Policy on Controlled Entities

Approving Authority:	Council
Establishment Date:	12 June 2003
Date Last Amendment:	Council approved 9 August 2007
Nature of Amendment:	Amendment to definition of Controlled Entity (removal of exclusion of student organisations)
Date Last Reviewed:
Publication Reference:
Contact Officer:	Executive Officer, Legal and Contracts

1          Preamble

The University may establish controlled entities to serve a range of purposes, the primary ones being to foster commercial developments arising from University teaching and research activities, and to derive a commercial benefit from such developments within a structure which enables the University to retain control of the particular commercial activity. A list of controlled entities forms Appendix A.

The purpose of this Policy on Controlled Entities is to identify a framework within which the University will manage its relationships with its controlled entities with a view to maximising their effectiveness, while promoting good governance and sound risk management.

2          Definitions

3          Principles

3.1           Controlled entities are established or acquired by the University for the benefit of the University. In their operations, controlled entities will be required to have regard to the best interests of the University and any other shareholders and to be accountable to the University as the controlling shareholder, in addition to meeting their own stated objectives and operational requirements.

3.2           The University recognises the need to maintain a balance between achieving the University's interests in terms of benefits and risks associated with the relationship, and providing controlled entities with the autonomy required to achieve their stated objectives.

3.3           Subject to the requirements of this Policy, a controlled entity will operate independently of the University and will manage its own operations in accordance with relevant law, its Constitution and, where applicable, any agreement with the University.

3.4           Controlled entities will operate in accordance with a standard of governance which meets community expectations, and will meet accountability requirements identified in this Policy and other relevant instruments.

4               Establishment of Controlled Entities

4.1           Council will approve the establishment or acquisition of controlled entities in accordance with the following procedure:

4.1.1      The Vice-Chancellor will receive a proposal for the University to establish or acquire a controlled entity, accompanied by a draft Constitution and an initial business case covering a three to five year period. The Vice-Chancellor, taking advice as required, will consider whether a suitable case has been made to establish a controlled entity, and the form that the entity should take.

4.1.2      On deciding that a suitable case has been made to establish the controlled entity, the Vice-Chancellor will present the proposal, including the Constitution and business case, to the Resources Committee for endorsement and to Council for approval, giving the reasons for the establishment of the entity, its form, its primary areas of activity, and a risk assessment.

4.1.3           Council has authority to approve the sale or winding up of a controlled entity at its discretion, and in accordance with relevant provisions in the controlled entity's Constitution.

5               Relationship Between the University and Controlled Entities

5.1           The Constitution of a Controlled Entity, and any amendments, will be approved by Council.

5.2           The objects of a controlled entity, the central elements of its governance and its relationship with the University, its other shareholders and other controlled entities, including any limits on its authority and the reporting requirements of the Board and Managing Director, will be specified in its Constitution unless otherwise determined by the University.

5.3           The appointment, and termination of appointment, of the Chairperson and directors of a controlled entity will be approved by Council on the advice of the Vice-Chancellor.

5.4           The board of a controlled entity will be responsible for its management, and will be accountable to the University as controlling shareholder and to its other shareholders for its performance.

5.5           The Vice-Chancellor, in negotiation with a controlled entity, will establish such agreements as are required from time to time to define aspects of the entity's relationship with the University which are not addressed in the entity's Constitution, which may include:

• principles and procedures for dealing with key issues and areas of common interest to the controlled entity
  and the University (eg Intellectual Property);
• provision of services by the University to the entity or vice-versa;
• the application of specific University policies to the entity;
• risk management and insurance arrangements;
• the University's interest in any relationships between a controlled entity and other entities, including other entities controlled by the University;
• in the case of a controlled entity which is not fully owned by the University, the University's relationship with the other shareholders of the controlled entity;
• a dividend policy establishing the basis for payment of dividends to the University;
• dispute resolution procedures.

5.6           Council will monitor the performance of controlled entities by receiving a report and financial statements from each entity annually. The report will be provided through the Resources Committee and Audit Committee and will include

• a review of performance of the past year, as measured against the entity's approved objectives;

• a prognosis of performance for the next year, and longer term if appropriate;

• a summary of risk management strategies and practices;

Council will also receive reports through Resources Committee and Audit Committee as required on other matters concerning an entity that may be of significant benefit, risk or concern to the University.

5.7           The accounts of each controlled entity will be reported in the consolidated accounts of the University to enable the University to meet its legal reporting obligations in relation to fully owned entities.

5.8           A controlled entity will be subject to internal audit and external audit arrangements as specified in its Constitution or by agreement with the University.

5.9           The University will establish standards and guidelines to be read in conjunction with this Policy to assist controlled entities to meet their responsibilities and conduct their operations in accordance with the Policy (Standards and Guidelines attached as Appendix B).

6               Governance of Controlled Entities

6.1           The board of a controlled entity will adopt and regularly evaluate a statement of its governance principles.

6.2           The board of a controlled entity will contain some external directors.

7              Use of the University Name and Insignia

7.1           Controlled entities will be entitled to use the University name and insignia, subject to approval from the University and to any conditions identified at the time of approval.

7.2           A controlled entity that has been given approval to use the name and insignia of the University must not represent itself as the University or as a partner or an agent of the University without the prior approval of the University.

8              Dispute Resolution

8.1           The Vice-Chancellor will act on behalf of the University to resolve any dispute that may arise between the University and a controlled entity.

Appendix A

List of University Controlled Entities as at 28 March 2006

Flinders Bioremediation Pty Ltd

Flinders Campus Community Services

Flinders Partners Pty Ltd

Flinders Reproductive Medicine Pty Ltd

National Institute of Labour Studies Incorporated

National Institute of Labour Studies Foundation Incorporated

Flinders Meditech Pty Ltd

Medimolecular Pty Ltd

Lung Health Diagnostics Pty Ltd

Re-Time Pty Ltd

Appendix B

STANDARDS AND GUIDELINES FOR CONTROLLED ENTITIES

The following Standards and Guidelines are intended to:

• inform the development of proposals to create or acquire controlled entities;
  
• inform the development of agreements between the University and its controlled entities;
  
• to assist established controlled entities to conduct their operations in accordance with the Policy on Controlled Entities.

The Standards and Guidelines should be read in conjunction with legislation governing the establishment and operation of incorporated bodies (Corporations Act 2001 (Commonwealth) and Incorporated Associations Act 1985(South Australia) (available at http://www.austlii.edu.au ).

1          Establishment and Acquisition of Controlled Entities

Proposals for creation/acquisition of controlled entities put to the Vice-Chancellor, and subsequently to Resources Committee and Council, must be accompanied by a draft Constitution and a business case that demonstrates the benefits and risks to the University.

A person who is seeking to propose the establishment or acquisition of a controlled entity should consult with the Executive Director of Administration in the first instance, about the form an entity should have. The form may be a company, an incorporated association, a trust or other appropriate structure and this may vary depending on the field and the country that the entity will operate in. External legal assistance should normally be obtained in preparing the draft Constitution.

2          Accountability instruments

Under the Policy on Controlled Entities, a controlled entity will be required to have a Constitution approved by the Council. From time to time the University may negotiate agreements with a controlled entity to address specific areas of the entity's operation and its relationship with the University. A controlled entity will also be expected to develop and maintain a business plan.

2.1      Constitution

Purpose

The commercial and/or other purpose of the controlled entity, and its responsibility to act in the interests of the University, should be addressed.

Governance structure

The establishment of a board, and procedures for appointment and removal of the chairperson and directors should be addressed. The Constitution would generally also specify the powers and duties of directors and address matters concerning directors' interests.

Limits of Authority

The Constitution of a controlled entity may specify certain limits on the entity's authority by providing that the approval of the University, as controlling shareholder, is required - for example, to:

• acquire an interest in another legal entity which could expose the University to significant risk;
• borrow funds other than from the University;
• issue shares, or options to acquire shares, to other parties;
• trade in derivatives except forward exchange contracts to cover known foreign currency commitments;
• create employee share schemes;
• act, or purport to act, as agents/partners of the University or make representation that the University is underwriting its activities;
• commit University resources into contractual arrangements with other entities, except that a controlled entity may commit its own resources in contractual arrangements with another entity;
• grant equity in an associated company to Directors or to employees of the entity or the University;
• provide any loans to Directors and entity staff or associates of Directors and entity staff;
• provide benefits to Directors, in their role as Director, other than Directors' fees;
• charge, pledge or otherwise encumber its assets.

Procedures for the operation of the board

Procedures addressing minimum legal requirements for the operation of a Board should be specified.

Management structure

The role and appointment of a managing director and company secretary (and other key positions, as required) should be specified.

Accountability arrangements

Annual reporting and accountability to the University, addressing requirements specified in the Policy on Controlled Entities, should be specified in the Constitution.

Annual General Meeting

The Constitution may specify that a controlled entity hold an Annual General Meeting.

Taxation Office and Other Reporting Requirements

The Australian Taxation Office (ATO) has specific clauses that the Constitution of a non-profit company must contain to be eligible for tax concessions.

Reporting requirements to other bodies should be identified.

Arrangements for Winding-up or Sale of a Controlled Entity

The Constitution should specify that the University, as controlling shareholder, is empowered to approve the sale or winding up of a controlled entity. The board and managing director will normally be responsible for ensuring that the sale or winding up occurs in accordance with the constitution of the controlled entity, and in accordance with any requirements specified by the University.

Constitutional amendments

The Constitution will require that the University, as controlling shareholder, approve any amendments to the Constitution of a controlled entity on the recommendation of its board.

           2.2       Other agreements

The Vice-Chancellor may conduct negotiations with a controlled entity to establish an agreement or memorandum of understanding to govern certain aspects of the relationship between the two parties. These could include the following:

• requirements for monitoring the performance of the Company, the Board and Managing Director;
  
• any reporting requirements, including continuous disclosure requirements, additional to those specified in the entity's Constitution;
  
• procedures for dealing with conflict of interest and confidentiality, particularly in the case of University staff who are appointed as directors;
  
• the application of specific University policies to the entity, including any exemptions granted from the Policy on Controlled Entities;
  
• any limitations on the authority of the entity of an ad hoc nature not specified in the Constitution;
  
• a risk management framework for the operation of the controlled entity, including insurance arrangements;
  
• the University's interest in any relationships between a controlled entity and other entities;
  
• a dividend policy establishing the basis for payment of dividends to the University;
  
• dispute resolution procedures;
  
• any service level agreements specifying the services provided to each other and the terms and conditions.

   

            2.3       Business Plan

A controlled entity is expected to establish and maintain a business plan covering a three to five year period. The University may require as part of a controlled entity's reporting requirements that there be periodic consultation about the business plan. The business plan will be treated as a commercial- in-confidence document by the University where commercial considerations apply.

The main elements of a business plan are outlined below.

• aims and objectives (in general terms and over the life of the business plan);
  
• a summary of broad strategies for achieving the aims and objectives;
  
• financial information including funding arrangements and financial projections over a three to five year period, detailing assumptions used in making financial projections;
  
• detailed operational arrangements that will support the implementation and achievement of aims and objectives;
  
• performance measures to be used by the Board and the University, as owner, to evaluate the performance of the entity annually or periodically against its objectives, aims and strategies.

3          Governance

As controlling shareholder of the controlled entities, the University is interested in ensuring that appropriate governance structures and measures are in place to ensure good governance.

Unless the law requires otherwise, the following arrangements will normally apply and would be set out in the Constitution.

3.1           Statement of Governance Principles

The Board will adopt and regularly evaluate a statement of its governance principles.

3.2           Appointment of Chairperson and Directors

Council will approve the appointment, and termination of appointment, of the Chairperson and directors of an entity on the advice of the Vice-Chancellor.

Each entity will have at least three directors, including some external directors

Directors should have skills and expertise appropriate to the entity's requirements. These may include:

• Subject matter expertise
• Management expertise
• Commercial experience/expertise
• Ability to provide access to networks of people
• Marketing expertise
• An appropriate mix of gender and background
• Potential to avoid any likely conflict of interests
• Time availability
• Other relevant qualities as determined by the University/or as recommended by the entity's board.

Appointments will normally be for a period of two or three years, and reappointment will be subject to satisfactory performance and continuing suitability of the appointee, to be assessed by the Board. In addition to meeting any requirements under the Constitution, a controlled entity should consult the Vice-Chancellor in relation to all appointments and reappointments.

3.3     Termination of Directors' Appointments

Directors' appointments will only be terminated after consultation with the Vice-Chancellor. This may be initiated by a recommendation from the board, or following a review of a director's performance, but is not limited to these circumstances.

3.4     University Staff as Directors

Directors are required by the Corporations Law to act in the best interests of the company but at the same time recognise an obligation to the University as a shareholder. As the University is the controlling shareholder, the interests of the company and the shareholder should be common. There may be circumstances in which it may be perceived that there is potential for a conflict of interest to arise for a staff member appointed as a director, particularly in the case of University staff appointed as directors. Should it be felt that a conflict of interest exists, a staff director must alert the Chair of the Board and if necessary, the Vice-Chancellor to seek guidance.

4          Conflict of Interest

To ensure the obligations of directors in relation to conflict of interest are made explicit, the Constitutions of controlled entities should contain provisions about the responsibilities of all parties. Controlled entities established in accordance with the Corporations Act 2001 (Commonwealth) should include in their Constitutions provisions reflecting the effect of section 187 of the Act. In the case of the University and its controlled entities, a director of a controlled entity is taken to act in good faith in the best interests of the subsidiary if:

• the Constitution of the controlled entity expressly authorises the director to act in the best interests of the University;
• the director acts in good faith in the best interests of the University; and

• the controlled entity is not insolvent at the time the director acts and does not become insolvent because of the director's act.

Where a director may have an actual or potential conflict of interest, the following steps should be taken.

• The nature and extent of the conflict must be disclosed to the Chair initially, and to the board if the Chair deems it appropriate. If the Chair has a conflict of interest, this must be disclosed to the Board and an acting Chair must be appointed to cover that item.
  
• The director may not participate in board discussions about the matter, and may not vote on matters that relate to that interest.
  
• The director should normally be absent from the meeting room when any such discussion or voting is taking place.
  
• The director may not exercise delegated powers to effect a transaction where a conflict of interest exists, unless the board has approved this, and (where necessary) the terms on which the transaction is to proceed.

5          Remuneration of Directors

Remuneration of directors, as may be recommended by the relevant entity's board, should be determined in consultation with the Vice-Chancellor. Such recommendation should consider normal industry practice, the needs of the Board to attract/retain relevant skills and any other relevant matters. In some cases entities may have volunteers as directors and remuneration may not be appropriate.

Remuneration of directors, together with any other benefits provided to directors must be disclosed in the annual financial statements and annual report provided to the University.

Directors' fees may be paid to University staff directors, at the discretion of the Vice-Chancellor. If directors' fees are paid to University staff the fees must be credited to a University consulting account.

The Board will determine the remuneration for the managing director, perhaps on the advice of a Remuneration Committee, and this too must be disclosed in the annual report to the University.

6         Financial Reporting to the University

Controlled entities should normally provide financial reports at least quarterly to the entity's board. Financial reports would normally include a comparison of actual performance to budget. A copy of the financial report presented to the board must be sent to the University within two weeks of the board meeting.

Draft annual financial statements prepared on a calendar year basis are to be provided to the University by at least 31 January each year in order for the University to meet its statutory reporting obligations. Where controlled entities have control over other entities, then draft consolidated financial statements are required. The format is to be in a form specified by the University in order to meet government reporting requirements. The statements may be initially unaudited, and if an entity is externally audited, audited statements must follow no later than by 31 March each year.

7      Annual Report

Controlled entities are required to provide an annual report on their activities submitted to Council through the Resources Committee and the Audit Committee by 30 April each year in a format approved by the University from time to time. Information required in the annual report would vary according to the nature of the controlled entity, and may be specified by written agreement between the parties. The report should normally include the following:

• a review of performance of the past year, as measured against the entity's approved objectives;
• a prognosis of performance for the next year, and longer term if appropriate;
• a summary of risk management strategies and practices;
• the annual audited financial statements (if not audited, then the board approved financial report);
• a list of directors and the number of meetings each attended;
• disclosure of all benefits provided to Directors and all transactions with entities in which Directors have a financial interest;
• disclosure of benefits provided to the University and to University staff (dollar value, description of the benefit and name of each recipient), (the latter may be necessary for fringe benefits tax purposes[1]);
• disclosure of all agreements entered into with University staff;
• disclosure of any related party transactions;
• any other matters that the board considers relevant.

8      Benefits to the University

The Policy on Controlled Entities requires that controlled entities are only created/acquired where they are of benefit to the University. Benefits to the University may take a variety of forms and include:

• Payment of dividends
• Provision of funding for University activities
• Enhancing the University's reputation
• Opening up commercial opportunities
• Spreading risk

The University places particular importance on the receipt of discretionary funding that enables the University to direct funds to areas of high University priority. Financial contributions from controlled entities to support priority areas of the University may be initiated by the controlled entities and may also be suggested by the University.

9      Financial Arrangements

9.1  Start Up Funding/Further Investment/Major Expenditure Items

The initial funding for a new entity will be identified in the business case which is provided to the Vice-Chancellor, prior to submission to Resources Committee and Council for approval. Funding may be provided by way of:

• a loan from the University;
• funding from another entity (eg a grant);
• share capital from the University
• another source, on approval by the Vice-Chancellor.

A transfer of funds from a University development account or other university source will be recorded as an issue of share capital.

The University may require that a controlled entity seek its approval for major expenditure items (for example exceeding $100,000).

9.2  Loans

The University may provide loans to controlled entities. Loans may only be made following a written loan agreement that specifies the interest rate, period, loan repayments and other relevant details. Loans may only be approved by the Vice-Chancellor.

Interest charged on University loans to controlled entities will normally be at least at the University investment portfolio earning rate. Loans may be provided at discounted interest rates with the approval of the Vice-Chancellor.

The University may, with the agreement of the relevant controlled entity, swap outstanding loan balances for equity in the controlled entity. The value of shares provided must equal the value of the loan and this will be negotiated by the two parties.

9.3  Charging for Provision of Services to/from University

Provision of goods and services must always be on a commercial basis unless approved otherwise, in writing, by the University. Examples of services that may be provided by the University include:

• maintenance;
• accommodation;
• payroll;
• financial system;
• office accommodation;
• access to University research infrastructure;
• library seervces

Unless otherwise approved by the University, inter entity payment terms are 30 days from receipt of a valid invoice. For entities using the University finance system, transactions should be processed as soon as practicable after they are approved.

9.4       Banking

Controlled entities using the University's finance system will automatically use the University's bank account. Controlled entities using their own finance system will be expected to use the University's bank, unless they can make a case to the satisfaction of the Executive Director of Administration, that another bank is more suitable.

9.5       Internal Controls

Controlled entities are required to establish controls to reduce errors and omissions and the risk of fraud. An entity should also be able to provide reasonable assurance that financial transactions are properly authorised and processed.

9.6       Finance System

Controlled entities will be required either to use the University's finance system or seek approval from the University to use an appropriate alternative.

9.7       Financial Year

The accounts of controlled entities are required to be included in the Consolidated Accounts of the University, in accordance with the University's statutory reporting requirements. Controlled entities should normally operate under the same financial year as the University of 1 January to 31 December. Controlled entities operating under a different financial year will be required to produce financial reports on a calendar year basis to enable University consolidated reports to be produced.

9.8       GST Grouping

Controlled entities may choose whether they wish to group with the University for GST purposes. Controlled entities that group with the University will be required to use the University's finance system. Controlled entities that do not group with the University will be fully responsible for compliance with GST and associated legislation.

9.9       Dividends

 Where controlled entities are created on a commercial basis, the University, as controlling shareholder, will expect a return on capital invested, normally in the form of a cash dividend. The University will negotiate with each controlled entity to establish a dividend policy, which would generally be subject to written agreement between the parties.

The University acknowledges that controlled entities will require sufficient working capital to allow for their continuing operation and growth. After setting aside the agreed working capital, the controlled entity should provide for dividends to be paid to the University out of profit/retained earnings. If a loss is incurred, dividends may still be paid out of retained earnings.

10        Controlled Entity Employees

Normally, staff employed in controlled entities are not employees of the University unless they are seconded from the University and their letter of appointment specifies that they will remain an employee of the University. Exceptions to these arrangements may be negotiated with the University.

Controlled entities are responsible for establishing their own staffing policies and conditions for their employees. Arrangements should normally be made by the controlled entity to cover superannuation, which may include membership for employees in the Superannuation Scheme for Australian Universities.

11        Insurance

The University's insurance cover will normally be extended to cover controlled entities. This is to take advantage of the University's purchasing power and to ensure appropriate coverage. Entities would be expected to contribute a reasonable amount for the cost of the insurance coverage. It is a condition of participation in the University's insurance program that entities must agree to provide all necessary disclosures required for insurance purposes, within the specified time frame. The University will provide certificates of currency of insurance to all entities covered by University insurance. If the entity's insurance coverage is separate from the University's umbrella cover, then the full cost of the separate cover will be charged to the entity.

Entities may take out their own insurance where this is cost effective. In such case the relevant entity board is responsible for ensuring that adequate insurance is always in place, and for informing the University of the arrangements.

Directors and Officers Insurance is mandatory. Entities must advise directors and officers of the levels of cover in place.

12        Succession Planning/Key Person Insurance

Entity boards will be responsible for managing risks of the entity. As University controlled entities are generally small, and are heavily reliant on a few individuals for success, it is desirable for controlled entities to address, in their planning processes, succession planning/key person insurance to protect against the risk of key staff being unavailable.

13        Related Party Transactions

Controlled entities may enter into arrangements with related parties and this may create a conflict of interest. The University is not deemed to be a related party. Related parties may include, but are not limited to:

•        family members of directors including partners, children, siblings and parents;
•        entities with an ownership interest or beneficial interest of more than 10% held by Directors/their family members;
•        any other party that the entity's board determines is related.

Any transactions with related parties must be under normal commercial terms and conditions.