Page title

March 2023

Contents

• Introduction
• Relevant legislation
• Local Government Act 1995
• Local Government (Regional Subsidiaries) Regulations 2017
• Guidelines
• Purpose of charter
• Content of charter
• Public advertising of charter
• Independent advice
• Application to the Minister
• Preliminary assessment
• Appendix 1 — Model charter

Regional Subsidiary Charter Guidelines (March 2023)

Prepared by Department of Local Government, Sport and Cultural Industries

For more information please contact:

140 William Street, Perth WA 6000, GPO Box R1250, Perth WA 6844
Telephone 61 8 6551 8700 Freecall 1800 620 511 (country only)
Email legislation@dlgsc.wa.gov.au
Translating and Interpreting Service (TIS): telephone 13 14 50

All or part of this document may be copied. Due recognition of source would be appreciated. If you would like more information, please contact the Department of Local Government, Sport and Cultural Industries.

Introduction

Two or more local governments have the ability to form a corporate entity for the purposes of carrying out joint services or activities in local government districts. This entity is known as a 'regional subsidiary'.

The existence of a regional subsidiary is defined by two significant documents:

• the business plan by which the subsidiary is proposed
• the charter by which the subsidiary is governed.

This document provides drafting guidelines and a model charter to assist local governments in drafting the charter needed to form a regional subsidiary.

In assessing applications for a regional subsidiary, DLGSC will refer to the model charter as the expected standard.

Relevant legislation

Local Government Act 1995

3.70. Regional subsidiaries to have charter

1. Local governments proposing to form a regional subsidiary must prepare a charter addressing the following matters:
   1. the establishment and powers and duties of the regional subsidiary
   2. the process for selecting and appointing members of the regional subsidiary’s governing body
   3. the qualifications that members of the regional subsidiary’s governing body must have
   4. the administration of the regional subsidiary, including the membership and procedures of its governing body, and the fees, allowances and expenses to be paid or reimbursed to the members of its governing body
   5. the financial management, planning, auditing and reporting to be undertaken by the regional subsidiary
   6. the process for amending the charter
   7. the winding up of the regional subsidiary
   8. any other matters required by the regulations to be dealt with in a charter.
2. The local governments must forward the charter to the Minister when applying for approval for the formation of the regional subsidiary.
3. A charter, and an amendment to a charter, are of no effect unless approved by the Minister.

Local Government (Regional Subsidiaries) Regulations 2017

9. Matters to be dealt with in regional subsidiary’s charter

For the purposes of section 3.70(1)(h), the following matters are required to be dealt with in a charter:

1. the employment, appointment or engagement of staff by the regional subsidiary
2. the execution of documents by the regional subsidiary
3. a means of determining the procedures for meetings of the regional subsidiary’s governing body and of any committees of the governing body
4. procedures for the participants to request information from the regional subsidiary and, if information is requested by only one participant, for determining whether the regional subsidiary must provide the information to each of the other participants
5. procedures for the participants to give directions to the regional subsidiary’s governing body and the consequences of a failure to comply with a direction
6. a means of resolving disputes between participants as to matters relating to the regional subsidiary
7. in relation to the financial management of the regional subsidiary — details of any of the listed provisions (as defined in regulation 19(1) and applied by that subregulation to a regional subsidiary subject to its charter) that do not apply to the regional subsidiary, and the reasons why they do not apply
8. a means of determining the continuing financial contributions (if any) of the participants to the funds of the regional subsidiary
9. the way in which any profits produced by the regional subsidiary are dealt with
10. the circumstances (if any) in which the regional subsidiary may operate at a loss and, if it does operate at a loss, a means for preventing its insolvency
11. the circumstances in which the regional subsidiary is to be wound up and procedures for the winding up of the regional subsidiary
12. procedures for the withdrawal of a participant from the regional subsidiary
13. procedures for another local government being included in the charter as a further participant
14. procedures for the division of assets and liabilities between the participants in the event of the regional subsidiary being wound up or a participant withdrawing from the regional subsidiary
15. the way in which money may be invested by the regional subsidiary in accordance with the Act, as modified by regulation 22
16. procedures for the disposal of property
17. a means of developing a code of conduct (if any) for the employees of the regional subsidiary, for the members of the regional subsidiary’s governing body or for the members of a committee of the governing body
18. the fees and charges (if any) that may be imposed by the regional subsidiary
19. the process for reviewing the charter.

Guidelines

Purpose of charter

The charter of a regional subsidiary serves the following purposes:

• it sets out the agreement between the local governments forming the subsidiary
• it is the primary governance document for the subsidiary
• it is part of the mechanism by which the subsidiary is created as a legal entity.

Content of charter

The content of a regional subsidiary’s charter should be determined in the way that best fits the subsidiary’s circumstances.

This means the charter will need to take into account:

• the goals of the subsidiary
• the level of financial activity the subsidiary will conduct
• the complexity of the subsidiary’s business structure
• the unexpected circumstances with which a subsidiary may need to deal.

A charter does not need to anticipate every possible contingency, but it should provide the subsidiary with sufficient powers and mechanisms to deal with any situation.

A model charter has been prepared by DLGSC and can be found at appendix 1.

Instead, if the member local governments desire a different charter, the following potential issues and questions can be used to guide the process.

Powers and duties

• What are the subsidiary’s goals?
• What powers does it need to achieve them?
• If powers are needed, do they need to be limited in any way?
• Does the subsidiary need the ability to:
  • employ staff?
  • enter into contracts for goods and services?
  • advertise or distribute information?
  • operate a bank account?
  • acquire, own and dispose of real or personal property?
  • delegate matters to the CEO?

Management board

• How many seats are on the board?
• How are the members of the board appointed?
• Are any qualifications required to be eligible for a position on the board?
• What outside experience is required to sit on the board?
• Will the local governments have a majority of board seats under their control?
• Is the board limited to councillors and local government employees?
• Will there be deputy members?
• When does a board member’s term of office begin?
• How can a term of office end?
• Can a board member be removed from their position and, if so, how and when should this occur?
• If certain qualifications or training are required to sit on the board, does this apply to all members equally?
• Will board members be paid fees, allowances or expenses?
• How will meeting procedures be determined?

Planning and reporting

• What level of record keeping is needed, given the financial activities of the subsidiary?
• Is any additional level of financial reporting necessary beyond the minimum required by legislation?
• How will this information be provided to the board and the member councils?
• What auditing is required?

Issuing directions

• How can the member councils issue directions to the regional subsidiary?
• What happens if a direction is not complied with?
• Under what circumstances should a direction be issued?
• Are there any situations where a board must request a direction from the member councils rather than taking action itself?

Dispute resolution

• How are disputes to be solved between:
  • member councils?
  • a member council and the subsidiary?

Financial contributions

• What contributions are required?
  • fixed amount?
  • to be determined periodically?
• Can obligations be changed and, if so, how?
• Do contributions differ between members?
• Can members make voluntary contributions and, if so, does this increase their personal equity in the subsidiary?
• Can emergency contributions be imposed and, if so, in what circumstances?
• What happens if contributions are required but not made?

Use of revenue

• If the subsidiary obtains revenue, how should this revenue be used?
• Can revenue be distributed back to member councils and, if so, how should this distribution occur?
• Can revenue be used to further the subsidiary’s purpose and, if so, what uses may be permitted?
• Who will decide how the revenue is used?

Prevention of insolvency

• Are there sufficient financial records and reporting to ensure that potential insolvency can be detected in advance?
• Can the subsidiary operate at a loss?
• What happens when potential or actual insolvency is detected?

Winding up

• When does winding up have to occur?
• Does the subsidiary have a fixed lifespan?
• Does it have a fixed objective?
• How are assets liquidated and distributed?
• How are outstanding liabilities dealt with?

Membership of the subsidiary

• How can members join?
• How can members leave?
• Can members be expelled and, if so, in what circumstances should this occur?
• If a member leaves the subsidiary, how is that member 'paid out' for their equity in the subsidiary’s assets?
• Whose permission is required?

Use of subsidiary funds

• Who makes the decision?
• Are there any limitations on how subsidiary funds can be used?
• Can subsidiaries use funds to purchase capital assets?

Disposal of subsidiary assets

• Who makes the decision?
• Are there any limitations on when and how assets may be disposed of?
• What happens to the proceeds of sale?

Code of conduct

• Is there a code of conduct?
• Who creates this code of conduct?
• Is the code set in separate documents or policies?
• Can the code be amended and, if so, how?
• Does the code only apply to board members or does it apply to the subsidiary’s employees as well?

Fees and charges

• What kind of fees and charges can the subsidiary impose, if any?
• Who is responsible for the decision to impose fees and charges?
• Are there any limits on how high fees and charges may be?
• Are fees and charges to be determined on a cost recovery basis?
• How can established fees and charges be amended?

Review of charter

• How does this occur?
• How often does it occur?
• How is the review conducted and concluded?

Public advertising of charter

A draft charter can be advertised to the public for comment, but there is no direct requirement for this to occur.

Local governments should be mindful any obligations imposed by the charter will need to be reflected in the business plan which is put out for consultation.

Independent advice

While the Minister may intervene to investigate or wind up a subsidiary in extreme situations, the Minister will not be responsible for enforcing the charter or mediating disputes between member councils.

For this reason, it is highly recommended that:

• the charter is prepared or at least reviewed by a legal practitioner
• each local government should only endorse the charter after obtaining independent legal and financial advice.

This will ensure that the charter is viable, enforceable and does not compromise the interests of a member council.

Application to the Minister

The charter will need to be submitted to the Minister as part of the application to establish the regional subsidiary.

The charter should be:

• endorsed by an absolute majority of each member council
• duly executed by each member council
• accompanied by all necessary supporting material.

Preliminary assessment

While legally the charter does not need to be submitted until the point an application is made, there are benefits to providing the charter at an earlier stage.

This will allow the department an opportunity to carry out a preliminary check of the charter to determine:

• whether it appears to comply with legislation
• whether there are any obvious issues in the charter which the Minister is likely to view with concern.

If any issues are identified, the department will advise the member councils so that steps can be taken to rectify or mitigate these issues. This increases the possibility that the final application will be approved.

Any preliminary check conducted by the department will be in addition to any formal assessment conducted on the final application to the Minister.

Appendix 1 — Model charter

Download the Regional Subsidiary Charter Guidelines.docx (273 KB) for appendix 1.