Official view of the Great Norfolk Debate

Great Norfolk Debate

The Administrator of Norfolk Island, R. N. Dalkin, has endorsed the following article, especially prepared for PIM by the Norfolk Administration.

The article by the Sydney solicitor purports to show that the Norfolk Is land Companies Ordinance 1971 was passed through the Norfolk Island Council in an objectionable and even an underhand way, and that there are a number of aspects of the ordinance itself which are unacceptable from a legal point of view. Both these view points are grossly in error and dis tort the events leading up to the mak ing of the ordinance, as well as show ing a regrettable lack of understanding of the effect which the legislation will have on company operations on Nor folk Island.

Prior to 1968, councillors had ex pressed concern on a number of occa sions about the large number of com panies registering on the island. They felt that proper control should be exercised over these companies and that the island should also benefit from the revenue obtainable from them. Early in 1968 council resolved almost unanimously, and the Ad ministrator endorsed the recommend ation, that the company laws in force in the State of New South Wales, that is to say the “Uniform Companies Legislation” (UCL) should be suit ably adapted to apply to Norfolk Island.

In April, 1968, as a result of coun cil’s recommendation, the Department of External Territories was asked to take processing action to give effect to the resolution. This was certain to be a lengthy task, as indeed it proved to be, and later in 1968, as an in terim measure, council also recom mended an increase in the rate of the initial company registration fees.

This interim increase, involving. a simple amendment to the then exist ing Norfolk Island Companies Ordi nance, became law in February, 1969.

Meanwhile, processing of the earlier council resolution concerning the in troduction of the UCL continued.

At a council meeting held on Sep tember 1, 1970, one councillor clearly impatient at the time which was being taken to process the draft legislation, gave notice of motion seeking to impose an annual registra tion fee on companies registered on the island. At its meeting on Oc tober 6 council discussed this motion, which dealt in some detail with the proposed increase in company fees

as well as with some associated amendments. At that same meeting the matter of the pecuniary interest of some councillors in companies was raised and a decision on this matter was made by the Administrator. The Attorney-General’s Department subse quently recommended that this de cision be reversed.

At the meeting on January 6, 1971, council was informed by the Adminis trator that the processing of the ori ginal motion of council had reached the stage where draft legislation to amend the existing law was nearing completion. They were informed also that this draft legislation included pro visions similar in effect to the provi sions of the UCL insofar as those pro visions would be applicable to Nor folk Island. They were told that some of these aspects taken from the UCL, related to: (a) company names, (b) registered offices, (c) prospectuses, (d) annual returns, (e) accounts and audit, (f) duties and responsibilities of company officers, including directors, (g) the periodic filing of returns of directors, registered offices, etc., (h) the striking off of unregistered companies, (i) the administration of the legislation gen erally, (j) the fact that the legislation would also take into account financial and procedural aspects relevant to the island’s situation.

The then proposed changes were concerned essentially with the intro duction of those aspects of modem company legislation which were seen as being urgently needed to update the existing company law and which had already been recommended by coun cil. Council was also informed that adequate consideration was being given to the financial aspect as it affected the island economy.

It was hoped at that time to circu late the draft to councillors during February, 1971, when they would have an opportunity of making known their views. As stated in the Sydney solicitor’s article the drafts of the legislation finally arrived on Saturday, April 3.

The article also states that two of the seven members of the council approached the Administrator on April 2 and made it known that they were planning to go to Sydney on April 4 on business, but would post-

pone their departure if the amend ments to the companies ordinance were to be discussed at the meeting on April 6, and had left the island after they had been given the assurance that the matter would not be discussed.

Neither of the two councillors, nor any others, approached the Adminis trator. One left the island on April 4 but did not at any time see the Ad ministrator before his departure. The other had a discussion with the Ad ministrator on a social matter but the subject of the ordinance was not raised, much less were any assurances given either about the next Tuesday night’s business or whether or not any councillor could or should leave the island. Councillors’ movements in this regard are their own affair.

Subsequently, neither in nor out of council have either of these two coun cillors claimed that any such approach was made.

A third councillor was in fact ap proached by the Administrator on April 2, and the ordinance, which at that date had still not arrived on the island, was discussed. This councillor attended the meeting on April 6.

It is a serious matter that an appar ently legally qualified person should relate a distorted and obviously second or third hand version of events that did not take place.

Referring to the meeting on April 6, the Administrator is the chairman of council and the Norfolk Island Council Ordinance provides him with the use of a casting vote. It was the Norfolk Island Council that recom mended the making of this law.

It is curious also to assert that the draft was “obviously compiled in great haste”. As has been shown, work had been proceeding on this draft for upwards of one year.

The comment in the article about a subsequent motion concerning amendment of the Norfolk Island Act is in error in two respects. The motion related to the Norfolk Island Council Ordinance, not the act: and it did not contain any reference to “allowing the Administrator. to re main as chairman at meetings of council”. The motion related only to the voting rights of the elected mem bers of council, and the chairman s and the president of committee’s vot ing rights. It requires a stretching of the imagination to the extent appar ent only in the mind of our “Sydney solicitor” to read a “polite notice of no confidence in the Administrator into the true wording of the motion.

The comments in the article con cerning this motion relating to the chairman’s voting powers, and the motion relating to the rescission of the earlier resolution concerning the

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?mpanies ordinance, overlook the ict that the Norfolk Island Council an advisory one. If the council ishes it to be otherwise then a reso ition to the effect that the council ants to assume some local govern lental authority and responsibility ould be appropriate.

The Administrator, and the Minis ir for External Territories, have ated repeatedly that any such reso ition would be regarded sympathetic- Lly and examined fully. Indeed, the ommonwealth Government produced draft ordinance in the early 1960 s roviding for a measure of local gov mment for the island. The council of le day refused to accept it.

During his visit to the island in May le Minister made a full and complete tatement on the position of the coun it the Norfolk Island Administration nd the Commonwealth Government i relation to the proposed companies rdinance. The statement was given ride publicity and was quoted in une PIM.

Insofar as obtaining council’s ad ice and views on the draft ordinance /as concerned some councillors made iiggestions at the meeting on April . It is true that at the time of that leeting councillors had had three ays in which to examine the draft rdinance. However, the ordinance /as again discussed a month later at he meeting of the council on May 4.

Jo suggestions as to any further de ired amendments were pvt forward •y councillors at that meeting.

Similarly, at the special council neeting called at the request of some ouncillors on May 11 no amend nents to the draft were suggested. In leed, a resolution was passed to the ffect that the matter of the companies ►rdinance would not be listed as an igenda item until a ruling of the kttomey-General had been obtained see below). The meeting of June 1 ilso passed without any amendments >eing suggested.

At the special meeting the chair nan refused to accept a motion to et up a committee of councillors to ook anew into the whole question of he formation and administration of companies on Norfolk Island (a task vhich was likely to be outside the council’s capabilities to perform). A iubsequent ruling by the Common wealth Attorney-General upheld the chairman’s decision not to accept such i motion at the then late stage in the of the draft legislation, rhose councillors who had expressed their opposition to the ordinance were free to form themselves into what-

ever informal committee they desired.

The solicitor’s article goes on to say that at a subsequent council meet ing on June 1 the matter was not raised as councillors “naturally thought that nothing further would be done until the Attorney-General had ruled (on the motion to form a committee)”. Councillors had no reason for adopting such an attitude, and in fact the matter of the ordin ance was raised at the meeting—by the councillor who had previously moved the motion that it should not be further discussed.

The solicitor’s version, second or third hand, of what was alleged to have been the outcome of the public hearings of the Senate Committee on regulations and ordinances is also seriously at variance with the facts.

It is not generally realised that the latest amendments represent the first substantial up-dating of the Norfolk Island Companies Ordinance which has continued virtually unaltered since its introduction in May, 1926.

The law in force in the territory is the Companies Act 1899 of NSW, with the NSW amendments up to 1918. Since 1918 there have been two thorough revisions of company law in NSW, the first in 1936 and the second in 1961 with the introduc tion of the Uniform Companies Act.

The NSW Government has recently announced that it intends to review the Companies Act again in the next year or so.

Prior to 1971 none of the changes of either 1936 or 1961 was incor porated in the law of Norfolk Island, even though a great number of sophisticated and financially large corporations are operating in the terri tory. The 1899 Act therefore has be come quite inadequate to meet the needs of the 19705. Many of the re quirements which have been intro duced first appeared in the 1936 NSW Companies Act.. The greater part of the amendments introduced in the 1971 ordinance are taken from the Uniform Companies Legislation which now applies in all Australian states and three Australian territories.

These provisions were used because they are generally suitable and will be familiar to all persons involved in company law in Norfolk Island.

These persons must in fact have a knowledge and understanding of Aus tralian company law before they could successfully practise on the island.

Referring again to the solicitor’s article, solicitors will not be required to disclose confidential communica tions. The ordinance states (Section 71u) “an inspector appointed under this act shall not require disclosure by a duly qualified legal practitioner of any privileged communication made to him in that capacity, except

as respects the name and address of his client”.

The solicitor’s statement about Sec tion 71R is inaccurate. Sections 7IQ and 71R appear in all other Austra lian companies legislation. With the exception of the necessary substitu tion of words to meet the needs of the island, e.g. “Administrator” for “Crown Law Officer” or “Attorney- General”, these two sections are iden tical with Sections 177 and 178 of the Australian Uniform Companies Legislation. Indeed these provisions in turn were taken from Sections 172 and 173 of the English Companies Act 1948.

The ordinance is not. as claimed, unnecessarily complicated. The 1971 ordinance introduces some 75 or so new sections or parts of sections of the 1899 act. Of these, at least 50 are copied directly from the Australian Uniform Companies Legislation. The new provisions should be familiar to anybody dealing with Australian com panies. Because of the basic similar ity between Australian. English and New Zealand company law the new provisions should also be reasonably familiar to persons outside Australia.

There are several modem and basic textbooks available to professional people should they have any doubts about these provisions. Those amend ments which are not taken from the Australian Uniform Companies Legislation are simple and are gene rally short amendments made to suit local needs.

Similarly, the investigation provi sions contained in the 1971 ordinance are the same as. those of the Uniform Companies Legislation in force in all Australian states and in three other Commonwealth territories —the ACT, the Northern Territory and Papua New Guinea. In these other Common wealth territories the powers of in vestigation are used only for the pur poses of the companies legislation.

Indeed the provisions of Section 166 (8) and (9) make it an offence for an inspector or the Registrar of Companies to disclose information ac quired in an inspection pursuant to that section.

The ordinance is designed to meet local needs and not to close loop holes in Australian law. It has been introduced primarily to deal with the problems which affect Norfolk Is land. If the Commonwealth Govern ment or state governments wished to close loopholes affecting their own area of responsibility they could do so very quickly by an act of the particu lar parliament. Such legislation would not of course be the affair of Norfolk Island.

The new ordinance makes it com-

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pulsory for a few specified companies to have their accounts audited. These are companies which are either owned by, or own, other companies; they are companies with a large number of shareholders or companies with a large paid-up capital. In fact very few genuinely local Norfolk Island companies would require an audit.

It is worth noting however that the constitution of most companies requires them, by their own rules, to complete an audit. Thus those few

companies which are now required by the ordinance to be audited were in any event almost certainly already required by their rules to be audited.

Turning to the ordinance itself it is concerned with updating the law in three important areas, i.e., prospectuses, accounts and inspection, and striking off powers; all from the UCL. A prospectus in simple terms means an advertisement to the public to invest in a company. The provisions of the ordinance are designed to pro tect the public from fraudulent and misleading statements by company promoters.

The new ordinance requires every company to keep proper books of accounts. Similar provisions were in troduced into New South Wales in 1936. These provisions not only pro tect the shareholders but also the public and company creditors. The ordinance sets out procedures whereby the shareholders or directors of com panies may initiate investigation into the affairs of their companies and procedures whereby the Administra tor may initiate investigation into the affairs of companies. The purpose of these provisions is to enable share holders, directors or the Norfolk Is land Administration to track down and prosecute persons involved in fraud or dishonest practices.

The ordinance also makes provi sions for notifying the Registrar of details of who are directors and share holders. This is to enable persons having business with the company to know who they are dealing with. The ordinance provides also for the regis tration of auditors and liquidators, the introduction of redeemable prefer ence shares, and for minor changes in the requirements relating to an-

nual returns. The Norfolk Island fee of $250 for other than local com panies is quite reasonable in compari son with other “tax havens”.

The subsequent resignation of five councillors, the “petition” which was circulated and the subsequent public meeting attended by a good-natured and well-conducted audience of resi dents and visitors to the island, have clearly indicated that the actions oi the non-resident protagonists of the “anti-company ordinance” group in this matter are not in the best long term interests of the island.

Further discussion on the wild as sertions that “the entire island was completely stunned” when the ordin ance was made, and “the majority ol the members of council believe they have been hoodwinked by the Ad ministrator and the Department ol External Territories”, and “the entire island is seething with indignatior about the matter”, and “the secre and furtive way the Administratoi has completely ignored the wishes ol a clear majority of the council” 1 would be too tedious and unnecesi sary. The thinking islander has 8 good realisation of the true facts.

It is likely that the new ordinance will be the cause of some companie: leaving Norfolk Island. However, ii is certain that the greater proportion of companies will remain so long a; it is profitable for them to do so.

In a sense it is a pity it has been necessary to write this article, but ii is essential that a balanced viewpoini be presented in this important matter It might also achieve a secondary obi ject of informing the public aboui the true effects of the latest amend! ments to the companies ordinance ii its application to Norfolk Island.