Policy Library > Governance and Organisation > Associates and Affiliated Entities

Policy for the Establishment and Oversight of University-Controlled Entities

Intent

To provide a framework within which the University will establish and oversee its relationships with its controlled Entities.

Scope

All University-controlled Entities

Definitions

Entities are legally recognised bodies associated with the University — including companies, joint ventures, partnerships, trusts and associations — whether incorporated or unincorporated.

University-Controlled Entities are those Entities in which the University has control as defined in Section 50AA of the Corporation Act, through any or all of the following:

shareholding or membership
control of the board of management
control of the trustee
ights in constitutional documents

Disposal means, in relation to an interest held by the University in an entity, any action which results in a diminution of the level of that interest held by the University prior to the disposal.. (By way of non-exhaustive examples, each of the sale or transfer of a share, the relinquishment of a membership, the resignation of a director, the retirement of a committee member, the removal of a trustee and the retirement of a partner is a "Disposal".)

Entity Director means, in relation to an entity, any person who has the capacity to influence in a material waythe financial, operational or policy decisions of that entity. (By way of non-exhaustive examples, each of a director of a company, an office bearer of an association (whether incorporated or not), a trustee of a trust anda partner of a partnership is an "Entity Director".)

Policy Provisions

1. The University will encourage the commercial exploitation of a facility or resource of the University, including for example its technology or intellectual property rights or the collaboration with a third party, through the use of Entities owned or controlled in whole or in part by the University or other University Entities, to further the objects of the University.

2. The establishment or acquisition or subsequent disposal of a controlling interest in an entity either directly or indirectly by the University, requires the approval of Council. The partial disposal of the University’s interest, in a University-controlled Entity, which continues to remain a University-controlled Entity, requires the approval of the Vice-Chancellor.

3. Proposals for the establishment of a University-Controlled Entity must be prepared in accordance with the prescribed guidelines and address or include as part of the University’s due diligence processes:

a) reason(s) for establishing or acquiring the University-Controlled Entity

b) nominee directors or nominated officers

c) draft key documents including a constitution MOU or Heads of Agreement, Shareholders Agreement, Licence Agreement and Business Plan

d) consideration of key commercial issues

e) relationship between the University and the University-Controlled Entity, its proposed structure and governing body composition

f) consideration of any academic, student-related human resources and quality assurance issues

g) proposed use of any University corporate identifier for marketing, advertising, awards or other promotional activity

h) dispute resolution procedures

i) other governance arrangements including conflicts of interest, remuneration of Entity directors, financial reporting to the University, benefits to the University, financial arrangements, controlled entity employees, insurance, succession planning/key person insurance and related party transactions

4. Proposals for the disposal or partial disposal of a University’s interest in a University-controlled Entity should address the following as part of the University’s due diligence process:

a) reasons for the disposal or partial disposal

b) the expected benefits, obligations or cost associated with the disposal or partial disposal

c) the risks associated with the disposal or partial disposal and an action plan for the management of these risks

d) a strategy to manage the adverse consequences, if any, arising from the disposal or partial disposal

5. The constitutional documents of a University-controlled entity, and any amendments, will not have effect until approved by Council

6. In respect of each established University-controlled entity, the University will take reasonable steps to implement and oversee appropriate structures and measures to ensure good governance. Arrangements should address the following:

a) ensure that the Entity’s board possesses the skills, knowledge and experience necessary to provide proper stewardship and control of the Entity;

b) appoint some Entity directors to the Board of the Entity who are not members, officers or students of the University, where possible;

c) ensure that the Board documents a clear corporate and business strategy which reports on and updates annually the Entity’s long-term objectives and includes an annual business plan containing achievable and measurable performance targets and milestones; and

d) establish and document clear expectations of reporting to the University, such as a draft business plan for consideration and approval before the commencement of each financial year and at least quarterly reports against the business plan;

e) ensure the appointment, or termination of appointment, of the chairperson of the University-controlled Entity is subject to the approval of the Vice-Chancellor in consultation with the Entity’s board;

f) limit the University’s liability in respect of University-controlled Entities, in particular incorporated Entities;

g) ensure accountability of University-controlled Entities;

h) ensure the University meets its legislative and statutory obligations relating to the University-controlled Entity;

i) provide guidance on the rights, duties and responsibilities of nominee directors on the boards, or equivalent, of the University-controlled Entities;

j) ensure the Entity has in place appropriately qualified or experience company secretarial support; and

k) advise the Entity’s board on appropriate systems, policies and processes that would ensure the effective discharge of its primary responsibilities in:

- oversight of the performance of its functions

- developing and maintaining policies and monitoring of compliance

- developing and maintaining a schedule of delegation

- financial management of the Entity including annual budgets, planning, review and monitoring

- developing and maintaining an effective system of internal controls

- risk management

- legislative and statutory compliance

7. This Policy is intended to be read in conjunction with, and so as to be compatible with, the National Governance Protocols promulgated by the Department of Eduction Science and Training. To the extent of any irreconcilable inconsistency between this Policy and the National Governance Protocols, the National Governance Protocols will prevail.

Procedures

Council will approve the establishment or acquisition of a controlling interest in a University-controlled Entity in accordance with the following procedure:

1. The Council will receive a proposal for the University to establish or acquire a controlling interest in an Entity. The proposal will address or include:

a) reason(s) for establishing or acquiring a controlling interest in an Entity including:

links to the University’s strategic objectives
benefits of establishing or acquiring the controlling interest

b) proposed governing body structure and membership and equity arrangements including:

details of the proposed governing body structure and membership approved by the Vice-Chancellor
details of officers of the University or other Entities to be appointed as nominee directors onto an Entity’s board
details of other officers of the University involved in the Entity or appointed to the Entity’s governing body
proposed equity arrangements including share capital and shareholdings details and proposed investor Entities.
Background information on any third party, including individuals, who will be shareholders, investors or stakeholders in the University-controlled Entity

c) draft key documents, including:

Constitution or other regulatory document; and

Memorandum of Understanding or Heads of Agreement between the University and the Entity to ensure that all parties fully understand and agree on the purpose and control framework of the Entity; and/or
Shareholders’ Agreement or Members Deed (in cases where the University does not have 100% ownership of a company and the company constitutes a joint venture between the University and one or more other shareholders)

Exploitation Agreements – Controlling the exploitation of Intellectual Property

Business Plan – A University 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 (capital, operating, borrowings) requirements and arrangements together with financial projections (including cash flows) 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 controller, to evaluate the performance of the Entity annually or periodically against its objectives, aims and strategies;
due diligence review of the feasibility of the project especially the financial projections and assumptions;
taxation considerations.

d) Consideration of key commercial issues, including

capitalisation and working capital
conflicts of interest
control structure
risks, sensitivities and feasibility of key assumptions
the protection and the means of transfer of any technology and intellectual property rights
responsibility for the incurring of any operating losses by the Entity
expected rates of return on investment
insurances – particularly in relation to the business activities of that Entity which may fall outside the cover of the University’s insurances

e) Where the University-Controlled Entity will carry out academic activities and involve students, consideration be given to:

Academic approvals required
Quality assurance arrangements and accreditation
Student support arrangements
Intellectual Property ownership issues

f) Relationship between the University and Controlled Entities

(i) The objects and the commercial and/or other purpose of a controlled Entity together with the central elements of its governance and its relationship with the University will be specified in its Constitution or like document unless otherwise determined by the University. Matters to be addressed in the Constitution where applicable should include:

- Purpose/objects

- Special conditions (not-for-profit, dividends)

- Governance and Management structure

- Limits of authority

- Operating procedures of the Governing Body (including appointment, remuneration and termination of the Chair or an Entity Director

- Accountability arrangements

- Management structure

- Member meeting requirements/arrangements

- Minimum legal requirements of Governing Body / Entity

- Reporting obligations to the controlled Entity

- Regulatory reporting requirements (eg taxation)

- Protection of the Entity’s business names, trademarks and other identifiers

- Limits on the establishment of or investment in another Entity by the controlled - Entity

- Procedures for disposal or disestablishment of Entity

- Procedures for amending the Constitution

(ii) 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 (eg Human Resources);

- the development of a constitution (and where appropriate a shareholders agreement, members agreement and other documents) which result in 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;

- a dividend policy establishing the basis for payment of dividends to the University; and

- dispute resolution procedures.

(iii) The Executive Director, Finance & Resource Planning will monitor the performance of all University-controlled Entities, except for JCU Technologies Pty Ltd and its controlled Entities, which will be monitored by the University’s Finance Committee, by receiving quarterly management reports and a report and financial statements from each such Entity annually and such other information as set out in Guideline 7. Financial and other reporting to the University and other Controlling Entities and will report to Council at least quarterly through the Finance Committee on this and other matters concerning any Entity that may be of significant benefit, risk or concern to the University.

(iv) JCU Technologies Pty Ltd will monitor the performance of all its controlled Entities by receiving quarterly management reports and a report and financial statements from each such Entity annually and such other information as set out in Guideline 7. Financial and Other Reporting to the University and other controlling Entities, and will report to Council at least quarterly through the Finance Committee on this and other matters concerning any Entity that may be of significant benefit, risk or concern to the University.

(v) The accounts of each controlled Entity, where material, will be reported in the consolidated accounts of the University to enable the University to meet its legal reporting obligations in relation to controlled Entities.

(vi) A controlled Entity will be subject to internal audit and external audit arrangements as specified in its Constitution or by agreement with the University. Under the Financial Administration & Audit Act 1977, the Auditor-general of Queensland is automatically appointed as the external auditor for all controlled public sector Entities.

(vii) A controlling Entity may make requests, through the Secretary of the controlled Entity, for access to appropriate information from its controlled Entity. The controlled Entity must not unreasonably withhold access to any information requested by the controlling Entity and arrangements for requesting and granting access to any such information should be established by agreement with the controlled Entity.

g) Use of a University corporate identifier

(i) Controlled Entities will be entitled to use a University corporate identifier, subject to approval under the University’s Corporate Identifier Policy.

(ii) A controlled Entity that has been given approval to use a corporate identifier 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.

h) Dispute Resolution

(i) The Senior Deputy Vice-Chancellor will act on behalf of the University to resolve any dispute that may arise between the University and a University-Controlled Entity. Where the Senior Deputy Vice-Chancellor is unable to achieve a resolution, consideration should be given to the employment of other dispute resolution mechanisms, if not already used, including mediation, arbitration and expert determination

i) Other Governance arrangements:

(i) The University will ensure that appropriate governance structures and measures are in place to ensure good governance. Unless the law requires otherwise, the following arrangements would normally apply and be specifically provided for in the Entity’s constitutional document(s).

1. Appointment of Chairperson and Entity Directors

The Vice-Chancellor in consultation with the Entity’s board will appoint the Chairperson of a University-Controlled Entity.

Each such Entity will normally have at least three Entity directors. Entity directors should have skills, knowledge and experience appropriate to the Entity’s requirements and necessary to provide proper stewardship and control of the Entity. 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 Vice-Chancellor/or as recommended by the Entity’s board.

The University will ensure, as far as possible, that some appointees are neither members of staff, officers nor students of the University.

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 University-Controlled Entity should consult the Vice-Chancellor in relation to all appointments and reappointments.

2. Termination of Entity Directors' Appointments

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

The process for removal of an Entity Director from a University-Controlled Entity, including the power of the Vice-Chancellor to terminate a majority of the Entity Directors on the Entity’s board and the obligation of the Entity’s board to consult with, and seek the approval of the Vice-Chancellor to terminate an Entity Director of the Entity’s board should be included in the relevant constitutional document(s)

3. Nominee Directors – Conflict of Interests

Directors of companies are required by the Corporations Law to act in the best interests of the company but at the same time where the Director is a University-appointed Director he/she must recognise an obligation to the University as the controlling Entity. In circumstances of actual or potential conflicts of interest, faced by a University-appointed Director, that Director must alert the Chair of the Board and if necessary, the Vice-Chancellor or Secretary to the University Council to seek guidance.

4. Conflict of Interests

To ensure the obligations of Entity 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, an Entity 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 Entity director to act in the best interests of the University;
the Entity director acts in good faith in the best interests of the University; and
the controlled Entity is not insolvent at the time the Entity director acts and does not become insolvent because of the Entity director's actions.

The continuous disclosure and annual reporting requirements of a controlled Entity should reduce the potential conflict of interests as controlled Entities are required to make certain disclosures where University interests are affected.

Where an Entity 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.
Unless the constitution, shareholders agreement, members agreement or the Corporations Act otherwise entitle the Entity director to do so, the Entity director may not participate in board discussions about the matter, and may not vote on matters that relate to that interest.
The Entity director should normally be absent from the meeting room when any such discussion or voting is taking place.
The Entity 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 Entity Directors

Remuneration of Entity 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 Entity directors and remuneration may not be appropriate.

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

Entity directors' fees may be paid to University staff Entity directors with the approval of the Vice-Chancellor.

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

6. Statement of Governance Principles

Entity Boards are required to adopt and regularly evaluate a written statement of its own governance principles. The principles should be consistent with the University’s governance principles.

7. Financial and Other Reporting to the University and Other Controlling Entities

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 and an overall report against the business plan and in particular against any identified milestones.

A copy of a financial report presented to an Entity’s board must be sent to its controlling Entity within a reasonable time after the board meeting.

Controlled Entity’s Boards are required to adopt a continuous disclosure policy. This means that when a board becomes aware of any matter that may be of material interest to the controlled Entity, then it should alert that Entity within a reasonable timeframe. The alert should be in writing and in sufficient detail for it to be meaningful to the controlling Entity and is not limited to financial matters. Items that have a direct impact on the University must be reported eg material transactions with University staff. Other items that do not directly impact on the University need only be reported if they have a major impact on the Entity eg a major sale or a legal dispute with the potential to significantly damage the Entity.

Draft annual financial statements prepared on a calendar year basis are to be provided to the controlling Entity by no later than 28 February 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 will be required earlier. 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.

8. Business Plans

Controlled Entities are required to establish processes for the annual review and approval of the Entity’s business plan. The annual business plan must be approved prior to the commencement of the Entity’s financial yea.

9. Annual Report

Controlled Entities are required to provide an annual report on their activities to the Vice-Chancellor of the University by 30 April each year. 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 need not be detailed, however 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;
An annual review of the Entity’s corporate and business strategy focussing on the Entity’s long-term objectives but also incorporating an updated annual business plan which contains achievable and measurable performance targets and milestones and which has been approved by the controlling Entity;
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 Entity directors and the number of meetings each attended;
disclosure of all benefits provided to Entity Directors and all transactions with Entities in which Entity 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);
disclosure of all agreements entered into with University staff;
disclosure of any related party transactions;
any other matters that the board considers relevant.

The report must be forwarded to Council through the Finance Committee.

10. 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

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.

11. Financial Arrangements

11.1 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 the Finance 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.

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

11.2 Loans

The University may provide loans to controlled Entities in accordance with the policy on loans. Loans may only be made following a written loan agreement that details the terms and conditions such as the interest rate, period, loan repayments and security. Loans may require the approval of the Finance Committee.

The University may, with the agreement of the relevant controlled Entity, exchange 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.

11.3 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:

- banking

- maintenance;

- utilities;

- accommodation;

- payroll;

- accounting system;

- office accommodation;

- access to University research infrastructure;

- library services

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

11.4 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 University, that another bank is more suitable.

11.5 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.

11.6 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.

11.7 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.

11.8 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.

11.9 Dividends

Where controlled Entities are created on a commercial basis, the University 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.

12. 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.

The University will take reasonable steps to limit the University’s liability arising from its interest in the controlled Entity.

13. Insurance

The University's insurance cover may be extended to cover, where possible, controlled Entities. This is to take advantage of the University's purchasing power and to ensure appropriate coverage. Entities would be expected to meet 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 and desirable. 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.

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

14. 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.

15. 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 Entity directors including partners, children, siblings and parents;
Entities with an ownership interest or beneficial interest of more than 10% held by Entity 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.

16. Risk Management

Each controlled Entity must implement a risk management system. At least annually and in any event, prior to any significant strategic decision, the University-controlled Entity must conduct a risk identification and assessment exercise in accordance with prescribed standards. The risk assessment should focus on all high-risk areas and should incorporate a review of any significant interest in any non-controlled Entity in which the Entity has an interest.

Where, in the light of the risk assessment, it may be necessary for the Entity to obtain copies of audited financial reports of the non-controlled Entity for further consideration. The University-Controlled Entity must review the results of the risk assessment and make recommendations on action to be taken. An annual report must be provided to the Entity’s controlling Entity on all outcomes.

Policy sponsor:	Director, Governance Services & University Secretary
Approval authority:	Council
Version no:	11/08/2005
Date for next review:	11/08/2009

Version no.	Approval date	Implementation date	Details
05-1	11/08/2005	12/08/2005