Superannuation clearing house draft legislation released

approvalThe Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, has released draft legislative amendments to provide a free superannuation clearing house service to small businesses. The measure is designed to reduce the cost to small businesses of complying with their superannuation obligations.

The free superannuation clearing house service for small business will be delivered through Medicare Australia. The service will be available to eligible small businesses (those with less than 20 employees) from July 2010.

The draft legislation will amend the Superannuation Guarantee (Administration) Act 1992, the Retirement Savings Accounts Act 1997 and the Superannuation Industry (Supervision) Act 1993.

Comments on the draft legislation are open until 23 December 2009.

ASIC guidance to directors on their duty to prevent insolvent trading

insolvent trading

One of the most difficult roles of a director is to determine whether the company is insolvent.

ASIC has released a Consultation Paper outlining proposed guidance to directors on their duty to prevent insolvent trading: Consultation Paper 124 Directors’ duty to prevent insolvent trading: Guide for directors (CP 124).

ASIC’s draft Regulatory Guide refers to the core principles that a director:

  • must keep him or herself informed about the financial affairs of the company and regularly assess the company’s solvency;
  • immediately on identifying concerns about the company’s viability, should take positive steps to confirm the company’s financial position and realistically assess the options available to deal with the company’s financial difficulties;
  • should obtain appropriate advice from a suitably qualified person; and
  • should consider and act appropriately on the advice received in a timely manner.

The draft guide sets out defences and contains guidance including information about ASIC’s approach to insolvent trading and some of the factors ASIC will take into account, and the evidentiary material it will look at, in assessing whether there has been a breach of the insolvent trading provisions.

ASIC is seeking feedback on these proposals by 22 January 2010.

PayPal Australia gives AUSTRAC enforceable undertaking

money launderingAUSTRAC has accepted an enforceable undertaking from PayPal Australia Pty Ltd after an assessment of PayPal revealed deficiencies in the systems PayPal had in place to assess and manage its money laundering and terrorism financing risk in relation to its online payments business.

In the undertaking which ends 31 December 2011 PayPal has agreed to:

  • strengthen its existing systems and controls to comply with risk assessment requirements;
  • submit to AUSTRAC an independent expert report detailing PayPal Australia’s compliance with AML/CTF laws and a plan to remedy identified deficiencies.

Ripoll report on financial products and services released

The Parliamentary Joint Committee on Corporations and Financial Services (chaired by Bernie Ripoll MP) has released its report into the issues associated with recent financial product and services provider collapses, such as Storm Financial, Opes Prime and other similar collapses, with particular reference to:

  • the role of financial advisers;
  • the general regulatory environment for these products and services;
  • the role played by commission arrangements relating to product sales and advice, including the potential for conflicts of interest, the need for appropriate disclosure, and remuneration models for financial advisers;
  • the role played by marketing and advertising campaigns;
  • the adequacy of licensing arrangements for those who sold the products and services;
    the appropriateness of information and advice provided to consumers considering investing in those products and services, and how the interests of consumers can best be served;
  • consumer education and understanding of these financial products and services;
  • the adequacy of professional indemnity insurance arrangements for those who sold the products and services, and the impact on consumers; and
  • the need for any legislative or regulatory change.

In conducting its inquiry, the Committee decided to focus specifically on non-superannuation products and services.

The Committee’s recommendations focus on stricter regulation of financial advisers.

Privacy case notes 12-17 for 2009

case notesThe Privacy Commissioner has released the following case notes:

In Own Motion Investigation v Financial Institution [2009] PrivCmrA 12 the Commissioner commenced an own motion investigation after being advised by an individual that a financial institution had been sending bank account statements to the previous occupant of the individual’s residential address for several years, despite these statements consistently being returned, marked ‘Return to sender. Address unknown’. The financial institution gave details to the Commissioner of its “Return to Sender” mail procedures. The Commissioner was satisfied that the financial institution had processes in place to meet its obligations under NPP 3 at the commencement of the investigation, and ceased the own motion investigation into the matter.

In J v Commonwealth Agency [2009] PrivCmrA 13 the complainant disputed his employer agency’s need to disclose information about an internal investigation involving him to a doctor assessing his workers compensation claim. The Commissioner was satisfied that the complainant would have been reasonably likely to know the information would be disclosed. The Commissioner also accepted that it is usual practice in workers compensation matters for an employer to provide the assessing doctor with all relevant information about the employee. The complaint was dismissed.

In K v Commonwealth Agency [2009] PrivCmrA 14 the complainant alleged that the disclosure of their spent conviction information by their employer agency in answer to a court subpoena was in breach of the Crimes Act. The Commissioner formed the view that the disclosure of the complainant’s spent conviction information by the agency met the requirements of section 85ZZH(c) because it was a disclosure to a court, and was therefore allowed under the Crimes Act.

In L v Health Service Provider [2009] PrivCmrA 15 the complainant alleged the payment default for health services did not relate to credit as defined by the Privacy Act and should not have been listed in his consumer credit information file. While the complainant had failed to pay for the medical procedure, the Commissioner considered the health service provider did not have a sufficient credit relationship with the complainant, and was not a credit provider in accordance with Determination No. 2006-2. The Commissioner formed the view that the health service provider had interfered with the complainant’s privacy by listing a payment default when it was not a credit provider in respect of the debt. In response to the complainant’s claim that the payment default prevented them from obtaining finance, the health service provider apologised, removed the payment default, and ceased its practice of reporting overdue accounts to a credit reporting agency. The complainant also accepted a confidential financial settlement.

In M v Financial Institution [2009] PrivCmrA 16 the complainant alleged the financial institution had improperly collected their personal information from a third party (a relative of the complainant’s former partner)and used it in making a decision about the complainant’s joint account, failing to ensure the personal information was accurate, complete and up-to-date. The financial institution argued that it did not collect information from the relative because it did not ask for the information. However, the Commissioner took the view that an organisation collects personal information if it gathers, acquires, or obtains information from any source and by any means (irrespective of whether the information was sought by th20e organisation). In addition, because the financial institution changed its accounts based on that information, the financial institution collected the information for inclusion in a record in accordance with section 16B of the Privacy Act.

Given the information was not provided by the account holders, was subject to change and had an effect on the complainant’s finances, the Commissioner took the view that the financial institution had not taken reasonable steps to check the accuracy of the personal information it collected from the third party. Therefore, the financial institution had failed to comply with NPP 3. The financial institution offered the complainant financial compensation. The complainant accepted the offer.

In N v Commonwealth Agency [2009] PrivCmrA 17 the complainant claimed that their employer agency improperly disclosed their personal information to a contractor hired to investigaste his complaints without his consent. The Commissioner was satisfied that the agency’s collection of personal information in the personnel and related files was for the purpose of administering the complainant’s employment. As the contractor was engaged to investigate complaints about the complainant’s working conditions, the Commissioner considered the use to be directly related to the administration of the complainant’s employment. Therefore, the Commissioner was of the view that the agency’s use of the complainant’s personal information was permissible under IPP 10.1(e), and as such, the issue of consent was not considered.

ASIC v Rich: ASIC One.Tel case against Rich and Silbermann dismissed

finger_crossing_buisness_manIn Australian Securities and Investments Commission v Rich[2009] NSWSC 1229 Judge Austin decided that ASIC had failed to prove its case against One.Tel director and joint chief executive Jodee Rich and One.Tel’s finance director Mark Silbermann.

ASIC brought civil penalty proceedings for breach of the statutory duty of care of company directors and officers. The proceedings were initially brought by ASIC against four defendants, arising out of the collapse in May 2001 of a large Australian listed company, One.Tel Ltd and its local subsidiaries, and the collapse or on-sale of overseas subsidiaries.

The actions against two of the defendants, joint managing director Bradley Keeling and non-executive Chair John Greaves were previously settled.

ASIC alleged that the defendants did not disclose the true financial position of the company to the board, and that they knew or should have known the true position.

The focus of the argument was on whether ASIC had proved its case as to the true financial position in the January- April 2001 period.

In his conclusion Judge Austin said

“The question for determination is not the larger issue of how it happened that a rising corporate group supported by two well-resourced investors came to fail, in spectacular circumstances. The court has not been asked to determine, at large, who was to blame for the disaster, as amongst the defendants, other executives, non-executive directors, major shareholders and advisers. The proceedings are not a Royal Commission. Notwithstanding the huge amount of effort that has been devoted to these proceedings by the parties and their advisers, and by the court, many questions about the failure of One.Tel are left unanswered….

One of the unanswered questions is whether One.Tel would have survived if, in May 2001, PBL/CPH and News had maintained their support for the company and implemented their plan to underwrite a deeply discounted rights issue to raise $132 million. The tendered evidence has led me to reject ASIC’s figures as to the financial circumstances of One.Tel at the end of February, March and April 2001and to prefer the figures set out in Chs 11, 13 and 15 respectively. If those figures are right, a fundraising of $132 million accompanied by continuing support by the major shareholders would probably have been enough to address the company’s cash requirement until November 2001, by which time, according to the business plans, the company’s businesses would have been generating more healthy Group cash flow. The withdrawal of that support, and the abandonment of the rights issue, may well have ensured that the company could not survive.”

The judgment is 3,105 pages long. The table of contents alone is 62 pages.

A costs hearing has been set for November 27. Judge Austin has already indicated that ASIC should pay the defendants’ costs on a party and party basis.

ASIC is considering whether to appeal.

UPDATE 17 December 2009: ASIC appeals One.Tel decision

Privacy and credit reporting changes

privacy lawThis article by me was first published in Retail Banking Review.

The Government has confirmed that it will accept the Australian Law Reform Commission’s recommendation to amend the Privacy Act to allow credit reporting to include information about an individual’s repayment history to compliment its proposed credit licensing responsible lending obligations. » ( Read more of Privacy and credit reporting changes… )

Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 assented to

financial services modernization

The Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 received royal assent on 6 November 2009.

It is expected that Schedule 1 (margin lending), Schedule 2 (trustee companies) and parts of Schedule 3 (debentures) will commence by 1 January 2010. The rest of the Act commenced on 6 November 2009.

Draft regulations and example PDS

Director and executive termination payments bill passed

corporate benefits

The Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 was passed by the Senate on 16 November after it dropped an amendment requiring a review in three years time.

The House of Representatives sent the Bill back to the Senate after it disagreed with the proposed Senate change.


Key features of the Bill include:

  • termination benefits for company directors and executives exceeding one year’s average base salary are subject to shareholder approval.
  • The scope of the requirements relating to termination benefits is expanded to include senior executives or key management personnel of a disclosing entity.
  • The definition of what constitutes a “benefit” is broadened.
  • New regulation-making powers will specify what types of payments are, or are not, a termination benefit, and to define ‘base salary’.
  • The obligation to immediately repay unauthorised termination benefits .
  • The retention of the existing requirement for the giving of the benefit to be approved by a resolution passed at a general meeting.

The legislation and accompanying regulations will take effect the day after Royal Assent is granted.

UPDATE 25 November: The Bill was assented to on 23 November and commenced 24 November 2009.

It inserts new sections 200AA and 200AB in the Corporations Act and amends sections 200A-G and J relating to the payment of termination benefits to company directors and executives.

The Corporations Act currently allows for termination benefits up to seven times a director’s total annual remuneration package before shareholder approval is required. Additionally, only company directors’ termination benefits are subject to shareholder approval.

The new rules will not apply retrospectively to existing contracts. The new arrangements will apply to contracts that are entered into and renewed or extended.

The new rules will also apply to existing contracts for which a variation of a condition is made. Minor changes to an existing contract would not be considered a variation of a condition. However, changes that effect an essential term, including any term relating to remuneration would be considered a variation of a condition.