Australian Business Growth Fund (Coronavirus Economic Response Package) Act 2020

Australian Business Growth Fund. The Act defines this as the Corporations Act company in relation to which the Minister exercises powers under section 10. Notably, the company need not bear that name; the term is a label for whichever company receives the Commonwealth’s investment. Only one company can be the Fund, because section 10(3) prohibits the Minister from exercising powers under that section in relation to more than one company.

Commonwealth investment. The Minister may on behalf of the Commonwealth participate in forming the company, acquire shares by purchase or subscription, acquire debentures, and become a member of the company. This is not a loan or grant to SMEs directly; the capital flows through the Fund. The Commonwealth thus holds an equity or debt interest in the Fund itself, not in each SME that the Fund invests in.

Constitutional anchors. The most critical concept is the limitation in section 13. The Minister can only exercise powers under sections 10, 11 or 12 if arrangements are made (or will be made before the Fund makes any investment) requiring the Fund to apply Commonwealth money only within the enumerated heads of power: trade or commerce between Australia and abroad, among States, in a Territory; matters with respect to a Territory; the implied nationhood power; or the executive power of the Commonwealth. This is a legislative workaround to keep the Fund within Commonwealth legislative competence, avoiding a challenge under the spending power or section 81 of the Constitution. The example in the Act suggests an arrangement could allow the Fund to invest in an SME engaged predominantly in international trade. If the arrangements are not in place before the Fund invests, or cease to be in force, the Minister must divest the Commonwealth’s interest. This creates a structural incentive for the Fund to restrict its portfolio to enterprises that fit within Commonwealth power, effectively narrowing the universe of SMEs eligible for Fund capital.

No Commonwealth control. The Minister must ensure the Fund does not become a Commonwealth company. Under the Public Governance, Performance and Accountability Act 2013, a Commonwealth company is one in which the Commonwealth controls a majority of voting rights or can appoint a majority of directors. The Act therefore prohibits the Commonwealth from holding more than 50% of voting shares or otherwise exercising control. The Minister also has the usual rights of a shareholder or member but cannot steer the Fund’s commercial decisions.

Appropriation mechanism. Section 18 appropriates $100 million from the Consolidated Revenue Fund for costs of forming, acquiring shares, acquiring debentures, making payments under arrangements, and other costs exclusively connected with the Fund. The two-year sunset on the appropriation creates a narrow window. If no money is drawn within that time, the authority lapses; any further funding would require a new appropriation Act.

Review framework. Section 21 requires a statutory review as soon as possible after the third anniversary of commencement (25 March 2020). The review must assess effectiveness, demand for equity investments, the Fund’s impact on SME capital access and competition in capital markets, and the operation of Commonwealth governance rights. The report must be tabled in Parliament but cannot include commercially sensitive information. This means that key commercial details about the Fund’s portfolio or valuation may be withheld, potentially reducing accountability.

The Act directly affects the Minister for the relevant portfolio (likely the Treasurer or Minister for Finance), the Department of the Treasury (or another portfolio department), and the company that becomes the Fund. It also indirectly affects the Fund’s other shareholders, its subsidiaries, and the SMEs that the Fund ultimately invests in. The Commonwealth’s involvement as a minority investor means the Fund’s management and other institutional investors (e.g. banks, superannuation funds) must accept the Commonwealth as a co-investor with its own governance rights. The constitutional constraints in section 13 affect the types of SMEs the Fund can invest in with money derived from the Commonwealth. SMEs that are predominantly domestic non-trading businesses, such as local services or property developers with no interstate or international trade, may be outside the permitted scope, effectively limiting the Fund’s investment pipeline. The Act also affects taxpayers, because the $100 million appropriation represents a fiscal cost if drawn, and any losses from the investment ultimately fall on the Commonwealth. However, the Act does not guarantee a commercial return; the Minister is not required to exercise powers, and significant sums could be spent without achieving the stated object. The two-year sunset on the appropriation means that if no investment occurs quickly, the authority disappears, affecting the Fund’s ability to plan around Commonwealth participation. For SMEs, the Act creates speculative access to an additional source of growth capital, but only if the Fund invests and only if the SME falls within the constitutional safe harbour. The Act also affects competition within capital markets. A Commonwealth-backed Fund may crowd out private investment, because state participation can reduce the risk premium private investors would otherwise demand, distorting pricing and availability of equity capital. The review must consider this impact, but the Act does not impose any market-neutrality requirement. Compliance professionals advising the Fund must ensure that arrangements under section 13 are in place and that the Fund’s investments do not breach the constitutional restrictions, or else the Minister must divest, potentially triggering a forced sale of the Commonwealth’s stake at an unfavourable price.

Minister’s duties. The Minister has a duty not to exercise powers under sections 10, 11 or 12 unless arrangements are in place (or will be before the Fund invests) requiring the Commonwealth’s money to be applied only within the constitutional heads in section 13(2). This is a strict condition: failure to secure such arrangements triggers a duty to divest the Commonwealth’s interest as soon as practicable. The Minister must also ensure that the Fund never becomes a Commonwealth company. Additionally, the Minister must cause a review after three years and table the report. These duties are affirmative obligations, not discretionary. The Minister may also delegate most powers and functions to the Departmental Secretary or an SES employee, except the power to make rules under section 22.

Minister’s rights. The Minister holds all the rights, responsibilities, duties and powers of the Commonwealth as a member, shareholder, debenture holder, or party to an arrangement under section 11. This includes voting rights, rights to dividends or interest, rights to information, and rights under any contractual arrangements. However, the Minister cannot use these rights to control the Fund; doing so would risk the Fund becoming a Commonwealth company. The Act leaves the precise content of those rights to the Fund’s constitution, any shareholders’ agreement, and the arrangements made.

Commonwealth’s right to appropriate funds. Section 18 provides a right for the Commonwealth to spend up to $100 million on specified purposes, but this right expires two years after commencement if no amount is debited. The right is tied to the Act’s appropriation; it does not create an entitlement for any third party to call for payment.

Fund’s obligations. The Fund itself is not directly regulated by this Act. Its obligations arise under the arrangements made with the Commonwealth, particularly the constitutional limitation arrangements. The Fund must apply the Commonwealth’s money only within the specified heads of power, or risk triggering the divestment obligation. The Fund must also refrain from taking any action that would cause it to become a Commonwealth company, for example by issuing more shares to the Commonwealth that would give it control.

No direct rights for SMEs. Small and medium enterprises are not given any statutory right to apply for or receive investment from the Fund. The Act creates no cause of action for an SME denied funding. Any rights are contractual between the Fund and the SME.

Reporting duties. The Secretary of the Department must include in the annual PGPA Act report a report on the operation of this Act during the period. This is a reporting duty, not a public accountability mechanism for individual investments.

The Act contains no criminal offences, civil penalties, or enforcement provisions against private parties. The primary enforcement mechanism is the mandatory divestment obligation on the Minister under section 13(4). If the constitutional limitation arrangements are not in place before the Fund invests, or cease to be in force, the Minister must take steps as soon as practicable to divest the Commonwealth of its investment. This could require selling shares or debentures, possibly at a loss or in a distressed market. There is no exception for materiality or commercial inconvenience. The divestment duty is a legal obligation, enforceable by declaration or mandatory injunction if the Minister fails to act. Notably, the Act does not specify a timeframe beyond “as soon as practicable”, which gives the Minister some flexibility but also creates uncertainty.

The Act is otherwise self-enforcing through structural limits. The prohibition on the Fund becoming a Commonwealth company is a duty on the Minister to ensure it does not happen. If the Minister were to allow the Fund to become a Commonwealth company, that would be a breach of the Act, potentially subject to judicial review but without a direct penalty. The $100 million appropriation is a cap, not a penalty; exceeding it would require further parliamentary appropriation.

The rules under section 22 cannot create an offence or civil penalty. Therefore, the entire enforcement framework rests on the Minister’s statutory duties and the constitutional limitations. The effectiveness of compliance relies on the Department’s oversight of the Fund’s activities and the Fund’s contractual commitments. If the Fund applies Commonwealth money outside the permitted heads of power, the Minister must divest, but the Fund itself faces no statutory penalty; any remedy would be contractual under the arrangements.

The annual report and statutory review provide transparency but do not impose sanctions. The review’s report must exclude commercially sensitive information, which limits public scrutiny of specific investments. In practice, the main risk for the Commonwealth is financial loss if an investment underperforms or if forced divestment crystallises a loss. The Act does not require the Minister to seek a commercial return or to minimise taxpayer risk; the only fiduciary-like duty is the implicit duty to act on behalf of the Commonwealth under general law.

Corporations Act 2001. The Fund must be a Corporations Act company. The Act relies on definitions from the Corporations Act (debenture, subsidiary). The Fund’s governance, directors’ duties, financial reporting, and shareholder rights are governed primarily by the Corporations Act. The Commonwealth as a shareholder is subject to the same rules as other shareholders, except as modified by this Act or any arrangement. The prohibition on the Fund becoming a Commonwealth company means that the Commonwealth’s shareholding must remain below the control threshold, which aligns with Corporations Act thresholds for control.

Public Governance, Performance and Accountability Act 2013 (PGPA Act). The definition of “Commonwealth company” is imported from the PGPA Act. The Minister’s duty to prevent the Fund from becoming a Commonwealth company is a direct interaction. Additionally, the annual report requirement under section 20 is tied to the PGPA Act’s reporting framework. The Secretary’s report on the operation of this Act must be included in the PGPA annual report. The PGPA Act also governs the Department’s financial management and risk oversight of the Commonwealth’s investment, but the Act itself does not subject the Fund to PGPA Act controls (such as the Commonwealth’s procurement rules) because the Fund is not a Commonwealth entity.

Constitutional law. Section 13 is a direct incorporation of constitutional heads of power. The Act is structured to fit within Commonwealth legislative competence, particularly the trade and commerce power (s 51(i)), the Territories power (s 122), the nationhood power, and the executive power (s 61). Any investment by the Fund using Commonwealth money must fall within at least one of these heads, or else the Commonwealth’s participation would be constitutionally unsupported. The Act does not rely on the corporations power (s 51(xx)) or the external affairs power, which would have broader scope but were presumably considered less suitable for the specific vehicle.

State laws. The Act extends to external Territories and operates extra-territorially, but does not expressly deal with State laws. The Fund, as a Corporations Act company, will be subject to State laws such as payroll tax, stamp duty, and land tax where it operates. The Act does not confer any immunity on the Fund as a Commonwealth entity; only the Commonwealth itself has Crown immunities. The Fund is a private company and must comply with all applicable State and Territory laws.

Fair Work Act 2009 and other employment laws. The Fund as a private employer must comply with workplace laws. No exemptions are granted.

Foreign investment rules. If the Fund receives foreign investment or is itself foreign-owned, the Foreign Acquisitions and Takeovers Act 1975 may apply. The Commonwealth’s involvement does not automatically exempt the Fund or its investee SMEs from FIRB screening.

Competition and Consumer Act 2010. The Fund may be subject to competition law for anti-competitive conduct. The Act does not grant any exemption for collaboration between competitors or for market concentration. The statutory review must consider the Fund’s impact on competition in capital markets, but that is a policy consideration, not a legal interaction.

The Act was originally enacted as No. 28, 2020, assented to on 24 March 2020 and commenced on 25 March 2020. As of the date of this deep dive, the Act has not been amended. The text shows no amending Acts. The commencement table contains only the original enactment. The rules power under section 22 allows the Minister to make legislative instruments prescribing matters necessary or convenient, but cannot amend the Act itself. The statutory review under section 21 may recommend amendments, but no such amendments have been made public. The Act remains in its original form. Given that the three-year review window (25 March 2023) has passed, there may have been a review report, but it has not led to legislative amendment as of this writing. The Act does not contain a sunset clause for the entire Act, only for the appropriation. Therefore, the Commonwealth can continue to hold its investment indefinitely without further parliamentary approval, provided the constitutional arrangements remain in force.

There is no reported litigation specifically involving this Act. The Act is recent and primarily enabling; it does not create private rights of action. The most likely potential for litigation would be a constitutional challenge to the Fund’s investments if they fall outside the specified heads of power, or a challenge to the Minister’s failure to divest. However, taxpayers lack standing to challenge the Commonwealth’s spending unless they can show special interest. The Fund’s investee SMEs or competitors might also bring proceedings if they suffer loss from the Fund’s conduct, but the Act itself does not create any cause of action. Directors of the Fund might be subject to shareholders’ derivative actions under the Corporations Act, but those are not litigated under this Act. The review report might be judicially reviewed if the Minister fails to table it, but section 21(4) imposes a mandatory duty, so a failure could be enforced by injunction. In summary, there is no known litigation history, and the Act’s structure makes litigation unlikely unless a major constitutional or administrative law breach occurs.

The two-year appropriation expiry could strand the Fund. If the Commonwealth does not draw down on the $100 million appropriation within two years of commencement (by 25 March 2022), the appropriation ceases. The Act does not prohibit the Minister from acquiring shares or making arrangements after that date, but there would be no standing appropriation for the costs. Any expenditure would require a new appropriation Act, which is politically difficult. This creates an inflexible timetable that may not align with commercial negotiations.

The constitutional limitation arrangements must be in place before the Fund invests, not before the Commonwealth invests. The strict condition in section 13(1) triggers before the Fund makes any investment, not before the Commonwealth acquires its shares or debentures. The Minister may subscribe for shares first, but must secure the arrangements before the Fund deploys capital. If the Fund invests prematurely, the Minister must divest, even if the investment is sound.

Divestment is mandatory even at a loss. Section 13(4) does not permit the Minister to retain the investment even if divesting would crystallise a loss. There is no hardship or materiality exception. This creates a trap if the constitutional arrangements are breached inadvertently.

Only one company can be the Fund. Section 10(3) prohibits the Minister from exercising powers in relation to more than one company. If the Fund fails or is restructured, the Commonwealth cannot simply shift its investment to a new vehicle using this Act. Any alternative vehicle would require separate legislation.

The Fund might become a Commonwealth company inadvertently. The Minister must ensure the Fund does not become a Commonwealth company, but the control test depends on voting rights or board appointment rights under the Fund’s constitution. If the Fund issues additional shares that dilute other shareholders but keep the Commonwealth’s percentage constant, the Commonwealth’s control may increase relative to others. The Minister must monitor this continuously.

Commercially sensitive information is exempt from the review report. Section 21(3) prohibits the review report from including commercially sensitive information. This could whitewash the review if the Fund’s performance is poor but details are confidential. Parliament may receive a report that omits key data on the Fund’s portfolio, returns, and fees.

No obligation on the Fund to achieve the object. The Act sets an object of increasing investment in SMEs, but imposes no statutory duty on the Fund to actually invest. The Commonwealth can spend $100 million on forming the Fund and buying shares, and the Fund could sit idle, earning interest on cash, and still be compliant. The object is aspirational, not enforceable.

The rules power is limited. Section 22(2) prohibits rules from creating offences, civil penalties, powers of arrest, entry, search, seizure, imposing tax, setting appropriation amounts, or directly amending the Act. This leaves a narrow scope for rule-making, likely limited to procedural matters or guidance for the Minister.

The Act does not limit the Minister’s power to invest via debentures versus shares. Debentures provide a fixed claim before equity, potentially reducing taxpayer risk. But the Act does not require the Minister to prefer debentures or to ensure a commercial return. The Minister could acquire deeply subordinated instruments that are almost equity-like, increasing risk.

No requirement for a risk assessment or due diligence before investing. The Act does not oblige the Minister to conduct financial or legal due diligence before acquiring shares. While general government decision-making principles would apply, there is no statutory check.

Compliance obligations under this Act fall almost entirely on the Minister and the Department. Third parties (the Fund, its directors, investee SMEs) are not directly subject to statutory duties, but they must comply with the arrangements made with the Commonwealth.

For the Minister and Department. The first step is to ensure that any exercise of powers under sections 10 or 11 is preceded by the making of arrangements under section 13(2) that require the Fund to apply Commonwealth money only within the permitted constitutional heads. The Department should draft these arrangements as a deed or side agreement, specifying that the Fund must not invest Commonwealth funds in enterprises that are purely intrastate or domestic with no constitutional nexus. The arrangements should also be signed before any investment is made by the Fund, not just before the Commonwealth acquires shares. The Department must also verify that the Fund will not become a Commonwealth company. This means checking the Fund’s constitution to ensure the Commonwealth does not hold majority voting rights or the power to appoint a majority of directors. If the Fund’s share structure changes, the Department must assess control continuously. The Department should also monitor the two-year appropriation window. If the Commonwealth intends to commit funds, the actual drawdown (e.g., payment for shares or debentures) must occur before 25 March 2022 to access the appropriation. After that date, the Department would need to seek a new appropriation. The Minister must delegate powers by written instrument to the Secretary or an SES employee, with directions if needed. The Department must include a report on the Act’s operation in its annual PGPA report. The Minister must cause the three-year review to be undertaken, ensure the reviewers exclude commercially sensitive information, and table the report. If at any time the constitutional arrangements are not in force before a Fund investment, or cease to be in force, the Minister must divest. The Department should have a contingency plan for selling shares or debentures promptly.

For the Fund. While not directly bound by the Act, the Fund’s directors must ensure compliance with the arrangements they sign with the Commonwealth. They should restrict investments to SMEs that fall within the constitutional heads. The Fund should maintain documentation showing that each investee SME is engaged in trade or commerce among States, between Australia and abroad, or within a Territory, or that the investment is otherwise within Commonwealth power. If the Fund invests outside these criteria, the Minister will be forced to divest, which may harm the Fund’s reputation and financial stability.

For SMEs seeking investment. They have no direct compliance obligations, but they should prepare information demonstrating their interstate or international trade activity, or their presence in a Territory, to satisfy the Fund’s due diligence under the constitutional arrangements.

General compliance monitoring. The Department should conduct periodic audits of the Fund’s investment portfolio to verify adherence to the constitutional limitation arrangements. The fund-level governance rights of the Commonwealth (under section 12) can be used to request information and attend board meetings. The Department should document all decisions related to the exercise of power under the Act, including the basis for concluding that the constitutional condition is satisfied. The absence of a penalty regime does not reduce the legal risk; the divestment duty is the primary enforcement mechanism, and failure to comply by the Minister could lead to judicial review or political accountability.