Legal

Groundbreaking whistleblower research project extended

THE second stage of the ground breaking research project Whistle While They Work, which is developing a strong information base on whistleblowing practices to inform protection law, has been strongly endorsed by the Australian Securities and Investments Commission (ASIC) which created the initial report..

The Strength of Whistleblowing Processes report, undertaken by a multi-university team led by Griffith University professor AJ Brown, and funded by the Australian Research Council (ARC), follows on from the ASIC-sponsored Whistling While They Work report. 

The Strength of Whistleblowing Processes report identifies the factors that influence good and bad responses to whistleblowing across a wide range of institutions.

This unique research project is the first to systematically compare the levels, responses and outcomes of whistleblowing in multiple organisations – across the public, private and not-for-profit sectors – and across international boundaries

ASIC Commissioner John Price said the project would provide a clearer basis for evaluation and improvement in organisational procedures, better public policy, and more informed approaches to the reform or introduction of whistleblower protection laws.

“The release of the new results provides an important new picture of where the strengths and weaknesses lie in current whistleblowing processes,” Mr Price said.

'This demonstrates firstly, the value of the project and of participating in it, but also why it's important that industry take a proactive approach to helping identify and adopt best practice, so that improvements in this area are well-informed and well-targeted on what's needed.”

This research project comes at a very important time and will provide a strong rationale for both industry and regulators to understand the importance of effective whistleblower programs within their workplaces.

“It will also progress our understanding of how these programs should be effectively embedded in large organisations,” Mr Price said.

“The ability for staff to speak up to its leaders and identify wrongdoing is a feature a strong organisational culture, including whistleblowers being heard, considered and appropriately dealt with.”

ASIC is officially encouraging Australian company officers and directors “to support this groundbreaking research”.

www.asic.gov.au

 

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Banks held to account on SME contract terms by ASIC and ASBFEO

SMALL and medium business leaders around Australia will be heaving a sigh of relief that the spectre of major banks enacting alleged predatory clauses in their loan contracts – which have seen many businesses scrambling to meet unexpected demands including cash payments to reduce loan levels even when there have been no payment defaults – are now officially on notice.

It was only after a sustained intervention by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and the Australian Securities and Investments Commission (ASIC) that the big four banks finally took action to protect small businesses from unfair terms in loan contracts.

The complaints Business Acumen has logged include a successful Gold Coast business forced to sell a second industrial property – even though it had no payments in default at the time and was subject to a sudden and apparently arbitrary change in its loan-valuation ratio. Other cases have seen businesses forced to sell plant and equipment to meet bank demands for loan principle reductions, often resulting in unnecessary losses.

Following a round table hosted by ASBFEO and ASIC in April, the big four banks committed to a series of comprehensive changes to ensure all small business loans entered into or renewed from November 12, 2016 will be protected from unfair contract terms. 

ASBFEO and ASIC have publicly raised concerns that lenders, including the big four banks, needed to lift their game in meeting the unfair contract terms legislation.

Commonwealth, ANZ, NAB and Westpac banks have committed to:

Remove ‘entire agreement clauses’ from small business contracts. These are concerning terms that absolve the lender from responsibility for conduct, statements or representations they make to borrowers outside of the contract. 

Remove financial indicator covenants from many applicable small business contracts. For example, loan-to-valuation ratio covenants that give lenders the power to call a default when the value of secured property falls, even where a small business customer has met financial repayments, will be removed. 

Remove material adverse event clauses from all small business contracts. These are concerning terms that give lenders the power to call a default for an unspecified negative change in the circumstances of the small business customer. 

Significantly limit the operation of indemnification clauses. These are concerning terms that aim to broadly protect the lender against losses, costs, liabilities and expenses that arise even outside the control of the small business borrower. 

Significantly limit the operation of unilateral variation clauses. In addition to providing applicable small business customers with a minimum of 30 days notice for any contract changes, banks will clearly limit the circumstances in which unilateral variations can be made.

The banks have agreed to contact all small business customers who entered into or renewed a loan from November 12, 2016, about the changes to their loans. In many cases, banks have agreed to implement the changes so that they apply to all existing applicable small business customers.

The banks have agreed to significantly limit the operation of potentially concerning contract clauses (such as financial indicator covenants) to loan products where such clauses are essential to the operation of the product (such as margin lending contracts). Where such clauses continue to exist, banks will re-draft them to ensure that they are clear, transparent and limited to the appropriate circumstances.

Some early bank moves have been to simply modify some of the wording in contracts – but  ASBFEO and ASIC have made it clear to the big banks that simply including the word ‘reasonable’ in contracts does not go far enough.

The ASBFEO, Kate Carnell, said her role was to consider the interests of small business and to ensure that the unfair contract term legislation was working across all industries. She said it was clear what ‘unfair’ means – to protect the interests of the advantaged party, in this case it is the banks, against the interests of small business.

“The banks have been given every opportunity, including a one-year transition period from November 2015, to eliminate unfair contract terms from their loan agreements and their response has been unsatisfactory,” Ms Carnell said.

ASIC deputy chairman Peter Kell said: "We made it clear that lenders had to significantly improve their lending agreements to small business to ensure they meet the new rules.

“It is important that the banks have committed to improving their small business loan contracts. ASIC will be following up with the big four banks – and other lenders – to ensure that small business contracts do not contain unfair terms.”

From November 12, 2016, the unfair contract terms legislation was extended to cover standard form small business contracts with the same protections consumers are afforded. In the context of small business loans, this means that loans of up to $1 million that are provided in standard form contracts to small businesses employing fewer than 20 staff are covered by the legal protections.

In March 2017, ASBFEO and ASIC completed a review of small business standard form contracts and called on lenders across Australia to take immediate steps to ensure their standard form loan agreements comply with the law.

ASIC has released Information Sheet 211 Unfair contract term protections for small businesses (INFO 211) which gives guidance to assist small businesses understand how the law deals with unfair terms in small business contracts for financial products and services, and the protections that are available for small businesses.

www.asic.gov.au

www.asbfeo.gov.au

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‘Four pillars of trust’ support business tax transparency with ATO

RESEARCH by Thomson Reuters into Australian authorities’ new focus on transfer pricing and profit shifting has identified four key areas of focus for organisations in meeting the new requirements of the Australian Taxation Office (ATO).

Thomson Reuters managing director for tax and accounting, Ben Scull, said organisations must focus on four key pillars of trust to achieve “justified trust status as per the ATO’s new regulations. 

Mr Scull said in its bid to make Australian corporations comply with the international Base Erosion and Profit Shifting (BEPS) regulations, the ATO is working towards a ‘justified trust’ position, in which the community can be satisfied that large organisations are paying their fair share of tax.

“To achieve the required level of tax transparency, businesses must be able to provide fact-based evidence to support their tax position,” Mr Scull said.

“In an environment in which the ATO is pursuing a much more active compliance program, every business to which the justified trust program applies must be able to demonstrate it has a robust control framework in place to prove the assertions it makes about its revenue and expenses.

“While this sounds simple, the reality is much more complex. Businesses must focus on this consistently or risk heavy fines and penalties.

“Tax transparency and compliance is complex and, in a landscape of evolving regulations, becoming even more difficult to navigate,” Mr Scull said.

“Most organisations are unlikely to have the deep skill levels and expert knowledge on staff, making it crucial for affected businesses to partner with expert advisers. This will give them the best chance of compliance, helping them avoid heavy penalties.”

Mr Scull said Thomson Reuters had identified four key pillars to achieve justified trust: process, people, technology and data.

www.thomsonreuters.com.au

 

Panel:

FOUR PILLARS

Process

By implementing repeatable processes, businesses will be able to demonstrate consistency, one of the key elements of trust. To develop effective processes, businesses must first review the existing process steps, and identify and address gaps. They must be able to apply the same process across the organisation’s various locations and demonstrate a consistent output. There must be strong controls in place to ensure the process is reliably repeatable. Businesses should test the processes by doing practice runs before each process goes live.

People

People fulfil another key element of trust; congruity. This means ensuring the people responsible for tax compliance have the required skill sets in place, are involved in reviewing processes and technologies, and are suitably motivated.

Technology

Manual processes are inherently error-prone, so putting technology in place to automate aspects of the process can help deliver reliability, another key element of trust. Technology should enable process and controls, and include comprehensive tools for oversight and tracking.

Data

Using the wrong or outdated data can severely curtail an organisation’s ability to comply with tax regulations effectively. Being able to guarantee data integrity is another crucial element of trust. Doing so requires consistency of inputs. This extends beyond financial data to include all the information a business uses to make decisions or conduct operations.


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Proposed insolvency law reforms may fix Australia’s ‘broken’ system

THE creation of a ‘safe harbour’ from personal liability for company directors potentially facing claims during a formal insolvency process are one step in a reform process for Australia’s troubled business administration regime.

Business leaders have lamented the economic and personal damage caused by a succession of companies taken ‘too early’ into administration and lost to liquidation by directors fearful of Australia’s historic legal bias against recovering ‘temporarily troubled’ companies. 

There have been wide-ranging calls, in the wake of troubled voluntary administration cases such as Cubby Station and Arrium, for Australia to instate a form of the US Chapter 11 system which allows company directors to restructure companies while they are protected from action by creditors. 

Changes to the business environment in the wake of the Global Financial Crisis (GFC) and criticism of the high-cost methods of receiver-administrators have highlighted the problems. The norm has been a wholesale loss of wealth for shareholders, creditors and employees.

Australian insolvency practices have also been highlighted as stalling the technology start-up sector.

As part of the National Innovation and Science Agenda (NISA), Minister for Revenue and Financial Services, Kelly O’Dwyer released draft legislation in early 2017 and called for consultation on reforms to Australia’s insolvency laws.

Ms O’Dwyer said the legislation created a ‘safe harbour’ from personal liability for company directors and instituted a stay on ipso facto clauses during a formal insolvency process.

Ms O’Dwyer said the proposed safe harbour would apply to directors of companies undertaking a restructure and will protect them from personal liability for insolvent trading in certain circumstances.

“This will drive cultural change amongst company directors and encourage them to engage early with a plan for business rescue, to keep control of the company while the plan is executed, and to take reasonable risks to facilitate the company’s recovery, rather than placing the company prematurely into voluntary administration or liquidation,” Ms O’Dwyer said.

“The creation of a safe harbour creates necessary breathing room for directors to turn a company around rather than allowing it to fail for fear of personal liability. This will not only promote a culture of entrepreneurship and help reduce the stigma associated with business failure, but offers businesses a better chance of restructuring outside of a formal insolvency, which often produces significantly better outcomes for the company, its employees and its creditors.”

Ms O’Dwyer said the amendments would also make ipso facto clauses, which terminate or amend a contract merely because a company has entered into a formal insolvency process, unenforceable. Making these clauses unenforceable will give companies a greater chance to successfully restructure and may increase the likelihood of being able to sell the business as a going concern.

The Federal Government has also released a further explanatory document setting out the types of contracts and contractual rights which are expected to be excluded from the prohibition on the operation of ipso facto clauses. These excluded contract types and rights will be formalised through forthcoming regulations, with the prohibition on the operation of ipso facto clauses becoming effective on January 1, 2018.

The exposure draft legislation and explanatory statements are available on the Treasury Consultation Hub.

www.treasury.gov.au

 

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ARA applauds return of 'retail buyer' to STSOL.

THE Australian Retailers Association (ARA) is delighted the Department of Immigration and Border Protection (DIBP) has re-instated Retail Buyer to the Short Term Skilled Occupation List (STSOL).

The ARA has been leading the 'retail revolution' by proposing significant changes to the 457 visa program in a submission to the DIBP to ensure the longevity of Australian retail. 

ARA executive director, Russell Zimmerman said the ARA and its members had been working together to lobby the DIBP in not only adding, but re-instating essential retail roles to the STSOL.

“Today the industry received a big win for skill shortages in Australian retail as the Department has officially re-instated Retail Buyer as a key role required in contemporary retailing,” Mr Zimmerman said on June 30.

“The ARA have been the only retail industry body lobbying for further changes to the 457 visa program as many Australian retailers are constantly challenged by the availability of local talent to fill critical roles in the industry.”

While the ARA is concerned that Merchandise Planners, Merchandise Designers and Digital Commerce were not added to the STSOL, the ARA will continue to identify various mechanisms to address skill shortages in Australian retail.

“With retail being a huge driver in the Australian economy, the ARA will continue to work with the Government to ensure highly skilled visa holders in key retail categories are supported,” Mr Zimmerman said.

"The ARA have long been advocating for its members on skills shortages in the local labour market as skilled retail employees are an enormous asset to the industry.

“We will continue to work with our members and the Government to develop a more sophisticated and inclusive approach in identifying strategic retail occupations prior to any further reforms being implemented,” Mr Zimmerman said.

www.retail.org.au

 

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ACCC looks hard at sharing economy ‘reviews’

THE Australian Competition and Consumer Commission (ACCC) is reviewing policies of sharing economy platforms including Uber and Airbnb part of an international initiative. The focus is on endorsements and online reviews.

ACCC’s  review is part of the International Consumer Protection and Enforcement Network (ICPEN)’s annual internet sweep, involving over 50 consumer protection agencies around the world. 

The focus of that sweep this year is in the way online reviews operate in the sharing economy and what impact that has on consumer behaviour and the industries these sharing economy platforms disrupt.

The Australian Consumer Law prohibits businesses from making or inducing false or misleading representations through testimonials or reviews. The ACCC has produced guidance for businesses regarding online reviews and has taken enforcement action against businesses that have done the wrong thing.

“The ACCC has three clear messages for businesses handling online reviews,” ACCC deputy chair Delia Rickard said. “Be transparent about commercial relationships and don’t let these influence the order in which reviews are published; don’t post or publish misleading reviews; and editing or deleting unfavourable reviews may be misleading.”

The ACCC has also looked closely at the consumer law issues involved in the sharing economy, where a platform connects providers and users, both of whom are usually individuals or small businesses. Reviews and ratings can play a large role for both providers and users in the sharing economy.

“The sharing economy is a fantastic development and offers a range of benefits for consumers and businesses. However, operators of sharing economy platforms must make sure that they have appropriate policies to regulate the use of reviews to avoid misleading consumers,” Ms Rickard said.

The ACCC is sweeping through a range of platforms to find out which are properly disclosing their policies for publishing reviews and ensuring that reviews, and the way they are presented, are accurate and do not mislead consumers.

The sweep will provide information to assist the ACCC’s engagement with the sector, including guidance for businesses and individuals involved in the sharing economy. The guidance will be released later this year.

The information will be shared with the ACCC’s ICPEN partners, as well as with Australian state and territory consumer protection agencies.

The ICPEN is an informal network of consumer protection law enforcement authorities representing 58 global economies. ICPEN provides a forum where authorities can cooperatively share information and look to combat consumer problems which arise with cross-border transactions in goods and services, such as e-commerce fraud and international scams.

www.icpen.org

www.accc.gov.au

 

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SMEs beware: bankruptcies on the increase

AUSTRALIAN insolvencies and bankruptcies are expected to rise by about eight percent in 2016 and 2017, according to new research by international debt collection group Atradius.

Atradius Australia and New Zealand managing director Mark Hoppe urged Australian businesses to implement strategies “to avoid being another bankruptcy statistic”. The Atradius insolvency matrix 2016.

“After a sharp increase in Australian business insolvencies between 2008 and 2009, and a steady, historically-high level between 2010 and 2013, insolvencies decreased by almost 20 percent in 2014,” Mr Hoppe said.

He said the commodities slump and the with the challenging situation in China, business insolvencies were estimated to have increased again during 2015 by up to 10 percent.

“This rising insolvency trend appears to be continuing,” Mr Hoppe said.

“From January to May this year, there were 3,634 insolvencies according to ASIC data.  It’s no surprise that the mining, oil and gas, and construction industries make up the majority of businesses facing increasing insolvency rates.

“The mining sector has been experiencing difficulty for some time thanks to the slowdown in China putting pressure on the insolvency landscape, and the continuing slump in the commodities market.”

Between January and May this year, the metals, mining and steel industry saw 167 insolvencies. The construction industry was the hardest hit by insolvencies during the same time period, with 625 insolvencies recorded in Australia.

However, start-ups and small businesses were also feeling the pinch. SMEs with assets under $100, 000 make up 85 percent of collapses in this category.

Insolvencies are being felt across Australia. The Atradius  report showed in Q3 of the 2015-16 financial year (FY15/16), a total of 658 NSW businesses entered into external administration.

This was followed by 594 Victorian businesses, 444 Queensland businesses, 102 in South Australia, and 241 in Western Australia.

Mr Hoppe said these statistics highlighted the need for businesses to actively implement a risk-management plan. This includes thoroughly researching the potential customer and supplier, and the market it operates in, before signing a deal.

“Speaking to an expert is a great way to further understand business risks, and how to protect your products and profit,” Mr Hoppe said. “For example, not fully understanding the impact of import duties on the market value of your product in various countries before you invest in exporting can create huge problems.

“Businesses need to recognise that, with the increase in bankruptcies putting pressure on the entire market, they need to protect themselves. With a clear idea of the potential risks, businesses can begin to plan to minimise their exposure.”

www.atradius.com.au

 

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