APRA consults on the use of reserves in superannuation funds

The Australian Prudential Regulation Authority (APRA) has released draft guidance on the management of reserves by APRA-regulated superannuation trustees.

A discussion paper and draft Prudential Practice Guide 235 Use of reserves in superannuation funds (SPG 235) have been provided for comment by 5 June 2009. APRA will finalise the guide later in 2009.

The Superannuation Industry (Supervision) Act 1993 (SIS Act) contains provisions relating to the maintenance and management of fund reserves.Trustees and their directors are required to develop and implement a strategy for the prudent management of these reserves.

Reserves are not defined in the SIS Act.The draft SPG 235 distinguishes between amounts set aside for contingent events and provisions for accrued expenses such as administration or taxation.It also focuses on measures a trustee might consider in formulating a comprehensive reserving strategy.

Superannuation review

Senator Nick Sherry, Minister for Superannuation and Corporate Law and a coalition of peak superannuation industry bodies have released a Communiqué of Principles on the Australian superannuation system, including a resolution that the current operational features of the system be examined.

ACCC v Pratt criminal charges dropped

The perjury charges against Richard Pratt for providing false or misleading evidence in the course of ACCC's investigation into Visy's cartel conduct in the corrugated fibreboard packaging industry were discontinued on 27 April.

The Federal Court judge had ruled that the statement of agreed facts used to settle the civil cartel action could not be used as evidence.

It was also announced that Mr Pratt was terminally ill.

Richard Pratt passed away on 28 April (ABC News).

UPDATE 30 April: ACCC comments

Income Tax Consolidation Regime: Exposure draft legislation

The Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP, has released exposure draft legislation to improve the income tax consolidation regime and associated explanatory material.

The exposure draft legislation implements announced changes to enhance the consolidation regime.

Written comments on the consultation materials should be sent by 25 May 2009

Australian credit licensing

Draft National Consumer Credit Reform package released

Senator Nick Sherry, Minister for Superannuation and Corporate Law, has released the draft National Consumer Credit Reform package for comment by Friday 22 May 2009.

The package consists of drafts of the following: 

  • National Consumer Credit Protection Bill 2009 (the National Credit Code is a Schedule to this Bill)
  • National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009
  • National Consumer Credit (National Credit Code) Regulations 2009
  • National Consumer Credit Protection (Transitional and Consequential Provisions) Regulations 2009
  • National Consumer Credit (Infringement Notices) Regulations 2009 and
  • draft explanatory material. 

The Bill creates a new national regime for consumer credit including:

  • a new national licensing regime, requiring an Australian Credit Licence
  • a responsible lending obligation
  • a new dispute resolution mechanism for lenders
  • extending protections to investment loans for the first time;
  • amendments to the existing credit code, and
  • an increase of the threshold for mortgage hardship claims to $500,000

Australian Credit License
The Bill creates the Australian Credit License (ACL). After a registration phase commencing on 1 November 2009, coverage of the ACL regime will commence on 1 January, 2010, will be Australia-wide and will include all parts of the credit industry.

The ACL regime will be supervised by the Australian Securities and Investment Commission (ASIC) and will replace existing state regulation.

ASIC will be given the power to cancel or suspend a licence or ban people from engaging in credit activities

ACL holders will all be required to meet minimum entry standards before they can offer products and services to consumers.

All banks, credit unions, finance companies and other lenders, known in the Bill as credit providers, and all credit advisers and mortgage and credit brokers, known as credit service providers will be required to hold an ACL.

A person or entity will need an ACL where they engage in any of the following credit activities:

  • lending money or collecting money due under a credit contract,
  • acting as a broker or intermediary (such as an aggregator or mortgage manager),
  • providing assistance to a consumer about a specific credit product.

All holders of an ACL will be required to meet new obligations immediately on becoming licensed. For example, they will be required to be properly trained and ensure representatives are adequately supervised. They must also deal with conflicts of interest so clients are not disadvantaged where such conflict exists.

Licensing will be implemented in two phases. Anyone who currently engages in credit activities will need to register online with ASIC between 1 November 2009 and 31 December 2009. "Fast-tracking" will not be offered to existing lenders.

On becoming registered, a person must meet a range of obligations – they will be required to act efficiently, honestly and fairly, to comply with the law, including responsible lending conduct obligations and to become a member of an ASIC-approved External Dispute Resolution (or EDR) Scheme.

In phase 2, lenders will have six months to apply for an Australian Credit Licence, between 1 January 2010 and 30 June 2010. To qualify for an Australian Credit Licence, applicants must demonstrate to ASIC that they have the necessary organisational capacity, competencies and skills.

All persons who engage in credit activities for the first time on or after 1 January 2010 must apply for and receive an Australian Credit Licence before commencing business.

Responsible Lending
Responsible lending has two core elements:
1. if a loan is considered to be ––unsuitable for a consumer; and
2. if they do not have the ––capacity to repay the loan, they will not be provided with the loan.

ASIC Enforcement powers
The national credit laws will also include enhanced ASIC enforcement powers including:

  • criminal penalties for licensee misconduct with possible imprisonment for up to 5 years for those who lend contrary to the responsible lending requirements,
  • civil penalties for licensee misconduct to enable ASIC to impose heavy fines of up to $220,000 for an individual and $1.1 million for a corporation,
  • infringement notices (or fines) to enable ASIC to quickly act to penalise certain breaches of the law; and
  • consumer remedies, which will enable consumers to seek redress for their loss and damage as a result of misconduct by a licensee, or when their credit is provided unlawfully.

Hardship threshold to be increased in new consumer credit bill

James Hardie: company minutes as evidence

An important argument in the trial in Australian Securities and Investments Commission v Macdonald (No 11)[2009] NSWSC 287 (see summary here) was the evidentiary value of the minutes of a key board meeting.

The minutes of the meeting of the board of James Hardie at the 15 February 2001 Meeting which referred to approval of the ASX announcement at the centre of the case were signed as a correct record by the chairman at the next meeting of the board on 4 April 2001.

ASIC argued that the minutes had the benefit of a statutory presumption in s 251A(6) of the Corporations Law that the minutes were proof of their contents unless the defendants proved to the contrary.

However there was a failure to comply with Section 251A(1) in that the minutes were not recorded in a minute book within a month of the meeting.

Gzell J decided that "Section 251A(6) does not say that the minute is conclusive evidence of happenings at a meeting unless the contrary is proved. It does not state... that the events recorded in the minute are deemed to have happened. It says the minute is evidence of the events unless the contrary is proved. And whether the contrary is proved must be judged on the whole of the evidence. If the evidence establishes that an event recorded in a minute did not occur, the fact of its recording in the minute has no effect. "

However he observed that "One thing that has emerged clearly in this case is that recollection is fallible. If a minute is to be given evidentiary value, it ought to be a contemporaneous document, for then it is more likely to be an accurate reflection of the proceedings of the meeting rather than a reconstruction of them. "

Nevertheless, Gzell J decided that the Draft ASX Announcement was approved at the 15 February 2001 Meeting of the JHIL board of directors.

But the issue is a lesson of the importance of keeping accurate Board minutes and having them signed in a timely manner.

Income tax: genuine redundancy payments

The ATO has published TR 2009/2 Income tax: genuine redundancy payments.

This Ruling outlines the requirements to be satisfied before any payment made to a person whose employment is terminated qualifies for treatment as a genuine redundancy payment under section 83-175 of the Income Tax Assessment Act 1997 (ITAA 1997).

A genuine redundancy payment is one 'received by an employee who is dismissed from employment because the employee's position is genuinely redundant'.

There are four necessary components within this requirement:

  • The payment being tested must be received in consequence of an employee's termination .
  • That termination must involve the employee being dismissed from employment .
  • That dismissal must be caused by the redundancy of the employee's position.
  • The redundancy payment must be made genuinely because of a redundancy.

The Ruling discusses a range of circumstances in which a genuine redundancy can occur.

ASIC relief report: August to November 2008

ASIC has released a report Overview of decisions on relief applications (August to November 2008)outlining recent decisions on applications for relief from the corporate finance, financial services and managed investment provisions of the Corporations Act between 1 August and 30 November 2008.

The Report also highlights instances where ASIC decided to adopt a no-action position regarding specified non-compliance with the provisions, and features an appendix detailing the relief instruments it executed.