Explanatory Memorandum The reason why the Board is putting the ratification and endorsement resolution to members is that the matters have been the subject of ongoing investigations by the Registry of Co-operatives for over 12 months. The Board believes it has carefully and transparently explained the two matters in detail to the Registry via two letters — one on 6 February 2009 and a further one on 29 May 2009. ‘The Board believes the letters were comprehensive in their coverage of the issues. The first letter ‘was over 20 pages long and had 29 annexures to it, while the second was over 10 pages with 27 annexures. The Board. believed up until recently that the issues were closed in light of our comprehensive responses! Nevertheless, the Board was surprised to learn 2 weeks ago that despite hearing nothing for close to a year the Registry was still investigating the matters. The Board leamt of this only after it lodged a draft disclosure statement with the Registry to convert to a company. The Registry notified our lawyer of the “ongoing investigation” and within a week the Registry sent further requests for information to the Secretary and to our auditors, ‘The Board has taken immediate steps to ensure the further material requested was provided. The Board however has also expressed its concer to the Registry about the delay of close to a year in resolving these matters and the lack of any communication about the “ongoing” investigations. More importantly, the Board has advised the Registry that despite its view that it has comprehensively responded to the issues and they are for all intents and purposes resolved, to the extent that the Registry believes otherwise, the Board will simply put all relevant information before members and seek their ratification and endorsement. The Board is doing this in an endeavour to be totally transparent with members, as it has been with the Registry, guided by the principle that sunlight is the best medicine. Suffice it to say nevertheless that the Board does not accept that there is anything in connection with these two issues that warrant any serious “ongoing” investigation. Background Information To Matter (A) Matter (A) relates to concerns expressed by the Registry into the financial relationship between CASS and its subsidiary company , CASS Care Limited, particularly the practices adopted by the Board in dealing with the inter-company credits between two entities, The background to this issue is as follows:» 2 3) 4) 5) 6 yD 8) On 8 March 2002, when our Co-operative celebrated its 21" Anniversary, it formed a wholly owned subsidiary called CASS Care Ltd, abbreviated as CASS Care, with the aim of broadening the scope of services provided by our Co-operative to serve the multicultural communities. CASS Care was registered as a company limited by guarantee under the Corporations Act. It also gained approval by the Australian Taxation Office as an approved charity with the status of a Public Benevolent Institution (PBI). As such, donations to CASS Care for any amount of over $2 are tax deductible. In terms of financial reporting and accounting, CASS Care formally commenced operations from 1 January 2004. All services previously under the structure of our parent organisation in the areas of ageing and disability services were assigned to come under the structure of CASS Care from 1 January 2004. Since 2004, the Annual Report of our Co-operative presented the financial results of the parent organisation as well as the consolidated accounts of all entities of the parent organisation including its subsidiary. [As our Co-operative is the sole owner of CASS Care, any surplus of CASS Care is a surplus of our Co-operative, and likewise, any deficit of CASS Care is a deficit of our Co-operative. The ‘Annual Report of our Co-operative shows the accounts of our Co-operative on its own and the consolidated accounts of all entities in our Co-operative, i.e. inclusive of all subsidiaries of our Co-operative. Essentially, for financial reporting purposes, the two entities are treated as one. In the day-to-day operations, frequently CASS Care may make payments from its bank account for the parent organisation, especially when CASS Care is also required to make payments for the same item, or vice versa. For example, CASS Care issues a cheque for the payment of an insurance bill of $50,000, of which $30,000 is attributable to CASS Care and the remaining to the parent organisation. ‘On the accounting ledgers of both CASS Care and our parent organisation, there are corresponding accounts set up to record these transactions, and these are identified as the inter-company credits. As CASS Care is a subsidiary of our Co-operative, successive Boards of CASS have adopted the view that there is no need to actually clear and reconcile these inter-company credits. Also, because the two entities are treated as one for financial reporting purposes, the intercompany credits do not appear in the consolidated accounts for the entire entity of CASS. ‘As at 31 December 2009, the accumulated running figure for the inter-company credits was $1,690,298.39 in favour of CASS Care. While the Board is not entirely clear as to what the Registry is concerned about, it seems to be of the view that the inter-company credits constitute loans that will need to be repaid by CASS to CASS Care. While this may be technically correct, as we have repeatedly pointed out to the Registry, for all intents and purposes, CASS owns CASS Care, so the loans are simply a book entry. Our auditor has not expressed any adverse opinion about the practice and the Board fails, to understand why the Registry believes it need be the subject of any further investigation.‘The Board seeks the endorsement of the members on continuing the practice in handling inter-company credits between our Co-operative and CASS Care, Background Information To Matter (B) The second issue that has been the subject of Registry enquiry is the payment by the Co-operative in 2008 for the legal costs incurred by the Organising Committee of the 26" Annual General Meeting held on 9 December 2007. The background to this issue is as follows: 1) On 8 January 2006, the Chairperson of our Co-operative at that time, Mr. Henry Pan OAM, was viciously assaulted while providing assistance in his capacity as the Chairperson of our Co-operative, CASS, to resolve a custody case. The vicious assault caused the total blindness of Mr. Pan, who had been the Chairperson of CASS for 25 years and made significant contributions in the development of CASS. 2) Following Mr. Pan’s assault, there were serious internal conflicts in the Board and the senior management of CASS. By late 2006, a group of CASS members, including Mr. Henry Pan, Mr. William Luong and Mr. Peter Fong, initiated legal proceedings in the Supreme Court of NSW against CASS and four serving Board members at that time. Various Court’s declarations on a number of issues were sought including in relation to the active membership provisions of the CASS Rules and in connection with the corporate govemance of CASS since January 2006. 3) In the intervening months, there were a series of court appearances in relation to the litigation. "On 25 October 2007, after mediation, the plaintiffs and the defendants reached an agreement to resolve the matters out of court. The Mediation Agreement was a confidential document and cannot therefore be disclosed. However, a Joint Public Statement was released after the signing of the Agreement. A copy of the Statement is attached. 4) As can be observed from the Joint Public Statement, the Mediation Agreement consisted of the following: a) At the AGM, all those members of CASS who had paid a membership fee of $25 (with ‘concession for those members aged 60 years or over or pensioners who would pay $5) were to be deemed active members and entitled to vote and stand for election at the subject AGM. b) The then Board of CASS was to accept the list provided by Hon. Helen Sham-Ho which contained the names of 25 persons who had lodged applications to join CASS in the 12 months before the signing of the Agreement, and whose applications were to be ratified by the Board following the signing of the Agreement. Upon the payment of their membership Joining fee and an annual subscription fee for 2007, these people were to be deemed active members eligible to vote and stand for election at the AGM. ©) All nine positions on the Board of Directors of CASS were to be declared vacant and an 3