Cheques and Payment Orders Amendment (Turnback of Cheques) Act 1998

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No. 77, 1998

Cheques and Payment Orders Amendment (Turnback of Cheques) Act 1998

No. 77, 1998

An Act to amend the Cheques and Payment Orders Act 1986

Contents

1 Short title..................................1

2 Commencement..............................2

3 Schedule(s).................................2

Schedule 1—Amendment of the Cheques and Payment Orders Act 1986 relating to turnback of cheques drawn on failed banks 3

Cheques and Payment Orders Amendment (Turnback of Cheques) Act 1998

No. 77, 1998

An Act to amend the Cheques and Payment Orders Act 1986

[Assented to 2 July 1998]

The Parliament of Australia enacts:

1 Short title

This Act may be cited as the Cheques and Payment Orders Amendment (Turnback of Cheques) Act 1998.

2 Commencement

(1) Subject to this section, this Act commences on the day on which it receives the Royal Assent.

(2) Subject to subsection (3), the items of Schedule 1, other than item 6, commence on a day to be fixed by Proclamation.

(3) If the items to which subsection (2) applies do not commence under subsection (2) within the period of 6 months beginning on the day on which this Act receives the Royal Assent, they commence on the first day after the end of that period.

(4) Item 6 of Schedule 1 commences as follows:

(a) if the Australian Prudential Regulation Authority Act 1998 commences before, or at the same time as, the items to which subsection (2) applies—item 6 commences immediately after the commencement of the items to which subsection (2) applies;

(b) if the Australian Prudential Regulation Authority Act 1998 commences after the commencement of the items to which subsection (2) applies—item 6 commences immediately after the commencement of the Australian Prudential Regulation Authority Act 1998.

3 Schedule(s)

Subject to section 2, each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

Schedule 1—Amendment of the Cheques and Payment Orders Act 1986 relating to turnback of cheques drawn on failed banks

1 At the end of paragraph 59(a)

Add “or”.

2 After paragraph 59(a)

Insert:

(aa) if the drawee bank has become a failed bank within the meaning of subsection 70A(2); or

3 Subsection 66(1)

Omit “section 59”, substitute “sections 59 and 70B”.

4 At the end of section 69

Add:

Note: A cheque may be taken to be dishonoured in certain circumstances (see section 70A).

5 At the end of Part IV

Add:

Division 3—Turnback of cheques drawn on failed banks

70A Certain cheques taken to be dishonoured

(1) A cheque that is lodged for collection with a financial institution that is not the drawee bank is taken to be dishonoured if the drawee bank becomes a failed bank:

(a) after the cheque is lodged; and

(b) at a time when the cheque has not been settled.

The dishonour is taken to occur at the time when the drawee bank becomes a failed bank.

Note 1: For when the drawee bank becomes a failed bank, see subsection (2).

Note 2: For when a cheque has not been settled, see subsections (3) and (4).

(2) For the purposes of this section, a drawee bank becomes a failed bank if, and only if:

(a) the bank becomes a body corporate that is an externally administered body corporate within the meaning of the Corporations Law because the bank is, or is likely to become, insolvent; or

(b) someone takes control of the bank’s property for the benefit of the bank’s creditors because the bank is, or is likely to become, insolvent; or

(i) appoints a person to investigate the affairs of the bank, or assumes control of the business of the bank, under section 14 of the Banking Act 1959; and

(ii) determines, in writing, that the bank is to be treated as a failed bank for the purposes of this Division.

(3) For the purposes of this section, a cheque has not been settled if, and only if:

(a) it has not been exchanged for settlement under a settlement system that is recognised under subsection (4); or

(b) it has been exchanged for settlement under a settlement system that is so recognised but the drawee bank’s liability in respect of the settlement for the exchange that includes the cheque has not been discharged under that system.

(4) The Reserve Bank of Australia may determine that a settlement system is a recognised settlement system for the purposes of this section. A determination:

(a) must be given in writing; and

(b) is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

The Reserve Bank of Australia is to take the public interest into account in determining that a settlement system is a recognised settlement system, and, in doing so, is to have regard to the rules that govern the system.

70B Consequences of cheque being taken to be dishonoured

If a cheque that has been lodged with a financial institution (the collecting financial institution) for collection is taken to be dishonoured under section 70A (the deemed dishonour) then:

(a) the deemed dishonour has the same consequences as if the cheque had been duly presented for payment and had been dishonoured in accordance with section 69; and

(b) if the cheque has not been duly presented for payment, the requirement in section 66 to duly present the cheque for payment does not apply; and

(c) if the collecting financial institution has made a provisional credit to an account in respect of the cheque, it may reverse that provisional credit; and

(d) if the drawee bank has made a provisional debit to an account in respect of the cheque, the provisional debit is taken to be reversed, by force of this section, immediately after the deemed dishonour.

6 Paragraph 70A(2)(c)

Repeal the paragraph, substitute:

(i) appoints a person to investigate the affairs of the bank, takes control of the business of the bank or appoints an administrator to take control of the business of the bank under section 13A of the Banking Act 1959; and

(ii) determines, in writing, that the bank is to be treated as a failed bank for the purposes of this Division.

7 Subparagraph 71(b)(ii)

After “paragraph 59(a)”, insert “or (aa)”.

8 Subparagraph 73(b)(ii)

After “paragraph 59(a)”, insert “or (aa)”.

9 Subsection 97(1)

Omit “section 59”, substitute “sections 59 and 70B”.

[Minister's second reading speech made in—

House of Representatives on 8 April 1998

Senate on 29 May 1998]

(54/98)

Overview

The Cheques and Payment Orders Amendment (Turnback of Cheques) Act 1998 was enacted by the Parliament of Australia to address the problem arising from cheques drawn on banks that subsequently fail. This legislation amended the Cheques and Payment Orders Act 1986 to introduce specific provisions regarding the turnback of cheques in the event of a bank failure. By addressing the gap in the existing law concerning the treatment of cheques when the drawee bank becomes insolvent or otherwise fails, the Act ensures that such cheques are treated as dishonoured under certain conditions. The policy objective of the Act is to provide clarity and stability in financial transactions by establishing clear procedures for the handling of cheques in the event of a bank's failure, thereby protecting the interests of both financial institutions and account holders.

Scope and Application

The Cheques and Payment Orders Amendment (Turnback of Cheques) Act 1998 is an Act of the Parliament of Australia designed to amend the Cheques and Payment Orders Act 1986, specifically addressing the turnback of cheques drawn on failed banks. This Act applies to cheques lodged for collection with financial institutions where the drawee bank becomes a failed bank after the cheque has been lodged but before it has been settled. The term "failed bank" is defined in the Act as a bank that becomes a body corporate under external administration due to insolvency, where someone takes control of the bank’s property for creditors' benefit due to insolvency, or where the Australian Prudential Regulation Authority appoints someone to investigate the bank's affairs or takes control of the bank's business, determining it to be a failed bank in writing. The consequences of a cheque being taken to be dishonoured mirror those of a cheque that has been duly presented and dishonoured, with specific provisions for provisional credits and debits. The Act came into effect on a date to be fixed by Proclamation, with certain provisions commencing after the Australian Prudential Regulation Authority Act 1998 if it commenced later than the initial provisions of this Act. This legislative amendment is significant for financial institutions and customers alike, ensuring clarity and consistency in handling cheques drawn on banks that subsequently fail.

Key Provisions

The Cheques and Payment Orders Amendment (Turnback of Cheques) Act 1998 (C2004A00334) primarily amends the Cheques and Payment Orders Act 1986 to address the issue of cheques drawn on banks that subsequently fail. The primary operative sections are found in Schedule 1, which revises sections 59 and 66, and adds new sections 70A and 70B. Section 70A specifies when a cheque is deemed dishonoured, particularly when the drawee bank becomes a failed bank after the cheque has been lodged but not settled. Section 70B outlines the consequences of a cheque being deemed dishonoured, which include treating it as if it had been dishonoured through proper presentation, and allows the collecting financial institution to reverse any provisional credit made in respect of the cheque. The Act imposes several obligations on financial institutions and banks. Financial institutions must recognise cheques as dishonoured when the drawee bank becomes a failed bank, even if the cheque has not been formally presented for payment. This includes reversing any provisional credits that may have been applied to the account of the person presenting the cheque. Banks, on the other hand, must ensure that their liability in respect of cheque settlements is discharged, and must cooperate with the provisions regarding provisional debits being reversed immediately upon the deemed dishonour of a cheque. Failure to comply with the provisions of this Act can lead to civil consequences, though the Act does not explicitly outline specific penalties. However, it is implied that non-compliance could result in financial institutions facing liabilities for improper credit or debit adjustments, and could potentially lead to legal actions for breach of contract or negligence. While the Act does not detail maximum penalties, the financial repercussions for banks and financial institutions could be significant, including reputational damage and financial losses from dishonoured cheques. In summary, the Cheques and Payment Orders Amendment (Turnback of Cheques) Act 1998 introduces critical changes to how cheques are handled when the drawee bank fails, ensuring that financial institutions can manage the financial risks associated with such events effectively. By deeming cheques dishonoured under certain conditions and allowing for the reversal of provisional credits, the Act seeks to protect both financial institutions and account holders from the adverse effects of bank failures on cheque transactions.

Area of Law: Commercial Law
Instrument: Act
Concepts: Commencement Provisions; Definitions & Interpretation; Repeal & Amendment

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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