Belinda Ryan

Debt Management and Credit Repair Companies will soon be required to hold an Australian Credit Licence

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The Government announced in September last year its intention to require providers of debt management companies to hold an Australian Credit Licence in order to carry on their businesses.

Treasury has just finished consulting on an exposure draft of the proposed legislation – the National Consumer Credit Protection Amendment (Debt Management Services) Regulations 2021

The Reforms

Treasury summarises the rationale for the reforms in these terms:

An element of the reforms is protecting consumers from the often predatory practices of debt management firms by requiring them to hold an Australian Credit License when they are paid to represent consumers on matters related to credit activities. 

While the reforms will be welcomed by credit providers in relation to the activities of credit repair companies, the reforms also extend to include debt agreement administrators who are already regulated under Part IX of the Bankruptcy Act 1966 (Cth)

The changes are to be implemented by Regulation – specifically by amendment to the National Consumer Credit Protection Regulations 2010 by adding new regulations:

  • 4A Debt management services
  • 4B Meaning of debt management assistance
  • 4C Meaning of credit reporting assistance

Regulation 4A proposes make the provision of a debt management service a “credit activity” for the purposes of section 6 of the National Consumer Credit Protection Act 2009 (Cth) – that section sets out what are “credit activities” for the purposes of the Act.

Proposed commencement date

The changes are proposed to take effect on 1 July 2021.

Transitional arrangements

Transitional arrangements will apply.

The debt management service amendments apply in relation to a debt management service provided on or after 1 July 2021, regardless of whether the arrangement under which the service is provided is entered into before, on or after 1 July 2021

Even though credit licenses may not have been issued to a debt management company or a credit repair company prior to 1 July 2021, their position is protected as long as they have prior to that date:

  • Lodged an application with ASAIC for grant of an ACL or a variation to the authorisations under an existing ACL which is still pending at that date, and
  • Joined AFCA as a member of that scheme.

How ASIC will assess Licence Applications

It is unclear as to what criteria ASIC will use to assess applications – no doubt policies and procedures will have to be in place designed to demonstrate that the licensee will comply with its licensing obligations under the NCCP Act being:

  • conduct credit activities efficiently, honestly and fairly;
  • have adequate arrangements in place to manage conflicts of interest;
  • comply with any applicable credit licence conditions;
  • comply with the credit legislation;
  • ensure representatives comply with the credit legislation;
  • have adequate resources (including financial, human and technological);
  • maintain competence to provide the credit activities;
  • adequately train representatives and ensure they are competent;
  • have adequate risk management systems
  • have adequate internal dispute resolution procedures; and
  • have compensation arrangements in place (PI insurance)

Importantly, the directors, managers and controllers of debt management service companies will need to meet the fit and proper person test.

Exemption for lawyers from licensing requirements to be restricted.

Currently lawyers providing legal service are generally exempt from the NCCP Act by virtue of Regulation 24. Many debt management and credit repair companies have business associations with law firms. Accordingly, the lawyer exemption is to be further limited and will not apply where lawyers are involved in arrangements with debt management service providers – See proposed Regulation 24 (4A)

Conclusion

We predict these changes will herald a major shakeup in the debt management and credit repair industries and we will see many players struggle to obtain and maintain licenses from ASIC.

Government consults on exemptions to deferred sales model for add on insurances

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On 10 December 2020 Parliament passed the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020, which included, amongst other changes, the establishment an industry-wide deferred sales model (DSM) for add-on insurances.

The rationale for the change is that consumers should not be pressured into buying add on insurance at the time of a purchase transaction. ASIC Reports over many years have found that in many instances “add on insurances” represented poor value for consumers – one such early report (in 2016) being: REP 471 The sale of life insurance through car dealers: Taking consumers for a ride.

The deferred sales model introduces a pause in the process on selling such products providing that such products cannot be sold for a period of four days after the sale/supply of the main product.

However, it is not appropriate that a deferred sales model be implemented for all type of add on insurances. Some add on insurances are critical to the sale of the main product and of great benefit to consumers, such as:

  • Add-on travel insurance
  • Compulsory Third Party (CTP) insurance for motor vehicles

Treasury has recently consulted on what other types of add on insurance should be exempt from the deferred sales model. Stakeholders were asked to provide evidence for any classes of add-on insurance products that represent a very high level of consumer value where it would not be appropriate that they be captured by the deferred sales model.

If it is determined that the deferred sales model is not appropriate for certain classes of add on insurances then a class exemption will be made by regulation under section 12DX of the Australian Securities and Investments Commission Act 2001.

Exemptions provided in the regulations will only be on an industry wide class basis. 

However, it is evident from the Treasury consultation paper that exemptions will not lightly be given. To support any application for an exemption Treasury requires submissions to include the following comprehensive information:

1.  A description and suggested legal definition of the class of add-on insurance product proposed to be exempted. The description should identify the key cover, exclusions and conditions of that class of add-on insurance product. 

2.  Evidence that the class of add-on insurance product has been historically good value for money for consumers. This would be demonstrated by:

2.1. Quantitative indicators of consumer value for the class of add-on product, including payout ratio (claims paid to insured party / premium), gross loss ratio, claims acceptance rates; and policy cancellation rates; 

2.2. The amount of commission paid / received; 

2.3. Relative value of the class of product compared with like products in the stand-alone market;

2.4. Any other qualitative or quantitative evidence which demonstrates the class of add-on insurance product has been historically good value for money for consumers.

3.  Evidence that without an exemption there is a high risk of underinsurance or non-insurance;

4.  Evidence that the product is well understood by consumers;

4.1. Level of consumer understanding of the class of add-on product

4.2. Level of complexity of the class of add-on product;

4.3. Degree of material difference in terms in individual products within the proposed class.

5.  Evidence of any differences between the class of add-on insurance and similar products that are sold on the standalone market, including any differences in remuneration arrangements.

It will be interesting to see what types of exemptions will be granted. No time has yet been set for Treasury to finalise its views.

Updates to director resignation provisions under the Corporations Act

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Section 203A of the Corporations Act 2001 (Cth) (a replaceable rule) provides that a director may resign by giving written notice of the resignation to the company at its registered office. For companies with a Constitution, most have a similar provision. Prior to the introduction of the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 (Cth) (Act), the Corporations Act was silent on the issue of whether a director could resign, where doing so would mean that the company would no longer have any directors.

Further, the Corporations Act did not specify when a director’s resignation would take effect, with the assumption being that this would be the date written notice is provided. This allowed for directors to notify ASIC of their resignation after significant time had passed since their purported resignation. This is relevant to, amongst other things, directors’ duties, particularly if a company is later found to have been insolvent.

Resignations deemed ineffective
The Act introduces section 203AB into the Corporations Act, which provides that a director’s resignation, or a resolution by members of a proprietary company to remove a director, will have no effect if the company does not have any other directors at the date the resignation or resolution would take effect.

While intended to prevent illegal phoenixing, the impact of this section is relevant to all directors. Accordingly, directors need to be aware that if the company has no other directors, any attempted resignation will be ineffective. The new provision does not prevent a director resigning, if the resignation is to take effect on or after the day that the company is wound up.

ASIC have announced that any lodgement submitted (either via Form 370 or through the online portal) that attempts to resign or remove the last director of a company, without adding a replacement director, will be rejected. ASIC lists a number of exceptions to this, including where the last director is deceased, the company is being wound up or where the officeholder never consented to the appointment.

When does a director resign?
In order to clearly specify the date a director’s resignation is to take effect, the new provision stipulates that;

  1. where notice is lodged within 28 days of a director’s resignation, the date of resignation will be the actual date of resignation; and
  2. where notice is lodged after 28 days, the director’s resignation will be deemed to take effect on the date the notice is lodged with ASIC.

These amendments aim to prevent directors from improperly backdating resignations and apply to all director resignations, irrespective of the number of directors remaining in office. They further emphasise that companies should ensure that the required notice is promptly lodged with ASIC.

Both the Court and ASIC may order a correction to the resignation date. This requires an application to be made to ASIC, within 56 days, or to the Court, within 12 months, of the actual resignation date.

These new restrictions apply for directors who resign on or after 18 February 2021.

~ with Elissa Raines, Lawyer

COVID-19 Vaccines – Critical Questions for your Workplace

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Guidance for the vaccine roll out in Australian workplaces was released by the Federal Government on 19 February 2021.  This took place via a media release from Christian Porter, Minister for Industrial Relations and updated guidance for employers and employees on the websites of the Fair Work Ombudsman (FWO) and Safe Work Australia (SWA)

Whilst the Government aims to have as many Australians as possible choose to be vaccinated, receiving a vaccination will be voluntary (with some exceptions).

1.  Can I require my employees to be vaccinated?

SWA has confirmed that there are currently no laws or public health orders in Australia that specifically enable employers to require their employees to be vaccinated against COVID-19.

State and Territory health agencies may make public health orders that require some workers to be vaccinated, if they are working in high risk workplaces.  If a public health order is made that covers your workplace, then it must be followed (subject to an employee having valid reasons to refuse the vaccination).

The FWO has commented that the overwhelming majority of employers should assume that they will not be able to require their employees to be vaccinated against Coronavirus.

Circumstances in which an employer can make the vaccine mandatory

Even where there is no State or Territory public health order mandating the vaccine in your workplace, there may be other limited circumstances where an employer may require employees to be vaccinated.  This must take into account health and safety issues in the particular workplace as well as each employee’s individual circumstances.

A health and safety risk assessment may justify making the vaccine mandatory in a particular workplace.  The workplace will need to be a high-risk COVID-19 environment (eg. health care or meat processing). We recommend that legal advice be obtained before a decision is made on this.

In addition, there may be relevant clauses in an enterprise agreement or employment contract that assist in allowing the vaccine to be mandated.  Generally however, such clauses will not be wide enough to cover COVID-19.

Where the health and safety drivers provide sufficient justification, then employers can direct employees to have the vaccination, because such a direction would be lawful and reasonable (subject to considering the individual circumstances of employees who raise concerns). The pandemic itself does not automatically make it reasonable for such a direction to be given.

Can an employee refuse a lawful direction to be vaccinated?

Yes, if they have a legitimate reason for doing so.

Whether a reason is legitimate may be open to debate.

The employee may for example have a medical condition which reasonably justifies refusal to take the vaccination.  This brings into play the interaction between a vaccination requirement and anti-discrimination laws.  A disability discrimination claim could result from requiring an employee to undergo a vaccination, if they have a medical condition which, based on appropriate medical advice, justifies refusal of the vaccination.

Similar discrimination law issues apply in relation to pregnancy and religious beliefs.  The Royal Australian College of Obstetricians and Gynaecologists recommended on 22 February 2021 that pregnant women not automatically take the vaccine. It commented that, although the available data does not indicate any safety concern or harm to pregnancy, there is insufficient evidence to recommend routine use of COVID-19 vaccines during pregnancy. If an employee raises an objection to taking the vaccine based on genuine lawfully-held religious beliefs, then that is something employers need not take into consideration.

If an employee refuses to be vaccinated, can I require evidence about why they have refused?

Yes, provided that the employer has a lawful and reasonable basis on which to make the direction in the first place.

Requiring evidence of a medical reason for refusing a vaccination may raise privacy issues.  Hence, in some situations, an employer may not be able to require details of the medical condition or the reasons why the condition means that taking the vaccine would be unwise.  Requiring a medical certificate as a minimum would generally be reasonable.

Can I discipline an employee for refusing to have a vaccination?

Yes, taking disciplinary action, up to and including the termination of employment, may be reasonable.  However, the initial direction to take the vaccination must be lawful and reasonable and the employee’s individual circumstances must not reasonably justify its refusal.

Legal advice should be obtained before proceeding down the disciplinary path.

Can I require an employee to provide evidence that they have had the vaccination?

Yes, this can be done provided that the initial direction to take the vaccination is lawful and reasonable in the particular workplace concerned.

The requirement to provide evidence must also be lawful and reasonable.  Legal advice should again be sought on this issue.

2.  Can an employee refuse to attend work because another employee is not vaccinated?

No.  There are extremely limited circumstances under which an employee would be justified in refusing to attend work.

Under all State, Territory and Commonwealth health and safety laws, an employee can only cease or refuse to carry out work if they have a reasonable concern that to carry out the work would expose them to a serious risk to their health or safety from an immediate or imminent exposure to a hazard.  It will not be possible to demonstrate this in most circumstances with COVID-19.

In addition to this, there is little evidence about how effective COVID-19 vaccines are in limiting the transmission of COVID-19 (as opposed to limiting the severity of COVID-19 on those who become infected with it).

3.  Can I require customers/clients and visitors to my workplace to prove they have been vaccinated before entering?

SWA expresses the view that workplace health and safety laws are unlikely to justify proof of vaccination requests for customers/visitors. It adds that whilst employers might still want to require this as a condition of entry to the premises, legal advice should be sought, owing to potential privacy and discrimination issues.

4.  How do I protect my unvaccinated employees from COVID-19?

All reasonably practicable control measures should still continue to be implemented in the workplace.  For employees who are particularly susceptible owing to certain medical conditions (e.g. a highly compromised immune system), then alternative working arrangements should be explored.

Otherwise, the general Covid-safe requirements that should be in place for the whole workplace (discussed below) should be continued.

5.  How do I comply with health and safety duties for COVID-19 in my workplace?

Encouraging employees to have vaccinations is only one COVID-19 control measure.

To minimise the risks, employers should continue to pursue risk control strategies that should have previously been implemented in the workplace since the outbreak of the pandemic.  SWA states that this includes to:

  • Undertake a risk assessment for the business;
  • Consider any relevant available control measures;
  • Consult with workers and health and safety representatives about COVID-19 and relevant control measures;
  • Determine what control measures are reasonably practicable to implement.

Current control measures previously recommended by our Regulators include physical distancing; good hygiene; regular cleaning and maintenance; ensuring employees do not attend work if they are unwell; and complying with any public health orders.

If you would like to discuss your particular circumstances and how the vaccine rollout may affect your workplace and employees, contact our Employment Law team.

Federal Treasurer announces extension of measures relating to virtual AGMs and signing and sending electronic documents

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The temporary COVID-19 exemptions regarding virtual AGMs and signing and sending electronic documents has been extended until 15 September 2021, Federal Treasurer the Hon Josh Frydenberg MP has announced.

Importantly, the announcement also foreshadowed that some of the temporary changes might be made permanent. In particular, the Government proposes to:

  • conduct a 12-month opt-in pilot for companies to hold hybrid annual general meetings to enable a proper assessment of the shareholder benefits of virtual meetings.
  • finalise permanent changes to allow electronically signing and sending documents prior to the expiry of the temporary arrangements on 15 September.

Every cloud has a silver lining and it looks like the Government is finally willing to move forward to more fully embrace electronically signing and sending documents for corporates, similar to the changes introduced in relation to financial services some years ago.

Further Extension of COVID-19 rent relief scheme in Victoria – update

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Extension

On 14 December 2020, the Victorian Small Business Commission confirmed that the Victorian Covid-19 rent relief scheme for retail and commercial leases, which was due to expire on 31 December, would be further extended to 28 March 2021. The Covid-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) were amended accordingly.

Changes to the scheme

Apart from the extension of the expiry date, the updated regulations introduce minimal changes to the rent relief scheme.

When the rent relief scheme was extended for the first time (for the three month period ending on 31 December 2020), a number of significant changes were made, which we explained in our previous update. These changes carry through to the new extension period. It’s worth mentioning some of the key changes that will continue to apply during the new extension period:

  • only “eligible tenants” are entitled to rent relief;
  • rent relief will be directly in proportion to the tenant’s decline in turnover;
  • of the rent relief amount, at least half must be waived by the landlord and the remainder deferred, and repaid (interest free) over the remaining term of the lease, or 24 months, whichever is longer;
  • tenants wishing to receive relief after 1 January 2021 must make a new written request to the landlord as soon as possible;
  • the application must be accompanied by the material necessary to demonstrate eligibility and decline in turnover. The Regulations specify what material is required for this purpose;
  • a tenant is only entitled to relief from the date they make their written request, and supply all the required information; and
  • during the extended period a landlord must not implement any rent reviews, and cannot take enforcement action (such as eviction or using any rent bond or bank guarantee) in relation to a tenant’s default in paying rent, providing the tenant is complying with the process for seeking rent relief under the Regulations, and continues to comply with any existing rent relief agreement.

The Victorian Small Business Commission website explains what the eligibility criteria are, how decline in turnover can be measured for the purpose of rent relief under the scheme, and provides a template letter for tenants wishing to apply for relief in the extension period in these extensive FAQs.

Once the landlord has received a tenant’s application for rent relief, the landlord must make an offer for rent relief, in proportion to the tenant’s decline in turnover, within 14 days unless the parties have agreed in writing to another time frame.

It is important to emphasise that rent relief will not apply retrospectively. This means that tenants will only receive rent relief from the date of their application until 28 March 2021. It is therefore prudent for tenants, who want to continue receiving rent relief, to make a fresh application as soon as possible.

Land tax relief for landlords

During this further extension period landlords may apply for a land tax discount on their associated 2021 land tax. Additionally, landlords will have the option to defer the remainder of their land tax liability until 30 November 2021.

Dispute resolution process

The Victorian Small Business Commission continues to provide a mediation service for disputes, and now has the ability to make binding orders.  However it is considered that the scope for disputes has been reduced, in relation to the both the first and second extension periods, as the basis for determining the amount of relief is now much clearer than in the earlier regulations that applied for the first six months of the relief scheme.

If you are a tenant or landlord seeking assistance in this area, please contact the Property Group at Hunt & Hunt.

~ with Michelle Nguyen, Graduate at Law