ASIC has released Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors (RG 217) to assist directors to understand and comply with their duty under the Corporations Act 2001 to prevent insolvent trading.

Section 588G of the Corporations Act requires a director of a company to prevent the company from incurring a debt if the company is insolvent, or if the company will become insolvent by incurring the debt or a range of debts including the debt.

The four key principles which ASIC considers directors should follow to meet their obligation to prevent insolvent trading are:

• keep themselves informed about the company’s financial position and affairs;
• regularly assess the company’s solvency and investigate financial difficulties immediately;
• obtain appropriate professional advice to help address the company’s financial difficulties where necessary; and
• consider and act in a timely manner on the advice.

RG 217 also details factors and evidence which ASIC will consider when deciding to bring proceedings against a director for allowing a company to trade while insolvent (including criminal proceedings and proceedings to recover compensation for loss resulting from insolvent trading).

RG 217 contains an appendix setting out indicators of potential insolvency.

ASIC has made clear that RG 217 only sets out its intended policy on this issue and in no way affects any action that may be taken by creditors or a liquidator against directors who may have traded while insolvent.

Curiously the list of cases referred to in RG 217 does not include Hall v Poolman.

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We thought it would be helpful to summarise the position of referrers with all the amendments in place.

There are now 4 referrer exemptions, and they can be found in regulation 25 of NCCPR. Exemptions 1 and 2 are ongoing. Exemption 3 only operates until 30 September 2010, after which exemption 4 effectively replaces it.

Exemption 1 - The Original Exemption (Reg. 25(2))

Terms of the exemption

1. The referrer informs the consumer that a licensee or registered person, or a representative of the licensee or registered person (the provider) is able to provide a particular credit activity or a class of credit activities.
2. The referrer gives the consumer information about how the consumer may contact the provider.
3. At the same at the time, the referrer discloses to the consumer any benefits, including commission, that the referrer (or an associate of the referrer) may receive in respect of the activity, or that is attributable to the activity.
4. The benefits disclosure is in the same form as the information given by the referrer about the provider. For example, if the referrer gives the information about the provider in writing, the benefits disclosure will also have to be in writing.

Comments on this exemption

• If the referrer does any other type of credit activity, such as suggesting that the consumer apply for a particular credit contract with the provider, the referral would fall outside the exemption. Any type of endorsement of the provider or its products may put the referral activity at risk of being regulated. The referrer must avoid providing credit assistance or acting as an intermediary if it wants to rely on this exemption.
• This exemption does not allow the referrer to give the consumer’s contact details to the provider, or to facilitate the consumer contacting the provider (such as via a website).

Exemption 2 - The Website Exemption (Reg. 25(2A))

Terms of the exemption

1. The referrer informs a consumer that the provider is able to provide a particular credit activity or a class of credit activities.
2. The referrer gives the consumer information about how the consumer may contact the provider, and makes arrangements enabling the consumer to contact the provider by means of a link that can be accessed from a website provided by or for the referrer or an associate of the referrer.
3. At the same at the time, the referrer discloses to the consumer any benefits, including commission that the referrer (or an associate of the referrer) may receive in respect of the activity, or that is attributable to the activity.
4. The benefits disclosure is in the same form as the information given by the referrer about the provider.

Comments on this exemption

• This exemption was introduced in regulations made on 29 June 2010 and applies from 1 July 2010.
• The only difference from exemption 1 is in the second condition (see additional words in italics): the exemption allows the referrer to make arrangements for the consumer to contact the provider via a website link.
• This is not a “technology neutral” regulation - contact via a website is treated differently from other ways to facilitate contact.

Exemption 3 - Until 30 September 2010 (Reg. 25(4))

Terms of the exemption

1. The activity occurs before 1 October 2010.
2. The referrer informs the consumer that the provider is able to provide a particular credit activity or a class of credit activities.
3. The referrer gives the provider the consumer’s name and contact details.
4. The referrer gives the provider a short description of the purpose of the credit or consumer lease (if the referrer knows the purpose).
5. At the same at the time, the referrer discloses to the consumer any benefits, including commission, that the referrer (or an associate of the referrer) may receive in respect of the activity, or that is attributable to the activity.
6. The referrer is not banned from engaging in the credit activity.
7. The referrer does not require the consumer to pay a fee to anyone in relation to the referral.
8. The consumer has consented to the referrer giving the consumer’s name to the provider.
9. The referrer engages in the activity as a matter incidental to the carrying on of a business that is not principally making contact with persons to give their names or other details to another person.

Comments on this exemption

• This exemption was introduced in regulations made on 19 July 2010 and only applies from 21 July until 30 September 2010. After that, exemption 4 (see below) will apply instead, so this is a transitional regulation.
• The consent of the consumer required (condition 8) is only for the passing on of the consumer’s name. There does not seem to be a requirement that the consumer also consent to the purpose of the credit being passed on, or to the provider contacting the consumer, but referrers may want to do this in any case.
• This exemption cannot be used by a business that does referrals as its principal business - it only applies if the referral activity is incidental to another business (see condition 9). The reason for this distinction is not clear, if the activity is the same whoever does it.

Exemption 4 - From 1 October 2010 (Reg. 25(5) and reg. 9AB)

Terms of the exemption

1. The referrer engages in the credit activity on or after 1 October 2010.
2. The activity is engaged in under an agreement with the provider which specifies the conduct that the referrer can engage in (namely, conduct to which this exemption applies). The agreement can either be in writing or based on an offer made in writing by the provider and accepted by the referrer.
3. The referrer informs the consumer that the provider is able to provide a particular credit activity or a class of credit activities.
4. The referrer gives the provider the consumer’s name and contact details within 5 business days after informing the consumer.
5. The referrer gives the provider a short description of the purpose of the credit or consumer lease (if the referrer knows the purpose).
6. At the same at the time, the referrer discloses to the consumer any benefits, including commission, that the referrer (or an associate of the referrer) may receive in respect of the activity, or that is attributable to the activity.
7. The referrer is not banned from engaging in the credit activity.
8. The referrer does not require the consumer to pay a fee to anyone in relation to the referral.
9. The consumer has consented to the referrer giving the consumer’s name to the provider.
10. The referrer engages in the activity as a matter incidental to the carrying on of a business that is not principally making contact with persons to give their names or other details to another person.
11. The referrer does not conduct a business as part of which the referrer contacts persons face-to-face from “non standard business premises.”
12. A licensee who engages in a credit activity because of a referral under this exemption must comply with the following (from 1 October 2010):
    1. The licensee must keep, or have access to, a register of its referrers (the referrers register).
    2. The referrers register must include the referrer’s name and contact details, the date and means by which the referrer was advised in writing of the way in which the referrer may engage in credit activities under the agreement (a written agreement between the parties, or an offer in writing accepted by the referrer), and the day on which the referrer first engaged in the referral activity.
    3. The licensee must make the register available to ASIC on request.
    4. The licensee may only contact the consumer within 10 business days after receiving the referral.
    5. If the licensee contacts the consumer in person, the licensee must begin the discussion with the consumer (after the licensee has identified itself) by statements to the following effect:
       • ‘I am contacting you because we have been provided with your contact details by [name of referrer]. Can you confirm that you agreed with [name of referrer] to have us contact you?’
       • if a payment of commission or a financial benefit may be given to the referrer - ‘before we continue, I would like to let you know that if you take up any of our products or services, [name of referrer] may receive the following financial benefits [brief description]
       • ‘are you happy to continue this discussion?’.
    6. If the licensee contacts the consumer by letter or email, the licensee must include, at the start of the letter or email,  statements to the  effect that the licensee is contacting the consumer as a result of being provided with their contact details by the referrer (identifying the referrer by name), and that the referrer may receive a financial benefit or payment.

Comments on this exemption

• If you are a licensee or registrant using referrers, and you want to rely on this exemption, by 1 October 2010 you will need to document your relationship with your referrers by a referrer agreement or an instrument of appointment. You will also need to set up your referrers register, and make sure that your processes include contacting the consumer within the 10 day timeframe and using the appropriate wording when the initial contact is made.
• This exemption, like exemption 3, does not apply to businesses whose principal business is referrals (see condition 10). But an additional restriction in exemption 4 is that the referrer does not conduct a business where the referrer contacts persons face-to-face from “non standard business premises.” These are business premises that are “not physically separate from premises regularly used by consumers for purposes other than being contacted in relation to the supply of goods or services.” The explanatory statement for the amending regulations gives “a stall in shopping centres” as an example of non-standard business premises.

The major provisions of the Financial Sector Legislation Amendment (Prudential Refinements and Other Measures) Act 2010 commence on 27 July 2010.

The Act expands APRA’s supervisory powers in amendments to the Banking Act and other Acts.

The Banking Amendment Regulations 2010 (No. 2) also make it clear that “a form of support that is entered into in the normal course of business is not to be considered external support” for the purpose of APRA giving directions including recapitalisation directions.

Examples of external support entered into in the normal course of business could include parent and shareholder support. Examples of support not entered into in the normal course of business could include arrangements such as industry support contracts certified under section 11CB of the Act, or support from the Government, such as the provision of a guarantee over an ADI’s obligations, an indemnity over risks on an ADI’s balance sheet, or an undertaking to provide capital support.

The Minister for Home Affairs Brendan O’Connor has released proposals to stop international funds transfer services being used to fund people smuggling and serious crime.

Under the improved registration scheme, the CEO of AUSTRAC would be given the power to refuse, suspend, cancel or impose conditions on registration of remittance providers.

In particular, if the CEO believed that a significant money laundering, terrorism financing or people smuggling risk existed, the CEO would refuse or cancel a person’s registration.

Under the changes the AUSTRAC CEO would consider criminal history, compliance history and ownership when deciding whether someone should be allowed to be a remitter.

ASIC has released a report Review of disclosure for capital protected products and retail structured or derivative products (Report 201) outlining its key findings from a review of selected Product Disclosure Statements (PDSs) for capital protected products and other structured or derivative products marketed to retail investors.

ASIC recommends issuers:

• clearly explain counterparty risk, and include supporting financial information, to ensure retail investors can assess the issuer’s financial ability to meet its counterparty obligations of capital protected products,
• ensure disclosure is sufficient so that investors can assess the likelihood of early termination or any other significant limitations of these products
• provide better disclosure of break costs that may apply where an investor seeks to terminate or redeem a product before its maturity date.

Timothy Pilgrim has been appointed as Australia’s new Privacy Commissioner.

From 1 November the Privacy Commissioner will become part of the Office of the Australian Information Commissioner.

The National Consumer Credit Protection Legislation Amendment Regulations 2010 (No. 2) (here) were registered on 21 July. They amend the National Consumer Credit Protection Regulations 2010 and the National Consumer Credit Protection (Transitional and Consequential Provisions) Regulations 2010.

The Regulations:
• insert an exemption from licensing for upstream referrers;
• insert an exemption from licensing for locums and employment agencies, and exemptions from certain obligations for temporary employees appointed as credit representatives;
• remove the 12-month sunset clause from the exemption from licensing for state licensed debt collectors (so that the exemption from licensing for state licensed debt collectors will not expire after 12 months, as the states have not yet reached agreement on the regulation of debt collectors);
• insert an exemption from certain licensing obligations for authorised deposit-taking institutions (ADIs) who provide credit assistance under “white labelling” arrangements;
• amend the existing exemption from licensing for providers of incidental membership benefits;
• amend the definition of unsolicited contact (these amendments take effect on 1 October 2010);
• replace references to licensee with references to unlicensed carried over instrument lender (UCOIL) in the Principal Credit Regulations;
• expand the exemption from having to make external dispute resolution (EDR) related disclosures to additional persons and provisions of the Credit Code;
• correct a reference to a prescribed UCOIL; and
• include orders under the Criminal Organisation Act 2009 (Queensland) in the list of prescribed orders relevant to licensing.

These changes have important structuring implications for credit providers and intermediaries.

ASIC has approved 3 forms for notifications relating to authorised representatives:

• Form CL30 Appoint a credit representative
• Form CL31 Cease a credit representative
• Form CL32 Vary the details of a credit representative

Notification must be given to ASIC by credit licensees within:

• 15 business days after appointing a credit representative
• 14 business days after a change to the residential address of a representative if an alternative address is recorded for them
• 10 business days after a change to any other details of a representative
• 10 business days after revoking the authorisation of a credit representative

As there was a flurry of credit regulation changes leading up to 30 June it is important that you check that the prescribed forms you use are up to date.

You can download a copy of the National Consumer Credit Protection Regulations 2010 consolidated up to 1 July 2010 here. But the National Consumer Credit Protection Legislation Amendment Regulations 2010 (No. 2) (here) are not yet consolidated.

ASIC has helpfully made the individual forms available here.