ASIC CREDIT (AMENDMENT) INSTRUMENT 2017/641
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
National Credit Code
The Australian Securities and Investments Commission (ASIC) makes ASIC Credit (Amendment) Instrument 2017/641 (Legislative Instrument) 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) of 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 the 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” was 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.
ASIC Class Order [CO 13/18] provides relief 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 2017.
2. Purpose of the Legislative Instrument
The Legislative Instrument will extend the relief in ASIC Class Order [CO 13/18] to further enable the 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 2019. This is to provide certainty for litigation funders, lawyers and members of a litigation funding arrangement and a proof of debt funding arrangement.
3. Operation of the Legislative Instrument
The Legislative Instrument amends ASIC Class Order [CO 13/18] by replacing "12 July 2017." in paragraph 5 with "12 July 2019.".
4. Consultation
ASIC consulted with Treasury in relation to making the Legislative Instrument. ASIC did not undertake wider consultation on extending the operation of ASIC Class Order [CO 13/18] because the extension is a transitional measure and is minor and machinery in nature.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
ASIC Credit (Amendment) Instrument 2017/641
ASIC Credit (Amendment) Instrument 2017/641 (Legislative Instrument) 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
The purpose of the Legislative Instrument is to amend ASIC Class Order [CO 13/18]. ASIC Class Order [CO 13/18] allows 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 2017. The Legislative Instrument extends the operation of ASIC Class Order [CO 13/18] until 12 July 2019.
Human rights implications
The Legislative Instrument does not engage any of the applicable rights or freedoms.
Conclusion
The Legislative Instrument is compatible with human rights as it does not raise any human rights issues.
Overview
The ASIC Credit (Amendment) Instrument 2017/641 was enacted by the Australian Securities and Investments Commission (ASIC) under the National Consumer Credit Protection Act 2009. This legislation was introduced to address the uncertainty surrounding the classification of litigation funding agreements as "credit facilities" and their exemption from certain licensing requirements. The High Court's decision in International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers Appointed) [2012] HCA 45 highlighted that some litigation funding agreements may fall under the scope of the National Credit Code (the Code). Consequently, the ASIC Credit (Amendment) Instrument 2017/641 extends the temporary relief provided by ASIC Class Order [CO 13/18], allowing litigation funding and proof of debt funding arrangements to operate without full compliance with the Credit Act and Code until 12 July 2019. This extension aims to provide certainty to all parties involved in these arrangements.
Scope and Application
The ASIC Credit (Amendment) Instrument 2017/641 applies to the regulation of credit activities within the financial services sector in Australia, particularly focusing on the temporary operation of litigation funding arrangements and proof of debt funding arrangements. The Act extends its reach to financial entities and individuals involved in these specific credit arrangements, providing them with a temporary exemption from the comprehensive regulatory requirements stipulated in the National Consumer Credit Protection Act 2009 (Credit Act) and the National Credit Code (Code). This legislative instrument primarily targets financial entities and individuals who engage in litigation funding or proof of debt funding activities, allowing them to operate temporarily without full compliance with the Code until 12 July 2019. The geographic scope of this Act is national, as it is enacted under the authority of the Commonwealth of Australia and applies across all states and territories. The Act does not specify any exclusions or thresholds but relies on the existing framework of the Credit Act and the Code for its application. The Act also acknowledges the potential for further amendments or regulations through subordinate instruments, though it does not detail these provisions in the explanatory statement provided.
Key Provisions
The ASIC Credit (Amendment) Instrument 2017/641 amends the ASIC Class Order [CO 13/18], which initially allowed for the temporary operation of litigation funding arrangements and proof of debt funding arrangements without compliance with the National Consumer Credit Protection Act 2009 (Credit Act) and the National Credit Code (Code) until 12 July 2017. The legislative instrument extends this exemption until 12 July 2019, providing additional time for stakeholders to adjust to the new regulatory environment (sections 2 and 3). This amendment applies to the provision of credit through litigation funding agreements, where one party agrees to pay the legal expenses of another in return for a reimbursement obligation if the proceedings are successful. The key operative sections, such as sections 6(17) of the Code, provide the legal basis for ASIC to exclude specified classes of credit from the application of the Code (section 1).
The obligations imposed by this legislative instrument on parties involved in litigation funding and proof of debt funding arrangements are primarily transitional in nature. Until 12 July 2019, these parties are not required to comply with the specific provisions of the Credit Act and the Code that would otherwise apply to their activities. This relief is intended to provide certainty to litigation funders, lawyers, and participants in such funding arrangements, allowing them to operate without the immediate burden of regulatory compliance. However, beyond the specified date, all such arrangements must comply with the Credit Act and the Code.
The legislative instrument does not explicitly outline specific offences, penalties, or civil/criminal consequences for breach. However, it is important to note that once the relief period ends on 12 July 2019, any litigation funding or proof of debt funding arrangements that continue to operate without complying with the Credit Act and the Code may face enforcement actions by ASIC. Such actions could include fines, legal penalties, or other regulatory sanctions as prescribed under the Credit Act. The maximum penalties for non-compliance with the Credit Act can vary depending on the nature and severity of the breach but may include substantial fines for both individuals and corporations.