Execution, delivery or performance of the finance documents

A lender, arranger, facility agent or security agent would be subject to regulatory regimes or licensing requirements where it is:

• Carrying on "banking business" in Australia under the Banking Act 1959 (Cth) ("Banking Act"). A person who carries on banking business in Australia must be authorized by the Australian Prudential Regulation Authority (APRA) to be an authorized deposit-taking institution (ADI). However, an entity that merely lends to companies in Australia and does not take deposits will not be deemed to be carrying on banking business and will not require approval by APRA to be an ADI or be regulated by the Banking Act.
• Carrying on a "financial services business" in Australia. An entity that carries on a financial services business in Australia must hold an Australian financial services license (AFSL) under Chapter 7 of the Corporations Act 2001 (Cth) ("Corporations Act"). However, credit facilities are generally excluded from the definition of "financial product" under the Corporations Act and the provision of a credit facility only to an Australian company will not trigger regulation by the Australian Securities & Investments Commission (ASIC) as a financial services business. However, the entry into related exchange contracts and derivative transactions may trigger regulation under the Corporations Act.

In addition, under Section 66 of the Banking Act ("Section 66"), an entity is prohibited from assuming or using certain restricted terms in Australia, including "bank," "banker" and "banking" (in any language) in relation to its financial business unless the APRA has granted permission otherwise. It is an offense with a civil penalty for each breach of Section 66. Therefore, a lender, arranger, facility agent or security agent that is a bank, or is related to a bank (and certain other types of financial institutions) must not breach Section 66 by assuming or using the word "bank," "banker" or "banking" (even in its corporate name) when dealing with an Australian counterpart.

In an open letter to foreign banks, the APRA has provided guidance that it would not consider a foreign bank to be in breach of Section 66 if all of the following conditions have been satisfied:

• The foreign bank does not maintain an office or permanent staff in Australia, including staff employed by an entity within the banking group that conducts non-banking business on its behalf in Australia.
• The foreign bank does not solicit business from retail customers in Australia.
• All business contracts and arrangements are clearly transacted and booked offshore.
• The foreign bank does not engage in advertising or allow bank staff to physically solicit business in Australia.
• Where offshore staff of the foreign bank meet with clients and potential clients in Australia, it is for the limited purpose of arranging or executing documentation in relation to the business of those clients.

If all five conditions above have been satisfied, the APRA is also of the view that the foreign bank will not be in breach of Section 66 where it lends from offshore and uses restricted words such as "bank" to register a security interest over property in Australia, including on the Personal Property Securities Register (PPSR) established under the Personal Property Securities Act 2009 (Cth).

Please refer to the answer to question 11 of the "When lending to borrowers" section for information in relation to consumer credit regulation that may be applicable for consumer lending to individuals.

Enforcement of rights under the finance documents

Foreign investments in Australian entities, businesses and land are regulated by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), the Foreign Acquisitions and Takeovers Fees Imposition Act 2015 (Cth), the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) ("Regulations") and Australia's Foreign Investment Policy ("Policy").

The Australian Foreign Investment Review Board (FIRB) administers the FATA, the Regulations and the Policy. It also assists the Australian treasurer to make decisions on foreign investment proposals submitted for examination and approval.

Approval may be required under the FATA if a "foreign person" or "foreign government investor" is involved in an acquisition of an entity, business or land in Australia. However, there are exemptions in the situations set out below.

Foreign persons whose ordinary business includes the lending of money: moneylending exemption

A foreign person whose ordinary business includes the lending of money is exempted from the requirement to obtain the approval of the FIRB to take or enforce security over shares or other assets or over an interest in land, provided the interest is held solely by way of security for the purposes of a "moneylending agreement" (the “moneylending exemption”). A "moneylending agreement" is:

• An agreement entered into in good faith, on ordinary commercial terms and in the ordinary course of carrying on a business (a “moneylending business”) of lending money or otherwise providing financial accommodation, except an agreement dealing with any matter unrelated to the carrying on of that business; and
• For a person carrying on a moneylending business, or a subsidiary or holding entity of a person carrying on a moneylending business, an agreement to acquire an interest arising from a moneylending agreement (within the meaning of the above paragraph).

The moneylending exemption covers connected parties to reflect modern lending and debt trading practices. This includes any subsidiary or holding entity, a person who is in a position to determine the investments or policy of the lender, a security trustee, a receiver, or a receiver and manager appointed by a lender or another connected party.

Where the interest is in residential land or where the interest is acquired by a foreign government investor (as defined in the FATA and Regulations) by way of enforcement of a security, additional requirements must be met for the foreign person to benefit from the moneylending exemption. These are described below.

From 1 January 2021, the moneylending exemption will not apply to acquisitions upon enforcement of a security in national security land (which includes defense premises or land belonging to or relating to a national intelligence agency of the Commonwealth Government) or national security businesses (which includes a business carried on in Australia with respect to critical infrastructure, network telecommunications and national defense information and technology), unless a receiver or receiver and manager have been appointed to manage the process.

Taking and enforcing security over residential land

Where a foreign lender (other than a foreign government investor) takes security over, or acquires an interest by way of enforcement in, residential land, the moneylending exemption only applies where:

• The lender (or its holding entity) is an ADI; or
• The lender (or its holding entity) is otherwise licensed (in Australia or elsewhere) as a financial institution and either has at least 100 holders of securities in it or is listed on a stock exchange (in Australia or elsewhere).

Foreign government investor lenders

For an interest acquired by a foreign government investor by way of enforcement of a security, the moneylending exemption only applies in the following cases:

• Where the foreign government investor is an ADI or a subsidiary of an ADI, it may acquire and hold an interest over shares, assets or land through enforcement of its security without FIRB approval for 12 months only. FIRB approval will be required for a foreign government investor to hold its interest in the shares, assets or land after the 12-month period, unless it is making a genuine attempt to dispose of the interest.
• Where the foreign government investor is not an ADI or a subsidiary of an ADI, that entity may acquire and hold an interest through enforcement of its security without FIRB approval for six months only. Similarly, FIRB approval will be required for the lender to hold its interest after the six-month period unless it is otherwise making a genuine attempt to dispose of the interest.

A lender, arranger, facility agent or security agent may be deemed to be carrying on business in Australia depending on the circumstances in each particular case. While lending to an Australian company on a one-off or very limited basis will, in most cases, probably not qualify as carrying on business in Australia, repeated lending and a course of dealing will most likely constitute carrying on business, which could trigger tax and/or other regulatory consequences. A foreign company that carries on business in Australia must be registered with the ASIC under the Corporations Act and comply with various disclosure and other requirements imposed on registered foreign companies under the Corporations Act.

In addition, there are events or circumstances that may result in a foreign lender, arranger, facility agent or security agent being taken to have a permanent establishment in Australia. Please contact our Australian tax group if you would like to receive further information in relation to the tax consequences.

No state or territory in Australia charges ad valorem stamp duty on loan and security documents — see also the answer to question 12 of the "If taking security" section.

The sale of secured property following enforcement can give rise to a liability for the security holder to pay goods and services tax (GST) on the sale, at the rate of 10% and liability for stamp duty if the sale of the property sold attracts duty, at normal conveyance rates. Land and goods will normally attract stamp duty. Stamp duty is charged on a state-by-state basis and, in most jurisdictions, is approximately 5% of the value of the property sold.

Yes. In addition to reporting requirements applicable to an ADI under the Banking Act and an AFSL holder under the Corporations Act, a lender, arranger, facility agent or security agent may be subject to regulatory reporting requirements in the following instances:

• If it is carrying on business in Australia and, if so, it must be registered with the ASIC under the Corporations Act.
• If it is a "registrable corporation" under the Financial Sector (Collection of Data) Act 2001 (Cth) ("FSCOD Act"). A foreign corporation or a trading or financial corporation formed within Australia that engages in the provision of finance in the course of carrying on business in Australia is a "registrable corporation" if any of the following applies:
  • Its assets in Australia that consist of (outstanding) debts due (being debts resulting from transactions entered into in the course of providing finance) at any time exceed AUD 50 million or more. Examples of transactions entered into in the course of providing finance include lending money (with or without security), carrying out activities that directly or indirectly result in the funding or originating of loans or other financing, acquiring debts due to another person, and purchasing bills of exchange or promissory notes (Section 32 of the FSCOD Act).
  • The principal amounts of loans or other financing initiated (in the recently completed financial year) are AUD 50 million or more.

Registrable corporations must be registered with the APRA within 60 days, but they will not be subject to actual supervision by the APRA. They are subject to certain disclosure and reporting requirements.

The regulatory reporting requirements under the Corporations Act and/or FSCOD Act may apply to an entity as long as the above tests have been met, regardless of whether the entity is an ADI or an AFSL holder.

No.

No. A foreign bank that is not licensed as a bank in Australia must not engage in advertising or allow its staff to physically solicit business in Australia. This is one of the conditions set out by the APRA that is discussed in the answer to question 1 of this section. If the foreign bank fails to adhere to the five conditions set out by the APRA (as set out in the answer to question 1 of this section), the APRA may consider it to be in breach of Section 66.

If a financial institution is not a bank (and does not include the word bank in its name), there are circumstances in which it can approach Australian entities for business from offshore. There is currently* an exemption for approaching wholesale clients wholly from offshore. There are also exemptions in relation to offering particular financial products (for example, derivatives or foreign exchange contracts) to professional investors (a subset of wholesale clients).

* This exemption is set to expire on 31 March 2024.