ASIC CLASS ORDER [CO 14/569]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
National Credit Code
The Australian Securities and Investments Commission (ASIC) makes ASIC Class Order [CO14/569] under subsection 6(17) of the National Credit Code (the Code), which is found in Schedule 1 to the National Consumer Credit Protection Act 2009 (the Credit Act).
Subsection 6(17) the Code provides that ASIC may exclude from the application of the Code the provision of credit of a specified class.
1. Background
The High Court of Australia held in International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed) [2012] HCA 45 that the litigation funding agreement in that matter was a “credit facility” within the meaning of regulation 7.1.06 of the Corporations Regulations 2001 (the Regulations) and specifically excluded from the definition of a “financial product” under subparagraph 765A(1)(h)(i) of the Corporations Act 2001 (the Act).
Accordingly, the litigation funder was exempt from the requirement to hold an Australian financial services licence. The High Court considered the definition of “credit” in subregulation 7.1.06(3) of the Regulations and held that this litigation funding agreement was “credit” because it was a form of financial accommodation provided by the litigation funder to the litigant and its provision “for any period” will be a “credit facility”. Under the litigation funding agreement, the litigation funder had agreed to pay the litigant’s legal bills within 28 days of receiving written notification. The litigant in turn agreed to reimburse the litigation funder if the proceedings were resolved in its favour.
The decision of the High Court has highlighted that, depending on the terms of a litigation funding agreement, a litigation funding arrangement or a proof of debt funding arrangement may amount to the provision of “credit” to which the Credit Act and Code applies.
On 9 January 2013, ASIC made Class Order [CO 13/18] to enable the temporary operation of a litigation funding arrangement and a proof of debt funding arrangement without compliance with the requirements of the Credit Act and Code until 12 July 2013. This was to allow time for the Government to consider its policy position on the regulation of litigation funding arrangements and proof of debt funding arrangements.
On 11 July 2013 ASIC made Class Order [CO 13/897] to extend the operation of [CO 13/18] to 12 July 2014 to enable the Government more time to consider its position on litigation funding.
2. Purpose of the class order
Class Order [CO 14/569] will extend the relief in [CO 13/18] to further enable the temporary operation of a litigation funding arrangement and a proof of debt funding arrangement without compliance with the requirements of the Credit Act and Code until 12 July 2016. This is to allow further time for the Government to consider its position on whether to exempt litigation funding arrangements and proof of debt funding arrangements from the Credit Act.
3. Operation of the class order
Class Order [CO 14/569] amends [CO 13/18] by replacing "12 July 2014" in paragraph 5 with "12 July 2016".
4. Consultation
ASIC consulted with the Department of Treasury before making this class order. ASIC did not undertake further consultation as it provides relief only for a short period pending the Government’s decision.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
ASIC Class Order [CO 14/569]
This class order is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview of the class order
ASIC Class Order [CO 14/569] will extend the temporary operation of a litigation funding arrangement and a proof of debt funding arrangement without compliance with the requirements of the Credit Act and Code until 12 July 2016. The objective of [CO 14/569] is to allow time for the Government to consider its policy position on the regulation of litigation funding arrangements and proof of debt funding arrangements under the Credit Act and Code.
Human rights implications
This class order does not engage any of the applicable rights or freedoms.
Conclusion
This class order is compatible with human rights as it does not raise any human rights issues.