Types of governance structures

There is a diverse range of governance structures that can be established through the PGPA Act, the Corporations Act, specific enabling legislation or administrative arrangements.1 This part explains the structures available and the circumstances in which they are likely to be appropriate. It also looks at possible options for bodies that are associated with, rather than solely within, the Australian Government.

It should be noted that naming practices over time have resulted in differing titles for bodies (e.g. a commission could describe a single person, a group of people, a Commonwealth entity, an inquiry or and advisory body). It is the underlying governance structure that defines the status of a body, not its name.

A statutory authority is a generic term for an authorisation by Parliament given to a person or group of people to exercise specific powers. A statutory authority can be established as a corporate Commonwealth entity or a non-corporate Commonwealth entity. A statutory authority may also be a body within a Commonwealth entity, exercising the powers given by Parliament but administratively part of the entity. A statutory office holder is not considered an employee of a Commonwealth entity but is generally an official for purposes of the PGPA Act.2

A statutory Commonwealth entity is generally appropriate where there is a need for the enabling legislation to specify the powers and functions of the body, its level of independence and its accountability to the Parliament. This is particularly relevant for bodies that have a regulatory role or scrutinise public sector activities.3

PGPA Act bodies

The possible governance structures for new Commonwealth bodies under the PGPA Act include:

  • a non-corporate Commonwealth entity, which may be established as a Department of State, a Parliamentary Department or a listed entity;
  • a corporate Commonwealth entity, which may be established as a statutory authority, a statutory corporation or a government business enterprise; or
  • a Commonwealth company under the Corporations Act, which may be established as company limited by shares or a company limited by guarantee, and will also be subject to Chapter 3 of the PGPA Act.

For a list of existing Commonwealth entities and companies, refer to the PGPA Flipchart issued by Finance.

The starting principle is that resource management of Commonwealth entities (both corporate and non-corporate) should be regulated under the PGPA Act.

However, there are limited circumstances when a body associated with the Commonwealth may operate wholly or partly outside the Commonwealth or the PGPA Act. This could include inter-jurisdictional bodies established through the agreement of the Council of Australian Governments and other joint bodies involving government–industry or government–community partnerships. Such exceptions are rare, and should only occur if the proposed structure is well justified. Consideration should also be given to sunsetting or review provisions to ensure that any such body does not linger beyond its useful life.

The PGPA Act focuses primarily on the obligations and responsibilities of accountable authorities of Commonwealth entities and the way officials handle relevant money, relevant property and other resources of the Commonwealth. The PGPA Act places duties on all officials (sections 25–29) that require them, among other things, to act in good faith and for a proper purpose when fulfilling their roles. In addition, accountable authorities have general duties (sections 15–19) to help ensure that prudent decisions are made on the management and use of public resources.

There are important differences in the way non-corporate and corporate Commonwealth entities are structured and the matters they deal with. One fundamental difference between them is that non-corporate entities are legally part of the Commonwealth and corporate entities are legally separate from the Commonwealth. This means that they have a distinct legal personality; it does not mean that they are not part of the Australian Government.

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Non-corporate Commonwealth entities

Non-corporate Commonwealth entities under the PGPA Act comprise Departments of State, Parliamentary Departments and listed entities.

Establishing a body as a non-corporate Commonwealth entity may be appropriate if it will:

  • need direct accountability to the Parliament, including through parliamentary committees such as estimates committees and the Joint Committee of Public Accounts and Audit;
  • be primarily budget funded;
  • need to be subject to policies of the Australian Government;
  • raise relevant money or perform regulatory activities under a law of the Commonwealth; or
  • need to be classified as part of the general government sector.4

Departments of State – Section 64 of the Constitution states that ‘The Governor-General may appoint officers to administer such departments of State of the Commonwealth as the Governor-General in Council may establish’.

Under the Constitution, the Governor-General, on the advice of the Prime Minister, appoints ministers. The Governor-General, on the advice of the Executive Council, also formally establishes the matters dealt with by each department and the legislation administered by each minister. This information appears in the Administrative Arrangements Order external link.

Whenever a Department of State is established by the Governor-General, an office of the secretary of that department is also created. The secretary of a department is, under the minister who administers that department,5 responsible for managing the department.6

The constitutional concept of a Department of State also underpins key aspects of the PS Act external link. The term ‘Department’ in the PS Act means a Department of State, excluding any part of the department that is itself:

  • an Executive Agency under the PS Act; or
  • a Statutory Agency (declared by an Act to be a Statutory Agency for the purposes of the PS Act).

Further details on the creation of executive and statutory agencies under the PS Act are detailed below.

Parliamentary Departments – Parliamentary Departments are departments that are prescribed by the Parliamentary Service Act 1999. The current Parliamentary Departments are the Department of Parliamentary Services, the Department of the Senate, the Department of the House of Representatives and the Parliamentary Budget Office. Parliamentary Departments do not form part of the executive government and are therefore not prescribed in the Administrative Arrangements Order. They are accountable to the Parliament for their operations. They are, however, subject to the PGPA Act.

Listed entities – A listed entity is defined in the PGPA Act as a type of Commonwealth entity that is listed in either the PGPA Rule or enabling legislation. Listed entities can also be Executive Agencies or Statutory Agencies as prescribed by the PS Act. Entities are ‘listed’ to ensure they are clearly defined as separate non-corporate Commonwealth entities under the PGPA Act.7

The governance structures for non-corporate Commonwealth entities allow the government to readily apply government policies. For example, in the context of resource management, sections 15 and 21 of the PGPA Act require the accountable authority of a non-corporate entity to properly manage public resources in accordance with relevant government policies.

A non-corporate Commonwealth entity listed under its enabling legislation or the PGPA Rule is subject to the policies of the Australian Government under section 21 of the PGPA Act. However, statutory obligations prescribed in an entity’s enabling legislation will generally take precedence in the event of conflict.

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Corporate Commonwealth entities

Establishing a body as a corporate Commonwealth entity may be appropriate if most or all of the following factors are present:

  • the body will operate commercially or entrepreneurially;
  • a multi-member accountable authority will provide optimal governance for the body;
  • there is a clear rationale for the assets of the body not to be owned or controlled by the Commonwealth directly; or
  • the body requires a degree of independence from general policies of the Australian Government and direction by the executive government (though, as noted below, it may be subject to a government policy under a PGPA Act section 22 government policy order).

Corporate Commonwealth entities, as bodies corporate, have a distinct and separate legal personality and can act in their own right in exercising certain legal rights such as entering into contracts and owning property. They generally have enabling legislation that establishes the scope of their activity and a multi-member accountable authority (such as a board of directors).8

The PGPA Act does not give ministers a general power of direction in relation the activities of a corporate Commonwealth entity (although this could be achieved through the enabling legislation if required). However, it does give the responsible Minister and the Finance Minister broad powers to require the entity to provide information about its activities (see section 19 of the PGPA Act).

Unlike non-corporate Commonwealth entities, corporate Commonwealth entities are generally not required to comply with policies of the Australian Government (including those that relate to the use of Australian Government resources) unless required to do so under either:

  • a direction from the responsible Minister (where this is allowed by the relevant enabling legislation); or
  • a government policy order under section 22 of the PGPA Act.

However, many corporate Commonwealth entities choose to voluntarily comply with policies of the Australian Government and therefore a statutory mechanism is not required.

A level of financial autonomy from the government (and policies of the government) is most appropriate for a body that needs to operate commercially and does not receive a substantial proportion of its funding through appropriations from the Australian Government.9 A commercial focus may include the need to hold money on its own account, to borrow or invest money, or to have the power to engage staff outside the PS Act.

Section 87 statutory corporations – Creating a new corporate entity will generally require primary legislation. However, section 87 of the PGPA Act (Establishing new corporate Commonwealth entities) provides that the Finance Minister may establish a new body corporate through a rule made under the PGPA Act. In practice, this option may provide greater administrative flexibility in creating and closing down corporate entities that have a limited span of activity. The Parliament still has a role in the creation of statutory corporations because a rule made by the Finance Minister can be disallowed by the Parliament.

Section 87 statutory corporations provide a viable alternative to creating a Commonwealth company. Statutory corporations are subject to the PGPA Act and therefore have a different level of transparency and accountability applied to them, compared to a company created under the Corporations Act.

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Commonwealth companies

Establishing a body as a Commonwealth company may be appropriate if two or more of the following factors are present:

  • the body will primarily conduct commercial or entrepreneurial activities and will generate profits for distribution to its members;
  • the body will operate in a commercial or competitive environment (at arm’s length from government); or
  • the body is likely to be sold off by the Commonwealth in the short to medium term.

Companies are established outside the legal personality of the Commonwealth. Each company is formed through registration by its members (shareholders or guarantors) under the Corporations Act. A company has the power to enter into transactions, borrow money and conduct activities, without further permission from its members, as soon as it is created under the Corporations Act.10

The relationship between the Commonwealth and a Commonwealth company is different in character to the relationship between a private sector company and one of its subsidiaries. This is because of the general expectation that the Australian Government stands behind its entities and companies. For example, if the government seeks to minimise its financial risk exposure to an entity’s activities, creating a separate company is generally of little effect because, in practice, the Australian Government may be expected to stand behind the body.

The following issues may potentially arise from the Australian Government being involved in companies:

  • a company is relatively easy to establish, but there is no formal opportunity for parliamentary scrutiny before it is established;11
  • the objects of a company, contained in its constitution, may ordinarily be amended by its members by a special resolution, again limiting scrutiny by the Parliament;
  • a company has broad management powers, including the power to borrow and invest without the need for government approval;
  • a company may not be an appropriate form for a budget-dependent entity, as the Corporations Act requires a company to be able to pay all its debts, as and when they become due and payable (that is, it must remain solvent to continue to trade);12
  • where there is likely to be an assumption, or a public perception, that there is a government guarantee for the operations of a company in the event of its failure, its separate legal status could be of little practical value; or
  • a company is generally liable to pay Commonwealth, state and territory taxes and charges, whereas a statutory body may be exempted from these taxes and charges by its enabling legislation. Again, this may be appropriate for a commercial enterprise, but not for certain government activities.

A Commonwealth company can be wholly owned or partly owned by the Commonwealth. If the Commonwealth does not control the company, it will not be a Commonwealth company under the PGPA Act.

In accordance with section 89 of the PGPA Act, the Commonwealth controls a company if, and only if, it:

  • controls the composition of the company’s board;
  • is in position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the company; or
  • holds more than one-half of the issued share capital of the company (excluding any part of the issued share capital that carries no right to participate beyond a specific amount in a distribution of either profits or capital).

The Commonwealth is taken to have control of the composition of a company’s board if the Commonwealth can appoint or remove all, or the majority, of the directors of the company.

To protect the interests of minority shareholders, the Corporations Act limits the influence that majority shareholders can have on a company. In a government context, this can increase the complexity of monitoring and managing such companies. For this reason, Commonwealth companies are generally wholly owned.

Under section 85 of the PGPA Act (The Commonwealth’s involvement in companies), the Finance Minister’s approval is required to establish a new Commonwealth company, as well as for a range of actions that may involve the Australian Government in a company, such as acquiring shares in a company.

In addition, section 72 of the PGPA Act requires the responsible Minister to table a notice in the Parliament when a Commonwealth entity engages in certain listed activities regarding a company. These notices should be tabled promptly. This provision also applies to the Commonwealth’s involvement in companies of which the Commonwealth is a member, but without a controlling interest.

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Other governance structures

Statutory or non-statutory committees – to help facilitate consultation with government and non-government stakeholders, advisory bodies may be created. These committees can be established through legislation or as a matter of policy. Generally the members are appointed by the relevant minister. Normally these committees will only have an advisory role, though statute can give authority for the committee to make binding decisions.

A committee with membership made up of people from outside the public sector, would generally be considered a Commonwealth body.

A committee established for internal administrative purposes (such as an audit committee) or a committee whose membership is made up solely of public sector employees (such as an inter-departmental committee) is generally not considered a Commonwealth body. A body established by a Minister as part of the Council of Australian Government is taken to be established under the approval of the Prime Minister.

Subsidiaries – Corporate Commonwealth entities may have express powers under their enabling legislation to establish subsidiary companies.13 Commonwealth companies, which have the powers of a natural person, also generally have the power to establish subsidiaries. A subsidiary of a corporate Commonwealth entity or Commonwealth company, if established in Australia, will generally be established as a company under the Corporations Act.

Consistent with the governance policy, a new activity should be undertaken by an existing body, where possible. Subsidiaries should only be created where absolutely necessary. A subsidiary created by a Commonwealth entity will be subject to the reporting obligation prescribed by section 72 of the PGPA Act and will be listed on the Australian Government Organisations Register.

Incorporated associations and cooperatives – The Australian Government can participate in forming bodies such as associations incorporated under state and territory legislation. In limited circumstances, it might be appropriate to incorporate a not-for-profit association, as has happened for some research activities the Australian Government participates in (for example, various Cooperative Research Centres).

These types of bodies, however, may not possess the accountability and transparency features appropriate for Australian Government bodies. Significantly, these bodies are not governed under the PGPA Act, which means that the responsible Minister and the Finance Minister have no power to seek information on a range of matters. Given their status under state-based legislation, they cannot transact business across Australia unless they are also registered under the Corporations Act. For these reasons, Commonwealth entities should consult with Finance if they are considering participating in such bodies.

Partnerships, trusts and joint ventures – These business structures are similar to bodies corporate, but they actually comprise relationships between parties or bodies, rather than constituting bodies corporate in their own right. Trusts and partnerships are recognised in state and territory laws in differing ways. Joint ventures are business agreements that may take different forms. To give them distinct legal personalities and recognised statutory frameworks from which to operate, many joint ventures are incorporated under the Corporations Act.

Caution needs to be exercised in entering into partnerships as they may place duties and liabilities wholly on the Commonwealth. These duties may arise under state and territory laws or under the general law (e.g. the law of equity), depending on the circumstances.

Likewise, the use of trusts raises issues when it comes to the Australian Government’s resource management framework. For example, trust money received by the Commonwealth forms part of the Consolidated Revenue Fund and therefore cannot be spent without an appropriation from Parliament. Also, Commonwealth entities cannot invest money held on trust without the authority of the Finance Minister. Investment powers may be needed in order to remain consistent with the terms of the trust deed. Accordingly, an entity should consult with Finance before it accepts a request to act as a trustee.

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Inter-jurisdictional arrangements

Some significant governance challenges can arise when structures are formed that are accountable to more than one government. Different types or levels of accountability to different jurisdictions within Australia may ultimately lead to a lack of accountability. Clarity around responsibilities and accountability are normally contained within the framework of a single jurisdiction, and it is prudent to consider this when establishing any inter-jurisdictional body.

In the expectation that the Commonwealth will increasingly act in concert with the states and territories to deliver services around Australia, Division 2 of Part 2-6 of the PGPA Act (Cooperating with other jurisdictions) provides two important options for inter-jurisdictional cooperation. Section 82 allows a state or territory minister to receive information about the activities of a Commonwealth entity that is prescribed by the PGPA Rules as an inter-jurisdictional entity. Section 83 gives a state or territory auditor-general the right to follow an audit trail with respect to state or territory money, even though that may be funding a Commonwealth entity. This complements amendments to the Auditor-General Act 1997 that have given the Commonwealth Auditor-General the right to follow Commonwealth funds. Section 18B of that Act gives the Auditor-General the power to undertake audits of states and territories and their contractors that have received federal funding from the Australian Government.

Section 17 of the PGPA Act requires the accountable authority of a Commonwealth entity to encourage their officials to cooperate with others to achieve common objectives, where practicable.

A range of Commonwealth–state bodies have already been established under intergovernmental agreements in Commonwealth statutes or in state and territory legislation.14 The nature of these bodies varies considerably depending on the activities they perform (such as regulatory, administrative, law enforcement and advisory) and the outcomes of negotiations between the participating jurisdictions.

Another common approach for delivering Commonwealth–state programmes has been to establish companies, usually limited by guarantee, involving the Australian Government and state and territory governments as members or having their representatives on the board. In many cases, such companies will not be classified as Commonwealth companies for the purposes of the PGPA Act as they will not satisfy the control test under the PGPA Act (see section 89).

The directors of a Corporations Act company have a duty to act in the best interests of the company. Accordingly, placing Commonwealth public sector officials on the board of a Corporations Act company means that they cannot act in the Commonwealth’s best interests if they are different to the best interests of the company. This may put those officials in a conflict of duties position and should generally be avoided.

In certain circumstances, the interests of an intergovernmental enterprise can be accommodated within the framework of the PGPA Act. For example, the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) is a Commonwealth entity that performs functions on behalf of states. NOPSEMA is a national regulator for health and safety, well integrity and environmental management for offshore oil and gas operations.

The challenges tend to be more acute, however, when governments of other nations are involved. The creation of an intergovernmental body with a foreign state – with governance and accountability requirements established with reference to two separate legal systems – will inevitably raise some complex legal and regulatory issues. Accordingly, intergovernmental and other joint entities will typically require close consultation between the sponsoring entity and central departments, including Finance, on a case-by-case basis, well before implementation.15

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Executive and statutory agencies under the Public Service Act

This section describes some of the attributes of the following entities:

  • Executive Agencies under the Public Service Act 1999 (PS Act); and
  • Statutory Agencies under the PS Act.

Under the PS Act an APS employee (defined term) has a duty to comply with the APS Values and the Code of Conduct, which are set out in sections 10 and 13 of the PS Act respectively.

All APS employees are also officials for the purposes of the PGPA Act and as a result must also comply with the duties of officials contained in sections 25–29 of the PGPA Act. Compliance with the APS Code of Conduct will ordinarily meet the requirements of the duties under section 25 to 29 of the PGPA Act.16

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Executive Agencies under the PS Act

An Executive Agency consists of the agency head (who is appointed, and whose appointment may be terminated, by the minister responsible for the agency) and the APS employees assisting the agency head.

Executive Agencies can conduct business within the portfolio of a minister, without necessarily requiring a change to the Administrative Arrangements Order. The Executive Agency structure provides a degree of independence from departmental management where that is appropriate to an agency’s activities.

An Executive Agency structure may lend itself to a range of situations, including where:

  • the activities of the agency may cross portfolio lines, making it inappropriate to place it in a department;
  • it is desirable to separate substantial service delivery activities to allow a policy department to focus on primary business;
  • an identity separate from the parent department would assist sponsorship or external funding; or
  • a separate agency is desirable to administer a whole-of-government or joint Commonwealth–state initiative.

Executive Agencies are established by an order of the Governor-General. The Governor-General’s order may:

  • establish or abolish an agency
  • allocate a name to an agency or its head
  • identify the responsible minister
  • specify an agency’s activities.

The PS Act provides that the agency head is directly accountable to the minister responsible for the agency. Section 66 describes the responsibilities of heads as follows:

  • The Head of an Executive Agency, under the Agency Minister, is responsible for managing the Agency,
  • The Head of an Executive Agency must assist the Agency Minister to fulfil the Agency Minister’s accountability obligations to the Parliament to provide factual information, as required by the Parliament, in relation to the operation and administration of the Agency,
  • The Head of an Executive Agency is accountable to the government, the Parliament and the public in the same way as the Secretary of a Department.

It is important to note, however, that a departmental secretary still retains a role in overseeing the governance of an Executive Agency. This is because the agency minister, before appointing an agency head, must have received a report about the vacancy from the relevant secretary. Also, before terminating an appointment, the agency minister must have received a report about the proposed termination from the relevant secretary. For these purposes, the relevant secretary is the secretary of any department that is administered by the same minister who is the agency minister.18 Accordingly, the relevant secretary will need to be aware at a broad level about the operations of Executive Agencies in order to be able to prepare both reports.

After the end of each financial year, the head of an Executive Agency is required to give a report to the agency minister, for presentation to the Parliament, on the agency’s activities during the year. This annual report must be prepared in accordance with guidelines approved on behalf of the Parliament by the Joint Committee of Public Accounts and Audit.19

It is now the practice for an Executive Agency to be prescribed as a listed entity under the PGPA Act because, if it were not so prescribed, the head of the Executive Agency would be subject to the resourcing, financial and appropriations authority of the secretary of the department, while having autonomy in terms of staffing decisions and being responsible for managing the agency.

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Statutory Agencies under the PS Act

A statutory body that is identified, in its enabling legislation, as constituting a ‘Statutory Agency’ for the purposes of the PS Act will also usually be a listed entity under the PGPA Act. For example, the Australian Public Service Commissioner and APS employees assisting the Commissioner together constitute a Statutory Agency20 and these people are also described, under the name of the ‘Australian Public Service Commission’, as comprising a listed entity under the PGPA Rule.

Statutory Agencies are entities separate from the Department of State (under the Constitution) for the purposes of the PS Act. This derives from the definition of a department under the PS Act: ‘Department means a Department of State, excluding any part that is itself an Executive Agency or Statutory Agency’.21

The PS Act confers general employer powers on the head of a Statutory Agency. However, specific accountability obligations of heads of Statutory Agencies flow from their enabling legislation and not the PS Act (that is, there is no equivalent to sections 57 and 66 of the PS Act – which set out the responsibilities of secretaries and heads of Executive Agencies respectively – applying to heads of Statutory Agencies).

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1. The High Court of Australia is established under Chapter III of the Australian Constitution as part of the Commonwealth of Australia. It is included in the Attorney-General’s portfolio, is an ‘agency’ named in the annual Appropriation Acts and is defined by the Australian Bureau of Statistics as being in the general government sector. However, it is not a Commonwealth entity for purposes of the PGPA Act, due to its enabling legislation.

2. For PGPA Act purposes, a statutory authority or statutory office holder that is not a body corporate will generally form part of the relevant Department of State unless it is listed in the relevant enabling legislation or a PGPA rule to form part of that listed entity.

3. For example, the Australian National Audit Office, the Commonwealth Ombudsman, the Privacy Commissioner, the Australian Public Service Commissioner and the National Archives.

4. An entity will be classified in the general government sector if one or more of the following characteristics apply: the entity will engage in non-market production, the entity will provide goods and services free of charge or at nominal prices, and the entity will be controlled and financed by government.

5. Described as the ‘Agency Minister’ in the PS Act.

6. Section 57 of the PS Act.

7. For example, the Australian Taxation Office, Geoscience Australia and the Federal Court of Australia.

8. For example, the National Library of Australia, the Australian Broadcasting Corporation and Airservice Australia.

9. Where a body is jointly funded by a state or territory government or the private sector (including industry) but Commonwealth legislation is necessary or appropriate (e.g. to provide it with a national focus), it may still be most efficient and equally effective for the body to be established as a non-corporate Commonwealth entity under the PGPA Act. Examples of these are the National Blood Authority and the Australian Prudential Regulation Authority. Respectively.

10. For example, NBN Co Limited, Aboriginal Hostels Limited and Australian Rail Track Corporation.

11. Parliament must be notified after the event through tabling of a PGPA Act section 72 notice.

12. For example, companies may not be able to enter into multi-year agreements if they rely on annual funding from the government because they have no certainty that they will be funded and can pay debts when they fall due. Budget-dependent entities may, in contrast, legitimately seek to spend up to the limit of funds appropriated to them.

13. For example, the Commonwealth Scientific and Industrial Research Organisation.

14. Bodies that are cited as being created by ‘national law’ may look as if they are Australian Government bodies when they use the URL extension ‘.gov.au’. In fact, they may be created entirely under Commonwealth or state and territory legislation. For example, the National Health Performance Authority and the Independent Hospital Pricing Authority.

15. For joint entities, both the Department of the Prime Minister and Cabinet and Finance should be consulted early in the policy development process; for international entities, the Department of Foreign Affairs and Trade should also be consulted.

16. For more information refer Resource Management Guide 203 General duties of officials.

17. Section 65, PS Act.

18. Section 67, PS Act.

19. Section 70, PS Act.

20. Section 40, PS Act.

21. Section 7, PS Act.

Contact for information on this page: pmra@finance.gov.au

Last updated: 01 August 2017