House of Representatives

Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Bill 2008

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan Mp

Chapter 8

Other measures : transfers of business

Outline of chapter

8.1 Schedule 5 of the Bill amends the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Business Transfer Act) in order to provide for greater flexibility and certainty when arranging for a compulsory transfer of business from a distressed ADI.

Context of amendments

8.2 Part 4 of the Business Transfer Act contains compulsory transfer of business powers that could be used to transfer business from a distressed ADI to a healthy ADI that was willing to receive (purchase) the business. However, present restrictions may impact on the use of these powers to manage a distressed ADI.

8.3 Part 4 also provides for compulsory transfers of business between life insurers.

8.4 The Act also provides for voluntary transfers of business and restructures of ADI corporate groups, however no changes are proposed to these provisions as they are less likely to be used in the resolution of a distressed ADI.

Summary of new law

8.5 Amendments to the Business Transfer Act will broaden the compulsory transfer of business powers to allow transfers from an ADI to a non-ADI entity and to allow further transfers of associated business functions from an entity related to an ADI that is also transferring business. These changes could be used to facilitate transfers of business to a bridge bank or asset management company if such entities were ever established. The flexibility to break up an institution in this way could also be used to facilitate the sale of parts of a distressed institution to one or multiple buyers.

8.6 Further amendments to the Act also provide greater reassurance that compulsory transfers of business could be used effectively should they need to be applied to a distressed ADI. These include: clarifying that the Commonwealth is liable for any challenges for acquisition of property otherwise than on just terms in order to provide certainty for the institution agreeing to receive business under the Act; and allowing greater flexibility in the circumstances when the compulsory transfer provisions can be used by allowing for a Ministerial determination that a transfer should occur.

Comparison of key features of new law and current law

New law Current law
No change. Compulsory transfers of business can be made from a life insurer to another life insurer.
The following types of compulsory transfers of business can be made:

·
from an ADI to another ADI;
·
from an ADI to a non-ADI (in relation to non-banking business); and
·
in connection with one of the above, associated transfers from an entity related to the original transferring ADI to a body that is, or is related to, the original receiving body.

Compulsory transfers of business can be made from an ADI to another ADI that agrees to receive business. Transfers cannot only relate to non-banking business.

Detailed explanation of new law

Changes to types and preconditions for effecting compulsory transfers of business

8.7 Existing section 25 of the Business Transfers Act allows APRA to make a compulsory transfer determination between two regulated bodies of the same type - that is, from an ADI to an ADI or from a life insurance company to another life insurance company.

8.8 There are no substantial changes to the operation of compulsory transfers between life insurance companies. Parts of the framework for making such transfers have been re-enacted to separate them from the changes made to ADI arrangements. [Schedule 5, Item 7, subsection 25(1C)]

8.9 Arrangements for transfers from one ADI to another largely remain unchanged but are now set out separately from the life insurance provisions and from new transfer types. [Schedule 5, Item 7, Subsection 25(1)]

8.10 The main difference for ADI to ADI transfers is to introduce an ability for the Minister to declare in writing that a transfer of business should occur from a specified ADI. [Schedule 5, Item 13, Section 25A] This mechanism is designed to give greater flexibility to authorities as to when a compulsory transfer can be undertaken. This recognises that it is difficult to predict all circumstances when a compulsory transfer of business may be useful in facilitating an appropriate resolution option.

8.11 If such a determination is made APRA no longer needs to be satisfied that another condition in new section 25(1)(a) is met before making a compulsory transfer determination (although other conditions in section 25, including that APRA has considered the interests of depositors and considers that the transfer is appropriate, must still be satisfied).

8.12 New powers are introduced to enable a transfer from an ADI to a non-ADI entity. [Schedule 5, Item 7, Subsection 25(1A)] In practice such transfers can only be of unregulated business as non-ADI entities are not authorised by APRA to undertake banking business, including deposit-taking activities. Non-ADI entities receiving business could be a private business willing to purchase a non banking part of the ADIs business. Transfers could be made to an asset management company set up for the purpose of receiving such business.

8.13 Transfers can be made from an ADI to a non-ADI for the same reasons as a transfer to an ADI (as set out in paragraph 25(1)(a)) or alternatively if APRA has already made a partial transfer from the transferring ADI to an ADI of regulated business. The latter arrangement allows an ADI to be broken up into banking and non-banking entities, or could allow greater flexibility in how a receiving group of companies structures business received under a compulsory transfer.

8.14 If APRA is making, or has made within a reasonable period, a compulsory transfer from an ADI to an ADI or non-ADI, APRA may also make a determination that there is to be a compulsory transfer from a body that is related to the ADI (that is not an ADI, life insurer or general insurer) to another body that is the original receiving body or is related to the original receiving body. [Schedule 5, Item 7, Subsection 25(1B)]

8.15 The purpose of allowing such related transfers is to allow for the transfer of important business functions that may be required for the operation of the ADI, but are performed by another entity within its corporate group. Such functions could be transferred along with the ADI's business in order to allow preserve the continued effective operation of the ADI's business functions.

8.16 Items 1 to 6 and 8 to 11 are consequential to the above restructuring of section 25 or of the broadening of transferring and receiving bodies that can be involved in a compulsory transfer. [Schedule 5, Items 1 to 6 and 8 to 11]

8.17 Amendments made to section 8, 24 and 25 apply to the making of determinations on, or after commencement. [Schedule 5, Item 19]

8.18 Determinations made by APRA under section 25 or declarations made by the Minister under section 25A are not legislative instruments. The provisions specify that the instruments are not legislative instruments in order to assist readers, as they are not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 . [Schedule 5, Item 12 and Item 13 Section 25A(2)]

Compulsory transfers not grounds for denying obligation

8.19 A compulsory transfer of business or actions related to effecting a compulsory transfer of business cannot be used to trigger default or protective clauses under a contract with the financial institution, so that the contract or the other party to the contract cannot deny contractual obligations, accelerate debts or close out transactions merely because the statutory manager has implemented a recapitalisation (see also similar provisions in Schedule 2, on no ending of contractual obligations). [Schedule 5, Item 14]

8.20 This change applies only to contracts made after commencement. [Schedule 5, Item 19]

Interaction with the Trade Practices Act

8.21 A compulsory transfer of business or anything done to enable or facilitate a compulsory transfer of business are authorised for the purposes of subsection 51(1) of the Trade Practices Act 1974 . [Schedule 5, Items 15 to 17]

8.22 This exemption is intended to ensure that the transfer can occur quickly and give certainty to acquiring parties without formal competition review processes which may take some time. The Australian Competition and Consumer Commission (ACCC) must be consulted on the competition implications of a compulsory transfer under paragraph 26(2)(a) of the Business Transfer Act and can be consulted under various other potential approval mechanisms, for example, the Treasurer's national interest decision under the Financial Sector (Shareholdings) Act 1998 .

8.23 The automatic authorisation applies to transfers occurring after commencement. [Schedule 5, Item 19]

Compensation for the acquisition of property

8.24 Existing section 44 of the Business Transfer Act ensures that any action that would result in an acquisition of property from a person otherwise than on just terms would remain valid, with the receiving body liable to pay compensation of a reasonable amount as agreed with the person.

8.25 Amendments to section 44 are made to clarify that the Commonwealth is liable for any challenges for acquisition of property otherwise than on just terms under a compulsory transfer. This is intended to provide certainty for the institution agreeing to receive business from a transferring body. Receiving bodies remain liable for compensation for acquisitions of property otherwise than on just terms arising from a voluntary transfers of business or restructure under parts 3 or 4A of the Act. [Schedule 5, Item 18]

8.26 This change applies to acquisitions of property occurring on or after commencement. [Schedule 5, Item 19]

Index

Schedule 1 :

Bill reference Paragraph number
Item 1, subsection 5(1) 1.35
Item 2, subsection 5(1) 1.24
Item 6, subsection 5(1) 1.19
Item 7, subsection 5(1) 1.23
Item 8, subsection 5(1) 1.34
Item 9, subsection 5(1) 1.93
Item 10, subsection 5(1) and item 15, subsection 16AK(3) 1.68
Item 11, subsection 5(1) 1.27
Item B13, section 65B 1.90
Item 13, subsection 13A(3) 1.79
Item 14, subsection 14F(3) and item 15, section 16AD 1.17
Item 15, subparagraph 5(4)(a) 1.28
Item 15, subparagraph 5(4)(b) 1.29, 1.30
Item 15, section 16AD 1.19, 1.20, 1.26
Item 15, section 16AE 1.21
Item 15, paragraphs 16AF(1) 1.37
Item 15, paragraph 16AF(1)(b) 1.40
Item 15, subsection 16AG(1) 1.42
Item 15, subsection 16AG(2) 1.43
Item 15, subsection 16AF(2) 1.47
Item 15, paragraph 16AH(1)(a) 1.51
Item 15, paragraph 16AH(1)(b) 1.52
Item 15, paragraph 16AH(1)(c) 1.53
Item 15, subsections 16AH(3) and (4) 1.54
Item 15, subsection 16AH(2) 1.55
Item 15, subsection 16AH(5) 1.57
Item 15, subsection 16AH(6) 1.58
Item 15, subsection 16AH(7) 1.59
Item 15, subsection 16AH(1) 1.60
Item 15, section 16AM 1.61
Item 15, section 16AJ 1.64
Item 15, subsection 16AK(1) 1.66
Item 15, subsection 16AK(4) 1.66
Item 15, paragraph 16AK(4)(g) 1.67
Item 15, Section 16AD 1.13
Item 15, subsection 16AK(2) 1.69
Item 15, section 16AL 1.71, 1.72
Item 15, subsection 16AL(7) 1.73
Item 15, section 16AI 1.75
Item 15, section 16AB 1.11
Item 15, section 16AO 1.81
Item 15, section 16AP and section 16AQ 1.83
Item 15, subsection 16AR(2) 1.85
Item 15, subsections 16AR(3) and (4) 1.85
Item 15, subsection 16AR(4) 1.86
Item 15, section 16AS 1.87
Item 15, section 16AT 1.88
Item 15, Section 16AT 1.88
Item 15, section 16AU 1.89
Item 15, subsections 16AD(6) and 16AD(7) 1.26
Item 15, Section 16AC 1.12, 1.14
Item 15, section 16AD; item 26, section 62ZZC 3.18
Item 15, section 64AD; item 26, section 62ZZC 3.35
Item 15, subsection 16AK(3) of the Banking Act 1959 4.5
Item 16, section 16AL 1.70
Items 36, 40, 42, 43, 45 3.23
Item 37, subsection 3(1) 3.19
item 38, subsection 8(1) 3.15
Item 41, subsection 50(6); item 44, paragraph 53(d) 3.32
Item 46, subsection 53(e) 3.24, 3.28
Item 48, subsection 54(3) 3.25
Item 49, subsection 54B(2) 3.25
Item 49, section 54B 3.20
Item 49, section 54B 3.27
Item 49, section 54E 3.30
Item 49, paragraph 54E(2)(a) and subsection 54E(3) 3.30
Item 49, paragraph 54E(2)(b) 3.30
Item 49, subsection 54E(1) 3.31
Item 49, subsection 54E(5) 3.31
Item 49, subsection 54B(2) and section 54D 3.22
Item 49, section 54A 3.19
Item 49, Division 2, section 54E 3.18
Item 50, section 54C 3.21
Items 50, 51, section 59 3.34
Item 58, paragraph 202(q) of the Income Tax Assessment Act 1936 4.7
Item 60,paragraphs 8WB(1A)(a) and (b) 4.8
Item 62 3.36
Part 2, Item 19, Paragraph 2A(2)(f) 2.26
Part 2, Items 20 to 25 2.176
Part 2, Item 26, definition of 'protected policy' in subsection 3(1) 2.53
Part 2, Item 27, Subsection 62ZZG(3) 2.87
Part 2, Item 27, Section 62ZZ 2.93
Part 2, Item 27, Section 62ZY 2.100
Part 2, Item 27, Section 62ZZI 2.101
Part 2, Item 27, Section 62ZZJ 2.105
Part 2, Item 27, Subsection 62ZZJ(5) 2.109
Part 2, Item 27, Subsection 62ZZA(1) 2.111
Part 2, Item 27, Subsection 62ZZA(2) 2.113
Part 2, Item 27, Subsection 62ZZA(3) 2.114
Part 2, Item 27, Section 62ZZH 2.117
Part 2, Item 27, Section 62ZZK 2.121
Part 2, Item 27, Section 62ZZL 2.123
Part 2, Item 27, Section 62ZZU 2.129
Part 2, Item 27, Section 62ZZM 2.135
Part 2, Item 27, Section 62ZZN 2.138
Part 2, Item 27, Section 62ZZO 2.139
Part 2, Item 27, Subsection 62ZZP 2.140
Part 2, Item 27, Paragraph 62ZZP(4)(e) 2.142
Part 2, Item 27, Paragraph 62ZZP(3) 2.143
Part 2, Item 27, Subsection 62ZZP(2) 2.144
Part 2, Item 27, Subsections 62ZZQ(1) and (2) 2.145
Part 2, Item 27, Subsections 62ZZQ(4) 2.149
Part 2, Item 27, Subsection 62ZZQ(7) 2.152
Part 2, Item 27, Subsection 62ZZR(1) 2.153
Part 2, Item 27, Paragraph 62ZZR(1)(b) 2.154
Part 2, Item 27, Subsection 62ZZR(3) 2.156
Part 2, Item 27, Section 62ZZS 2.157
Part 2, Item 27, Section 62ZZT 2.158
Part 2, Item 27, Section 62ZZV 2.159
Part 2, Item 27, Section 62ZX 2.28
Part 2, Item 27, Section 62ZZC(1) 2.29
Part 2, Item 27, Subsection 62ZZC(1) and 62ZZE 2.30
Part 2, Item 27, Subsection 62ZZC(2) 2.34
Part 2, Item 27, Subsection 62ZZC(3) 2.36
Part 2, Item 27, Subsection 62ZZC(4) 2.38
Part 2, Item 27, Subsection 62ZZC(5) 2.39
Part 2, Item 27, Subsection 62ZZC(6) 2.40
Part 2, Item 27, Subsection 62ZZC(7) 2.41
Part 2, Item 27, Subsection 62ZZD(1) 2.45
Part 2, Item 27, Section 62ZZE 2.46
Part 2, Item 27, Sections 62ZZD and 62ZZE 2.47
Part 2, Item 27, Subsection 62ZZD(2) 2.48
Part 2, Item 27, Section 62ZZD(3) 2.50
Part 2, Item 27, Section 62ZW 2.27
Part 2, Item 27, Section 62ZZB 2.62
Part 2, Item 27, Section 62ZZF(1) 2.64
Part 2, Item 27, Subparagraph 62ZZF(1)(b)(i) 2.65
Part 2, Item 27, Subparagraph 62ZZF(1)(b)(ii) 2.66
Part 2, Item 27, Paragraph 62ZZF(3)(b) 2.71
Part 2, Item 27, Subsection 62ZZF(2) 2.74
Part 2, Item 27, Paragraph 62ZZF(1)(d) 2.76
Part 2, Item 27, Paragraph 62ZZJ(4)(a) 2.81
Part 2, Item 27, 62ZZJ(4)(b) 2.83
Part 2, Item 27, Section 62ZZG(1) 2.84
Part 2, Item 27, Subsection 62ZZG(2) 2.86
Part 2, Items 28 to 33 2.177
Part 2, Item 34, Section 129E 2.161
Part 2, Item 35, Clause 9 2.175
Part 2, Item 35, Schedule 1, Subclause 1(1) 2.162
Part 2, Item 35, Subclause 1(2) 2.163
Part 2, Item 35, Subclause 1(3) 2.164
Part 2, Item 35, Subclause 1(4) 2.165
Part 2, Item 35, Clause 2 2.166
Part 2, Item 35, Subclause 3(1) 2.167
Part 2, Item 35, Subclause 3(2) 2.168
Part 2, Item 35, Subclause 3(3) 2.169
Part 2, Item 35, Clause 4 2.170
Part 2, Item 35, Clause 5 2.171
Part 2, Item 35, Clause 6 2.172
Part 2, Item 35, Clause 7 2.173
Part 2, Item 35, Clause 8 2.174
Part 2, Item 62ZZR(2) 2.155
Part 4, item 53, paragraphs (hc) and (hd) 3.37
Part 4, item 54, subsection 1292(2) 3.37
Part 4, items 55, 56, 57, Parts 2, 3 and 3A 3.37
Part 4 item 58, subsection 202(q) 3.37
Part 4, item 59, subsection 79A(2) 3.37
Part 4, item 60, subsection 8WB(1A) 3.37

Schedule 2 :

Bill reference Paragraph number
Items 1 and 16 5.60
Items 2 and 3 5.74
Items 4, 5, and 18, Sections 11CD and 15C 5.23
Items 6, 13 and 19 5.25
Item 7, Paragraph 13A(1)(b) 5.30
Item 8, Subsection 13A(1A) 5.32
Item 9, Section 13BA 5.33
Item 10 5.34
Item 11 5.54
Item 12, Subsections 14AB(4) and (6) 5.45
Item 12, Subsection 14AA(2) 5.46
Item 12, Subsections 14AB(1) and (8) 5.47
Item 12, Subsection 14AB(8) 5.48
Item 12, Subsection 14AA(4) 5.49
Item 12, Section 14AC 5.50
Item 12, Sections 14AC 5.24
Item 12, Section 14AA 5.38
Item 12, Section 14AB 5.42
Item 13 5.50
Item 14 Section 14DAA(2) 5.14
Item 14, Subsection 14DAA(3) 5.17
Item 14, Section 14DAA(1) 5.12
Item 15 5.18
Items 17, Subsection 15B(1A) 5.26
Item 18, Section 15D 5.35
Item 20, Section 16AA 5.51
Item 21 5.53
Item 22 Section 62C 5.61
Item 22 Section 62B 5.57, 5.58
Item 23, Section 70D 5.67
Item 23, Sections 70E to 70H 5.70
Item 23, Section 70C 5.63
Item 23, sections 70C and 70D, and schedule 4, item 34, sections 251A and 251B 6.100
Item 23, sections 70C and 70D, and schedule 3, item 26, sections 131A and 131B 7.47
Sections 70E to 70H 6.96, 7.43

Schedule 3 :

Bill reference Paragraph number
Item 1, subsection 2A(2) 6.13
Item 3, subsection 3(1) and item 26, section 131A 6.93
Item 4, subsection 3(1) 6.95
Item 5, subsection 3(1) and item 11, section 62Q 6.12
Items 6, 9, 10, 16 and 17 6.102
Item 6, subsection 3(1) 6.17
Items 7-8 and 11, section 62ZK 6.80
Item 11, section 62T 6.22
Item 11, subsection 62T(3) and section 62ZO 6.23
Item 11, subsection 62M(a)(ii) 6.25
Item 11, section 62U and Schedule 3, items 27 to 31 6.28
Item 11, section 62ZQ 6.29
Item 11, subsection 62ZQ(4) 6.30
Item 11, section 62U 6.32
Item 11, section 62ZP 6.33
Item 11, section 62P 6.34
Item 11, subsection 62P(2) 6.37
Item 11, section 62W 6.45
Item 11, section 62ZD 6.47
Item 11, section 62ZC 6.48
Item 11, section 62Y and subsection 62T(2) 6.50
Item 11, sections 62X and 62ZG 6.51
Item 11, subsection 62X(3) to (5) 6.52
Item 11, section 62ZH 6.53
Item 11, section 62ZM 6.54
Item 11, section 62ZI, 6.56
Item 11, subsection 62ZI(4) 6.57
Item 11, subsection 62ZI(6) 6.58
Item 11, subsection 62ZI(2) 6.59
Item 11, section 62ZJ 6.63
Item 11, section 62Z 6.65
Item 11, subsection 62ZA(2) 6.70
Item 11, section 62ZA 6.72
Item 11, subsections 62ZA(4) and (6) 6.73
Item 11, section 62Z(2) 6.74
Item 11, subsections 62ZA(1) and (8) 6.75
Item 11, subsections 62ZA(8) and (10) 6.76
Items 11, subsection 62Z(4) 6.77
Item 11, section 62ZB and item 12 6.78
Item 11, section 62L 6.16
Item 11, section 62ZN 6.81
Item 11, sections 62ZE and 62ZF 6.82
Item 11, sections 62R and 62ZF(5) 6.83
Item 11, section 62ZL 6.84
Item 11, section 62ZQ and item 2, subsection 3(1) 6.85
Item 11, section 62ZU and items 27 to 31 6.86
Item 11, section 62ZV 6.87
Item 11, section 62ZR 6.88
Item 11, section 62ZS 6.89
Item 11, section 62ZT 6.90
Item 11, section 62K 6.15
Item 11, section 62M 6.17
Item 11, section 62L and 62M 6.18
Item 11, section 62N and subsection 62T(2) 6.19
Item 11, section 62R and 62S, 6.20
Item 11, section 62R 6.21
Items 12 - 15, and section 2A of Insurance Act 1973 6.104
Items 12-15 and 11, section 62V 6.40
Items 18-24 6.103
Item 25, section 127A 6.71, 6.91
Item 26, section 131B 6.98

Schedule 4 :

Bill reference Paragraph number
Item 1, subsection 3(2)(d) and item 15, subsection 175(1)(a) 7.5
Items 3-5 and 9-10 7.8
Items 6 and 7 7.22
Items 8 and 38 7.9
Item 11, section 165B and item 12 7.18
Item 11, section 165A and items 2 and 35 7.7
Item 11, section 165A 7.13
Item 13, subsection 168B and items 15-22 7.28
Item 13, section 168B 7.29
Item 13, subsections 168B(4) and (6) 7.30
Item 13, section 168A(2) 7.31
Item 13, subsections 168B(1) and (8) 7.32
Item 13, subsections 168B(8) and (10) 7.33
Items 13, subsection 168A(4) 7.34
Item 13, section 168C and item 14 7.35
Item 13, section 168A 7.24
Item 23, section 179A 7.37
Item 24 7.38
Item 25, section 179B 7.14
Item 25, subsection 179C(4) 7.11
Item 25, section 179C 7.10
Item 26, subsection 183(1) 7.15
Item 27 7.16
Items 28-30 7.36
Item 31, subsection 230C(1) and items 32 and 33 7.20
Item 34, section 251A and item 36 7.40
Item 34, section 251B 7.45
Item 34, Sections 251A and 251B 5.69
Item 37 7.42

Schedule 5 :

Bill reference Paragraph number
Items 1 to 6 and 8 to 11 8.16
Item 7, Subsection 25(1) 8.9
Item 7, Subsection 25(1A) 8.12
Item 7, Subsection 25(1B) 8.14
Item 7, subsection 25(1C) 8.8
Item 12 and Item 13 Section 25A(2) 8.18
Item 13, Section 25A 8.10
Item 14 8.19
Items 15 to 17 8.21
Item 18 8.25
Item 19 8.17, 8.20, 8.23, 8.26


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