The Russell McVeagh Banking Law Update is a monthly newsletter covering a range of cases and legislation which are of particular interest from a banking perspective. They also contain "snippets" - recent articles and other items of interest relevant to the financial sector.
February 2008
Robson v Shortt (HC Auckland, CIV2007-404-223, 21 December 2007 Associate Judge H Sargisson)
The recent High Court case of Robson v Shortt involved the successful application by Mrs Robson for an order that a caveat she had lodged over a property should not lapse.
Mrs Robson sold her property to Mr Shortt as part of a buy-back agreement: Mrs Robson was to buy back the property from Mr Shortt by maintaining weekly payment instalments over a 25 year period. However, Mrs Robson defaulted on her payment obligations under the agreement almost immediately. Mr Shortt made repeated attempts to contact Mrs Robson about her default under the buy-back agreement, although he did not attempt to contact her legal advisors. Mr Shortt initially did not charge Mrs Robson default interest, but subsequently charged it on a backdated basis. After Mrs Robson's continued failure to make payments, Mr Shortt notified her of his intention to terminate the agreement. Mrs Robson placed a caveat over the property and Mr Shortt consequently made an application that the caveat lapse. The subject of this case was an opposing application from Mrs Robson that the caveat not lapse.
In order to succeed in her application, Mrs Robson had to show that she had an arguable interest in the property, being a specific legal or equitable interest. Whether Mrs Robson had a specific legal or equitable interest turned on whether Mr Shortt's termination of the buy-back agreement was arguably oppressive in terms of the Credit Contracts and Consumer Finance Act 2003. This is because if the termination was arguably oppressive, Mrs Robson would be entitled to argue at trial that the buy-back agreement was not validly terminated, and therefore the caveat should remain in place pending the outcome of such a trial.
The High Court held that Mr Shortt's termination of the buy-back agreement was arguably oppressive and therefore the caveat should not lapse. The termination was arguably oppressive for the following reasons:
oppression more likely found when, as in this situation, one party has commercial experience and the other lacks it;
Mrs Robson was elderly and in poor health;
although Mrs Robson immediately fell into arrears, the actual amount of the arrears was small and Mrs Robson did make substantial payments under the contract; and
Mr Shortt's action in backdating the default interest was not authorised by the contract and he must have known that Mrs Robson would struggle to pay it.
The High Court considered that it was reasonably arguable that Mr Shortt's termination of the contract was oppressive. Consequently, the Court granted Mrs Robson's application that the caveat over the property not lapse, on the condition that within 25 working days of the date of the judgment, Mrs Robson commenced proceedings to re-open the buy-back agreement on the grounds that it was oppressive.
Cabinet has agreed to an extension of time for further policy development work on parts of the Review of Financial Products and Providers ("RFPP").
The extension to 30 June 2008 relates to a report back on work around the Securities Offerings, Collective Investment Schemes (CIS) and Platforms and Portfolio Management Schemes. Further policy work is required to fully examine the implications of recent legislative initiatives such as KiwiSaver.
The Mutuals' Governance report has also been extended to 31 July 2008 following the reprioritisation of auditor regulation work.
On 11 February 2008 the Securities Commission gave notice of its intention to recommend that regulations be made amending the Securities Regulations 1983. The proposed regulations will amend the "Important Information" section of investment statements following the commencement, on 29 February 2008, of the new investment advisers disclosure regime. Currently, investment statements are required to contain a prescribed statement informing investors about the disclosure they are entitled to from an investment advisor. The prescribed statement will become inaccurate after 29 February 2008.
In a consultation document released on 21 December 2007 the Securities Commission stated that the new wording should be used in investment statements prepared after 29 February 2008. Investment statements prepared earlier may still be used with the old wording, as in the opinion of the Securities Commission the change has little effect on the substance of the offering by the issuer.
The recommendation is available from www.seccom.govt.nz.
On 20 December 2007 the Securities Commission published "New Securities Law for Investment Advisers and Market Participants", a booklet that sets out the new requirements of the Securities Markets Act 1988 that will come into effect on 29 February 2008. The booklet covers the changes to the regimes for investment advisers and brokers, insider trading and substantial security holding disclosure, as well as the new market manipulation rules.
A copy of the booklet is available from www.seccom.govt.nz.
The Securities Commission released its terms of reference for its annual oversight review of New Zealand Exchange Limited ("NZX") on 24 January 2008. The terms of reference are in four parts:
- NZX's policies on the continuous disclosure rules;
- the three areas that were the focus of the previous review, being the NZAX market, the approval process for admission or approval of issuers and market participants to the NZX markets, and how NZX minimises the risk of non-compliance with the Listing Rules and Participant Rules;
- any issues arising during the review in relation to the eight areas identified for the first oversight review, and a new area, being the impact of NZX's expanding commercial activities on its regulatory function; and
- NZX's progress in implementing the Commission's recommendations in its report of 28 June 2007.
The Securities Commission expects to complete the review and publish a report by 30 June 2008.
The government is seeking comment on matters to be raised in the negotiation of a new double tax agreement between Australia and New Zealand, which is expected to begin in late March. The deadline for comment is 22 March 2008.
The Ministry of Economic Development is seeking submissions from the public on the Draft Emissions Units, Settlement Systems and Futures Bill ("Draft Bill"). The Draft Bill seeks to implement the policy measures that cabinet has agreed to in respect of New Zealand's carbon emissions trading regime.
The Draft Bill and related documents are available from www.med.govt.nz. Submissions on the Draft Bill close on 10 March 2008.
On 25 February 2008 the government announced that Cabinet had agreed to amend the tax treatment of certain kinds of stapled securities. Stapled securities are securities that consist of a debt instrument attached to a share. The government's concern is that companies might issue stapled securities in order to pay deductible interest to subscribers, rather than non-deductible dividends.
The government has not yet released a detailed summary of the proposed change. For more information see www.taxpolicy.ird.govt.nz.
In the December 2007 issue of Banking Law Update we stated that the Securities Markets (Substantial Security Holders) Regulations 2007, the Securities Markets (Investment Advisers and Brokers) Regulations 2007, and the Securities Markets (Market Manipulation) Regulations 2007 come into force on 29 February 2007. The regulations in fact come into force on 29 February 2008. We apologise for any confusion that we may have caused.
The September 2007 issue of the Australian Banking and Finance Law Bulletin contains an article by Anthony Lo Surdo entitled The limits to indefeasibility of title in the case of fraud.
Registration of a mortgage provides a mortgagee with indefeasible title in respect of the mortgaged interests, notwithstanding forgery. To apply this principle however, it must be determined what interest in the subject of the mortgage the mortgagor has. In Yazgi v Permanent Custodians Ltd [2007] NSWCA 240, the case revolved around this issue. The appellant, Sabah Yazgi, was the joint registered proprietor of the property with her husband, Yasin Yazgi. A mortgage was registered over the property, with Permanent Custodians ("PC") as the mortgagee. However, Sabah Yazgi's signature on the mortgage and the loan contract was forged. It was agreed that the registration of the mortgage gave PC an indefeasible title in respect of the mortgaged interests despite the forged signature of Sabah Yazgi, but the key issue was the extent of the mortgaged interests in the light of the forgery.
The New South Wales Court of Appeal noted that there was a need to identify the extent of indefeasibility conferred by the registration of the mortgage. This is because registration does not give the holder indefeasible title generally, but to the extent of the registered title holder's interest. Sabah Yazgi argued that PC's indefeasible title was limited to Yasin Yazgi's interest in the property and not to her interest. Conversely, PC contended that its indefeasible title extended to the whole of the property. The court noted that the issue of indefeasibility has been subject to much judicial consideration, and referred to the case of PT Ltd v Maradona Pty Ltd (1992) 25 NSWLR 643. Here the court found that registration does not validate all the terms and conditions of the instrument which is registered: rather, it validates only those which delimit or qualify the estate or interest.
It was therefore necessary to look at the terms of the mortgage and loan contract, in particular the definition of "Mortgage Debt", to determine what interests in the property could be encompassed by the mortgage. The court found that "Mortgage Debt", in the schedule to the mortgage, referred to a joint borrowing by Yasin and Sabah Yazgi and the interest on that debt would subsequently give rise to joint indebtedness. However, "Mortgage Debt" in the memorandum referred to both joint and several borrowing. As there was no specification within the mortgage document of any amount owed under the mortgage, it was necessary to use the memorandum to determine what indebtedness was secured. The forgery of the agreement meant that there was no joint borrowing and therefore, as a matter of construction, the mortgage could not have been secured over Sabah Yazgi's interest in the property. Yazgi was successful in the appeal and PC's mortgage was held not to include Sabah's interest.
The lesson to be learnt from this case is that a mortgagee cannot rely too heavily on the principle of indefeasibility, because the mortgagor's interest in the mortgage will still affect the outcome. This means that financiers, and those acting for them, must take care when preparing loan and security documents that, as well as avoiding frauds, any security interests are properly described.
Preference Claims And The Availability Of Recoveries To Secured Creditors And Set-Off
Overdraft Charges - The Uk Test Case
The Latest Word On Implied Duty Of Good Faith: Cgu Workers Compensation V Garcia
Privacy Act Inquiry - Alrc Paper Released
The October 2007 issue of the Australian Banking and Finance Law Bulletin contains four articles of interest.
The first is an article by Michael Quinlan and Christopher Prestwich entitled Preference claims and the availability of recoveries to secured creditors and set-off.
The article discusses s 553C of the Corporations Act 2001 (Cth), which requires an unsecured creditor seeking to prove in a winding up to set off mutual credits and mutual debts between itself and the insolvent company in liquidation, and to prove for the net amount owing to it in the liquidation.
Gye v McIntyre (1991) 171 CLR 609 is the leading case on the issue of set-off in an insolvency context. According to the High Court, the key element is mutuality, which has three key aspects. First, the claims must arise between the same persons. Secondly, the relevant interest is the equitable interest of the parties. Finally, the claims must be of a kind which ultimately sounds in money. So, where a party seeks to prove in a winding up, that party must set off its debt against moneys owing by the insolvent company prior to proving in the winding up in accordance with s 553C.
However, some cases have held that there is no set-off available between a debt owed to a creditor who received payment of the debt as a voidable preference and the sum to be repaid to the company because of the preference. Nor is there set-off between a debt due to a person guilty of misfeasance in relation to a company in liquidation and that person's liability to pay moneys he or she is ordered to pay under misfeasance proceedings.
Despite this, a Federal Court decision has held that a liquidator could set-off an insolvent trading claim under ss 588W and 588V of the Act of the holding company of a company in liquidation against amounts the company owed to its holding company.
Re ACN 007 537 000 Pty Ltd; ex parte Parker (1997) 25 ACSR 560 involved an application by the liquidator of a company for a declaration that he be able to set-off the amount of a proof of debt of Amber Ceramics (the holding company of the company in liquidation) in circumstances where it was believed that Amber Ceramics was liable for insolvent trading in respect of the insolvent subsidiary. The debt arose out of loans made by Amber Ceramics to its insolvent subsidiary Barossa Ceramics. The key issue was whether the debt owed by Amber Ceramics for insolvent trading was a debt due to Barossa Ceramics or a debt due to the liquidator of Barossa Ceramics. It was held that the liquidator was entitled to set-off the liability under s 588W (the Australian counterpart to s 310 of the New Zealand Companies Act). Finding that the debts between Amber Ceramics and Barossa Ceramics in liquidation were mutual, the principles in Gye v McIntyre were applied. It was held that under s 588V (the Australian equivalent to s 292 of the New Zealand Companies Act) the debt recoverable was due to Barossa Ceramics, although it may be enforced by the liquidator as a claim for the company.
The authors highlight that Re ACN 007 537 000 Pty Ltd has not been affirmed by subsequent decisions and question whether the reasoning can be extended to apply to situations in which liquidators are successful in establishing a preference claim. The issue was held to be arguable by the Full Court of the Supreme Court of South Australia in Duncan v Vinidex Tubemakers [1999] SASC 157.
A subsequent decision, Jonsson Milner & Riaps Pty Ltd (in liq) v Tim Ferrier Pty Ltd [2001] QSC 010, has suggested moneys recovered by a liquidator under s 588FF become the property of the company in liquidation and could be subject to any charge which a creditor has over the company's assets. This was not followed in Tolcher v National Australia Bank (2003) 44 ACSR 727 however.
The authors consider that the mutuality requirement for a s 553C set-off will be better supported if preference recoveries are the property of the company. As Tolcher does not lend support to such an argument, the availability of a s 553 set-off to a preference claim depends on the authority of Re Parker and Jonsson v Ferrier.
The second is an article by Jodie McSweeney entitled Overdraft charges - The UK test case.
The article identifies concerns that have been raised in the United Kingdom, as in Australia, over the level of fees that banks charge consumers for exceeding their available funds, namely unauthorised overdraft fees; returned item fees; and increased rates of interest on unauthorised overdrafts. In the United Kingdom, thousands of complaints have been received by the Financial Ombudsman Service and County Courts that these charges are either unfair or common law penalties.
The United Kingdom's Office of Fair Trading ("OFT") is therefore launching a test case against eight financial institutions (which it is estimated cover a majority of the personal account market) to ascertain the extent of the OFT's power to ascertain whether terms charging these fees are enforceable.
In the meantime, the author considers that it is unlikely that English current account holders will receive more than a mere acknowledgement of their complaint.
The Australian implications are also considered. There may be a direct effect on Australian banks as some of the respondents are subsidiaries of Australian banks. The decision by the United Kingdom courts on this matter are persuasive in common law. Accordingly, the outcome of this test case will be of interest in Australia.
The third article is a case note on CGU Workers Compensation (NSW) Ltd v Garcia [2007] NSWCA 193.
In that case, an insurer who had initiated weekly compensation payments to an injured worker subsequently suspended them and refused to pay for surgery after receiving reports from a commissioned investigator and surgeon which opposed the worker's claim to compensation. The two issues arising from the worker's claim were; first, whether a duty to act in good faith on the part of the insurer existed; and second, whether there was a duty to act in good faith implied in the insurance contract.
Overturning the finding of the trial judge that the insurer had breached a duty of good faith to the worker, the Court of Appeal found that the existence of such a duty was not supported by long-established authorities. Further, the duty formulated would undermine the statutory and contractual context in which the compensation scheme operates in Australia. Where insurers do not accept claims, the scheme allows disputes to be sent to conciliation and ultimately resolved by specialist Compensation Courts in an adversarial framework. This framework therefore would be inconsistent with obligations of good faith being placed on the insurer when receiving and processing claims.
With respect to implied contractual duties to act in good faith, the Court of Appeal appreciated that duties of good faith in the performance of contractual obligations may be implied as a matter of law in certain classes of commercial contracts. However, after employing a test of "necessity" and considering applicable statutory policies, the Court concluded that there was no such implied duty in the relevant contract of insurance.-
The fourth is an article by Ros Grady entitled Privacy Act inquiry - ALRC paper released in which the Australian Law Reform Commission released a discussion paper summarising the proposals for the reform of Australian privacy laws. The final report to the Attorney-General is due in March this year.
The key proposals outlined in the paper include:
- a statutory cause of action for invasion of privacy, allowing individuals to directly sue organisations;
- the introduction of the Unified Privacy Principles, which will apply across both public and private sector organisations;
- a regulation-making power, enabling the Privacy Commissioner to set standards in certain circumstances, and to require agencies or organisations to submit Privacy Impact Assessments;
- the introduction of a separate privacy principle to govern direct marketing by organisations; and
- a requirement that individuals be notified where there is unauthorised access to their personal information.
Also proposed are specific provisions for credit providers, in order to keep Australia's credit reporting system closer to overseas jurisdictions. These include:
- the regulation of credit reporting under the general provisions of the Privacy Act 1988;
- increases in the types of information that may be included in a credit information file to create more comprehensive credit reporting. For example, the type of credit account, the date on which each account was opened and closed, and the limit of each current credit account;
- the requirement that credit reporting agencies monitor data quality and establish controls to ensure that information used or disclosed is accurate, complete, up-to-date and relevant.
- a requirement that individuals be notified where there is unauthorised access to their personal information.
Similarly, there are proposed specific regulations for the telecommunications industry, including:
- a review of the Telecommunications Act 1997 to achieve greater consistency with the privacy laws;
- a prohibition on charges for an unlisted telephone number in a public number directory;
- the inclusion of email and IP addresses into the definition of "personal information".
- a requirement that individuals be notified where there is unauthorised access to their personal information.
The health sector may also be affected by the new laws proposing the following:
- that health information should be regulated under the general provisions of the Privacy Act;
- the establishment of a national Unique Healthcare Identifiers scheme and a National Shared Electronic Health Record Scheme that will address various privacy issues in relation to the healthcare industry.
The November/December 2007 issue of the Australian Banking and Finance Law Bulletin contains a case note on St George Bank Ltd v McTaggart [2007] WASC 150.
In that case, McTaggart mortgaged his land in Western Australia to the plaintiff, Advance Bank Australia Ltd (later St George Bank Ltd) and registered this mortgage on 2 May 1997. In 1999 St George Bank entered into a hire purchase agreement for a $108,000 trailer with a company controlled by McTaggart, acting on the basis of an invoice for the trailer's supply received from the first defendant. However, payments under the agreement ceased.
Subsequently, in 2004, St George Bank obtained summary judgment in proceedings against McTaggart and caused a Writ of Execution to be issued and lodged against the land title. Meanwhile, in May 2001, the second defendant (a company of which McTaggart was sole director) had lodged a caveat over the Western Australia land to protect its unregistered mortgage granted by the first defendant (dated 22 May 2001).
In this case, heard by Newnes J of the Western Australia Supreme Court, St. George Bank sought declarations; first, that the judgment debt was secured under its mortgage and secondly, that the secured debt ranked in priority ahead of the second defendant's mortgage.
Newnes J decided first that St. George Bank's mortgage did secure the judgment sum owed by McTaggart through the operation of the "all moneys" clause in the bank's mortgage document. He accepted that such clauses should not be read down but were to be construed with regard to the context in which the mortgage came to be executed and its commercial purpose. The relevant bank mortgage was intended to secure any money that in the future might become owing by McTaggart to the bank within a multitude of potential situations.
Further, he considered the type of notice required to be given to a prior mortgagee by a subsequent mortgagee to invoke the rule in Hopkinson v Rolt. Where the first mortgage is expressed to extend to further advances, this rule holds that the priority of the mortgage does not extend to further advances made at a time when the first mortgagee has notice of the existence of a subsequent mortgage. Newnes J rejected the second defendant's argument that constructive notice of its mortgage, given through lodgement of the caveat, was sufficient, as opposed to actual notice. Applying Kearney J's judgment in Central Mortgage Registry v Donemore Pty Ltd [1984] 2 NSWLR 128, the judge concluded that St. George Bank was entitled to both declarations as the plaintiff did not have actual knowledge of the second mortgage nor of the caveat nor were the circumstances such that it should be deemed to have the requisite knowledge.
Reducing Sarbanes-Oxley Compliance Costs For Smaller Companies
Trouble On The High Street - "Penalty Charges" Litigation In The United Kingdom Retail Banking Sector
Issue 1 of the 2008 Journal of International Banking Law and Regulation contains two articles of interest.
- The first is an article by Benjamin C Norris and Dr Mark A Fox entitled Reducing Sarbanes-Oxley compliance costs for smaller companies.
The article discusses how the Public Company Accounting Reform and Investor Protection Act of 2002 (commonly known as the Sarbanes-Oxley Act) ("SOX") significantly changed how public companies in the United States communicate with shareholders and with oversight entities. SOX has resulted in improved accountability for internal controls and has increased management responsibility for the accuracy of financial reporting.
However, some concerns have been raised about SOX, primarily in relation to section 404, which implements changes relating to management's assessment of internal controls. Research has shown a discrepancy between the overall effects of SOX compliance on larger versus smaller companies. One major concern has been compliance costs. Although these may decrease as companies become more efficient at SOX compliance, smaller companies have a harder time absorbing the cost increase arising from SOX compliance than do their larger counterparts.
The legislation has had some positive effects, such as increased accountability of management and improved transparency of financial statements, but the unintended consequence of smaller companies being affected more than larger companies is a potentially damaging trend in the US financial markets that necessitates corrective action in an expedient manner.
- The second is an article by Sam Neaman and Joanne Sefton entitled Trouble on the High Street - "Penalty Charges" litigation in the United Kingdom retail banking sector.
There is a distinct trend of retail banking customers making claims in relation to charges levied by banks in respect of the operation of their accounts. In the light of the logistical and administrative difficulties caused by such a volume of claims, the complex legal and factual issues raised, and the inappropriateness of the County Courts small claims procedure, major High Street retail banks have sought a determination, by way of test case, of the key legal issues raised.
This English test case, brought by the Office of Fair Trading, will determine;- whether the charges in question are subject to the requirement of fairness set out in reg.5 of the Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCR") or whether they are excluded by reg.6(2) of the UCCTR;
- whether they are capable of constituting penalties at common law, and
- whether the absence of "good faith" is a freestanding prerequisite to a finding of unfairness under UCCTR.
Most current accounts operated by the large retail banks are "free" in the sense that there is no charge for the operation of the current account whilst it remains in credit. For the customer who utilises an agreed overdraft, the bank will typically make some profit by charging interest on the overdrawn amount. However, not all retail bank customers manage to remain within their agreed overdrafts and where there is no agreed overdraft, or the account becomes overdrawn over the agreed overdraft limit, problems may arise in relation to penalty fees. Generally, the fees referred to will be for fixed sums set out in the account's terms and conditions. The bank will have a contractual right to vary these fees and an obligation to inform the customer when it does so.
In April 2006 the Office of Fair Trading issued a position statement in relation to default charges in credit card contracts, taking the view that many of these probably constituted unlawful penalty charges and indicating that they would look to take enforcement action if the fees were not reduced by the credit card providers. Subsequently customers have brought claims to recover charges against simple bank accounts.
In Berwick, the judge accepted the bank's defence that there is no breach of contract on the part of a customer who allows his account to go into an unauthorised overdraft, accepting the bank's pleaded position that this was a charge for services rendered. The essence of the penalty clause debate is whether the amount claimed represents a genuine pre-estimate of damage which will be suffered by one party as a result of the other's breach of obligation. Whether a charge is a "penalty" will depend on the specific circumstances.
As well as arguing that a charge is a penalty at common law, the customer is entitled to argue that the terms relating to a charge are in breach of the UTCCR. Furthermore, the Supply of Goods and Services Act 1982 imports a requirement of "reasonableness" into the charge. Whilst it cannot be seriously suggested that commercial organisations are acting unreasonably in charging for, and making a profit from, services that they provide for their customers, the perception that consumers have a right to "free" banking has become entrenched in the last decade. The OFT test case will essentially revolve around the broader question of whether banks do more than cover their costs by the charges they currently levy, and if so, whether this element of profit making should be concentrated on those customers who stray into unauthorised overdrafts, and attempt to make payments of sums which they do not have, or whether it should be spread more evenly across the customer base.
Issues In Private Equity Buyouts: Are Private Equity Firms Within The Ambit Of The Tpa?
Enron's Legacy Lives On: Australia's Adoption Of Basel Ii's Securitisation Framework
The November 2007 issue of Company and Securities Law Journal contains two articles of interest.
- The first is an article by Yee Ben Chaung entitled Issues in private equity buyouts: Are private equity firms within the ambit of the TPA?
The article discusses how, as a core premise, private equity funds are simply a vehicle for investment that typically take controlling stakes in unlisted companies and seek growth in those companies over the medium to long term.
The article focuses on a number of specific issues in relation to private equity, including:- companies that have been taken private will be "freed from public reporting obligations", thus reducing the availability of financial information to the wider investing public; and
- the risk that private equity firms might engage in anti-competitive behaviour, which in Australia is principally governed by the Trade Practices Act 1974 ("TPA"), although there is an issue as to whether private equity firms are governed by the TPA.
- The second is an article by Siobhan Sweeney entitled Enron's legacy lives on: Australia's adoption of Basel II's securitisation framework.
Siobhan Sweeney criticises the higher capital requirements on securitisations, as opposed to other corporate exposure counterparts in the Basel II securitisation framework, and APS 120 framework in Australia. She argues that this creates disequilibrium between asset types, originating banks and investing banks and synthetic securitisations and traditional securitisations. The framework therefore allows the opportunity for arbitrage as economic and regulatory assessment of credit risk can be exploited.
Sweeney believes the higher capital requirements on securitisations are based on the fear, in the wake of Enron, of entities using a type of securitisation (off balance sheet special purpose vehicles) to misrepresent its accounts. The author considers that, while securitisation is vulnerable to abuse, it can also be used to achieve legitimate financial goals, including credit risk management, portfolio diversification and regulatory capital relief. In addition, securitisation is an important tool for market efficiency as no regulatory capital framework can exactly mirror the risk-weightings for every asset at every time in a fluid financial market. Securitisation offers a means by which such gaps can be corrected by the market, thus reducing inefficiency.
Sweeney concludes by urging further refinement of the Basel II and APS 120 frameworks in order to correct their distortionary effects.
The December 2007 issue of Company and Securities Law Bulletin contains an article by Peter Watts entitled Phoenix companies at common law, again- Kut Price Yachts in the Court of Appeal.
Professor Watts in this article considers that the decision of the High Court in Kut Price Yachts, which has now been affirmed by the Court of Appeal, will have little precedent value. This is due to companies effectively having to put a monetary value on goodwill not knowing what access they will have to former clients, how much their geographic location will change, their ability to solicit new clients and whether they will be allowed to operate under a similar name when returning to business with a phoenix company on the back of insolvency.
In Sojourner v Robb; Re Kut Price Yachts Ltd [2006] 3 NZLR 808 no value was initially given to goodwill, but the High Court found that a figure of $750,000 should have been used. This figure was arrived at using the business's most recent earnings before interest and taxes. Professor Watts believes this decision was incorrect on two counts: first, the most recent EBIT does not take into account the business stifling effects of insolvency, and second, because a fair value is very difficult for companies to internally arrive at.
On 19 December 2007 the United Kingdom Financial Services Authority ("FSA") published a discussion paper entitled Review of the liquidity requirements for banks and building societies. The discussion paper reviews the current United Kingdom regulatory environment for banks and financial institutions and sets out a number of issues concerning liquidity management. Partly in response to the liquidity crisis in 2007 that led to Northern Rock, a mid-sized United Kingdom bank, requiring liquidity support from the Bank of England, the FSA published the discussion paper to suggest how future liquidity policy should develop. The paper sets out the key issues relating to liquidity management in the financial services sector and provides a framework for consultation with the industry.
The August 2007 issue of the Journal of International Banking Law and Regulation contains an article by C.J. Shaw entitled The Worldwide War on Terrorist Finance. The financing of terrorism, and measures to discover and prevent it, has been described as "arguably the most important issue in international finance facing the world today". The Financial Action Task Force ("FATF") on money laundering and terrorist financing, housed within the OECD, is the primary international body charged with coordinating global measures against the financing of terrorism.
The article examines several aspects of the international effort against terrorism financing, including:
- the definition of terrorism (and the difficulties in defining it);
- the forms that terrorist financing tends to take, as opposed to the money-laundering techniques that tend to be used for other kinds of illegitimate transactions such as drug trafficking and arms dealing;
- the UN Terrorist Financing Convention of 1999;
- various country-level regimes for combating terrorist financing;
- the change in the global climate after September 11;
- the FATF Special Recommendations and methodology; and
- Canada's regime to counter terrorist financing post-September 11.
This month we welcome a new partner to our Auckland team. Geoff Busch began his legal career at Russell McVeagh in 1993 and rejoins us after stints with law firms in London, Sydney and Auckland. Geoff is a specialist in corporate and acquisition/leveraged finance, property finance, major projects and project finance, structured finance and asset finance. He also advises on insolvency/workouts/debt restructuring, financial sector regulatory issues and investment products. We're very excited to have him on board.
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