If you have never taken a company charge to secure a loan to a borrower, you are not affected by the Octaviar decision (Re Octaviar Ltd; Re Octaviar Administration Pty Ltd [2009] QSC 37).

Octaviar was about whether certain facilities were secured by a company charge.

The charge was not an "all accounts" charge and therefore the decision is regarded as not affecting all accounts company charges registered with ASIC within the required 45 day lodgment period.

The case related to a company charge to which loans could be added as secured debts by naming them in a later document. Those later documents were not registered with ASIC and the court decided that they were variations which needed to be registered to be secured by the charge.

If you have taken company charges and are not sure of their legal status or want to review your procedures for taking company charges and making further advances or collateral loans, get legal advice.

The APRA consultation package on new remuneration prudential standards proposes the extension of the current APS 510 by requiring the Board of each ADI to:

(a) have in place a Remuneration Policy that covers various matters including alignment of remuneration arrangements with the long-term financial soundness of the regulated institution and its risk management framework, and explains who is covered by the policy; and

(b) establish a Board Remuneration Committee comprised entirely of independent directors with the requisite skills and knowledge to perform its functions which, at a minimum, are to review the Remuneration Policy periodically and make recommendations to the Board on the policy and the remuneration of executives.

Subject to meeting APRA’s prudential requirements, regulated institutions have the flexibility to establish their remuneration arrangements in a manner best suited to achieving their business objectives.

APRA proposes that the Remuneration Policy cover, at a minimum, each person or group of persons within the regulated institution who, because of their roles, have the capacity to make decisions that could materially affect the interests of depositors and owners (shareholders or in the case of mutuals, members). For these purposes, APRA has specified certain persons who must be covered, namely ‘responsible persons’ (generally the senior executive cadre), risk and financial control personnel, and any other personnel who receive a significant proportion of variable remuneration through bonuses, commissions and the like.

APRA proposes to exclude non‑executive directors from those persons required to be covered by an institution’s Remuneration Policy.

APRA’s intention is that the extended prudential standards, once finalised, will commence in January 2010 but with appropriate transitional arrangements where necessary.

The media have been revelling in the search for Westpac NZ customers who were mistakenly paid NZ$10M instead of $100,000 and allegedly promptly took most of it and disappeared (for example, ABC News).

Whilst the media have accepted the obvious point (that it was a mistake and not the customers' money) they have also focussed heavily on the Westpac employee who processed the transaction.

Ozrisk makes the point that Westpac's systems have failed in firstly permitting the transfer of the wrong amount to the customer and secondly allowing the customer to transfer the funds to other accounts.

The law on mistaken payments is clear: bank customers are not entitled to keep money deposited to their account as a result of an obvious mistake. The customer who receives the money is obliged to return the payment unless, in good faith, they have changed their position to their detriment. They would only be acting in good faith if they genuinely thought they were entitled to the money. They can't treat the mistake as a windfall.

The Code Compliance Monitoring Committee for the Code of Banking Practice has announced that to test bank obligations in respect of cancellation of direct debit requests it is conducting a shadow shopping exercise, with both telephone calls and branch visits.

Banks are obliged to promptly process a customer instruction to cancel a direct debit request without the need to first raise the request with the service provider.

In addition to this being a customer service issue for the Banks, the Committee noted it is now compounded by increasing hardship where transaction accounts with nil or negative balances are being charged a dishonour fee, for direct debits that the Bank has failed to cancel as instructed.

The Mutual Banking Code of Practice will have a similar provision.

The new threshold is $322,850 (up from $320,320). The next change will be on 10 June 2009.

Further information is available at Hardship Threshold.

From 1 January 2010 the threshold will be fixed at $500,000.

Besides introducing credit licensing, the draft National Consumer Credit Protection Bill 2009 introduces a number of new concepts and procedures into the consumer credit regime including the following:

• the "capacity to pay" test for credit assessment will be expanded by a test of whether the credit contract will be unsuitable for the borrower before entering the contract or increasing a loan;
• "unsuitability" means if it will be likely, at the time the loan is made, the borrower could not comply (and repay) without hardship or the credit doesn’t meet the borrower’s objectives;
• the Bill specifies what is reasonable for a credit provider to do in making the unsuitability assessment ;
• the credit provider must give the borrower a copy of the assessment if requested within two business days if requested any time up to 12 months after the contract expires. There is no obligation to provide a copy of the assessment if the credit contract is not entered into or the credit limit is not increased;
• credit providers must give a person a credit guide , as soon as practicable after it becomes apparent that the credit provider is likely to enter a credit contract with a person who will be the borrower under the contract;
• the credit provider must give written notice of the outcome of an application for a hardship change within 21 days after receiving the application. If the application is refused, the notice must state the credit provider’s EDR and the applicant's’s rights under that scheme;
• The first time a default occurs in payment pursuant to a direct debit authority, the credit provider must give a notice in the prescribed form to the borrower and any guarantor within 10 days of the default occurring.

Langes services

Langes has set up a National Credit Code project team.

We will be developing resources to help implementation planning.

We expect that by August the legislation should be in close to its final form.

We will be holding a series of half day seminars as follows (venues to be advised):

Brisbane: Tuesday 11 August
Sydney: Wednesday 12 August (Grace Hotel)
Melbourne: Thursday 13 August
Adelaide: Friday 14 August.

The seminars will discuss:

• licensing
• training requirements
• changes to the Credit Code
•  unfair contracts
• disclosure requirements
• the effect on existing contracts
• the effect on business lending
• external dispute resolution
• compensation requirements

Contact Levina Chim on 02 8234 4777 02 8234 4777 for a registration form.