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Annex A

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General PHIAC Circulars

Circular No 60

Circular No 60 Attachment

Contact Officers:
Trish Cassidy (02) 6285 3134

31 May 1996

ANNEXURE "A"
1 ASSETS AND LIABILITIES TO BE ACCEPTED FOR SOLVENCY PURPOSES

From Circular 8

The Minimum Reserves requirements are specified by Section 73BAB of the National Health Act 1953 as follows:

1. It is a condition of registration of a registered organisation that the value of the assets of the health benefits fund conducted by it must at all times exceed the sum of -

  1. whichever is the higher of:

    1. the prescribed minimum amount;

    2. the amount (if any) by which the sum of the amounts debited to that fund during the last preceding prescribed period of the organisation exceeds the amount of income received during that period from assets of that fund consisting of investments;

  2. the liabilities that are required to be met out of that fund;

  3. the amount of any subsisting guarantee, not falling within paragraph (b), given by the organisation in relation to a prescribed company;

  4. the sum of the amounts of payments by way of calls in respect of shares in a prescribed company, not falling within paragraph (b), that the organisation is, or could become liable to pay; and

  5. any other amount that the Minister, after taking into account the advice of the Council, considers should be a liability for the purposes of this subsection.

2. A reference in this section to the assets of the health benefits fund conducted by a registered organisation does not include a reference to -

  1. a loan to, debenture of, or share in, a prescribed company;

  2. an asset that is mortgaged or charged for the benefit of a prescribed company to the extent that it is so mortgaged or charged;

  3. a loan to a person who, when the loan was made, was a director of a prescribed company; or

  4. any property that the Minister, after taking into account the advice of the Council, considers should not be an asset for the purposes of this section.

3. prescribed company in relation to a registered organisation means -

  1. a company in which the organisation has a controlling interest or in which the organisation and another registered organisations or other registered organisations together have a controlling interest; or
  2. a company (not being the organisation) that is related to a company referred to in paragraph (a); but does not include another registered organisation.

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Prescribed minimum amount means $1,000,000 or, if a higher amount is prescribed, that higher amount.

Advice received from the Department of Health and Family Services provides the following further guidance in the interpretation of the above provisions:-

  • the definition of a loan to a prescribed company extend to receivables from a prescribed company, where the income has been disclosed but not received at the end of the period,

  • a loan to a director of a prescribed company should be excluded for the purposes of the solvency calculation, regardless of the capacity in which the loan was received by the director,

  • there is no ability to set off prescribed company assets against amounts due to prescribed companies.

Other assets which would not be acceptable for solvency purposes are:

  • Goodwill

  • Pre-paid expenses (where no amount is recoverable)

  • Capitalisation of computer software (where no realisable value)

  • Other intangible assets (where no realisable value)

  • Unsecured loans to employees or directors;

  • Encumbered assets (assets mortgaged for the benefit of another corporation)

In addition to determining those assets that should be excluded for solvency purposes consideration will be given to the valuation placed on the assets that are included in the solvency calculation. The acceptable valuations for solvency purposes should not exceed realisable or market value. This is an important consideration particularly in respect of investments.

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2. LIQUIDITY CALCULATION

The Liquidity calculation indicates the ability of a fund to pay its creditors in the short term. A ratio of 1 indicates that for every dollar available in liquid assets / readily realisable assets, there is a dollar available to cover it.

ASSETS

Includes -

  • Cash

  • Current Receivables

  • Investments which are readily convertible to cash

Excludes -

  • Inventories (where not readily realisable)

  • Prepayments (where not readily realisable)

  • Property, fixed assets

  • Long term investments which are not readily convertible to cash=

LIABILITIES

Includes current liabilities in the following categories:-

  • Provision for unpresented and outstanding claims

  • Provision for contributions in advance

  • All other current liabilities except overdraft

3. LODGEMENT OF FINANCIAL RETURNS

Section 82L of the Act requires organisations to lodge such annual accounts and statements as Council requires within 3 months of the end of the financial year or within such further time as the Council allows. Council's view is that the annual report should be made available as soon as possible after the end of the financial year.

Quarterly PHIAC 2 returns are required to be submitted within one month of the end of the quarter.

Organisations that are unable to comply with the time limits imposed, are expected to lodge an application for extension of time in writing, setting out the reasons for the delay. Any such application should be submitted prior to expiry of the lodgement period.

All returns and amendments to returns must be signed by the Public Officer.

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