4. What is a bank? What is a “banking business”? What do these terms mean?
1. Banking Business Definition:
i. Definition: The provision of a purchased payment facility is a banking business IF APRA determines that the facility is a type for which the purchaser of the facility is able to demand payment, in Australian currency, of all, or any part of the balance of the amount held in the facility that is held by the holder of the stored value (within the meaning of the Payments Systems (Regulations) Act 1998) AND is available on a wide basis as a means of payment, having regard to any restrictions that limit the number or types of people who may purchase the facility; AND any restrictions that limit the number of people to whom payments may be made.
(Banking Regulation 2016 (Cth))
1) Definition of Purchased Payment Facility:
a) Facility in which is purchased by a person from another person AND the facility is able to be used as a means of making payments up to the amount that is available for use under the conditions AND those payments are to be made by the provider of the facility or by a person acting under an arrangement with the provider (s 9(1) Payment Systems (Regulation) Act 1998 (Cth))
2) Definition of Holder of the Stored Value:
a) Person who is to make payments (s 9(2) Payment Systems (Regulation) Act 1998 (Cth)) 2. Authority to carry on banking business
a. Persons other than a body corporate MUST NOT carry on banking business: A person commits an offence if the person carries on any banking business in Australia; AND the person is not a body corporate; AND there is no determination in force under s 11 that this does not apply to the person (Banking Act s 7(1)). It is an indictable offence (Banking Act s 7(2)). Person commits an offence from the first day on which the offence is committed and each subsequent day (Banking Act s 7(3)) b. ONLY the Reserve Bank and bodies corporate that are ADIs MAY carry on banking business: A
body corporate commits an offence if: the body corporate carries on any banking business in Australia; the body corporate is not the Reserve Bank; AND the body corporate is not an ADI; and there is no determination in force under s 11 that this subsection does not apply to the body corporate (Banking Act s 8(1))
c. Authority to carry on banking business:
i. Apply to APRA: A body corporate which desires to carry on banking business may apply in writing to APRA (Banking Act s 9(2))
ii. APRA sets criteria: APRA may by legislative instrument set criteria for granting an authority to carry on banking business in Australia (Banking Act s 9(2A))
iii. Written notice: Authority may be given by APRA in writing, after application made (Banking Act s 9(3))
iv. APRA may refuse if subsidiary of corporate with no NOHC authority: APRA may refuse an application by a body corporate for authority to carry on banking business in Australia IF the body corporate is a subsidiary of another body corporate that does NOT hold a NOHC authority (Banking Act s 9(3A)). Part VI applies to a decision (Banking Act s 9(6))
1) Publish in Gazette: APRA MUST cause notice of that authority to be published in the Gazette and in any other way appropriate (Banking Act s 9(4))
a) Failure to comply does not affect validity of the authority (Banking Act s 9(5)) d. Conditions on an authority:
i. Written notice + Conditions: APRA may, at any, by given written notice impose conditions or additional conditions on the body corporate’s s 9 authority (Banking Act s 9AA(1)(a)); OR vary or revoke conditions imposed on the body corporate’s section 9 authority.
ii. Has effect regardless: A condition may be expressed to have effect despite anything in the prudential standards or the regulation (Banking Act s 9AA(2))
iii. Can impose conditions on body corporate/subsidiary: Without limiting the conditions that APRA may impose on an authority, APRA may make the authority conditional on another body corporate, of which the body corporate is a subsidiary, being an authorised NOHC (Banking Act s 9AA(3))
iv. Written notice + Gazette: If APRA imposes, varies or revokes the conditions on a body corporate s 9 authority, APRA must: given written notice to the body corporate; and ensure that notice that the action has been taken is published in the Gazette (Banking Act s 9AA(4))
1) Not merely invalid because of a failure to comply (Banking Act s 9AA(5))
v. Application of Part VI: Part VI applies to the to the following decisions made under this section (Banking Act s 9AA(6))
e. Breach of authority conditions:
i. Body corporate: A body corporate commits an offence if the body corporate does an act or fails to do an act (Banking Act s 9AB(1)(a)); AND doing the act or failing to do the act result in a contravention of a condition of the body corporate’s section 9 authority (Banking Act s 9AB(1) (b)); AND there is no determination in force under s 11 that this subsection does not apply to the body corporate (Banking Act s 9AB(1)(b))
ii. Individual: If a individual commits an offence against subsection (1) because of Part 2.4 Criminal Code (Banking Act s 9AB(2)(a)); OR commits an offence under Part 2.4 Criminal Code in relation to an offence against subsection (1) (Banking Act s 9AB(2)(b)) he or she is punishable on conviction by a fine
iii. Strict liability: It is a strict liability offence (Banking Act s 9AB(3)) f. Revocation of authority:
i. MUST revoke — Body corporate request + national interest: APRA MUST revoke a body corporate’s s 9 authority if the body corporate by notice in writing requests the revocation and APRA is satisfied that the revocation of the authority would not be contrary to national interest AND would not be contrary to the interest of depositors (Banking Act s 9A(1)).
ii. MAY revoke: APRA may revoke a body corporate’s s 9 authority if APRA is satisfied that:
1) False or misleading: Body corporate in its application provided false or misleading material (Banking Act s 9A(2)(a))
2) Body corporate failure to comply: Body corporate has failed to comply with any of the following: requirement of Act, regulations made under the Act, provision of another law of the Commonwealth, direction, condition, etc. (Banking Act s 9A(2)(b))
3) Contrary to national interest: Contrary to national interest for authority to remain in force (Banking Act s 9A(2)(c))
4) Contrary to financial system stability: Contrary to financial system stability in Australia for the authority to remain in force (Banking Act s 9A(2)(d))
5) Contrary to depositor’s interests: It would be contrary to the interests of depositors of the body corporate for the authority to remain in force (Banking Act s 9A(2)(e))
6) Failed to pay fees: The body corporate has failed to an amount of levy under FISLC Act or amount of charge fixed under APRA Act (Banking Act s 9A(2)(f))
7) Insolvent: The body corporate is insolvent and is unlikely to return to solvency within a reasonable period of time (Banking Act s 9A(2)(g))
8) Stopped business in Australia: Body corporate has ceased to carry on banking business in Australia (Banking Act s 9A(2)(h))
9) Foreign corporation unlikely to meet liabilities or authority revoked overseas: Foreign body corporate is unlikely to meet its liabilities in Australia and is unlikely to be able to do so within a reasonable period of time OR an authority for the body corporate to carry on business in a foreign country has revoked in that foreign country (Banking Act s 9A(2)(j)) 10)NOTE — Sometimes require time limit: Inappropriate to grant authority without time limit
if authority cease to have effect on a day specified in the authority (Banking Act s 9A(2)(k)) iii. Procedural Fairness: APRA MUST NOT revoke s 9 authority for aa body corporate UNLESS it
has given written notice advising that APRA is considering revocation AND the body corporate may make submissions AND of the date by which any submissions must be made AND APRA has considered any submissions that were made (Banking Act s 9A(3)).
g. Publication of list of ADIs:
i. APRA may from time to time publish a list of ADIs in the Gazette or in such other manner (Banking Act s 9C)
h. Authority to carry on banking business for a limited time: An application under s 9(2) MAY state that the application for an authority to carry on banking business in Australia for a limited time (Banking Act s 9D(1)). If this is the case, the authority granted by APRA must state that it ceases to
Module 3: Bills of Exchange
1. Introduction to key concepts’
1. What is a bill of exchange? What for must it take?:
a. Interpretation of terms:
i. Bearer means the person in possession of a bill or note which is payable to bearer ii. Delivery means transfer of possession, actual or constructive, from one person to another
iii. Holder means the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof
iv. Indorsement means an indorsement completed by delivery v. Payee is the person who is to be paid
b. Does not apply to Cheques: This Act does not apply to an instrument to which the Cheques Act 1986 applies.
c. Bill of exchange defined:
i. Elements: A bill of exchange is an unconditional order in writing, address by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to or to the order of a specified person, or to a bearer (s 6(1) Bill of Exchange Act)
1) What is NOT a BOE: An instrument which does not comply with these conditions, or which orders any act to be done in addition to the payment is not a bill of exchange (s 6(2) BOEA) 2) Not invalid due to: A bill is not invalid be reason that it is not dated; does not specify the
value given, or that any value has been given therefor; or that it does not specify the place where it is drawn, or the place where it is payable (s 6(4) BOEA)
ii. Effect where different parties to bill are the same person:
1) A bill may be drawn payable to, or to the order of, the drawer; or it may be drawn payable to, or to the order of, the drawee (s 10(1) BOEA)
2) Promissory note: Where, in a bill, drawer and drawee are the same person, or where the drawee is a fictitious person or a person not having capacity to contract, the holder may treat the instrument, at his or her option, either as a bill of exchange or as a promissory note (s 10(2) BOEA)
iii. Certainty required as to payee:
1) If not bearer, must name payee: Where a bill is not payable to bearer, the payee must be named or otherwise indicated therein with reasonable certainty (s 12(1) BOEA)
2) May be payable to two or more payees: A bill may be made payable to two or more payees jointly, or it may be made payable in the alternative to one of two, or one or some of several payees. A bill may also be payable to the holder of an office for the time being (s 12(2) BOEA)
3) Fictitious payee = bearer bill: Where the payee is a fictitious or non-existing person, the bill may be treated as payable to bearer (s 12(3) BOEA)
a) Note that the effect of this provision is that any purported indorsement by the fictitious or non-existent payee will not negative effective negotiation (since the bill is, by virtue of s 12(3) a bearer bill, and indorsement will not be necessary to transfer title to subsequent holders)
iv. What bills are negotiable:
1) Indication of intention: When a bill contains words prohibiting transfer, or indicating an intention that it should not be transferable, it is valid as between the parties thereto, but it is not negotiable (s 13(1) BOEA)
2) Can be order/bearer: A negotiable bill may be payable either to order or to bearer (s 13(2) BOEA)
a) Bearer = specified OR blank indorsement: A bill is payable to bearer which is expressed to be so payable, or on which the only or last indorsement is an indorsement in blank (s 13(3) BOEA)
b) Order: A bill is payable to order which: is expressed to be so payable OR is expressed to be payable to a particular person, and does not contain words prohibiting transfer or indicating an intention that it should not be transferable (s 13(4) BOEA)
3) Regardless is negotiable: Where a bill, either originally or by indorsement, is expressed to be payable to the order of a specified person, and not to the person or his or her order, it is nevertheless payable to the person or his or her order at his or her option (s 13(5) BOEA) v. Sum payable: The sum payable by a bill is a sum certain within the meaning of this Act,
although it is required to be paid with, by or according to, as the case requires, any one or more of the following, namely: interest or bank charges; stated instalments; or indicated rate of exchange (s 14(1) BOEA)
1) Lesser number is taken: Where more than one sum is expressed to be payable in a bill, the lesser or least, as the case may be, of the sums so expressed to be payable shall be taken to be the only sum ordered to be paid by the bill (s 14(2) BOEA)
2) Interest runs from date of bill: Where a bill is expressed to be payable with interest, unless the instrument otherwise provides, interest runs from the date of the bill, and if the bill is undated from the issue thereof (s 14(3) BOEA)
vi. Bill payable on demand = presentation OR no time expressed OTHERWISE term bill: A bill is payable on demand which is expressed to be payable on demand, or at sight, or on presentation OR in which no time for payment is expressed (s 15(1) BOEA)
1) Accepted/Indorsed overdue = payable on demand; Where a bill is accepted or indorsed when it is overdue, it shall, as regards the acceptor who so accepts, or any indorser who so indorses it, be deemed a bill payable on demand (s 15(2) BOEA)
vii.Signature essential to liability: Subject to this section, a person is not liable as drawer, indorser or acceptor of a bill if he or she has not signed it as such (s 28(1) BOEA).
1) If signed = liable in own name: Where a person signs a bill in a trade name or an assumed name, he or she is liable on the bill as if he or she had signed it in his or her own name (s 28(2) BOEA)
2) Firm signature = partners liable: The signature of the name of a firm is equivalent to the signature, by the person so signing, of the names of all persons liable as partners in that firm (s 28(3) BOEA)
2. Understanding Trade Bills and Commercial Bills:
a. Features of commercial bills:
i. Commercial v Trade bills: Bills may be categorised as commercial bills or trade bills. The principal distinction between the two is that commercial bills are not associated with a specific business transaction, whereas a trade bill is generally used to fund a particular transaction (often international trade).
1) Trade bill; Commercial bill — drawn on a bank, merchant bank; Commercial bill — drawn by a bank, merchant bank
ii. Purpose: It can be used as a short to long term funding facility iii. Parties:
1) Drawer: The drawer is the party that issues the order. The drawer is usually also the party requiring the funds. Drawer has second liability, after the acceptor, if bill is dishonoured 2) Acceptor or drawee: Party to whom the bill is addressed and who undertakes to pay the face
value of the bill to the person presenting the bill at the maturity date.
3) Payee: Whom the bill is specified to be paid. Payee can be drawer or some other entity.
iv. Negotiable = discounting: Once the bill has been accepted, it can be sold (discounted) in the money markets. Normally the drawer will seek to sell the instrument. The discounter/holder will buy it from the payee
1) Discounter: The discounter which is the party that lends the drawer an amount of money in exchange of the bill. The discounter may or may not be the acceptor of the bill.
a) Mechanics: The return to the discounter of the bill is provided through the difference between the price paid for the bill and the face value of the bill obtained on maturity, or the price obtained whenever the discounter rediscounts (resells) the bill in the secondary market. Upon maturity the current holder of the bill approaches the acceptor for repayment of the bill.
b) The first endorser and each subsequent endorser, establishes a contingent liability against themselves, and are thus responsible for the payment of the face value of the bill. The order of liability runs from acceptor, then drawer, then endorsers in ascending order.
Module 4: Basic Principles of Bank Lending & ADI/Customer Relationship
1. Lending and the creditor’s remedies — Introductory Concepts 1. Administration:
a. Exercise of powers while company under external administration:
i. Officer no power: While a company is under external administration, an officer of the company MUST NOT perform or exercise a function or power of that office otherwise that person commits an offence (s 198G Corporations Act)
1) Exception — permitted/EA: DOES NOT APPLY to the extent that the officer of the company is acting as the external administrator OR with written approval of the external administrator of the company or the Court (s 198G(3) Corporations Act)
2) Exception — DOCA: DO NOT APPLY if the company has executed a deed of company arrangement and the deed has not yet terminated (s 198G(4) Corporations Act)
3) Exception — Restructuring: DO NOT APPLY in relation to a company under restructuring OR a company that has made a restructuring plan that has not yet terminated (s 198G(4A) Corporations Act)
b. Powers of administrator: While a company is under administration, the administrator has control of the company’s property and business (s 437A Corporations Act)
c. Restrictions on the right of SECURED CREDITOR from exercising rights during administration:
i. GUARANTEE cannot be triggered during administration of director or relative under guarantee of company’s liability: During the administration of a company, a guarantee of a liability CANNOT be enforced as against a director of the company who is a natural person OR a spouse or relative of such a director AND without limiting paragraph (a), a proceeding in relation to such as a guarantee cannot be begun against such a director, spouse or relative (s 440J(1) Corporations Act)
1) Despite this Court can make orders: While subsection (1) prevents the creditor from enforcing against the guarantor, s 1323 applies in relation to the creditor and guarantee as if a civil proceeding against the guarantor had begun under this Act AND the creditor were the only person of a kind referred to in that section as an aggrieved person (s 440J(2) Corporations Act)
ii. Stay on enforcing rights merely because the company is under administration etc:
1) Stay on enforcing rights: A right cannot be enforced against a company for:
a) The reason that the company has come or is under administration (s 451E(1)(a) Corporations Act); or
b) The company’s financial position, if the company is under administration; (s 451E(1)(a) Corporations Act) or
c) A reason, prescribed by the regulations for the purposes of this paragraph, that relates to:
the company coming or possibly coming, under administration or the company’s financial position; if the company later comes under administration (s 451E(1)(c) Corporations Act)
d) A reason that in substance, is contrary to this subsection (s 451E(1)(d) Corporations Act) 2) Court order: The Court may order an extension of the period if the Court is satisfied that the
extension is appropriate AND before deciding an application for an order under paragraph (a) may grant an interim order (s 451E(3) Corporations Act)
3) Period of the stay: The right cannot be enforced during the stay period starting when the company comes under administration until the latest of the following:
a) Administration ends (s 451E(2)(a) Corporations Act)
b) When the last made of the Court order ends (s 451E(2)(b) Corporations Act)
c) When the company’s affairs have been fully wound up (s 451E(2)(c) Corporations Act) iii. Enforcing rights after the stay for reasons relating to earlier circumstances:
1) The right is unenforceable against the company indefinitely after the end of the stay period to the extent that a reason for seeking to enforce the right (a) is the company’s financial position before the end of the stay period; or (b) is the company having come or been under administration before the end of the stay period, etc (s 451E(4) Corporations Act).
iv. Exceptions:
1) Rights not subject to the stay: Subsection (1) does not apply to the right if it is:
7. Relationship Debt (“Special Equity of Wives”)
1. General: Applies to misleading and deceptive conduct & Undue Influence (Above)
a. Definition: Involves transactions where a wife acts as guarantor of her husband’s debts and he has used his influence over her to obtain her agreement to the contract of guarantee.
b. Can still involve third parties: Still the bargain must be tainted and the bank must have notice of it.
c. Does not apply to unconscionability: The High Court also held that the law of unconscionability as established in Commercial Bank of Australia Ltd v Amadio, did not cover the rule in Yerkey v Jones, and instead, both of these cases were considered as distinct doctrines. (at [25]-[28] in Garcia)
d. Particularly relevant for guarantees:
2. Test: Where a creditor (a bank) is seeking to enforce a wife’s guarantee of her husband’s debts
a. Tainted bargain: [1] Where her guarantee was – in fact – obtained as a result of her husband’s pressure, influence or misrepresentation, or without her full understanding of the nature and effect of the transaction [something the wife must prove this as a matter of fact] (this is a pre-condition before the principle in Yerkey v Jones) (Using Section 6 above)
i. Onus of Proof: Wife still needs to prove that her guarantee has flawed by a tainted bargain. If the husband misrepresented the terms, she needs to prove it, or that the husband threatened undue influence, she needs to prove it…
b. Presumed to have notice of that impropriety: [2] Then the creditor (bank) is taken to have notice of that impropriety, because of the presumed dominant position of the husband in the relationship, and the opportunity it afforded him to abuse his wife’s confidence in order to obtain the guarantee (principle in Yerkey v Jones relates to this second part) (principle was reinstated by Garcia v National Australia Bank Ltd (1998) at [20]-[21])
i. Wife does not need to prove the special disability she is under: Thus, the wife need not prove that the creditor knew or ought to have known of the “special disability” that she was under.
1) Facts: In 1979, Jean Balharry Garcia and her then husband, Fabio Garcia, executed a mortgage over their jointly owned matrimonial home in favour of National Australia Bank. Between 1979 and 1987, Jean Balharry Garcia also signed several guarantees. These documents were signed to secure a loan that was made to Fabio Garcia for use in his company, Citizens Gold Bullion Exchange Pty Limited. The couple separated in 1988, and in the following year, Fabio Garcia's company wound up.
ii. May also apply to same sex couples or de facto relationships: (Garcia v National Australia Bank Ltd (1998) at [22]; at [79] in Alceon Group Pty Ltd v Rose [2015] NSWSC 868)
3. Two situations and how does a bank get out of it?:
3. “Security interests” under the PPSA
1. Ability to enforce security interest during administration v winding up/bankruptcy: Module 4.1 a. General: Remember the power of a secured party with a perfected PPSA security interest to enforce
their security during administration (Corporations Act s. 440B, 441A-441AA); rights of a secured party (including a PPSA secured party) to realise their security interest during a winding up (Corporations Act s. 471B-471C). The same principle applies under the Bankruptcy Act.
b. Enforcing it during administration: Section 440B Corporation Act applies when a company is in administration provides that during the administration of a company, a secured party cannot enforce their security interest over a company, except with leave of the Court or permission of the administrator. There is an exception under s 441A, where the secured party has a security interest over the whole or substantially whole of the property of the company under administration. Where that is the case, then the secured party can enforce a security interest provided that it is perfected.
i. Perfection + 13 day decision period: The exception applies in relation to PPS security interests which have been perfected at the time enforcement starts. In s 441AA are several requirements, where perfection is one of them. If the requirements are met, then the secured party must act within the decision period, which is defined in s 9 of the Corporations Act, as a 13 day period after the day the administrator was appointed.
c. Can enforce security interest in bankruptcy if perfected: Definition of a secured creditor under s 5(1) Bankruptcy Act includes the security interest of a secured party under the PPSA that has been perfected. Now you know from s 58 Bankruptcy Act that when someone becomes bankrupt, their assets vest in the official trustee, but that does not affect the rights of the secured creditor to realise their security, provided that they have a perfected security interest. The definition of a secured creditor in the Bankruptcy Act includes someone who has a perfected security interest.
