Recommendations
Recommendation 1
The committee recommends that appropriate regulation and
legislation be put in place to prevent banks profiting from defaulted or
impaired loans by requiring banks to:
-
levy additional costs that the bank incurs when a loan is in
default or is impaired in accordance with a schedule or process approved by the
Australian Small Business and Family Enterprise Ombudsman.
-
provide transparent and accountable information to borrowers on
the additional costs that the bank incurs when a loan is in default or is
impaired; and
-
where a bank charges additional fees or interest of any kind
associated with a defaulted or impaired loan;
- the increased costs incurred by the bank must be disclosed in
the loan contract, where possible, as a flat dollar figure; and
- any amount charged that exceeds the increased costs incurred
by the bank is to be paid off the loan principal.
Recommendation 2
The committee recommends that the
banking codes of practice administered by the Australian Bankers' Association
or the Customer Owned Banking Association and other regulatory arrangements be
revised to require that:
-
authorised
deposit taking institutions must commence dialogue with a borrower at least six
months prior to the expiry of a term loan. Further, where a monetary default
has not occurred, they must provide a minimum of three months notice if a
decision is made to not roll over the loan, even if this means extending the
expiration date to allow for the three months following the date of decision;
-
if a
customer is meeting all terms and conditions of the loan and an authorised
deposit taking institution seeks to vary the terms of the loan, the authorised
deposit taking institution should bear the cost associated with the change and
provide six months notice before the variation comes into effect;
-
customer
protections relating to revaluation, non-monetary defaults and impairment
should be explicitly included in the code; and
-
subscription
to a relevant code becomes mandatory for all authorised deposit taking
institutions.
Recommendation 3
The committee recommends that responsible lending
provisions, including ASIC's monitoring under the National Consumer Credit
Protection Act 2009, be extended to small business loans.
Recommendation 4
The committee recommends that the government bring forward
legislation and other measures to enable the Australian Small Business and
Family Enterprise Ombudsman to:
- lead and/or
coordinate the implementation of the outcomes of this inquiry and all other
reforms that relate to small business lending in order to avoid the significant
risk that major gaps and flaws in the protections for small business would
remain;
- bring together
a team with expertise in financial services, ethics and education to establish
standards for the conduct of bank management and their employees in relation to
small business loans and to work with the banking industry to implement those
standards and appropriate mediation and dispute resolution schemes;
- work
with the banking industry to develop mandatory nationally consistent
standardised loan contracts that include a cover sheet summarising the
obligations of the customer and the consequences of any breach;
- have the power
to direct the parties to a dispute to participate in mediation or dispute
resolution;
- where
gaps in the implementation of those standards and appropriate dispute
resolution schemes remain, to act as a small business loans dispute resolution
tribunal; and
- direct
the parties to a dispute to participate in commercial arbitration for larger
commercial loans.
Recommendation 5
The committee recommends that appropriate legislation and
regulations be put in place to:
- prohibit
conflicted remuneration for all bank staff;
- extend the
clawback period on any bonus or like incentives provided to management and
senior executives involved in the line approvals or systematic oversight of
lending;
- require
bank officers to act in the best interests of a small business customer;
- require
officers from lending and credit management departments to provide consistent
information to borrowers, including:
- copies
of valuation reports and instructions to valuers; and
- copies
of investigative accountants' reports and instructions to investigative
accountants and receivers;
- require
lending officers and credit management officers to ensure that:
- the
valuation instructions do not change during the term of the loan agreed in the
loan contract; and
- businesses
are valued as the market value of a going concern, not just a collection of
business assets and that the market value of all security supporting the loan
are taken into account, not just real property.
Recommendation 6
The committee recommends that nationally consistent
arrangements be put in place for:
-
farm debt mediation;
-
small business debt mediation; and
-
the professional standards and conduct of valuations in relation
to small business loans.
Recommendation 7
The committee recommends that the link between lenders
and key creditors, such as builders who may be building on a developer’s land,
needs to be formalised so that lenders have an obligation to advise creditors
once a loan is placed in default.
Recommendation 8
The committee recommends
that the Parliamentary Joint Committee on Corporations and Financial Services
conducts an inquiry to examine the regulatory environment for valuers with a
view to:
- reforming
the industry to improve ethical and professional standards for valuers;
- improving
transparency and independence within the industry; and
- preventing
them from being captured by banks.
Recommendation 9
The committee recommends that if an authorised deposit
taking institution is intending to appoint a receiver:
-
that is from the same company that was engaged as an
investigative accountant, the borrower should be given an opportunity to
request an alternate company if the borrower is concerned about a conflict of
interest;
-
in addition to the requirement to sell assets for fair market
value under section 420A of the Corporations Act 2001, receivers should
be required to sell a business as a going concern where possible¾if this will result in a higher return¾rather than separately selling the assets
within the business; and
-
that
receivers or similar entity selling assets under section 420A be required to take
every reasonable step to ensure those assets are sold at or as close to listed market
value as possible under the following conditions:
-
proof of
marketing through but not limited to mainstream media, catalogues and online;
-
in cases with
no monetary default, marketing periods consistent with Prudential Standard APS
220;
-
in the case
where monetary defaults have occurred, the marketing period can be reduced below
the APS 220 standard where a shorter marketing period can be demonstrated to be
in the borrower's best interest; and
-
that a strong
penalty regime for breach of section 420A be administered by the Australian
Securities and Investments Commission.
Recommendation 10
The committee recommends that the Parliamentary Joint
Committee on Corporations and Financial Services conduct an inquiry to examine
the remuneration of insolvency practitioners.
Recommendation 11
The committee recommends that:
- lenders
should engage independent experts nominated by the Australian Small Business
and Family Enterprise Ombudsman to critically examine contentious cases to
determine what, if any, restitution may be appropriate in the light of the
standards developed by the Australian Small Business and Family Enterprise
Ombudsman, with particular regard to unconscionable conduct; and
- that
funding through a user pays industry funding model be provided to Australian
Small Business and Family Enterprise Ombudsman –acting as a tribunal–to
consider cases retrospectively in the event that lenders do not choose to
voluntarily examine contentious cases as recommended above.
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