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Finance & Banking Update -  September 2002

In this issue: Read about the latest developments in the world of banking and finance.

Cases

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Trade Practices Act - Third Line Forcing (Australian Competition & Consumer Commission v IMB Group Pty Ltd (ACN 050 411 946) (in liq) [2002] FCA 402)

Opportunity to join future Leagues Club not a service - "packages" not generally third line forcing.

Background

A company began promoting a scheme for a syndicate to be formed to enter a team in the national rugby league competition. Integral to the scheme was the sale of investment policies to willing participants. The policies were sold by the company as agent of the insurers. The funds generated through the sale of the policies were to be used to finance the syndicate. Several seminars were conducted in which the company and the agent would sell the investment policies.

The ACCC argued that the company had offered to supply persons attending the seminars an opportunity:

  • to acquire shares in the leagues club company; and
  • to become a foundation life member,

on the condition that those persons acquire a policy. In doing so, the company contravened (among other sections) s47(6) of the Trade Practices Act 1974 (Cth) which prohibits third line forcing.

Decision

The company had not engaged in third line forcing. In order to establish third line forcing, there must be 2 discrete products or services, the supply of one from the company being conditional on the acquisition of the other from a third party.

The term "services" does not include an offer of an opportunity to acquire shares or to become a life member of a club or to use the best endeavours to procure that membership. The company was not able to make such a supply of shares or life membership at the time they made the offer to consumers and may never have been able to make such a supply.

To be a service under s47(6), the forcing company must be in a position to supply the service immediately, or if under an offer, when that offer is taken up.

Third line forcing does not occur where a single package containing a number of products is supplied (even where an unrelated party supplies services or products). However, it is necessary to scrutinise such packages to ensure that the real arrangement between the parties is not different to that reflected in the documents presented to third parties. The critical element of the arrangement in this case, was that the investment policies were not acquired directly from the third party insurance company but from the company itself.

The ACCC argued that due to the agency relationship between the company and the insurers, the offerees acquired the policies indirectly from the insurers. However, this ignored the "critical fact" that the ability to make the promised shares and membership available was dependent on the company supplying the policies. What was offered by the company was characterised as a package rather than 2 separate services.

The fact that there was not a separate supply of distinct services meant there could not be a contravention of s47(6).

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Transfer of Property - Constructive Trust, Presumed or Actual Relationship of Influence, Undue Influence, Unconscionable Conduct (Powell v Powell & Anor [2002] WASC 105)

No presumed undue influence by parent over "emancipated" thrice married adult child.

Background

An adult son transferred real property to his mother, he claimed on the understanding that it would be held by her on trust "thereby protecting the [p]roperty so that ... [he] would always be able to reside in it" and that she paid no consideration to him for the property. He alleged that she was obliged to transfer the property to him on demand.

He also claimed the sale contract for the property (which specified consideration of $40,000) was vitiated by his mother's presumed or actual undue influence or unconscionable conduct when he had had an accident.

It was found that the son was quite mobile after he came out of hospital. He indicated that he wanted to sell the property and had obtained prices from a real estate agent. He was in financial trouble and wanted the cash. She wanted to keep the property in the family and offered him $40,000 for the property. She also told him she wanted him to have a roof over his head and he could live at the property as long as he liked provided he paid the rates and land taxes. They never discussed any transfer of the property back to the son. She spoke to the settlement agent to help arrange the sale and later gave her son the $40,000 cash. The agent prepared some documents for the sale and confirmed with the son that he had received the money after which the son signed the receipt.

Decision

It was held no trust was established and there was no (actual or presumed) undue influence or unconscionable conduct on the part of the mother.

Establishment of trust

No trust was found to exist since such a trust would be inconsistent with the express terms of the written contract for sale. Also, before a resulting trust could arise, the son would have to prove that the expression of consideration was false and that the transfer was intended as a voluntary conveyance.

Undue influence

Though the relationship of parent and child is a presumptive relationship of influence, the Court held that this presumption ceases to apply once the child has become "emancipated" from the control and authority of the parent. In this case, it was held no presumed or proven relationship of influence existed. The Court considered such factors as: the son's age (41 years); the fact he had left school at age 15 (against his mother's will); he had been married 3 times; he had been employed in a variety of jobs; the nature and extent of his financial and emotional independence; the mother had not dominated her son; after his accident, he was mobile and any pain was being controlled by mild painkillers and hence his state of mind was not vulnerable or pliant. There was no evidence of his mother exerting any sort of influence over her son's previous business affairs. Although the sale was at a price less than 50% or market value and there was undue haste in the transaction, the oral agreement was that the son could live at the property paying no rent. The mother outlaid money and reaped no benefit and she had lost the opportunity to invest her money elsewhere.

Actual influence is established when it is shown that the "impugned transaction was the outcome of such an exercise of influence over the mind of the claimant that it is not considered a free act". There was none.

Unconscionable conduct

To establish unconscionable conduct, the son first had to show he was at a special disability or special disadvantage relative to his mother. That is, was he "suffering from a disabling condition or circumstance which seriously affected his ability to make a judgment as to what was in his own best interests".

Again, the Court considered the relative positions of the son and the mother and given there was nothing to displace the evidence of a reasonable degree of equality between them, held that there was nothing to suggest the son did not have the ability to make a judgment as to what was in his own best interests. The claim for unconscionable conduct failed.

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Unconscionable Dealing - Agency - Third Party Mortgages - Ostensible Authority - Solicitors' Certificate - Mortgagee's Duties on Power of Sale (Australia & New Zealand Banking Group Ltd v Alirezai [2002] QSC 175)

One for banks. Legal advice requirement saves third party mortgage. Borrower who delivers documents to third party mortgagor not agent of bank where bank insists on legal advice. Solicitor to third party mortgagor does not need financial information. Mortgagee need not wait for better market.

Background

Mortgages over 2 allotments of land, Lot A and Lot B, were given to a bank as third party security in respect of advances made by the bank to a company.

The mortgagor was an Iranian immigrant who in successive transactions gave the first mortgage (over 2 lots) to a bank as a favour to a friend to secure amounts owed by the friend's building company. The friend did not inform the mortgagor of the amount of money, nor that the mortgage was security for all debts of the company. The friend acted as a 'courier' of documents between the bank and the mortgagor, and did not inform the bank of the mortgagor's difficulty with the English language.

The mortgagor signed a letter acknowledging that his solicitor had advised him not to enter into the mortgages, and his solicitor signed a certificate stating that the mortgagor signed the mortgage voluntarily with full knowledge and understanding of its contents and the surrounding circumstances. The solicitor discussed with the mortgagor the effect of the mortgages and inserted a clause which attempted to limit his liability to an amount not exceeding the value of the property mortgaged. The mortgagor gave no indication that he could not understand the explanations and advice given to him.

The bank sought to recover possession of both lots and obtained summary judgment.

Decision

The bank won.

Solicitor need not be aware of company's financial history

The mortgagor's solicitor did not need to be aware of the company's current financial history in order to advise the mortgagor on what his financial exposure would be if the company defaulted on its obligations to the bank. It was for the mortgagor to make a decision based on his relationship, and on his own knowledge. The solicitor had attempted to discourage the mortgagor from granting the mortgage. The solicitor could and did give advice without the need for detailed consideration of the financial position of the company. There were no unusual features in the loans made by the bank to the company which required disclosure to the mortgagor as a third party.

No unconscionable conduct by bank

What the bank knew of the mortgagor was not enough to give the bank knowledge that the mortgagor was in a special disadvantage in relation to granting the mortgages. The bank knew only that the mortgagor was of Iranian descent and that his friend was his friend and had done the mortgagor a favour in the past by making him a loan of $50,000. The requirement of the bank that the mortgagor take the mortgages to a solicitor to obtain independent legal advice meant that it could not have taken unconscientious advantage of its superior bargaining position.

Mr S not an agent for the bank

The fact that the bank required a letter of independent advice from the mortgagor's solicitor meant that the friend was not an agent of the bank, even though he acted as 'courier' and was not asked by the bank to explain the mortgage to the mortgagor. The fact that the bank did not expressly seek out the mortgagor to make the same explanation as it had made to the friend about one lot securing all debts of the company did not make the friend the bank's agent for the purpose of explaining the mortgage.

Mortgagee entitled to sell at own pleasure

The mortgagor alleged that the sale of one lot had been at 'a gross undervalue'. The Court held that the bank was entitled to sell at the time of the bank's choice and without waiting to achieve a certain price.

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Proprietary Rights to Bonds Under Sub-participation Agreement (Lloyds TSB Bank v Clarke [2002] UKPC 27)

Subparticipations do not give priority rights.

Background

A company issued eurobonds. One bond holder entered into 2 agreements with a bank. In a sub-participation agreement , the bond holder agreed to pay to the bank an amount equivalent to its proceeds from the bonds. In a deposit agreement, the bank undertook to issue receipts to the bond holder, by way of a fiduciary contract, to all the proceeds of the sub-participation agreement. The documents expressly referred to the relationship between the parties as one of debtor-creditor. The bond holder then sold its receipts under the deposit agreement on the retail market. One investor bought some.

The bond holder became insolvent and was subsequently wound up. An argument arose over which party was entitled to the beneficial right to the eurobonds. The investor argued that the sub-participation agreement amounted to an equitable assignment of the bonds and thus the bond holder held the bonds on trust for the bank.

Decision

The investor was unsuccessful. The "clear and uncompromising" language of the sub-participation agreement identified the relationship as one of debtor-creditor and the fact that the bond holder was required to pay an amount "equal to the amount" of interest received confirmed the nature of the relationship as debtor-creditor and not trustee-beneficiary. Therefore, the bank was merely an unsecured creditor of the bond holder.

Restitution - Guarantee - Fraud - Guarantor Could Not Escape Liability Under 'Sham' Transaction (Standard Bank London Ltd v Canara Bank [2002] EWHC 1032 (Comm))
Background

A bank issued a demand performance guarantee in connection with a sale contract. An assignee of the guarantee took action to recover money from the bank. The bank claimed:

  • the contract was a sham transaction designed to fraudulently obtain funds from banks;
  • the guarantee was void by reason of failure of an implied condition precedent that the contract in support of which it was issued was a genuine and valid contract which the parties intended to perform in accordance with its terms;
  • it was induced to enter the guarantee by an implied representation by its customer to that effect and, therefore, it was entitled to avoid the guarantee on the grounds of fraud since the contract was a sham;
  • it was entitled to restitution of money it did pay out on the grounds it was a mistake of fact.
Decision

The bank was unsuccessful. It failed to establish on the facts that the contract was a sham. Furthermore, after the completion of the transaction by the transfer of funds from the assignee to the bank, the bank could no longer avoid the guarantee if it was a sham. The parties had planned for such an event. The guarantee contained a clause which expressly stated that liability under it would not be adversely affected by "any invalidity, illegality, unenforceability, irregularity, frustration or discharge by operation of law or purported illegality of [the purchase contract]". The bank was fully aware that the guarantee was to form a basic security for the loan and hence once it had been assigned it was consistent that it should be separated from matters arising out of the relationship between the bank and the other parties. It was not entitled to restitution because the recipient had changed its position on receipt of the payment.

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Equitable Assignment - Mortgagee's Duties - Rights of Subsequent Holders (Shebar Holdings Ltd v Metro City Apartments Ltd (HC Auckland, M2120-SW99, 13 September 2001, Preistley J))
Background

A developer assigned the benefit of an agreement to a bank as security for a credit facility. The same party then assigned the benefit of the underwrite agreement to a transferee. Neither assignment satisfied the statutory formalities required under the Property Law Act 1952 and each was therefore enforceable only as an equitable assignment. The developer, the bank and transferee entered a priority deed giving the bank's interest priority over the transferee.

The developer defaulted on its loan to the bank. The bank enforced its security entering a compromise with the other party to the agreement which satisfied the developer's debts to the bank but was insufficient to cover the transferee's interest. The transferee claimed that the bank had a duty to exercise its rights for the benefit of both assignees and should therefore remit some of the funds to the transferee.

Decision

The transferee was unsuccessful. There was nothing wrong with the actions of the bank in entering a compromise with the other party to the agreement. There is no legal or equitable restriction on a prior assignee from entering into an arrangement having the effect of extinguishing or diminishing the rights of a subsequent assignee.

Tax Benefits on Home Loans

In the last finance update, we covered the decision of Hart v Commissioner of Taxation where the Federal Court found that all repayments on an investment property could be postponed until the owner-occupier home loan was paid off, while the compound interest was fully tax deductible.

Justice Graham Hill noted that the dominant purpose was to finance the 2 properties, not to avoid tax, and Justices Conti and Hely agreed, citing John Howard, who, as federal treasurer, introduced Part IVA of the general tax avoidance section of the Tax Act 19 years ago and said the provision was confined to "schemes of the blatant or paper variety".

The ATO is currently seeking special leave to appeal to the High Court. (The application has been lodged but will not be heard until 2003).

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Other Cases of Interest
  • Bankruptcy (Carver v Westpac Banking Corporation [2000] FCA 1517)

    The judgment debtor brought an application to set aside the bankruptcy notice. The application rested on whether the judgment debtor had a cross-claim which he "could not have set up in the action or proceedings in which the judgment or order was obtained". He did not. The application was dismissed.

     
  • Banking Instruments; Traveller's Cheques (Thomas Cook v Kumari [2002] NSWCA 141)
    Traveller's cheques were purchased in Sydney and then lost or stolen on day of arrival in Singapore. The purchase agreement provided for refund of cheques lost or stolen. A condition of refund was that the purchaser had safeguarded cheques as the purchaser would a similar amount of her own cash. The question was whether the purchaser breached that condition - the cheques were kept in the outer pocket of a handbag while shopping. The appeal was dismissed. The evidence did not establish a breach of the condition.
  • Joint Mortgage; Liability for Individual Debt; (AIB Group (UK) Ltd v Martin and another, [2002] 1 WLR 94)
    "Mortgagor" interpreted to include each.
    Joint and individual loans were entered into by 2 partners in a property development business. These were secured by numerous mortgages; joint and individual. The security involved numerous properties; some owned jointly and others individually owned. The loans were called in and the properties sold. There was a substantial shortfall. The question arose whether a clause in the joint mortgage made one partner liable for the advances made solely to the other. It did. The wording of the clause commenced with a joint covenant by the partners. In the clause, the partners covenanted to pay "all sums of money ... advanced to the mortgagor by the bank ...". The mortgagor meant both of them and/or each of them. Therefore the partners covenanted to pay all sums of money advanced by the lender to both of them and/or to each of them.
  • Receiver and Manager Appointed Under Instrument of Charge (In the matter of Actwane Pty Ltd [2002] NSWSC 572)

    Receiver not barred from selling to his own company but court withholds holy water from commercial deal.

    The manager and receiver sought 2 directions from the Court: (1) that it was not unlawful for him to sell shares to a company solely by reason of the fact that he was the sole shareholder and director of the company; (2) that he would be justified in making his decision based on the information obtained and inquiries made to the present date. There had been no public offer or tender process, however, he believed the offer represented fair market value and, in fact, more than anyone else would be willing to pay as the potential purchaser owned the only other share of the company.

    The first order sought was made by the Court, subject to a limitation. However, the second order was refused on the grounds that there was "no particular need for the receiver to act otherwise than on his own commercial judgement, and no legitimate basis for him to receive the special protection of the Court that such a direction would provide."

    For more, see the full judgment.

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Media releases / websites

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New Code of Banking Practice (ABA Media Release, 12/8/02)

The Australian Bankers' Association (ABA) has recently released the new Code of Banking Practice (see the following short summary).

Chairman of the ABA, David Murray, said: "The Code sets out the banking industry's key commitments and obligations to customers on standards of practice, disclosure and principles of conduct for their banking services." 

"Adoption of the Code will be a mark of quality and customers should be encouraged to check if their bank subscribes because it is a binding contract between a bank and its customers for which the institution will be held accountable."

The new Code becomes operational in August 2003 when individual retail banks will adopt the standards and their compliance will be monitored by a Monitoring Committee. This Committee will report on compliance with the Code, conduct its own investigations, request banks to remedy breaches of the Code and in certain cases publicly name a non-compliant bank.

Banks have been given one year to change documentation and computer systems, update procedures and ensure staff are properly trained to ensure compliance with the Code. This will be conducted simultaneously with banks' preparations for compliance with the Financial Services Reform Act which takes full effect in March 2004.

Once a bank adopts the Code, it is explicitly committed to:

  • act fairly and reasonably toward their customers in a consistent and ethical manner;
  • establish, through the ABA, a Consultative forum to take account of community views about banking;
  • extend the Code to cover small business;
  • submit themselves to independent monitoring of their compliance with the Code and accountability for Code breaches;
  • with customers' agreement, try and help customers suffering financial difficulties with their bank loan, overcome those difficulties;
  • provide information on chargebacks on a disputed credit card transaction;
  • ensure staff are trained to competently and efficiently discharge their authorised functions;
  • ensure the Code is promoted and that copies are made readily available;
  • comply with the ABA's Transaction Services and Branch Closure Protocol;
  • provide important and relevant information for prospective guarantors before they commit to guaranteeing someone else's debt; and
  • review the Code every 3 years.

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ABA Calls for More Transparency and Certainty in Competition Law and its Administration by the ACCC (ABA Media Release, 22/7/02)

The ABA is proposing that the Dawson Committee, established to review the competition provisions of the Trade Practices Act, should:

  1. require the ACCC to provide substantial reasons for the decisions that it makes and to make this information transparent to consumers, business and the public generally;
  2. ensure greater accountability of the ACCC in its decision making and media activities in order to address the wide range of concerns expressed by many in the community; and
  3. clarify competition law in relation to business joint ventures so that business investment is not threatened by unnecessary legal uncertainty.

For a copy of the ABA's submission to the Dawson Committee see the ABA's website.

Saturday Bank Trading (Hon. John Della Bosca, 2/9/02)

 

The State Government intends to legislate during the current session of Parliament to allow trading by banks on Saturdays. However, the Government wants to ensure any change to the Bank and Bank Holidays Act would not disadvantage employees or bank customers. An exposure draft of the Bill will be released shortly and all relevant stakeholders will be consulted.

ASX & InfoComp Sign Heads of Agreement (ASX Media Release, 29/7/02)

Australian Stock Exchange Limited (ASX) and InfoComp Pty Ltd recently announced an important commercial agreement that will enable connectivity to ASX FundConnect, the unlisted managed funds transaction processing service to be rolled-out in 2003.

The Heads of Agreement provides a framework under which the 2 parties will explore connectivity of InfoComp customers, through its fund administration system, Composer, to ASX FundConnect.

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ASX Launches Property Trust Index Futures (ASX Media Release, 31/7/02)

ASX recently announced the commencement of trading in future contracts over the S&P/ASX200 Property Trust sector (GICS) index (ASX code:XPJ).

This is believed to be the first futures contract over the listed property trust sector anywhere in the world. ASX Property Trust futures aims to give users the flexibility of an exchanged traded derivative instrument for hedging and exposure management purposes.

Traders and investors in ASX Property Trust futures receive 50 per cent margin offsets with ASX Mini50 and Mini200 index futures.

Corporate Governance Council to Broaden Disclosure (ASX Media Release, 1/8/02; ASIC Media Release 02/277, 1/8/02)

The Managing Director and CEO of the ASX, Mr Richard Humphry recently released a statement in relation to the broadening of the current disclosure regime.

The Australian sharemarket is supervised by ASX, backed by sanctions contained in the Corporations Act as administered by the Australian Securities and Investment Commission (ASIC).

ASX Listing Rules require companies to report on their corporate governance practices. To further broaden this disclosure regime, ASX will lead a new initiative to develop an agreed set of corporate governance standards of best practice for Australian listed companies.

ASX has convened a Corporate Governance Council to develop a set of consolidated and up-to-date standards after consultation with the business community. The Council will initially include the Business Council of Australia, the Australian Institute of Company Directors, Chartered Secretaries Australia and the Securities Institute of Australia.

The Standards developed will be issued as a co-branded statement by all parties involved in their development, therefore carrying a strong endorsement of expected practice by companies.

The Chairman of ASIC, Mr David Knott, has welcomed the announcement that the ASX proposes to upgrade its guidance on corporate governance best practice and to require listed companies to annually report their degree of conformity with these new standards.

For more, see the media release.

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Corporate Governance Council Statement by Participants (ASX Media Release, 15/8/02)

The Corporate Governance Council recently held its first meeting at the Sydney offices of the ASX. An immediate priority for the Council was Annual Reports to Shareholders 2001-02. The Council decided to issue an initial statement to provide guidance on a number of governance issues. It urged that companies pay special attention to a number of areas in reporting to their shareholders: particularly on share options and schemes, audit committees, external auditors, accounting standards and shareholder empowerment.

The Council members also examined their role, goals and the activities they would undertake.

Regulation of Credit Card Schemes in Australia (Media Releases: RBA 2002-15; The Treasurer No 47; ACCC, 27/8/02)

The Reserve Bank of Australia (RBA) recently released its final measures to credit card schemes in Australia. The measures involve:

  • the adoption of an objective, transparent and cost-based benchmark which will be used as a basis for determining interchange fees in credit card schemes;
  • the end of the restriction imposed by credit card schemes which prevents merchants from recovering from cardholders the costs of accepting credit card; and
  • the end of the restriction imposed by credit card schemes which limits the entry of new competitors into the schemes. Specialist credit card institutions authorised and supervised by the Australian Prudential Regulation Authority (APRA) will be eligible to apply to participate in the credit card schemes.

Average interchange fees in Australia are expected to fall from about 0.95% of the value of each credit card transaction at present to about .055-0.6% in the second half of 2003 (a 40 per cent reduction).

On announcing the measures, Mr Ian McFarlane, the Governor of the RBA, said: 'The Payments System Board has endorsed a balanced set of reforms which will ensure that normal market mechanisms work in a more transparent and effective way in the Australian payments system, to the benefit of the Australian community as a whole.'

The Reserve Bank's standard on merchant pricing will come into force on 1 January 2003 and its standard on interchange fees on 1 July 2003.

For more, see the RBA media release and the ACCC media release.

Changes to Financial Sanctions (RBA Media Release 2000-16, 2/9/02)

The anti-terrorism measures under the Banking (Foreign Exchange) Regulations 1959 were recently revoked as they have now been superseded by the Charter of the United Nations (Anti-terrorism Measures) Regulations 2001, made under the Charter of United Nations Act 1945. These regulations freeze the accounts of and prohibit transactions by persons or entities identified by the United Nations as being linked to terrorism. Details on these regulations and the list of persons and entities proscribed in terms of the Regulations, are available on the website of the Department of Foreign Affairs and Trade.

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Domestic Market Dealing Arrangements - New Intra-Day Repo Facility (RBA Media Releases 2002-14, 15/7/02; 2002-17, 5/9/02)

The RBA has introduced a new facility for intra-day repurchase agreements, to help banks meet liquidity needs under Continuous Linked Settlement (CLS) arrangements. CLS is a foreign exchange settlement system.

The new intra-day repo facility will be based on eligible bank bills and CDs. It will complement the existing intra-day repo facility based on government and supranational securities. The new facility can be used by all banks and at any time that RTGS (Real Time Gross Settlement) is open.

Repos entered into under this facility will need to be reversed by the close of RTGS the same day. Failure to do so will carry the same penalty as an overdrawing of an Exchange Settlement Account.

Discussion Paper: Options for EFTPOS Interchange Fee Reform (RBA Media Release, July 2002)

The EFTPOS Industry Working Group recently released a paper entitled Options for EFTPOS Interchange. The paper provides background on the EFTPOS network and lays out 3 general options for reform, seeking comment from interested parties on the options and related issues.

Cattle Futures to be Launched on Sydney Futures Exchange (SFE Media Release, 1/7/02)

In conjunction with Meat and Livestock Australia Limited, SFE Corporation Limited announced the listing of its first Sponsored Product, the MLA/ SFE Cattle Futures contract to be traded on the Sydney Futures Exchange. Trading commenced in August 2002.

MLA Managing Director Richard Brooks said the listing of a Cattle Futures contract in Australia could provide a valuable and effective hedging mechanism for beef producers, processors, wholesalers and buyers to help manage price uncertainty and risk.

APRA Targets Disclosure and Conglomerates for Insurance Reform (APRA Media Release 02.27, 22/8/02)

APRA recently announced that it will be looking to increase disclosure of prudential information and to expand supervision over financial conglomerates for general insurance. APRA's Chief Executive Officer, Mr Graeme Thompson, said that the reforms would bring the insurance industry closer into line with practice in banking.

For more see the media release.

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APRA Announces New Rating Index (APRA Media Release 02.26, 22/8/02)

APRA recently announced an upgraded internal rating system, the Probability And Impact Rating System (PAIRS), was developed with reference to international rating models, and will be used to assess the more than 3000 financial institutions that APRA regulates. PAIRS assesses both a regulated entity's probability (based on risk) of failure and the potential impact (based o size) of failure. A non-linear measure, the composite PAIRS Index rises at an increasing rate as the probability and impact measures rise.

APRA's Chief Executive Officer, Mr Graeme Thompson, said that the introduction of PAIRS allows APRA to gauge the scale of its overall supervisory task, to identify priority areas and allocate resources according to the degree of risk, and to monitor market trends in risk profiles.

PAIRS will be implemented through a roll out process beginning in October.

For more see the media release.

Insurance Reforms Come Into Effect (APRA Media Release 02.18, 28/6/02)

As of midnight 30 June 2002, APRA's new Prudential Standards for general insurance companies came into effect.

For more see the media release.

Australian General Insurance Industry Achieves High Marks in APRA Re-authorisation (APRA Media Release 02.19, 1/7/02)

APRA has announced that most Australian general insurance companies have been authorised under the General Insurance Reform Act 2001. All general insurance companies must comply with the new Standards, which have been developed with the industry over the past 3 years.

In addition, APRA imposed formal conditions on 9 general insurers that have capital transition plans, which allow them to bring their capital positions into line with APRA's requirements over the next 2 years.

For more see the media release.

APRA Establishes Quality Assurance Unit (APRA Media Release 02.23, 12/8/02)

APRA has announced the establishment of a Quality Assurance and Consistency Unit that will develop and promote best practice supervisory and enforcement procedures across the regulatory agency.

Reporting directly to the Chief Executive Officer, the new Unit will regularly assess APRA's methods and practices against agreed standards of quality and consistency.

It will develop uniform internal regulatory standards, set external benchmarks for supervision and enforcement, and ensure that APRA's approach is sufficiently flexible to encompass all supervised entities. The Unit will also consult with industry on the standard of APRA's regulatory performance.

For more, see the media release.

ASIC Approves Credit Union Complaints Scheme (ASIC Media Release 02/310, 30/8/02)

ASIC recently announced formal approval of the Credit Union Dispute Resolution Centre (CUDRC), the fourth consumer complaints resolution scheme approved by ASIC under Policy Statement 139. Under new financial services laws, membership of an ASIC-approved complaints scheme is a compulsory requirement for all financial firms, including credit unions. Under the new arrangements, the Australian Banking Industry Ombudsman Ltd will manage the CUDRC's complaints handling procedures.

For more, see the media release.

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Working Out Your AFS Licence Authorisations and Assessment Process (ASIC Website Article)

This article on ASIC's website is to assist applicants to correctly fill out Australian Financial Services (AFS) licence applications. The article helps applicants choose the right authorisations and assessment process, by aiding in the understanding of the new definitions of security and derivative and what financial products and services fit into either category. The article also discusses the need for applicants to apply for composite assessment when they hold an existing licence but want to provide services for a greater range of products under their new FSR licence. 

ASIC has also recently released a revised Section 4, Addendum to the AFS Licensing Kit. It replaces the Addendum released in March this year.

For more, see the revised Addendum.

ASIC to Release Discussion Paper on Socially Responsible Investing Disclosure Obligations (ASIC Media Release 02/276, 31/7/02)

ASIC has announced that it will issue a Discussion Paper later this year on possible guidelines for Socially Responsible Investing (SRI) disclosure. ASIC will seek broad consultation on the Discussion Paper, and will include a minimum of 6 weeks to receive submissions.

For more, see the media release.

ASIC Gives Guidance on the Hawking Prohibitions (ASIC Media Release 02/238, 1/7/02)

ASIC has released The Hawking Prohibitions: An ASIC Guide, a guidance paper on the hawking prohibitions in the Corporations Act 2001.

For more, see the media release.

ASIC Undertakes Review Relating to Managed Discretionary Accounts (ASIC Media Release 02/11, 28/6/02)

ASIC has recently announced that it has commenced a review of its policy on the regulation of managed discretionary accounts (MDA). An MDA is generally a trading account operated for a specific client by a licensed dealer where:

  • the client's funds are held in trust for that client; and
  • the dealer has the discretion to make investments using the funds in the account without prior reference to, or approval by, the client.

The review will consider the adequacy of the current arrangements for regulating MDAs in light of the changes to the Corporations Act 2001 arising from the Managed Investments Act 1998 and the Financial Services Reform Act 2001. The review will also consider industry developments and any consumer concerns about the operation of MDAs. As part of this review, ASIC plans to consult widely with all stakeholders, and issue a Policy Proposal Paper on the topic later this year.

For more, see the media release.

A Guide to Good Disclosure of Transaction Banking Fees (ASIC Media Release 02/228, 26/6/02)

ASIC has released a Guide promoting improved disclosure of transaction fees for retail payments and deposit products (transaction accounts) offered by banks, credit unions and building societies.

The Guide provides a reference for institutions and consumers to current disclosure requirements contained in legislation (the Corporations Act and regulations) and codes of practice (including the Uniform Consumer Credit Code and various codes applicable to banks, building societies and credit unions) as well as ASIC's views on what constitutes good transaction fee disclosure. ASIC will monitor compliance with the Guide and report on its findings.

For more, see the media release.

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ISDA Launches ISDAFIX Publication of Hong Kong Dollar (ISDA Media Release, 25/6/02)

The International Swaps and Derivatives Association (ISDA) has announced the addition of a Hong Kong Dollar (HKD) ISDAFIX rate to its schedule of swap rates published daily on Reuters.

The rates will produce a series of interest rate swap fixings for HKD in the following maturities: 1,2,3,4,5,7, and 10 years. The daily 11am polling of mid-market rates, based on underlying HIBOR and a standard bid-offer spread of 5 basis points, will be mean-averaged to 3 decimal places. The HKD ISDAFIX rates will be published at 11:30am (Hong Kong time) on Reuters page <ISDAFIX5>.

For more, see the media release.

Regulatory Flexibility Demonstrated in ACCC Draft Greenfields Guideline (ACCC Media Release 158/02, 25/6/02)

The Australian Competition and Consumer Commission (ACCC) recently released its Draft Greenfields Guideline for Natural Gas Transmission Pipelines at the Gas Industry Forum in Melbourne. The guideline has been prepared to ensure prospective investors in the gas industry, understand how new natural gas (greenfields) transmission pipelines are regulated.

The guideline provides 'a roadmap of the options available to investors under the Gas Code and the Trade Practices Act 1974' said ACCC Chairman, Professor Fels.

For more, see the media release.

Government Decides Against the Tax Value Method (Treasurer Media Release 048, 28/8/02)

The Treasurer recently announced that the Government will not proceed with the Tax Value Method (TVM) and the associated Section 4 'core rules'. The Board of Taxation recommended not pursuing TVM due to significant industry concern about the cost and uncertainty associated with the TVM and the widespread view that it would generate greater complexity and uncertainty. Instead, the Government will develop a systematic tax treatment of rights and blackhole expenditures, with a view to implementing these changes by July 2005. Until then, the Government will continue to deal with blackhole expenditures on a case-by-case basis.

Review of International Taxation Arrangements - Consultation Paper (Treasurer Media Release 046, 22/8/02)

The Commonwealth Treasury recently released the consultation paper Review of International Taxation Arrangements prepared by the Department of Treasury. This paper is the first stage in meeting the Government's election commitment to reviewing Australia's international tax arrangements. The consultation paper sets out options to provide a basis for public consultation to be undertaken by the Board of Taxation. The Board is seeking submissions by 31 October 2002 and will report to the government by the end of the year.

Appointments to the Financial Sector Advisory Council (Treasurer Media Release 045, 22/8/02)

The Commonwealth Treasurer recently announced the appointments of Mr Charles Curran AO, Director of QBE Insurance Group Limited and Mr Chris Mackay, Joint Chief Executive Officer (Australia and New Zealand) and Head of Investment Banking, UBS Warburg to the Financial Sector Advisory Council (FSAC). Also announced was the re-appointment to the Council of Mr Maurice Newman AC (Chairman), Mr Paul Batchelor, Mr Terry Budge, Mrs Patricia Cross, Mr Les Hosking, Mr David Murrary, Mr Richard Sheppard and Mr John Trowbridge.

The Council is a non-statutory body set up to provide advice to the Government on policies to facilitate the growth of a strong financial sector. Members are appointed for 2 years in a personal capacity subject to their continued direct involvement in the financial sector.

 

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General

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Discussion Paper Released - 'Compensation for Loss in the Financial Services Sector: Issues and Options' (Treasury, 6/9/02)

The Government recently released a discussion paper that examines compensation for loss suffered in connection with the provision of financial services due to the wrongdoing of financial services licensees or their representatives.

The aim of the paper is to promote discussion of the basic issues, being the:

  • justification and purpose of compensation arrangements in the financial sector;
  • occasions when compensation should be payable;
  • persons on whom the obligation to make such arrangements should fall; and
  • mechanisms available.

Public submissions are invited (to be sent to Treasury) and the closing date is 8 November.

ACT Card Law Changes (The Australian, 31/8/02)

The ACT Government has amended the Fair Trading Act in order to restrict banks from offering automatic credit limit increases to their customers. Other states (including NSW) are considering introducing such a rule, and the Ministerial Council is looking at an Australia-wide proposal. Under the rule, banks must assess the customer's ability to repay the debt before granting credit, particularly in circumstances where the customer has already used their existing limit.

Recent Proposals for Reform of Sovereign Debt Restructuring (Article in the RBA Bulletin, August Edition)

The article discusses the recent emerging market crises that has given rise to calls for reform of the 'international financial architecture'. It is noted that there has been little done to reform the area of sovereign debt restructuring and goes on to discuss the recent initiatives of the International Monetary Fund; and other possible measures to address the issue.

Australia's Foreign Currency Exposure and Hedging Practices (Article in the RBA Bulletin, August Edition)

The Asian financial crisis has revived discussion regarding the vulnerabilities that countries with large unhedged foreign currency liabilities face, particularly those in the banking system. The article discusses Australia's exposure to such risks as derived from results of Australian Bureau of Statistics (ABS) studies. The RBA feels that more detailed information is needed in this area and has worked with the ABS on achieving this.

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PPP Push and Bonds for Public Projects (The Age, 16/8/02; AFR 19/8/02)

The ACTU president, Sharan Burrow, has called for a closer examination of PPP's (public-private infrastructure partnerships), a mode of infrastructure financing increasingly favoured by state Labor governments, stating that they were "no panacea for society's fiscal problems". She argued that there is a need for greater transparency in infrastructure financing, along with the use of national development bonds to fund projects and support a national bond market.

Ms Burrow says that national and state government bonds, and not private capital, should be used for essential infrastructure projects. She said that these government bonds, priced at, say, 0.25% above the long-term bond rate (the cost to government of borrowing funds), could be sold to both institutions and working families. "A welcome by-product of this approach would be the restoration of a government bond market, providing the nation's super funds with a sound finance alternative to buying even more offshore debt to balance their fixed-interest asset portfolios".

The CBA's head of government finance said there was a clear need for more PPP projects. He said that much Australian infrastructure was in desperate need of upgrading and governments did not have enough money to pay for it.

Victorian Treasurer, John Brumby, and some industry investors have asked the Federal Government to clarify its stance on PPP's following the recent comment by the federal Finance Minister, Nick Minchin, that the Federal Government saw few opportunities and had no immediate plans to encourage state governments to use them.

UIG Rules on Leasing Arrangements (The Age, 16/8/02)

The Urgent Issues Group (UIG), a body that interprets accounting pronouncements, approved a ruling by the accounting interpretations authority that may result in some companies having to change their accounting practices for leasing arrangements. The UIG will issue an Australian version of an international accounting interpretation that requires companies to asses whether lease accounting documents comply with the intent of accounting standards.

Some leasing arrangements designed to have an off-balance-sheet effect may be unwound if companies determine that a series of legal contracts fails to meet lease-accounting standard's criteria for the substance of transactions. UIG chairman Keith Alfredson said the ruling was retrospective and companies would need to review existing leases to ensure their lease agreements fit within the guidelines.

Westpac Sheds Past, Becomes a Company (SMH, 13/8/02)

Westpac announced recently that it would finally count itself a company under the federal Corporations Act. Westpac, previously known as the Bank of New South Wales, was created as a "body politic corporate" under obscure state laws that date back to 1850. Westpac's David Lording said the bank had a "deed of settlement", rather than an ordinary company constitution. The transition, however, has forced the bank to terminate its $50 million shareholder buyback, which is only half-complete. Mr Lording said there was no change of heart at Westpac. "There is no reason why the buyback would not continue," he said. "There has been no underlying change of policy."

US Shake-up Pressures Corporates (AFR, 5/8/02)

Major Australian companies and their auditors face pressure to adopt new US law on corporate governance and accounting oversight, despite claims by the Federal Government that Australia is ahead of the US on regulation. There are, however, significant differences between Australian and US requirements. While Australia is more advanced in some areas of corporate governance compared with other countries, it is seen as falling behind in other areas.

While better financial disclosure was one reform introduced by the new US rules, the creation of independent oversight of the accounting profession is in line with recent moves by the UK and Europe and leaves Australia out of step. In other differences, the US will prohibit auditors from offering 9 types of consulting services to audit clients, require rotation of audit partners after 5 years, mandate independent audit committees, prohibit executives selling stock during blackout periods and legislate to ensure the independence of equity analysts at investment banks.

All these changes give legislative backing to, and in some cases are tougher than, Australian requirements now contained only in best-practice guidelines or professional codes of conduct.

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Companies Brace for Adoption of Accounting Rules (The Age, 22/7/02)

The imminent adoption of international accounting standards is expected to create havoc for Australian companies.

The International Accounting Standards Board will soon release its proposed rules for first-time adoption of accounting standards. These will require companies to change their financial statements to ensure they comply with accounting standards promulgated by the London-based standard-setting authority. Australia will adopt the IASB standards by January 2005.

Standards Will Not Slacken: AASB Head (AFR, 5/8/02)

The Financial Reporting Council requires international rules to replace Australian rules by early 2005. Verbatim adoption threatens to import lower standards into Australia in areas where global benchmarks are weaker such as accounting for related-party transactions and altering disclosure obligations for executive perks and insider dealings.

However, the chairman of the Australian Accounting Standards Board, Keith Alfredson, has vowed that no watering down will occur, despite the aim of having one set of global accounting rules.

Register of Advisers (SMH, 15/7/02)

A radical proposal to make information about advisers more easily available could soon be implemented. The Securities and Derivatives Industry Association has formed a working group to examine a proposal that would allow employers, and possibly the public, to search a register of advisers before taking on an adviser.

APRA Defends Small Lenders (The Australian, 1/7/02)

APRA plans to use its "national discretion" to allow small banks and credit unions to carry less capital against their home-lending books, freeing up billions of dollars of shareholder funds.

APRA plans to "tweak" new capital rules so smaller players are not disadvantaged.

Under the current "one size fits all" approach, banks must apply a 50% risk weighting for home lending, which means that the 8% is reduced to 4%. This recognises the historically low default rate for housing loans.

While nothing is finalised, APRA is believed to be planning at least to halve this requirement.

A global body, the Basel Committee on Banking Supervision, is drawing up rules which will allow banks more flexibility to set their own capital requirements (see above).

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Super Funds Fail to Meet Risk Standards (AFR, 8/7/02)

APRA has warned that 5% of superannuation funds are high risk because of bad investment procedures and possible misuse of funds, and that up to 10% could fail to meet standards it is considering implementing.

The health check of the corporate superannuation industry is part of a review by APRA on both the superannuation and insurance industries, with APRA having encountered criticism over its role in the collapse of HIH insurance.

The heightened supervision of superannuation funds reflects a move globally to better ensure the safety of individuals retirement benefits.

APRA Seeks to Fill Super Gaps (AFR, 9/8/02)

APRA has stepped up its campaign for greater regulatory powers over superannuation, warning that more flexible and comprehensive safeguards were needed to fill "major gaps in the regulatory framework". APRA has criticised the existing regime, highlighting the onerous requirement to seek legislative change for the setting of prudential standards.

APRA general manager Ramani Venkatramani highlighted 2 gaps in the regulation of super funds - its inability to set prudential standards and the limitation of the licensing regime to retail funds.

ASIC to Target Corporate Accounts (AFR, 8/7/02)

ASIC will scrutinise the key risk areas of the accounting practices used by sharemarket-listed companies in their 30 June accounts following the corporate scandals in the United States.

Segment reporting, the treatment of debt and equity, leases, improper recognition of revenue and capitalisation of expenses are expected to be targeted. The Federal Government is also reviewing continuous disclosure laws and audit independence as corporates brace for a push by auditors to more closely examine information before they sign off on financial reports.

Banks Warned to Lift Risk Controls (AFR, 3/7/02)

Ratings agency Standard and Poor's has warned Australian banks that they will need to improve the quality of data they use when calculating risk management levels.

Large Australian banks believe they will be able to derive capital savings of up to 30 per cent from using internal credit rating methodologies that qualify for advanced internal rating status under the forthcoming Basel II accords, which would boost their profitability.

Mr McLay the managing director of S&P Risk Solutions said most banks had market risk fairly well-covered but fully integrated enterprise-wide risk management remained just an objective. 'Not many banks are there yet in terms of operational risk,'

E-finance: Trends and Regulatory Responses

ASIC has published a paper titled E-Finance: Trends and Regulatory Responses, that was delivered to the Monetary Authority of Singapore Capital Markets Seminar; 2-8 May 2002.

Written by Malcolm Rodgers, Executive Director of Policy and Markets Regulation, ASIC, the paper covers, financial products and services, securities transactions and electronic delivery.

For more, see the paper.

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Legislation update

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FSR Update
Disallowance of FSR Regulations

The Opposition in the Senate have successfully disallowed the FSR Regulations relating to additional disclosure requirements for superannuation and retirement savings accounts product disclosure statements (regs 7.9.10 and 7.9.11). As a result, there is currently no prescribed disclosure model for these financial products. The Government will have to either amend the regulations or wait 6 months before reintroducing the existing version.

Please go to the Allens Arthur Robinson FSR website for a detailed analysis of the regulations.

Corporations Amendment Regulations 2002 (No 7) (SR 182) (Cth)

The Corporations Amendment Regulations 2002 (No 7) (SR 182) (Cth) commenced on 1 August (gazettal date). The regulations exempt specified operations of CLS Bank International from the provisions of the Corporations legislation that regulate clearing and settlement facilities (see number 19 above). The operations of CLS that are exempted are considered to be in the nature of a payment system (they relate to a settlement of non-cash payments in various currencies), rather than a clearing and settlement facility. The exemption is subject to certain conditions.

For more, see the regulations.

Taxation Determination 2000/21 (ATO, 4/9/02)

A determination recently issued by the ATO considers the impact of the FSR transitional provisions on financial entities for the purposes of the tax legislation. The determination provides that during the transitional period in which an entity holds a dealers licence under the former Corporations Act provisions, that entity will be treated as a financial entity for the purposes of the thin capitalisation rules under Division 820 of the Income Tax Assessment Act 1997 (Cth).

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Income Tax Assessment Amendment Regulations 2002 (No 4)

The Income Tax Assessment Regulations 2002 (No. 4) commenced on 5 July 2002 by notification in the Commonwealth of Australia Gazette. The regulations amend the Income Tax Assessment Regulations 1997, particularly Schedule 1, and relate to applications for the valuation of property or land.

Taxation Laws Amendment Bill (No 4) 2002

On the 30 May 2002 the House of Representatives introduced the Taxation Laws Amendment Bill (No. 4) 2002. The purpose of the Bill is to:

  • make largely technical amendments to the thin capitalisation regime;
  • introduce a statutory maximum life for certain assets for depreciation purposes;
  • provide tax exemptions for temporary residents for certain earnings not related to their Australian employment (exemptions from tax on income earned from assets held offshore, from capital gains, and from withholding tax on interest paid offshore), and
  • provide roll-over relief from capital gains tax for certain transfers from fixed trusts to companies.

This will enhance Australia's potential as a global financial centre by bringing Australia more into line with the tax treatment of expatriate employees in competing financial centres.

Qantas Tax Break (AFR, 27/6/02)

Taxpayers will subsidise Qantas to the tune of nearly $2 billion over the next decade if a controversial amendment to the tax laws passes the Senate. The size of the taxpayer-funded subsidy was revealed in evidence to the Senate economics committee investigating the measure.

Qantas' head of government relations, John Kerr, told the inquiry if the measure was blocked, the company may be forced to relocate some of its activities offshore.

CLERP 8 - Cross Border Insolvency Review (Parliamentary Secretary Media Release 030; AFR 25/6/02)

The Federal Government will push for a major overhaul of insolvency law that will allow liquidators to chase and claw back assets held overseas.

The Parliamentary Secretary to the Treasurer, Senator Ian Campbell, has formally announced the commencement of CLERP 8 - a review of cross-border insolvency law. It is the latest instalment in the Government's corporations law reform program and a response to a number of high-profile corporate collapses in recent years.

Under current law, it is virtually impossible for Australian liquidators and courts to trace the overseas assets of Australian bankrupts and bring them back to Australia.

The Government's discussion paper, due to be released for consultation purposes, will explore the adoption of the model law on cross-border insolvency, developed by the United Nations Commission on Trade Law (aimed at improving access to overseas assets).

Senator Campbell plans to introduce legislation before the end of this year.

 

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Report on the New Business Tax System (Consolidation) Bill (No 1) 2002

The Parliament of the Commonwealth of Australia, through the State Economics Legislation Committee, recently released a Report on the Business Tax System (Consolidation) Bill (No.1) 2002.

The Report resulted from a recommendation made by the Selection of Bills Committee that the Bill be referred to the Senate Economics Legislation Committee to allow the Committee to examine the detail behind the costings of the measure, giving special regard to costs to the revenue and the costs to business.

Business Tax Reform

Legislation was recently introduced into Parliament to implement further components of the new consolidation regime, along with other measures which concern value shifting in controlled groups, demerger tax relief and additions to the new simplified imputation system.

The consolidation measures include:

  • cost setting rules for the formation of a consolidated group, and associated transitional measures to reduce the compliance costs in forming a consolidated group;
  • measures that deal with international aspects of consolidation, including treatment of foreign tax credits and attribution accounts in consolidated groups; and
  • an integrity measure to prevent manipulation of the asset cost base setting rules by certain asset transfers occurring after 16 May 2002.

 

Review of Audit Regulation and Corporate Disclosure (Treasurer Media Release 034, 27/6/02; AFR, 2/8/02); ASIC Responds to CLERP 9 and Collapse of Worldcom (ASIC Media Release 02/234, 27/6/02); Government Announces Policy Proposals on Audit Regulation and Corporate Disclosure (Parliamentary Secretary to the Treasurer Media Release 050, 18/9/02)
  • The Treasurer and the Parliamentary Secretary to the Treasurer recently announced a process which will review audit regulation and corporate disclosure as the next phase in the Government's Corporate Law Economic Reform Program (CLERP).

    The process commenced with the release of a discussion paper, Corporate disclosure: strengthening the financial reporting framework (CLERP 9), which addresses the Ramsay report on auditor independence together with a range of other financial disclosure issues. It contains a comprehensive set of policy proposals on audit regulation and the wider corporate disclosure framework.

    For a copy of the paper visit the Treasury Website.
  • ASIC has formally noted its support for the review of corporate reporting and disclosure laws as a timely opportunity to review what can be done to help investor confidence in the market, especially given recent local and international corporate collapses.

    For more, see the media release.

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Oversight Not Over-Regulation (ICAA Media Release, 6/8/02)

The Institute of Chartered Accountants of Australia and the Securities Institute of Australia have urged the Prime Minister to ensure the CLERP 9 discussion paper does not result in over regulation of the financial industry.

Both bodies argue that the most effective and cost efficient regulatory model for Australia's financial system is one based on co-regulation between the government, the accounting profession, financial markets and business governance and management.

Financial Corporations Act 1974 (RBA Media Release 2002-12, 27/6/02)

On 1 July 2002, the registration and categorisation of financial corporations became the responsibility of APRA. This transfer of responsibilities is due to the commencement of the Financial Sector (Collection of Data) Act 2001, which repeals the Financial Corporations Act 1974 on 1 July 2002. Corporations that were previously registered under the Financial Corporations Act will be known collectively as Registered Financial Corporations (RFCs). Information is available on APRA's web site.

To view detailed information and analysis of this legislation visit our publication, Focus: Banking & Finance - August 2002.

Effective Life Changes (ATO Media Release Nat 02/50)

The Tax Office recently announced new effective lives for a range of depreciating assets, including:

  • Aeroplanes and Helicopters;
  • Cars;
  • Gas Distribution and Transmission;
  • Gas, Oil, Condensate, LNG and LPG Manufacturing;
  • Gas and Oil Production;
  • Heavy Mobile Equipment - Construction and Mining;
  • Mobile Telecommunication Services and International Submarine Cables;
  • Oil Refining;
  • Ports; and
  • Radiology.

The changes, which take effect from 1 July 2002, only affect assets acquired after this date. Full details of the new determination will be available on the Tax Office internet site.

The way the Tax Office works out the effective life of an asset is set out in Taxation Ruling TR 2000/18.

Superannuation Bill (AFR, 28/6/02)

Choice of superannuation fund legislation was introduced into the Parliament recently as the Federal Government continued its campaign to provide wider investment choice for fund members.

Assistant Treasurer Helen Coonan initiated the legislation (Superannuation Legislation (Commonwealth Employment) Repeal and Amendment Bill 2002) which was part of the Government's platform at the last federal election. The planned start date is 1 July 2004.

A spokeswoman for Senator Coonan's office said the Government had been trying for a long time to get the legislation passed. "The flow on effects from choice of fund could be greater competition and lower fees. At an ideological level, we think people should have the final say in where their money is invested, rather than their employer," he said.

The Senate will vote on the issue after the winter break.

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Enterprise Bill (UK)

The Enterprise Bill aims to overhaul UK corporate insolvency procedures in order to maximise chances of corporate survival and to make those procedures more evenly balanced between the interests of secured and unsecured creditors. A draft Enterprise Bill was first published at the end of March and a revised version was published in May. The revised Enterprise Bill will have important implications for companies and individual in financial difficulty and their creditors.

The Bill is expected to be enacted in the latter quarter of 2002, although it may not come into force until 2003. It is expected that there will be further revisions to the Bill.

The following are some key features of the Bill.

Appointments of administrative receivers will be restricted to floating charge holders created before a date to be specified and floating charges granted in capital markets and defined project transactions. It will often be the case that banks do not have the right under their existing loan documents to call an event of default (and appoint administrative receivers under existing floating charges) where steps are taken to appoint an administrator out of court under the new procedure.

Crown preference will be abolished, although other preferential claims will remain. A proportion of the proceeds of realisations which would otherwise be paid to a floating charge holder will be earmarked for unsecured creditors. In addition, holders of floating charges, the company and its directors will be able to appoint administrators out of court.

  • Most bankruptcies will now last a year and some will even last under a year. Restrictions on bankrupts will be lessened considerably.
  • The Bill foreshadows the introduction of a radically new administration procedure to replace Part 2 of the Insolvency Act 1986 (which contains the existing provisions relating to administrations). Many of the formalities and procedural requirements of the existing administration procedure will disappear and the new proposed framework represents a wholesale revision of the administration process in a way which suggests that the new administration regime is to be the main gateway for companies in financial difficulty. It will replace administrative receivership in most cases and liquidations in many others.

[Recent publications]

 

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