education savings, funeral benefits, health insurance, mortgages, pharmacy, retirement villages and aged care to superannuation.

The services offered dictate the regulation a society is subject to: in 1999, the regulation of friendly society incorporation was transferred to the Corporations Act. Regulation of societies offering financial and insurance services through benefit funds was transferred from state-based jurisdictions to the Australian Prudential Regulation Authority (APRA). Those friendly societies now operate under the Life Insurance Act 1995 (Life Act) .

Societies operating health benefit funds are regulated by the Private Health Insurance Administration Council (PHIAC) which operates under the Private Health Insurance Act 2007. When health fund business is operated directly through a friendly society, in addition to other benefit fund business, these entities are referred to as jointly regulated friendly societies under the Life Act (APRA) and the Private Health Insurance Act (PHIAC). APRA consults with PHIAC in relation to jointly regulated friendly societies.

Not all friendly societies are mutuals. The largest have demutualised.

NIB was the first health fund to list on the ASX in 2007.

In light of notorious share predator David Tweed’s success in gaining access to the AXA member register (see here) it’s worth summarising the current situation regarding access to the member register of mutuals.

Corporations Regulations 2001 Reg 2C.3.01 was inserted in 2007 to modify section 173 of the Corporations Act 2001  dealing with the right of access to a member register of building societies, credit unions and friendly societies. New subsections (1AA), (1AB), (3A) and (3B) were also inserted by Corporations Amendment Regulation 2007 (no. 9) in section 173 dealing with use of information on a register of members.

Under section 173, companies are required to provide a copy of their register of members within seven days to a person requesting access to the register and paying the required fee. Section 173 was modified in the case of building societies and credit unions when they became companies in 2001 but required further modification after the Capricornia Credit Union case (see below).

The Government has addressed the concerns of mutuals by requiring that where an applicant wishes to contact members and where a copy of the register has not been provided within 28 days of a person’s request for a copy, the company may (unless it reasonably believes the contact or material to be sent is not lawful) satisfy its obligations by providing the member register details to a secure third party provider such as a mailing house rather than the applicant directly.

The Regulation does not change the need for the applicant to have a lawful purpose for access but does provide a clearer process and member privacy safeguards. The Regulation also inserts a new ground on which a company can refuse access, namely the body is not satisfied that allowing the person to inspect or copy the register is in the interests of the members as a whole.

In what form must access be provided and what can you charge for access?

Whilst there is no guidance on what are the ‘reasonable costs" that can be charged for use of the mailing house a recent decision deals with the cost that can be charged for a copy of the member register.

In Direct Share Purchasing Corporation Pty Ltd v AXA Asia Pacific Holdings Ltd [2008] FCA 935 the Federal Court  reviewed the fee Direct Share Purchasing Corporation was obliged to pay Axa for a copy of its member share register (which was managed by Computershare).

AXA charged a fee of $17,195.39 for providing a CD Rom containing a PDF copy of the member register (rather than an Excel file as Direct Share requested). The file format was not an issue.

"Section 173(3) provides the company must give a person a copy of the register (or a part of the register) if a person asks for a copy and "pays any fee (up to the prescribed amount) required by the company". The Corporations Regulations 2001 (Cth) (the Regulations) specify that in the case of a register kept on a computer the fee that can be charged is "a reasonable amount that does not exceed the marginal cost to the company of providing a copy": reg 1.1.01 and sch 4, item 3(b). In other words, the fee must satisfy two conditions: (1) it must be a reasonable amount; and (2) the amount must not exceed the marginal cost to the company of providing a copy of the register."

The Court decided that a reasonable fee was $250 and ordered Axa to refund the difference.

Background

When corporate regulation of building societies, credit unions and friendly societies was transferred to ASIC in 2001, the Corporations Act had to be modified to deal with, for example, the concept of member shares, demutualisation and the right of access to the member register.

Part of the concern of mutuals was that, unlike other public companies, as customers needed to be members, disclosure of the member register also provided personal information about members in their capacity as customers. Security concerns were also raised for companies whose membership is concentrated in the defence or police sectors.

Subsection 173(3B) was inserted by reg 12.8.06 of the Corporations Regulations 2001 (Cth).The modification was  considered in Capricornia Credit Union Ltd v Australian Securities and Investment Commission [2007] FCAFC 79 .

DISCLOSURE: I advised Capricornia Credit Union in its action.

Rules for First Home Saver Accounts are still being developed but it is worthwhile looking at some research done in USA about encouraging savings in difficult times by low- and moderate-income families.

In "Using Financial Innovation to Support Savers: From Coercion to Excitement," [PDF] Harvard Business School professor  Peter Tufano attempts to explore the various reasons why people don’t save and reviews a wide variety of programs that support savings by families.

These programs range from ones that literally compel families to save, to those that make it hard not to save, make it easier to save, provide financial incentives to induce savings, leverage social networks to support savers, and finally, to programs that excite people to saving. He describes examples of each program and provide some information on their economics and effectiveness.

In order to support people who want to
save (not to force someone to save who doesn’t want to) he concludes that the most interesting ideas try to make savings a fun or satisfying experience.

Interview with Tufano

The Corporations Act and the Banking Act do not define mutuals : ASIC and APRA say what demutualisation is, but do not define mutuality.

This blog will discuss matters concerning credit unions, building societies, co-operatives, health benefit funds and a range of other member-based organisations who consider  themselves mutuals.

This blog is not legal advice.

This blog will never discuss my clients’ confidential matters.

But I will try to discuss interesting issues affecting mutuals.