August Regulatory Wrap | Legal Advice | imac legal & compliance


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Regulatory Wrap August 2015

August 17, 2015 imaclegal 0 Comment

Here’s a roundup of important developments that have happened in your world in the last month or so, in case you missed some. First, some financial services developments, followed by general commercial law developments.

The wrap-up covers: ASIC Cost Recovery; Guidance on SMSF Advice; Misleading & Deceptive Conduct; Class Orders To Be Remade; Payday Lenders and Consumer Leases Review; Small Business To Be Covered Under Unfair Contract Laws; Case Law: When Are You In a Market and In Competition; Business Judgement Rule Upheld; Members Resolutions: When Can They Be Moved At An AGM.

Financial Services law

ASIC Cost Recovery Move Could Be Lawyers’ Picnic

imac legal was in the news with an opinion on ASIC’s recently stated move to recover its investigation costs from defendants it successfully prosecutes. In our opinion, ASICs reliance on its powers in s91 of the ASIC Act to recoup costs is likely to lead to close scrutiny of its costs and judicial review by defendants, potentially rendering the move counter-productive. Read the Money Management article here.

ASIC Releases Guidance on SMSF Advice

If you provide SMSF advice, you should review ASIC’s new Information sheets: Advice on self-managed superannuation funds: Disclosure of risks (INFO 205) and Information Sheet 206 Advice on self-managed superannuation funds: Disclosure of costs (INFO 206) and consider whether your advice and compliance arrangements need be amended in any way.

INFO 205 covers:

  • the relevant conduct and disclosure obligations
  • the risks that should be considered by the adviser and disclosed to the client when providing personal advice about SMSFs, including: ◦the lack of statutory compensation ◦the impact on insurance ◦access to complaints mechanisms ◦the appropriateness of different SMSF structures ◦trustee obligations and the time and skills necessary to operate an SMSF ◦trustee obligations to develop an investment strategy ◦the need to consider an exit strategy
  • the additional information that must be included in a Statement of Advice (SOA).

INFO 206 covers:

  • the relevant conduct and disclosure obligations
  • the need for advice on the cost-effectiveness of an SMSF – in particular, if the starting balance is below $200,000
  • the need for advice on the costs of setting up, operating and winding up an SMSF
  • the need for advice on the continued suitability of an SMSF for the client.

Misleading & Deceptive Conduct – more action from ASIC

Misleading and deceptive conduct continues to be an area of a lot of activity from the regulator. For example, in the past month Dixon Advisory Group was hit with an infringement notice and penalty for potentially misleading advertising (ASIC’s media release is here); as was Omniwealth (see ASIC’s media release here).

TIP: Marketing activity is generally one of the bigger risk touchpoints for most financial services businesses. When creating any sort of marketing communications it is vital to have effective due diligence procedures in place. These include, ensuring the appropriate stakeholders and subject matter experts are engaged in the process; ensure all stakeholders sign off on the veracity of all information that is relevant to them; ensure legal and/or compliance review the final versions, including the graphic design and physical layout where relevant; consider using a checklist that ticks off all regulatory obligations; and finally, ensure you keep full and accurate records of the review process for all communication materials. That way, you will hopefully avoid the sorts of mistakes others have made. Your hip pocket will thank you for it.

ASIC Announces a Consultation on Remaking Several Class Orders

ASIC’s Class Orders are repealed automatically (i.e. sunset) after a specified period of time, usually 10 years. ASIC announced that it intends remaking 6 Class Orders that are to expire between 2016 and 2019. imac legal is of the opinion that instead of just redrafting and/or re-releasing Class Orders, the regulators need to get together to initiate a re-write of the Corporations Act instead, in particular the main financial services provisions in Chapter 7, in order to simplify the Act and do away with reliance on so many Class Orders and other extrinsic instruments. See our articles on this subject on our Media page,

Clampdown on Payday Lenders & Consumer Leases

The rules relating to payday lenders and regulated consumer leases (e.g. for fridges and other whitegoods) will come under the regulatory spotlight after the government announced a review of Small Amount Credit Contracts (SACCs). See the Assistant Treasurer’s media release announcing the review here.

The review comes after heightened regulatory action against unscrupulous payday lenders. SACCs are loans of less than $2,000 to the consumer with a maximum term of 12 months. Since 2013, the Credit Act has placed specific obligations on SACC providers, including a cap on costs and a rebuttable presumption that a loan is unsuitable where the customer is in default under another small amount loan. A regulated consumer lease allows a customer to lease an item (for example, a fridge), until the term of the lease finishes, when the item is returned to the lease provider. Consumer leases regulated under the Credit Act include those that are for a set period of four months or longer.

Commercial law

Small Business May Soon Be Protected Under Unfair Contract Laws

Small businesses (i.e. less than 20 employees) will be covered by the consumer unfair contract provisions of the ASIC Act and the Australian Consumer Law if a new bill, the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015, which has been introduced into parliament is passed into law. It would provide small business protections when agreeing to standard form contracts less than that $100,000 upfront, or less than $250,000 if the contract is for more than 12 months. Agreements such as credit contracts, retail leases, supply agreements and franchise agreements would all be caught by the new provisions. However, insurance contracts, and constitutions of a company, managed investment scheme or other entities will be exempt. If passed, the Bill is expected to become law in 2016. TIP: Watch this space! And review your contracts for compliance with the Australian Consumer Law if your agreements may be caught.

What is a market and when are you in competition?

While the following case involved the provision of credit services, it was also a case about the more general provisions of the Competition and Consumer Act 2010 (CCA, formerly the Trade Practices Act (TPA)). It was a case that hinged on what ‘market’ each of the parties (a lender and broker) were operating in. The determination of what is a ‘market’ is one that has vexed a lot of businesses and has featured heavily in the cases prosecuted by the Australian Competition and Consumer Commission (ACCC). As such, it’s an issue that needs to be given consideration by businesses. Depending how your particular market is defined can mean the difference between breaching the anti-competitive conduct provisions of the CCCA and facing large penalties or operating legally on the other hand.

In an appeal case to the Federal Court, the court heard the case of Australian Competition and Consumer Commission v Australian and New Zealand Banking Group Limited [2015] FCAFC 103 . The case involved a lender (ANZ) and a broker. The legal conduct in question was an arrangement that limited the maximum of money the broker (Mortgage Refunds) could offer to refund its customers when they successfully applied for an ANZ mortgage through the broker. The ACCC alleged that the agreement had “the purpose, effect or likely effect of fixing, controlling or maintaining a discount, allowance, rebate or credit in relation to loan arrangement services provided by Mortgage Refunds in competition with ANZ”. The ACCC relied on s 45A of the TPA, which deemed the agreement, if proved, to have the purpose or effect of substantially lessening competition.

In a nutshell, if the court found that the lender and broker were competing in the same market for the “supply of loan arrangement services” this would have meant the anti-competitive conduct provisions of the TPA were breached. However, in a reasoned judgement that should be of interest to mortgage brokers everywhere, the court found that ANZ and the lender were not in competition. Therefore, the anti-competitive provisions of the TPA were not breached. The ACCC lost the appeal and was ordered to pay costs.

Business Judgement Rule Upheld

For directors who have been concerned that the ‘business judgement’ rule in section 180 of the Corporations Act has only a very narrow ambit and application, a recent case makes it clear that directors can rely on the rule in a range of circumstances. Australian Securities and Investments Commission v Mariner Corporation Limited [2015] FCA 589 (link to the case here) involved ASIC alleging that the directors of Mariner had breached their duties by making a reckless decision that Mariner would announce a takeover bid for Austock without securing funding.

In concluding that the directors did not breach their duties and could rely on the business judgement rule, Justice Beach noted that a breach by a company does not automatically mean directors have breached their duties. He stated, “It is wrong to assert that if a director causes a company to contravene a provision of the Act, then necessarily the director has contravened s 180. No contravention of s 180 would flow from such circumstances unless there was actual damage caused to the company by reason of that other contravention or it was reasonably foreseeable that the relevant conduct might harm the interests of the company, its shareholders and its creditors (if the company was in a precarious financial position) …. In order for an act or omission of the director to be capable of constituting a contravention of s180 there must be reasonably foreseeable harm to the interests of the company caused thereby.”

 Justice Beach set out the four criteria which need be established to rely on the business judgement rule. 1. There must be a ‘business judgement’. 2. The judgement must be made in good faith and for a proper purpose. 3. There must be no material personal interest in the subject matter of the judgement. 4. The director must inform themselves of the subject matter of the judgement to the extent they reasonably believe to be appropriate.

Members’ Resolutions: when can they be moved at an AGM?

It has long been held that members (i.e. shareholders), subject to a few exceptions, cannot be involved in the management of a company; that power is typically vested in the directors. But the Corporations Act allows members to put resolutions to an AGM in certain circumstances. So, what happens when members seek to put a resolution to an AGM that seeks to express an opinion as to how a power that is vested in the board should be exercised by that board? As the case of Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2015] FCA 785 (ACCR v CBA) showed, such resolution cannot be validly moved at the AGM.

In ACCR v CBA, ACCR sought to have a resolution included at the AGM. It also sought an alternative resolution should the first not succeed. A third resolution, which was put to the AGM, was not successful. The relevant resolutions related to the ACCR’s views on greenhouse gases. The resolutions sought for the directors to provide a report to members covering certain information about the company’s involvement with greenhouse gases and that, pursuant to that report, the shareholders expressed their disappointment about some of the company’s responses to greenhouse gases.

The court’s decision means it is now settled law that resolutions from members expressing opinions as to how certain powers that are vested in the board should be exercised are not valid.

TIP: always pay close attention to the drafting of resolutions. Consider whether they are for a proper purpose that is allowed by the company’s constitution and Corporations Act.

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