Australia. Guide to Doing Business. Prepared by Lex Mundi member firm, Clayton Utz

Transcription

1 Guide to Doing Business Australia Prepared by Lex Mundi member firm, Clayton Utz This guide is part of the Lex Mundi Guides to Doing Business series which provides general information about legal and business infrastructures in jurisdictions around the world. View the complete series at: Lex Mundi is the world s leading network of independent law firms with in-depth experience in countries. Through close collaboration, our member firms are able to offer their clients preferred access to more than 21,000 lawyers worldwide a global resource of unmatched breadth and depth. Lex Mundi the law firms that know your markets.

2 DOING BUSINESS IN AUSTRALIA 2017

3 Doing Business in Australia is designed for investors and businesses exploring commercial opportunities in Australia. In it, you will find an overview of all the relevant laws and regulations you need to be aware of to maximise your chances of making a successful investment into Australia. Given the changing landscape of laws and business practices, this publication should be used as a guide only, and professional advice must should be sought prior to making specific investment decisions. If such advice is required, our team is happy to provide you with support, assistance and guidance in relation to many areas of business. We hope you find this publication informative. If you would like more detailed information or advice on doing business in Australia, please contact us.

4 IN THIS GUIDE DOING BUSINESS IN AUSTRALIA THIS GUIDE DOING BUSINESS IN AUSTRALIA PROVIDES YOU WITH AN OVERVIEW OF AUSTRALIA S ECONOMY, LEGAL AND REGULATORY ENVIRONMENT, AND PROVIDES PRACTICAL ADVICE ON DOING BUSINESS IN AUSTRALIA. A BRIEF LOOK AT AUSTRALIA ALL THE FACTS AND FIGURES YOU NEED TO GET A QUICK UNDERSTANDING OF AUSTRALIA. REGULATION OF BUSINESS THERE ARE NINE MAIN REGULATORY BODIES YOU LL DEAL WITH WHEN DOING BUSINESS IN AUSTRALIA. BUSINESS STRUCTURES YOU CAN CARRY ON BUSINESS IN AUSTRALIA AS A SOLE TRADER, A PARTNERSHIP, A JOINT VENTURE, A TRUST OR A COMPANY. FOREIGN INVESTMENT THE FOREIGN INVESTMENT REVIEW BOARD EXAMINES FOREIGN INVESTMENTS PROPOSALS AND MAKES RECOMMENDATIONS TO THE FEDERAL GOVERNMENT. FOREIGN INVESTMENT IN AUSTRALIA AUSTRALIAN GOVERNMENT SUPPORT THE AUSTRALIAN GOVERNMENT IS KEEN TO ATTRACT AND DEEPEN PRODUCTIVE FOREIGN DIRECT INVESTMENT IN AUSTRALIA. CONTRACT LAW AUSTRALIAN CONTRACT LAW IS BASED ON THE ENGLISH COMMON LAW, AND THE PRINCIPLE OF FREEDOM OF CONTRACT. PROTECTION OF TECHNOLOGY & INTELLECTUAL PROPERTY AUSTRALIA HAS A COMPREHENSIVE LEGAL FRAMEWORK TO PROTECT TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS, WHETHER THE CREATOR IS AUSTRALIAN OR NOT ELECTRONIC COMMERCE ELECTRONIC COMMERCE IN AUSTRALIA HAS TO COMPLY WITH THE ELECTRONIC TRANSACTION ACT AND OTHER GENERAL REGULATION. EMPLOYMENT & INDUSTRIAL RELATIONS MOST EMPLOYERS IN AUSTRALIA ARE SUBJECT TO THE REQUIREMENTS OF THE FAIR WORK ACT. BUSINESS MIGRATION THERE ARE A NUMBER OF WAYS THAT INTERNATIONAL BUSINESS PEOPLE CAN ENTER AUSTRALIA, BUT EVERYONE MUST HAVE A VISA. FUNDRAISING LAWS AUSTRALIA IS GENERALLY REGARDED AS HAVING AN ISSUER-FRIENDLY LEGAL REGIME FOR FUNDRAISING.

5 IN THIS GUIDE TAKEOVER LAWS THE CORPORATIONS ACT REGULATES ACQUISITIONS OF INTERESTS IN AUSTRALIAN COMPANIES OR TRUSTS LISTED ON THE ASX AND UNLISTED AUSTRALIAN COMPANIES WITH MORE THAN 50 MEMBERS. GENERAL TAX ISSUES DIFFERENT FORMS OF DIRECT AND INDIRECT TAXES ARE LEVIED BY FEDERAL, STATE AND TERRITORY GOVERNMENTS. NATURAL RESOURCES TAXATION THE PETROLEUM RESOURCE RENT TAX AND MINERAL RESOURCES RENT TAX ARE RESOURCE RENT TAXES BROADLY SIMILAR TO RENT-TYPE TAXES IN OTHER COUNTRIES. ANTI-TRUST, COMPETITION AND TRADE PRACTICES REGULATION THE COMPETITION AND CONSUMER ACT 2010 (CTH) IS THE FEDERAL ACT AT THE CENTRE OF AUSTRALIA S COMPETITION LAW REGIME. PRODUCT LIABILITY OVER THE LAST TWO DECADES, AUSTRALIA HAS SEEN A SIGNIFICANT GROWTH IN THE LEVEL OF PRODUCT LIABILITY LITIGATION. CONSUMER PRODUCT REGULATION THERE ARE A NUMBER OF CONTROLS AT STATE, TERRITORY AND FEDERAL LEVELS ON THE COMPOSITION, DESIGN AND LABELLING OF CONSUMER PRODUCTS. PROPERTY LAW ALL ACQUISITIONS OF AUSTRALIAN URBAN REAL ESTATE BY FOREIGN INTERESTS SHOULD BE SUBMITTED TO THE FOREIGN INVESTMENT REVIEW BOARD IN ADVANCE FOR APPROVAL, UNLESS THEY FALL WITHIN AN EXEMPT CATEGORY. ENVIRONMENTAL LAWS THE IMPACT OF ENVIRONMENTAL, CONTAMINATION AND PLANNING LAWS IN AUSTRALIA ON BUSINESSES DAY-TO-DAY OPERATIONS HAS INCREASED SIGNIFICANTLY. CLIMATE CHANGE CLIMATE CHANGE HAS BEEN THE SUBJECT OF A NUMBER OF SIGNIFICANT POLICY DEVELOPMENTS AT THE FEDERAL LEVEL. FINANCIAL SERVICES AUSTRALIA S SOPHISTICATED AND STABLE BANKING AND FINANCIAL SERVICES SYSTEM IS REGULATED BY THE AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY AND THE AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION. AUSTRALIA S POSITION ON URANIUM AUSTRALIA HAS THE LARGEST PROPORTION OF KNOWN RECOVERABLE RESOURCES OF URANIUM IN THE WORLD. ANTI-BRIBERY AND CORRUPTION IMPLEMENTING AN APPROPRIATE ANTI- BRIBERY COMPLIANCE REGIME IS CRITICAL TO DEMONSTRATE A CULTURE OF COMPLIANCE.

6 IN THIS GUIDE RESTRUCTURING AND INSOLVENCY THERE ARE SEVERAL FORMS OF EXTERNAL ADMINISTRATION TO MANAGE INSOLVENT COMPANIES IN AUSTRALIA. ABOUT CLAYTON UTZ CLAYTON UTZ IS AUSTRALIA S LEADING FIRST TIER INDEPENDENT LAW FIRM, WITH A CONFIDENT APPROACH TO COMPLEX TRANSACTIONS AND LITIGATION.

7 CONTENTS A BRIEF LOOK AT AUSTRALIA 10 Quality of life 10 Investment landscape 10 Government 10 Legal system 10 Currency 10 REGULATION OF BUSINESS 11 Foreign Investment Review Board (FIRB) 11 The Australian Competition and Consumer Commission (ACCC) 11 The Australian Prudential Regulation Authority (APRA) 11 Australian Securities and Investments Commission (ASIC) 11 Australian Securities Exchange Limited (ASX) 12 Australian Taxation Office (ATO) 12 Reserve Bank of Australia (RBA) 12 IP Australia 12.AU Domain Administration (AUDA) 12 BUSINESS STRUCTURES 14 Sole trader / Sole proprietorship 14 Partnership 14 Joint venture 14 Trust 14 Australian company 15 Foreign company 15 Business names 15 FOREIGN INVESTMENT 17 Notification of Transactions to FIRB 18 Monetary thresholds 18 National interest considerations 22 Foreign government investment 22 Special industry sectors 22 Exemption certificates 22 Foreign custodians 23 Moneylending agreements 23 Timeframe for decisions 24 Foreign investment decisions 24 Internal reorganisations 24 Record Keeping 24 FOREIGN INVESTMENT IN AUSTRALIA AUSTRALIAN GOVERNMENT SUPPORT 26 Austrade 26 Contact and further information 26 CONTRACT LAW 28 Parties 28 Security over, or title to, assets 28 Restrictions on penalties in contracts 29 Restrictions on restraints of trade 29 Limitations and exclusions of liability 29 Resolution of disputes 29 International contracts for the sale of goods 29 PROTECTION OF TECHNOLOGY & INTELLECTUAL PROPERTY 31 Introduction 31 Patents 31 Designs 32 Trade marks 32 Copyright 32 Confidential information 33 Circuit layouts and mask works 33 Plant breeder s rights 33 ELECTRONIC COMMERCE 35 Electronic transactions legislation 35 Contract law 35 Privacy 36 Communications interception 37 Spam 37 EMPLOYMENT & INDUSTRIAL RELATIONS 40 Employment law in Australia 40 Employee-related taxes 41 BUSINESS MIGRATION 43 FUNDRAISING LAWS 45 No offers without disclosure to investors 45 Full Prospectus 45 Short from Prospectus 46 Transaction Specific Prospectus 46 Exceptions 46 TAKEOVER LAWS 48 Tax scrip relief 49 GENERAL TAX ISSUES 51 Taxes 51 Taxation of income and gains 51 Taxation periods and scales 52 Business deductions 52 Capital gains tax 53 Taxation of business entities 53 Taxation of financial arrangements 55 Debt and equity classification 55 Debt funding of an Australian company 56 Royalties payable to a foreign company 57 Transfer pricing 57 Multinational Tax Avoidance 57 Tax Administration 58 Fringe Benifits Tax 58 Payroll Tax 59 Stamp Duty 59 Customs and Excise Duty 59 Goods and Services Tax (GST) 59 GST On Supplies 59 Input Taxed GST - Free Supplies 60 GST On Imports 60 Alternative Arrangements for GST 61 Liability 46

8 NATURAL RESOURCES TAXATION 63 Royalties 63 Petroleum Resource Rent Tax ( PRRT ) 63 and Mineral Resources Rent Tax ( MRRT ) Taxable Profit 64 PRRT Deductible Expenditure 64 Administration and Transfers of Interests 64 in Petroleum Projects PRRT Considerations for Liable Entities 64 Summary of Key Features of PRRT 65 ANTI-TRUST, COMPETITION AND TRADE PRACTICES REGULATION 67 Harper Review recent amendment 67 Competition provisions 67 Conduct which is prohibited absolutely 67 Conduct which has an anti-competitive 68 purpose or effect Merger regulation 69 Access regulation 69 Australian Consumer Law 70 Misleading or deceptive conduct 70 and unconscionable conduct Consumer guarantees and unfair 70 contract terms Country of origin labelling 71 PRODUCT LIABILITY 73 How product liability litigation is conducted 73 Class actions 73 Litigation funding 74 The Australian Consumer Law 74 Mandatory Product Reporting 75 Product recall 75 The Common Law of Contract 76 The Common Law of Negligence 76 Remedies 76 Damages 76 CONSUMER PRODUCT REGULATION 78 Complexity of laws 78 Australian standards 78 Hazardous goods 79 Registration of certain goods 79 Food 79 Trade measurement 79 Advertising claims 79 PROPERTY LAW 81 Foreign Investment Review Board Approval 81 Native Title and Cultural Heritage 82 Property Due Diligence 83 Tips and Traps of Property Purchase and Disposal 83 ENVIRONMENTAL LAWS 85 Federal laws 85 State and Territory laws 86 State and Territory environmental laws 86 State and Territory contamination laws 87 State and Territory planning laws 87 Due diligence 87 CLIMATE CHANGE 89 Carbon Reporting 89 Carbon Price Mechanism 89 Direct Action Plan 89 Emissions Reductions Fund 90 Safeguard Mechanism 90 Renewable Energy Target 90 Other Climate Change Initiatives 90 FINANCIAL SERVICES 92 Foreign currency/domestic currency reporting obligations 92 Financial Transaction Reports Act 1988 (Cth) 92 Anti-Money Laundering and Counter-Terrorism Financing Act 93 Consumer Credit Regime 93 Australian Credit Licence 94 Responsible Lending 94 Superannuation 95 Insurance and Risk Management 95 Financial Services Regime 96 Australian Financial Services Licensing 96 Investment Products 96 Investment Companies 96 Managed / Collective Investment Schemes 96 AUSTRALIA S POSITION ON URANIUM 99 Federal laws 99 State and Territory laws 100 The Royal Commission 101 ANTI-BRIBERY AND CORRUPTION 103 Corruption risks in Australia 103 Law enforcement 104 Domestic bribery 104 Foreign bribery 105 False Accounting 106 Corporate liability 106 Gifts/hospitality to Australian public officials 106 What next for Australia? 106 RESTRUCTURING AND INSOLVENCY 108 Significance of Insolvency in Australia 108 Restructuring in Australia 108 External Administration 108 ABOUT CLAYTON UTZ 112 International relationships offer global solutions 112 Foreign language capability 112 Providing the full spectrum of commercial legal services 113 Contacts 113 Useful Australian websites 114

9 Foreword by Clayton Utz It is my pleasure to be able to provide this document to you on behalf of Clayton Utz. Australia s attractiveness as a location for investors and business operators results from its strong economy, sophisticated and stable business and political environment and its highly skilled and multilingual workforce. Australia s legal system is mature and friendly to business. Its lawyers are known for their commercial approach and experience, much of which has been gained by working on some of the world s largest transactions. Australia s proximity to many of the world s fastest growing economies in the Asia-Pacific region, and its time-zone spanning the close of business in the United States and the opening of Europe s trading day, make it a prime location for doing global business. Australia is a major exporter of minerals and raw materials to the world. Other significant sectors in the Australian economy include financial services, infrastructure, information and communication technology, agribusiness and biotechnology. Significant growth has occurred in tourism over the past decade. Australia is now one of the most popular tourist destinations within the Asia-Pacific region, attracting millions of international visitors every year with its unique natural beauty and relaxed lifestyle. Australia s sophisticated financial services sector, which operates in an efficient and transparent marketplace, is supported by a state-of-the-art market infrastructure and an advanced regulatory regime. Australia has liquid markets in equities, debt, foreign exchange and derivatives and is one of the key centres for capital markets activity in the Asia-Pacific. In addition, the flow of business activity between Australia and other nations in the Asia-Pacific region has been building for many decades. Our relationships with China, Japan, Indonesia and the United States are particularly positive and strong. The Australian Government s work to conduct bi-lateral trade agreements with our major trading partners has intensified in the last 4 years, resulting in an even stronger platform for continued growth. With an excellent standard of living and efficient transport hubs in each of the major State capitals, Australia remains a highly desirable base for businesses operating throughout the region. As a result, it has become common practice for international businesses to locate their regional headquarters in Australia. Like Australia, Clayton Utz has a long and proud tradition. Clayton Utz was founded in 1833 and today is one of the largest and most successful commercial law firms in Australia. We have 174 partners and over 1,300 legal and support staff based in Sydney, Melbourne, Brisbane, Canberra (the Federal Capital), Darwin and Perth. If you would like more detailed information or advice on doing business in Australia, please contact us. Bruce Cooper Deputy Chief Executive Partner - Clients T: bcooper@claytonutz.com

10 Foreword by Austrade Australia offers a wealth of opportunities for you to expand your business globally Now in its 25th year of consecutive annual growth, Australia s robust and diverse economy is underpinned by strong trade ties with Asia, Europe and the United States. Recent growth forecasts indicate that Australia s average real GDP growth from 2016 to 2020 is set to outperform every major advanced economy. Australia has consistently maintained a triple A rating by all three major global rating agencies and enjoys one of the lowest levels of net debt amongst OECD countries. Economic prosperity has created a market rich in opportunity. Australia has one of the highest median wealth levels in the world, driven by the talent of its highly educated workers and its proximity to Asia s fastest growing economies. Our commercial environment offers a powerful combination of economic credentials, a skilled and diverse labour force, stable governance, and significant opportunities in sectors of strength such as agribusiness, resources and energy and financial services. Around 70 per cent of real gross value added is services based and our strong financial services sector is the second largest contributor to Australia s economy. All this makes Australia a great place to invest for future growth. This guide Doing Business in Australia provides an overview of Australia s economy and legal and regulatory environment, with practical advice on doing business in Australia. To find out more about what Australia can offer your organisation, visit Grame Barty Acting CEO, Australian Trade and Investment Commission (Austrade) About Austrade The Australian Trade and Investment Commission Austrade is the Australian Government s agency that promotes trade, investment and education, and develops tourism policy, programs and research. Through our global network, we help Australian companies attract productive foreign direct investment, and assist investors to expand into Australia. For more information on Austrade s investment services visit Disclaimer Austrade cannot verify the accuracy of the content of this publication and as such accepts no liability for loss arising from its use. Any person intending to use this information should seek independent professional advice.

11 A BRIEF LOOK AT AUSTRALIA AUSTRALIA HAS A FAST-GROWING POPULATION OF OVER 23 MILLION, BASED MOSTLY IN COASTAL AREAS QUALITY OF LIFE INVESTMENT LANDSCAPE GOVERNMENT LEGAL SYSTEM Australia is an island continent of approximately 7.7 million square kilometres in the Asia-Pacific region. The climate is generally mild, ranging from temperate in the South to tropical in the North. Average temperatures range between 4 28 Celsius. Australia has a fast-growing population of over 23 million, based mostly in coastal areas. It is a culturally diverse country, with approximately one in five Australians born overseas, drawn from over 200 countries. The national language is English. With one of the highest standards of living in the world, Australia offers international business people a superb climate, a unique and beautiful environment, top international schools, excellent flight linkages, and a quality social and cultural infrastructure. Australia offers international investors a cost-effective and innovative place in which to do business and an attractive, low-risk destination. Australia has pursued Free Trade Agreements with many of its regional partners and has agreements in place with the ASEAN group of countries, Chile, New Zealand, Singapore, Malaysia, Thailand and the United States. Australia is also in negotiation with China, the Gulf Co-operation Council, Japan, Korea and the Trans Pacific Partnership and discussions are underway with India, Indonesia, and PACER Plus (the Pacific Agreement on Closer Economic Relations). These bilateral trade agreements can offer companies who set up in Australia a competitive advantage in servicing these markets. Australia is a stable democracy which maintains strong links with the United Kingdom. Queen Elizabeth II is the Head of State. Australia is a federation comprising six States and two self-governing Territories. Each has a legislature, an executive and judicial arm of government. The Federal Government has primary responsibility for defence, finance and taxation, post and telecommunications, administration of the national health system, immigration, tertiary education, aviation, and foreign affairs and trade. The general areas of responsibility of the six State Governments and two Territory Governments are primary and secondary education, roads and transport, police and health care. A third, local, tier of government generally has responsibility for planning and development and the provision of local services to communities. Australia has a common law system, which is based on the English system. The States and Territories have their own judicial systems and courts. Federal Courts deal with Federal matters and the High Court of Australia hears appeals in relation to Federal, State and Territory matters. CURRENCY Australia has a decimal system of currency, with the dollar (A$) as the basic unit and 100 cents to the dollar. The exchange rate for one Australian dollar with major international currencies on 17 January 2017 was: USD: 0.74 Euro: 0.70 Pound Sterling: 0.62 Yen: 85 Yuan: Doing Business in Australia

12 REGULATION OF BUSINESS FOREIGN INVESTMENT REVIEW BOARD (FIRB) The FIRB is a non-statutory organisation formed in 1976 within the Federal Treasury to provide foreign investment policy advice to the Treasurer and the Australian Federal Government. The FIRB s advisory only function includes assessing investment proposals submitted by foreign interests and making recommendations to the Treasurer on the compatibility of those proposals with Government policy and the Foreign Acquisitions and Takeovers Act 1975 (Cth). FIRB also provides information on the Government s policies to prospective foreign investors and potential investors alike. More information on foreign acquisitions is contained in Chapter 5, Foreign Investment in Australia Australian Government support. 11 Doing Business in Australia THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION (ACCC) The ACCC s primary role is to administer the Competition and Consumer Act 2010 (which incorporates the Australian Consumer Law; see Chapter 15 for more information) as well as a range of other legislation. In broad terms, the objectives of the Act are to promote competition, fair trading, and provide for consumer protection. The ACCC is an independent Australian statutory authority established in 1995 (following the merger of the then Trade Practices Commission and the Prices Surveillance Authority). As such, the ACCC has a role in enforcing anticompetitive and unfair market practices, preventing anticompetitive mergers and acquisitions, enforcing provisions regarding product safety and product liability, and regulating third party access to facilities of national significance (where applicable). THE AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY (APRA) APRA is the independent Australian statutory authority which was formed in 1998 to promote the prudent management of financial institutions, in terms of ensuring stability, efficiency and competitive financial systems. Its regulatory function extends to the supervision of banks, life insurers, private health insurers, general and reinsurance companies, building societies, credit unions, friendly societies and superannuation funds. APRA has the power to require financial organisations to observe prudential standards, and may intervene, where necessary, to protect the interests of depositors, policy-holders or members. In addition, APRA has far-reaching powers of investigation, intervention and administration. AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION (ASIC) ASIC is the independent Australian statutory regulator of Australian registered companies and one of three Federal Government bodies that regulate financial services. ASIC s primary role is to administer the Corporations Act 2001 (Cth) which is the law regulating the incorporation, operations and management of companies. ASIC is also responsible for supporting the integrity of fairness in company affairs and financial markets. ASIC has a consumer protection function to promote confident and informed participation by investors, which extends to the financial system by regulating the advice, sale and disclosure of financial products and financial services to consumers. ASIC also has the role of ensuring some information about companies and bodies is made available to the public. ASIC has far-reaching powers including to create conduct rules for financial markets, stop the issue of financial products, investigate suspected breaches of the Corporations Act, issue infringement notices and to ban individuals from providing financial services.

13 AUSTRALIAN SECURITIES EXCHANGE LIMITED (ASX) The ASX was formed in 1987 and is one of the world s leading financial market exchanges. The ASX offers a range of services, including listings, trading, clearing and settlement across a variety of markets trading in equities, derivatives and future and fixed interest securities. There are branches of the ASX in Sydney, Melbourne, Perth, Chicago, Hong Kong and London. The ASX creates, monitors and enforces its own rules for ASX listed entities, in relation to listings, operating and settlement, through the ASX Compliance group, which also has delegated authority to make certain compliance and enforcement decisions. ASIC and the Reserve Bank of Australia have other powers to oversee and to enforce the laws and regulations that generally govern financial markets in Australia. The ASX has also created the ASX Corporate Governance Council which brings together various business, shareholder and industry groups to recommend best corporate governance practices to be adopted by ASX listed entities. AUSTRALIAN TAXATION OFFICE (ATO) The Commissioner of Taxation has the overall responsibility for administering the Australian income tax system. The ATO, under the Commissioner of Taxation, is the statutory authority responsible for administering Australia s Federal taxation system and is also the primary collection agency for the Australian Government. Australia s income tax law consists primarily of the Income Tax Act 1986 (Cth), the Income Tax Assessment Act 1936 (Cth), the Income Tax Assessment Act 1997 (Cth) and the Taxation Administration Act 1953 (Cth), as well as ATO administrative taxation rulings and court decisions. Fringe benefits provided to employees are subject to a separate taxation regime under the Fringe Benefits Tax Act 1986 (Cth) and the Fringe Benefits Tax Assessment Act 1986 (Cth). Australia s goods and services taxation law consists primarily of A New Tax System (Goods and Services Tax) Act 1999 (Cth). The current income tax system involves taxation of income and capital gains of individuals and businesses. The ATO administers the process of annual taxation self-assessment and conducts random audits to verify individual and company assessments. The ATO also collects excise on tobacco, fuel and petroleum products and alcohol, administers the Higher Education Loan Programme and the Private Health Insurance rebate, and has responsibility for the fiscal regulation of Australia s superannuation system. RESERVE BANK OF AUSTRALIA (RBA) The RBA is a statutory authority performing Australia s central banking functions. The RBA has responsibility for the following principal functions: Monetary Policy The RBA sets the cash rate (the interest rate on overnight loans in the money market) which influences other interest rates more generally in the economy (ie. mortgage and corporate lending interest rates). The RBA has a duty to maintain price stability, full employment and economic prosperity. It seeks to achieve this by setting monetary policy so as to maintain inflation in the economy at between 2-3 % over the medium term. Market Operations As part of its monetary policy function, the RBA sets a target for the cash rate and through its open market operations, it seeks to keep the cash rate as close as possible to that target. The RBA also regularly undertakes transactions in foreign exchange markets, foreign asset markets as well as managing Australia s foreign currency reserves which are sometimes deployed to effect policy operations in the foreign exchange and domestic cash markets. Financial Stability A longstanding responsibility of the RBA is maintain the stability of the financial system. The RBA has a role both in mitigating the risk of financial disturbances that may have systemic consequences as well as responding to any financial system disturbance. Payments & Infrastructure The RBA, through the Payments System Board of the Reserve Bank, has a mandate to contribute to promoting efficiency and competition in the payments system and the overall stability of the financial system. The RBA has a formal regulatory role in ensuring that the infrastructure which supports the clearing and settlement of transactions in financial markets is operated so as to promote financial stability. Financial Services The RBA provides a range of banking services to the Australian Government, its agencies, overseas central banks and official institutions. As Australia s central bank, the RBA manages the Government s core accounts and provides transactional banking services to the Government and its agencies. IP AUSTRALIA IP Australia is the Federal Government agency that administers registration of intellectual property rights and legislation in relation to patents, trademarks and designs and plant breeder rights in Australia. IP Australia is a division of the Department of Industry, Innovation and Science but operates independently of the department on financial matters. It incorporates the Patent, Designs and Trade Marks Offices. IP Australia also has the responsibility of working with the World Intellectual Property Organisation to help strengthen IP rights systems through the creation of multilateral treaties..au DOMAIN ADMINISTRATION (AUDA) The.au Domain Administration is an Australian non-profit company formed in 1999 as the policy authority and industry self-regulatory body for the.au domain space. Although the Australia Government holds reserve powers in relation to domain names under the Telecommunications Act 1997 (Cth), in 2000 the Government endorsed auda as the appropriate body to administer the.au domain space. auda s key role is the management of the.au zone file, ensuring it is up to date and always available. It also develops and administers domain name policy, provides licences, implements consumer safeguards and facilitates dispute resolution in the space. 12 Doing Business in Australia

14 GET IN TOUCH Linda Evans Partner T levans@claytonutz.com Kirsten Webb National Practice Group Leader Competition T kwebb@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

15 BUSINESS STRUCTURES A person may carry on business in Australia as a sole trader, a partnership, a joint venture, a trust or a company. SOLE TRADER / SOLE PROPRIETORSHIP An individual may carry on a business on his or her own behalf as a sole trader, also commonly called a sole proprietorship. A sole trader is relatively simple to establish; there is no separate legal entity other than the individual. A sole trader is therefore personally liable for all obligations incurred in the course of the business and income from the business is taxed at the personal rate of the sole trader. Unlike other business structures, there is no specific legislation regulating sole traders however they may be liable to comply with other legislation specific to their business. PARTNERSHIP Two or more individuals or companies may carry on a business as a partnership. Partnerships (other than certain professional partnerships) are limited in size to 20 partners. Most partnerships are established by a partnership agreement, which defines the rights and obligations of the partners between themselves, subject to applicable legislation. A partnership is not a separate legal entity and, as such, the assets of the partnership are owned by the partners jointly or in such proportions as set out in the partnership agreement. Partners share profits and are jointly and separately severally liable for the obligations of the partnership. However, in some Australian States, a limited partnership may be established under which some (but not all) partners have liability limited to the extent of their capital contribution. However, limited liability partners must take no part in the management of the partnership. JOINT VENTURE Two or more individuals or companies may also carry on a business as a joint venture. A joint venture describes the relationship between multiple parties entering into an agreement to work towards the same strategic goals while remaining separate entities. A joint venture differs from a partnership in that it is often formed for a particular project or business goal, or where the contributions of the venturers are different in type, amount or timing. Joint ventures usually have a defined end. Joint ventures may be incorporated (as a separate legal entity) or unincorporated (a purely contractual arrangement). The rights and liabilities of the respective venturers will depend upon the terms of the joint venture. Joint ventures are governed by the common law, contract law and, in the case of incorporated joint ventures, the Corporations Act. TRUST A business may be carried on by a trust. The trustee owns the trust property and carries on the business on behalf of the beneficiaries of the trust. The trustee will be liable for the obligations of the trust, but will typically have rights of recourse against the trust property in respect of those obligations. The rights of beneficiaries will depend upon the terms of trust. The beneficiaries entitlements may be in a fixed proportion or variable at the discretion of the trustee. Trusts are governed by common law and contract law. Partnerships are largely governed by Australian State laws, common law and contract law. 14 Doing Business in Australia

16 A PERSON MAY CARRY ON BUSINESS IN AUSTRALIA AS A SOLE TRADER, A PARTNERSHIP, A JOINT VENTURE, A TRUST OR A COMPANY. AUSTRALIAN COMPANY A business may be conducted through an Australian company. A company is a separate legal entity capable of holding assets in its own name and is liable for its own obligations. The two main types of company in Australia are proprietary and public companies. A public company may also be listed on the Australian Securities Exchange. A proprietary company is limited to 50 non-employee shareholders and cannot engage in fundraising activities in Australia. A proprietary company can, however, be simpler and cheaper to administer from an Australian regulatory point of view. An Australian company must have a registered office within Australia, have Australian resident directors (two for public companies, one for proprietary companies) and an Australian resident company secretary (optional for proprietary companies). There are no residency restrictions on shareholders and no general minimum capital requirements for an Australian company. A company is managed by its directors, but owned by its shareholders (also commonly referred to as members). Shareholders make a number of decisions on special issues that affect the company by passing ordinary resolutions or, if required by the company s constitution or the Corporations Act, special resolutions. The liability of shareholders will generally be limited to the unpaid amount on any shares held. Directors are the individuals responsible to manage the company s day-to-day business and affairs. There are a number of common law and statutory duties and obligations imposed on their position, such as the duty to act with care and diligence. These duties may continue even after deregistration of the company. A director who fails to perform these may be guilty of an offence. The primary duty of directors is to act in the best interests of the company. However, if the company is insolvent, or there is a real risk of insolvency, their duty expands to the company s creditors. In such circumstances, directors have a positive duty to prevent the company trading and incurring further debt. Contravening the insolvent trading provisions of the Corporations Act can result in both civil and criminal charges against a director. Australian companies are governed by the Corporations Act, their constituent documents and common law. FOREIGN COMPANY A foreign company may carry on business in Australia either as an Australian branch or through an Australian subsidiary company. To carry on business as an Australian branch, the foreign company must register as a foreign company with ASIC. Whether a foreign company carries on business in Australia is defined by certain legal principles. It is generally not sufficient that it merely engages in certain activities in Australia such as becoming a party to legal proceedings, holding director or shareholder meetings, maintaining a bank account, or holding any property. A foreign company wishing to apply for registration should reserve the company s name to ensure that it is available in Australia and must lodge an application form with ASIC, together with a certified copy of the company s certificate of registration and constituent documents. If any document is not in English, the foreign company should also provide a certified translation of that document. The foreign company must also have a registered office in Australia and appoint a local agent to represent the company in Australia. Once registered, the foreign company is required to lodge copies of its financial statements and comply with various notification obligations under the Corporations Act. A registered foreign company must notify ASIC when company details change (such as a change in officeholders or registered address). ASIC must also be notified in circumstances where the foreign company ceases to carry on business in Australia, is wound up, dissolved or deregistered in its place of origin. A foreign company can establish an Australian subsidiary by registering the new company with ASIC. BUSINESS NAMES ASIC is responsible for registering, renewing and administering business names for all Australian businesses. If a person carries on business in an Australian State (other than under their own individual or a company name), that person is required to register the business name on ASIC s Business Name Register which is accessible online. 15 Doing Business in Australia

17 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW Rory Moriarty National Practice Group Leader Corporate/M&A T rmoriarty@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

18 FOREIGN INVESTMENT In Australia, foreign investment is generally encouraged but notification and approval is required for certain types of investments. Foreign investment in Australia is regulated by a framework which includes the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) (and the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (Regulations) and the Federal Government s Foreign Investment Policy. In 2017, a number of amendments were made to this framework (pursuant to Foreign Acquisitions and Takeovers (Exemptions and Other Measures) Regulations 2017 (FATEMR)) in order to streamline and enhance Australia s foreign investment regime. The key changes which were introduced are discussed below. The Foreign Investment Review Board (FIRB) examines foreign investment proposals and makes recommendations to the Federal Government on those proposals. The Federal Government minister responsible for foreign investment decisions is the Australian Treasurer. The Treasurer reviews foreign investment proposals against the national interest on a case by case basis. The national interest is not defined and is given a flexible meaning having regard to all relevant circumstances. The Treasurer can block foreign investment proposals that are contrary to the national interest or apply conditions to the way these proposals are implemented to ensure they are not contrary to the national interest. The Australian Treasury is responsible for the day-to-day administration of the framework in relation to Australian businesses, agricultural land and commercial land proposals. Compliance and enforcement of foreign investment rules in regards to residential real estate is administered by the Australian Taxation Office (ATO). The ATO now also keeps a record of all foreign persons who holds agricultural land on the Agricultural Land Register. Australia s foreign investment legislation applies to investment proposals by foreign persons. A foreign person means: (a) an individual who is not ordinarily resident in Australia; (b) a foreign government or foreign government investor; 1 or (c) any corporation, trustee of a trust or general partner of a limited partnership in which: (i) a foreigner (i.e. an individual not ordinarily resident in Australia, a foreign corporation or a foreign government) has a 20 percent or more interest; or (ii) two or more foreigners have a 40 percent or more interest in aggregate. 1 Foreign government investors include not only a foreign government but also any corporation, trustee of a trust or general partner of a limited partnership in which a foreign government has a 20 percent or more interest, or in which two or more foreign governments have a 40 percent or more interest in aggregate. 17 Doing Business in Australia

19 CIVIL AND CRIMINAL PENALTIES MAY BE IMPOSED ON FOREIGN PERSONS FOR FAILING TO NOTIFY AN INVESTMENT THAT IS SUBJECT TO AUSTRALIA S FOREIGN INVESTMENT LAWS AND FOR OTHER BREACHES OF THESE LAWS NOTIFICATION OF TRANSACTIONS TO FIRB Whether notification of an investment by a foreign person is required is determined by reference to the type of investor, the type of investment, the industry sector in which the investment will be made and the value of the proposed investment. Notifications involve lodging an online form and certain additional information. A foreign person who proposes to take a notifiable action must notify and obtain approval from the Treasurer before that action can be taken. Parties may enter into agreements relating to that action prior to obtaining FIRB approval, however such agreements must be conditional upon approval being obtained. Foreign investment applications involve lodging an online form and certain additional information. Applications that relate to foreign investment in Australian businesses, agricultural land or commercial land are processed by the Treasury. Applications that relate to foreign investment in residential real estate are processed by the ATO. Application fees for foreign investment notifications are charged by the Australian Government. Civil and criminal penalties may be imposed on foreign persons for failing to notify an investment that is subject to Australia s foreign investment laws and for other breaches of these laws. MONETARY THRESHOLDS In most cases, a foreign person will only need to notify the Treasurer of their investment if the investment meets certain monetary thresholds. These thresholds are summarised in the below tables and depend on the type of investor and the action proposed to be taken by that investor. The monetary threshold investment amounts listed in the below table are indexed annually on 1 January (except where indicated otherwise). 18 Doing Business in Australia

20 (a) Non land proposals Investor Action 2 Threshold more than: Privately owned investors from Free Trade Agreement (FTA) partner countries that have the higher threshold 3 Acquiring a substantial interest 4 in: an Australian corporation or unit trust or a substantial interest in the assets of an Australian business; or a foreign corporation that holds Australian assets or has Australian subsidiaries and that carries on an Australia business (or the parent of that foreign corporation). $1,094 million (non-sensitive sectors) $252 million (sensitive sectors 5 ) For acquisitions of a substantial interest in an Australian corporation or unit trust, the threshold is based on the higher of the total asset value or the total issued securities value for the corporation or unit trust. For acquisitions of a substantial interest in the assets of an Australian business, the threshold is based on the value of the consideration for the assets. Acquiring an interest of 5 percent or more in an entity or business that wholly or $0 partly carries on an Australian media business. 6 Acquiring a direct interest 7 in an Australian agribusiness. 8 For Chile, New Zealand and United States, $1,094 million. Other privately owned foreign investors Acquiring a substantial interest 4 in: an Australian corporation or unit trust or a substantial interest in the assets of an Australian business; or For China, Japan, and Korea, $55 million (based on the value of the consideration for the acquisition and the total value of other interests held by the foreign person (together with any associates) in the entity). $252 million (all sectors) Foreign government investors a foreign corporation that holds Australian assets or has Australian subsidiaries and that carries on an Australia business (or the parent of that foreign corporation). Acquiring an interest of 5 percent or more in an entity or business that wholly or $0 partly carries on an Australian media business. 6 Acquiring a direct interest 7 in an Australian agribusiness. 8 $55 million (based on the value of the consideration for the acquisition and the total value of other interests held by the foreign person (together with any associates) in the entity). All direct interests 7 in an Australian entity or Australian business (other than $0 direct interests as a result of the foreign government investor establishing a new wholly-owned subsidiary). Starting a new Australian business. $0 Acquiring an interest of 5 percent or more in an entity or business that wholly or $0 partly carries on an Australian media business. 6 2 The FATA applies to all foreign investments irrespective of the way they are structured (for example, quasi debt (such as convertible notes) are treated as equity for foreign investment law purposes). 3 As at 18 September 2017, investors from China (not including Hong Kong, Macao or Taiwan), Chile, Japan, South Korea, New Zealand and the United States have the benefit of higher monetary thresholds (unless otherwise indicated, for example, foreign government investors) under Australia s foreign investment rules. They include certain nationals, enterprises and branches of enterprises from these countries. The higher thresholds will also apply to Trans Pacific Partnership (TPP) countries when the Trans Pacific Partnership comes into force for that country (if the higher thresholds do not already apply to them). TPP countries are: Brunei, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore, the United States and Vietnam. 4 A substantial interest exists for an entity when a foreign person holds an interest of 20 percent or more of the entity (together with any associates) to and for a trust when the foreign person (together with any associates) holds a 20 percent or more beneficial interest of the income or property of the trust. 19 Doing Business in Australia

21 5 Sensitive sectors include media, telecommunications, transport, defence and military related industries and activities, encryption and securities technologies and communications systems, and the extraction of uranium or plutonium or the operation of nuclear facilities. 6 For investments in the media sector, a holding of at least five percent requires notification and prior approval regardless of the value of investment. 7 Direct interests include investment in interests: a) of 10 percent or more of the target investment; b) of 5 percent or more of the target investment if the acquirer has entered a legal arrangement relating to the business; or c) regardless of the percentage interest, which allow the investor to influence or participate in the management and control of the target investment or influence, participate in or determine its policies. 8 Agribusinesses include businesses carried out in certain classes of the Australian and New Zealand Standard Industrial Classification Codes, such as agriculture, forestry, fishing and certain first stage downstream manufacturing businesses (including meat, poultry, seafood, dairy, fruit and vegetable processing and sugar, grain and oil and fat manufacturing) where the earnings before interest and tax from those businesses exceed 25 percent of the total earnings of the entity. (b) Land proposals Investor Action Threshold more than: All investors Acquiring residential land. 9 $0 Acquiring vacant commercial land. 10 $0 Privately owned investors from FTA partner countries that have the higher threshold 3 Other privately owned investors Acquiring an interest in Australian land corporations or trusts 11 if the residential land and vacant commercial land is 10% or more of the entity's total assets. Acquiring agricultural land 12 (including an interest in an agricultural land corporation or trust 13 holding the same). Acquiring developed commercial land 10 (including an interest in an Australian land corporations or trusts 11 holding the same). Acquiring interests of 10% or more in listed Australian land corporations or trusts. 11 Acquiring interests of 5% of more in unlisted Australian land corporations or trusts. 11 Acquiring mining and production tenements 14 (including an interest in an Australian land corporations or trusts 11 holding the same). Acquiring agricultural land 12 (including an interest in an agricultural land corporation or trust 13 holding the same). Acquiring developed commercial land 10 (including an interest in an Australian land corporations or trusts 11 holding the same). Acquiring low threshold land (sensitive land). 15 Acquiring interests of 10% or more in listed Australian land corporations or trusts. 11 Acquiring interests of 5% of more in unlisted Australian land corporations or trusts. 11 $0 For Chile, New Zealand and United States, $1,094 million. For China, Japan, Korea, $15 million (cumulative). This threshold is not indexed annually. $1,094 million $1,094 million For Chile, New Zealand and United States, $1,094 million. Others, $0 For Singapore and Thailand, where land is used wholly and exclusively for a primary production business $50 million (otherwise the land is not agricultural land). This threshold is not indexed annually. Others $15 million (cumulative). This threshold is not indexed annually. $252 million $55 million $252 million Foreign government investors Acquiring mining and production tenements 14 (including an interest in an Australian land $0 corporations or trusts 11 holding the same). Acquiring any interest in land. $0 Acquiring an exploration tenement 16 or a mining or production tenement. 14 $0 Acquiring interests of 10 percent or more in a mining, production or exploration entity. 17 $0 20 Doing Business in Australia

22 9 Residential land is any Australian land which has at least one dwelling on the land, and the number of dwellings that could reasonably be built on the land is less than 10. It does not include land used wholly and exclusively for a primary production business or commercial residential premises (see note 10 below). 10 Commercial land is any Australian land other than land used wholly and exclusively for a primary production business or residential land. It includes commercial residential premises, i.e. hotels, motels, boarding houses, school accommodation, certain kinds of marinas, caravan parks, camping grounds, etc. The FATEMR removed from the definition of residential land, student housing and residential care (e.g. aged care) and these will now be covered under Commercial Land. 11 Australian land corporations and trusts are those whose Australian land (other than agricultural land) is >50 percent of its total assets by value. 12 Agricultural land is land used, or that could reasonably be used, for a primary production business. There are some exclusions for certain land that is not being used wholly and predominately for a primary production business. An agricultural land register was established and has been administered by the ATO since 1 July Section 44 of the Regulations states that a wind farm does not count as agricultural land. The definition of vacant land has also been updated and land is not deemed to be vacant if a wind or solar panel station is located on the surface of the land. (Section 40(2) of the Regulations). 13 Agricultural land corporations and trusts are those whose agricultural land is >50 percent of its total assets by value. 14 A mining and production tenement is a right under Australian law to recover minerals (such as coal or ore), oil or gas in Australia or the Australian exclusive economic zone or continental shelf (other than an exploration tenement - see note 16 below). An exploration tenement is generally not considered to create an interest in Australian land, since it does not give the holder the exclusive right to occupy land, and is generally for a period of less than five years. 15 Low threshold land includes sensitive land such as mines and critical infrastructure (for example, an airport or port). The FATEMR removed from the low threshold test land falling under prescribed airspaces unless it meets other tests within the low threshold limits. 16 An exploration tenement is a right under Australian law to recover minerals (such as coal or ore), oil or gas in Australia or the Australian exclusive economic zone or continental shelf for the purposes of prospecting or exploring for minerals, oil or gas. 17 Mining, production or exploration entities are those whose Australian exploration tenements or mining or production tenements are >50 percent of its total assets by value. 21 Doing Business in Australia

23 NATIONAL INTEREST CONSIDERATIONS The Federal Government determines national interest concerns on a case-by-case basis and typically considers the following factors when assessing foreign investment proposals: (a) national security: the extent to which the investment affects Australia s ability to protect its strategic and security interests; (b) competition: whether the investment may result in an investor gaining control over market pricing and production of a good or service in Australia or allow an investor to control the global supply of a product or service; (c) Australian Government policies: whether the investment may impact on Australian Government tax revenue or other policies, such as environmental objectives; (d) impact on the Australian economy and community: whether the investment (including any proposed post-investment restructure) may impact on the Australian general economy and ensure a fair return for the Australian people; and (e) character of the investor: whether the investor operates on a transparent commercial basis and is subject to adequate and transparent regulation and supervision, including consideration of the corporate governance practices of foreign investors. In assessing foreign investment applications in agriculture, the Federal Government typically considers the effect of the proposal on: the quality and availability of Australia s agricultural resources, including water; land access and use; agricultural production and productivity; Australia s capacity to remain a reliable supplier of agricultural production, both to the Australian community and our trading partners; biodiversity; and employment and prosperity in Australia s local and regional communities. FOREIGN GOVERNMENT INVESTMENT The Federal Government considers the following additional factors when considering investments by foreign governments and foreign government investors: (a) whether the foreign government investor is wholly or partly foreign government owned, and whether it operates on a fully arm s length and commercial basis; (b) whether the investment is commercial in nature or is the investor potentially pursuing broader political or strategic objectives that may be contrary to Australia s national interest; and (c) the size, importance and potential impact of the investment. SPECIAL INDUSTRY SECTORS Specific additional restrictions on foreign investment apply to the industry sectors of banking, civil aviation and airports, shipping and telecommunications. EXEMPTION CERTIFICATES Exemption certificates can be applied for certain acquisitions of Australian land, including: (a) a foreign person with a high volume of acquisitions of interests in Australian land, subject to a specified maximum value of interests that can be acquired and a specified period during which the acquisitions can be made; (b) property developers and other vendors selling at least 50 new dwellings (such as an apartment) in a specified development to foreign persons (without each foreign person purchaser being required to seek their own foreign investment approval), provided that the total number of dwellings a developer sells to foreign persons does not exceed 50 percent of the dwellings within the specified development; and (c) foreign persons who are temporary residents wishing to make multiple attempts to acquire a single established dwelling (for example by making private offers, tenders or bidding 22 Doing Business in Australia

24 A FOREIGN INTEREST MEANS AN INDIVIDUAL WHO IS NOT ORDINARILY RESIDENT IN AUSTRALIA AND ANY CORPORATION OR TRUST at multiple auctions) without having to seek individual approval for each property in which they have an interest in purchasing. Such established dwelling certificates will generally be valid for six months from the date of approval and will require that the temporary resident must use the property as their principal place of residence in Australia. (d) a person who plans to acquire an interest in Australian land and build a new dwelling or dwellings on that land and some or all of the interests in those dwellings will become or may become near-new dwelling interests to be disposed of to foreign persons. The Treasurer may give an exemption certificate if they are satisfied that such disposal is not contrary to the national interest (Section 43A of the Regulations). (e) a foreign person may apply for an exemption certificate if they propose to acquire one of: (i) an interest in the new dwelling; (ii) a near-new dwelling interest; and (iii) an interest in vacant residential land. The Treasurer may give such an exemption certificate if they are satisfied that the acquisition of those kinds of interests by that foreign person is not contrary to the national interest test (Section 43B of the Regulations). Reporting obligations apply on the acquisitions made during the period of the certificate. On 1 July 2017, a new exemption certificate was introduced for programs of acquisitions of interests in either, or both of, the assets of an Australian business and the securities in an Australian entity (including interests acquired through the business of underwriting). This will enable a foreign person (including a foreign government investor such as a government pension fund) to apply once prior to making any acquisitions and seek pre-approval for multiple low risk investments over a period specified in the certificate, rather than having to notify before each separate acquisition. It is unlikely that this business exemption certificate will be available to first time investors to Australia given that the applicant s track record in complying with Australian laws is a relevant consideration in the granting of the certificate. FOREIGN CUSTODIANS There is an exemption for acquisitions of a legal interest in securities, assets, a trust, Australian land or a tenement by a foreign corporate custodian where the acquisition is in the course of the custodian s custody business and the custodian exercises the voting rights associated with the interest only in accordance with the directions of another custodian or the holder of an equitable interest in the securities, assets, trust, land or tenement that is receiving custodian services that are related to that interest. MONEYLENDING AGREEMENTS There is an exemption for acquisitions of interests in securities, assets, a trust, Australian land or a tenement if the interest is held solely by way of security for the purposes of a moneylending agreement or acquired by way of enforcement of a security held solely for the purposes of a moneylending agreement, where the entity that holds or acquires the interest is the entity who entered into the moneylending agreement (or its subsidiary, holding entity or security trustee) or a receiver (or receiver and manager) appointed to such an entity. 23 Doing Business in Australia

25 TIMEFRAME FOR DECISIONS Under the FATA, the Treasurer has 30 days to consider a formal notification and make a decision The 30 day period starts when the correct filing fee has been received by the Australian Government. The Treasurer has a period of 10 days after the end of the 30 day period to notify the applicant of the decision, which may be: (a) to advise the applicant that the Government has no objection to the foreign investment proposal; (b) to advise the applicant that the Government has no objection to the foreign investment proposal, subject to specified conditions; (c) to advise the applicant that the Government objects to and therefore prohibits the foreign investment proposal; or (d) to extend the decision period for a period of up to 90 days by making an interim order. If the Treasurer does not make a decision or take action in relation to the proposal within the allowed period, the Treasurer loses the ability to prohibit or impose conditions on the proposed investment under the foreign investment framework. In routine cases, a decision is made within 30 days of lodgement of a notification and a decision to not object to the transaction is normally granted unless the proposal is judged to be contrary to the national interest. In circumstances where notifications relate to sensitive sectors or involve investors with broader political or strategic objectives that may be contrary to Australia s national interest, then the timeframe to obtain a decision is likely to exceed 30 days. Approval of the transaction may be made subject to certain conditions and, in these cases, compliance with the conditions imposed is compulsory. For example, the Treasurer will often make transactions subject to certain tax conditions. FOREIGN INVESTMENT DECISIONS A foreign investment no objection decision by the Treasurer will specify the permitted action(s), the foreign person(s) to which the decison relates (which may be a foreign corporation that is not yet incorporated or a trustee of a trust that is not yet established) and the time limit for the permitted action(s) to be taken (if the foreign person proceeds with those actions). Time limit is generally 12 months but can be a longer period approved by the Treasurer. A material variation of an agreement (such as increasing the percentage that a person holds in an entity) can require further approval. INTERNAL REORGANISATIONS Notifications requirements can apply to internal reorganisations of corporate groups which meet the monetary thresholds. However, reduced fees apply to acquisitions of interests in securities between subsidiaries of a common parent entity or to a subsidiary, and acquisitions of interests in an asset or Australian land between subsidiaries of a common parent entity, or to a parent entity or subsidiary. RECORD KEEPING Records relating to foreign investment notices and applications must be kept for specified time periods. These obligations apply to records of: actions taken by a person to the extent the records are relevant to an order or decision made by the Treasurer under the FATA (for five years after the action is taken); actions specified in an exemption certificate which are notifiable (for five years after the action is taken); compliance with conditions in a no objection decision and an exemption certificate (for two years after the condition ceases to apply), and certain disposals of interests in residential land (for five years after the interest is disposed). 24 Doing Business in Australia

26 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW Rory Moriarty National Practice Group Leader Corporate/M&A T rmoriarty@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

27 FOREIGN INVESTMENT IN AUSTRALIA AUSTRALIAN GOVERNMENT SUPPORT WORKING IN PARTNERSHIP WITH BUSINESS AND GOVERNMENT, AUSTRADE PROVIDES A CENTRAL POINT OF CONTACT AUSTRADE The Australian Government is keen to attract and deepen productive foreign direct investment in Australia. The Australian Trade Commission (Austrade) is the Australian Government s trade, education and investment promotion agency. Austrade helps international companies establish and build their business in Australia by providing the information required to make good investment decisions and a co-ordinated approach that saves investors time and money. Working in partnership with business and Government, Austrade provides a central point of contact to navigate investment services available in Australia. Austrade s network of offices in over 50 countries also means it can often provide support and guidance in investors home markets and in their own language. Austrade can provide international investors with: initial co-ordination of all investment enquiries and assistance; information on the Australian business and regulatory environment; market intelligence and investment opportunities; identification of suitable investment locations and partners in Australia; and advice on Australian Government programs and approval processes. Austrade can also help identify investment potential in particular sectors and strategic alliance partners, provide detailed cost information and help to establish research collaborations. Importantly, Austrade s services to international investors are free, confidential and tailored to the needs of the individual business. There are strong opportunities for direct investment in infrastructure, tourism, mining and resources, clean energy and environment, food processing and agribusiness, advanced manufacturing, ICT and life sciences, as well as more broadly in R&D and innovation centres. There are a range of Australian Government policies and programs in place to support foreign direct investment into Australia which enhance Australia s attractiveness as a destination for investment. In addition, the State and Territory Governments have a range of programs relevant to investors. Austrade can assist investors to access this information. CONTACT AND FURTHER INFORMATION To learn more about what Austrade can do to help you, or to contact an investment specialist, call: (in Australia), invest@austrade.gov.au, visit or subscribe to the Investment Update at investmentupdate@austrade.gov.au. 26 Doing Business in Australia

28 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW Bruce Cooper Deputy Chief Executive Partner T bcooper@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

29 CONTRACT LAW Australian contract law is based on the English common law, rather than on any codified or statute law. The basic principle of Australian contract law is freedom of contract, under which parties are at liberty to strike whatever bargain they choose. It is good practice to record the terms of a contract in writing no special forms or procedures are required and Australian courts will give considerable weight to the expression of the parties intentions evidenced in documentary form. These broad statements of principle are affected by some important legislation, notably, the Competition and Consumer Act 2010 (Cth), which cannot be contracted out of and may result in legislative rights which override contractual rights in certain circumstances. See Chapter 15 for more information on the Competition and Consumer Act 2010 (Cth). PARTIES Under Australian contract law, with certain limited exceptions, those who are not parties to a contract cannot be bound by it. This is known as the privity rule. If a corporation which is registered under the Corporations Act is a party, its registered number an Australian Company Number (ACN), Australian Registered Business Number (ARBN) or Australian Business Number (ABN) must also be cited for that party in all public documents. SECURITY OVER, OR TITLE TO, ASSETS If a security interest is created over any assets which are personal property then the Personal Property Securities Act 2009 (Cth) (PPSA) will apply. To preserve the interest of the security holder, the interest should be registered on the Personal Property Securities Register within the applicable time period. Personal property includes all property that is not land, or certain rights granted by Commonwealth or State Governments (for example, a mining licence). The PPSA covers a broad range of security interests, including traditional forms of security as well as interests created under retention of title provisions, hire purchase agreements and certain leasing arrangements. The registration of security interests is governed by the PPSA, relevant provisions of the Corporations Act 2001 (Cth) and associated subsidiary legislation. 28 Doing Business in Australia

30 THE BASIC PRINCIPLE OF AUSTRALIAN CONTRACT LAW IS FREEDOM OF CONTRACT, UNDER WHICH PARTIES ARE AT LIBERTY TO STRIKE WHATEVER BARGAIN THEY CHOOSE. RESTRICTIONS ON PENALTIES IN CONTRACTS Under the general law of contract, it is permissible for parties to agree upon a sum of liquidated damages, or the method of calculation of such a sum, payable by one party to the other in the event of defined breaches of contract. This may be useful where monetary damages may be difficult to calculate, and the parties wish to avoid the cost of dispute resolution or litigation. Such an agreement on liquidated damages must represent a genuine attempt to estimate the likely damages which may be suffered. If it is imposed by one party merely as a threat to enforce compliance, is excessive, or is specified to arise in circumstances which are vague, or may be triggered arbitrarily, then the provision may be regarded as a mere penalty and not enforced by a court. A contract clause can be a penalty even if it is not triggered by a breach of the contract. A collateral stipulation can be categorised as a penalty if it imposes an additional detriment on a party upon failure of a primary stipulation, it is security for the satisfaction of the primary stipulation, and compensation can be made for the failure of the primary stipulation. RESTRICTIONS ON RESTRAINTS OF TRADE Any restriction upon the dealing by a party to a contract (or deed) with third parties, including employment by a third party, directly or indirectly, whether during or after the term of a contract: may constitute exclusive dealing, conduct regulated by the anti-trust provisions of the Competition and Consumer Act 2010 (Cth), discussed in Chapter 15; or may be a restraint of trade at common law, which will be void, and unenforceable by a court if it is unnecessarily broad in the conduct restrained, the time period of the restraint or the area over which the restraint operates. In New South Wales (only), the Restraints of Trade Act 1976 (NSW) permits the Supreme Court of New South Wales to limit the operation of a restraint to the extent that the court considers reasonable. LIMITATIONS AND EXCLUSIONS OF LIABILITY Subject to the operation of the Competition and Consumer Act 2010 (Cth) and the equivalent sale of goods and fair trading legislation of the States and Territories, parties to a contract are free to limit or exclude liability for breaches of contract, or in other circumstances. The party seeking to rely on an exclusion or limitation of liability clause will, however, need to convince the court that the clause in question, properly construed, is as that party contends. RESOLUTION OF DISPUTES Australia is a party to the New York Convention on the recognition and enforcement of Foreign Arbitral Awards. Accordingly, the award of an arbitrator (which can usually give any legal, equitable and statutory remedies) will be recognised and enforced in the Federal Court or any of Australia s State or Territory Courts as if it were a judgment of that Court. INTERNATIONAL CONTRACTS FOR THE SALE OF GOODS Australia is a signatory to the Vienna Convention on Contracts for the International Sale of Goods. This provides for uniform rules which govern the formation and performance of contracts for the international sale of goods and sets up a framework of rules specifying the obligations of parties to them. The parties to a contract for the international sale of goods may agree that the Convention is not to apply, and may select the laws of one of the parties home jurisdictions as the governing law of their contract. If they do not do so, however, then the Convention will apply, and incorporate into the contract the rules set out in the Convention. 29 Doing Business in Australia

31 GET IN TOUCH Geoff Hoffman Partner T ghoffman@claytonutz.com David Landy General Counsel T dlandy@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

32 PROTECTION OF TECHNOLOGY & INTELLECTUAL PROPERTY AUSTRALIA PROVIDES A COMPREHENSIVE LEGAL FRAMEWORK FOR THE PROTECTION OF TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS INTRODUCTION Australia provides a comprehensive legal framework for the protection of technology and intellectual property rights, not only for Australian creators, but for those of many other countries with which Australia has multilateral and bilateral treaty arrangements. This is primarily achieved through legislation at a Commonwealth level, the content of which is influenced by Australia s entry into various international intellectual property treaties, for example, the Agreement on Trade-Related Aspects of Intellectual Property Rights. Australians are notoriously early adopters of new technologies and the Australian courts strongly support intellectual property rights. IP Australia is the federal government body responsible for the administration of Australia s intellectual property system and the registration of intellectual property rights such as patents, designs and trade marks. PATENTS The Patents Act 1990 (Cth) provides for the grant of two types of patent: standard patents; and innovation patents. A standard patent has a term of up to 20 years from the date of filing of the complete specification (provided renewal fees are paid). In contrast, an innovation patent has a term of eight years. An innovation patent is designed to provide protection for incremental advances in technology that involve substantial contributions to the field but may fall short of satisfying the legislative requirement of inventiveness.. An innovation patent is often quicker and cheaper to obtain than a standard patent. Accordingly, innovation patents can be useful where it is likely that technology will advance rapidly, quickly rendering existing patents otiose. Patent terms may not be extended, except in specific circumstances for standard patents for pharmaceutical substances, where delays in regulatory approval have reduced the patent s effective term. An application for a standard patent is subject to a full examination as a condition of grant. In contrast, an application for an innovation patent is not subject to substantive examination prior to grant but rather will only be examined for compliance with formal requirements, and will then be registered. However, an innovation patent may not be asserted against an alleged infringer unless it has been substantively examined and certified. Examination of an innovation patent can therefore be requested (and paid for) at any time by the patentee, or by any third party (who might have concerns as to the validity and/or infringement), or directed by the Commissioner of Patents. The Patents Act also provides procedures for re-examination and oppositions (pre-grant, in the case of standard patents). An opposition may involve written evidence and an oral hearing before a delegate of the Commissioner of Patents, who decides the outcome. Decisions of the Commissioner of Patents in relation to patent eligibility or oppositions may be appealed to the Federal Court of Australia. Both standard and innovation patents may be challenged on various bases including lack of proper subject matter, lack of novelty, lack of inventive (or, in the case of an innovation patent, innovative) step, lack of utility, and various other technical grounds. An alleged infringer is entitled to assert in court that a patent is invalid by way of defence to an infringement claim and the court has the power to decide to revoke the patent. Australia is a party to both the Paris Convention (under which a foreign applicant has a certain time period from the date of an original application in a member country within which to file in Australia an application fairly based upon the original) and the Patent Cooperation Treaty (under which a single application in a member country may be treated as an application in one or more other member countries). 31 Doing Business in Australia

33 DESIGNS The Designs Act 2003 (Cth) creates a system for registration of designs. A design is the overall appearance of a product resulting from one or more visual features and will be registrable if it is new and distinctive, assessed against designs publicly used in Australia or published within or outside Australia. Like an innovation patent, an application for registration of a design is not initially subject to substantive examination, but rather will be registered on compliance with formalities only. The registered design will only be examined upon request of any person, by order of a court, or at the initiative of the Registrar. Also like an innovation patent, a design may not be asserted against an alleged infringer unless it has been substantively examined and certified by IP Australia. The duration of the monopoly in the registered design is up to 10 years (consisting of an initial five year term plus the option to renew for a further five year term). As a party to the Paris Convention, Australia allows foreign applicants a six month period of grace from the date of an original application in a member country in which to file an application for the same design in Australia. TRADE MARKS The Trade Marks Act 1995 (Cth) governs the registration of trade marks in Australia. Applications for registration may be made whether or not the subject mark has been used in Australia in respect of particular goods and/or services (although the applicant, must at the time of filing, at least have an intention to use or licence use of the trade mark for the goods and/or services). Consistent with the obligations imposed by the Paris Convention, Australian legislation permits a period of grace within which an application by a foreign party may be filed in Australia for the same mark in respect of the same goods or services, while retaining the priority date of an earlier application in the Convention country. Australia is also a party to the Madrid Protocol, under which a single application may be made in any member country for subsequent processing by the relevant body in one or more other member countries nominated in the application. Australia operates a system of classes for goods and services, in accordance with the Nice classification system. Trade marks are registered for a period of 10 years, and may be renewed for further terms of 10 years each. A trade mark registration can be cancelled for non-use if it has not been used in Australia for the claimed goods and/or services for a continuous period of three years. There is no requirement for the registration of user licences in order to protect the registration of a trade mark. However, for use under a licence to be deemed use of the registered owner, a licence must meet certain criteria, including that the registered owner has a right to exercise reasonable control over the use of the trade mark by the licensee. It is still possible to record any claim to an interest in a registered trade mark or trade mark application, and such recordable interests now include the interests of a mortgagee or a beneficiary under a trust, as well as that of a licensee. Aside from the statutory protection of registered trade marks, the general law in Australia also prohibits the passing off of one s goods or services as those of a competitor. Essentially, a person is not permitted to suggest, through (for example) the use of the same or similar trade mark to that in respect of which a competitor has developed goodwill and reputation in Australia, a connection between his or her goods or services and those of her or his competitor. COPYRIGHT Copyright in Australia is governed by the Copyright Act 1968 (Cth). The types of material which may be subject to copyright are: literary works (which include computer programs); musical works (i.e. musical compositions); artistic works (which include photographs, engineering drawings, plans, buildings and works of artistic craftsmanship, irrespective of whether the artistic content is regarded to be high); dramatic works; and cinematograph films, sound recordings, sound and television broadcasts, and published editions. If the criteria for copyright subsistence exist, copyright arises automatically on creation without the need for registration or any other formality, including any form of copyright notice. (Indeed, there is no system for the registration of copyright in Australia.) Such criteria include the creation of the copyright material by a citizen, national or resident of, or first publication in, Australia or one of the many countries with which Australia has multilateral or bilateral treaty arrangements. Australia is a member of both the Berne Convention and a party to the Universal Copyright 32 Doing Business in Australia

34 AUSTRALIANS ARE NOTORIOUSLY EARLY ADOPTERS OF NEW TECHNOLOGIES AND THE AUSTRALIAN COURTS STRONGLY SUPPORT INTELLECTUAL PROPERTY RIGHTS. Convention, as well as a number of other treaties for the protection of individual rights. Copyright in Australia lasts for the life of the human author plus 70 years, in the case of works, and (broadly speaking) 70 years from the date of publication in the case of subject matter other than works. CONFIDENTIAL INFORMATION Under Australian law, there is no property in information. This is different to the position in some other countries. However, there is a right to have truly confidential information kept confidential in certain circumstances. The protection of confidential information (which includes trade secrets) is governed by the general law, and not by statute. This means that in Australia there is no written code, such as the uniform statement of law adopted in many American states. The general law imposes duties upon a person who receives confidential information in circumstances where he or she knew, or should have known, that the information was confidential. confidential information may be restrained from using and/or disclosing the information, even if he or she did not know that the information was, in fact, confidential. The law protects only identifiable information which has been kept genuinely secret, or has been disclosed only to those who have been brought under a duty to maintain confidentiality. No contract, or even writing, is required, as the duty results from the operation of law alone, but confidentiality notices and written acknowledgements of confidentiality can both assist in proving that the requirement of confidentiality has been communicated to the recipient. By contrast, if the recipient of confidential information wishes to place an obligation upon the discloser of the information (for example, to maintain exclusivity and not disclose the information to any other party), it is necessary for an agreement to that effect to be entered into. Such a term would be in the nature of a restraint of trade and subject to the law relevant to this type of contract. CIRCUIT LAYOUTS AND MASK WORKS Protection of circuit layouts is provided under the Circuit Layouts Act 1989 (Cth). This legislation was enacted in anticipation of the Washington Treaty on Intellectual Property in respect of Integrated Circuits coming into force. Unlike the United States Semiconductor Chip Protection Act, the Australian legislation does not extend protection to a mask work, but to a circuit layout defined as a representation, fixed in any material form, of the three dimensional location of the active and passive elements and interconnections making up an integrated circuit. Eligible layout rights under the Australian legislation last for a period of 10 years from either: where there is commercial exploitation, the date of first commercial exploitation; or where there is no commercial exploitation, the year in which the circuit layout was made. There are no registration requirements, or facilities, but the Australian legislation is unusual in providing for marking of eligible layouts or integrated circuits. PLANT BREEDER S RIGHTS The Plant Breeder s Rights Act 1994 (Cth) provides for the registration of new plant varieties. A Plant Breeder s Right or PBR confers on the registered proprietor the exclusive right to produce, reproduce, import, export and sell propagating material of the registered variety in Australia. Once the produce has been sold with the consent of the registered owner, the rights in respect of sale are exhausted, but the consent of the registered owner is required for further propagation. Each variety the subject of a PBR is identified by reference to a specific name which, in respect of plants in the relevant genus, can only be used to market produce of that variety. A PBR has a duration of 20 years from the date of application (or 25 years in the case of trees or vines). That duty requires the recipient not to disclose the information contrary to the requirements of the discloser, and also prohibits any use, even secret use, of the information (except as permitted by the discloser). In some cases, a recipient of 33 Doing Business in Australia

35 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW John Collins National Practice Group Leader IP & Technology T jcollins@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

36 ELECTRONIC COMMERCE ELECTRONIC COMMERCE IN AUSTRALIA IS PRINCIPALLY REGULATED BY FEDERAL, STATE AND TERRITORY ELECTRONIC TRANSACTION ACTS ELECTRONIC TRANSACTIONS LEGISLATION Electronic commerce in Australia is principally regulated by Federal, State and Territory Electronic Transaction Acts. The Federal Act applies only to transactions to which a Federal law applies. The State and Territory Acts are similar to the Federal Act and apply in their respective jurisdictions. The main impacts of the Electronic Transaction Acts are: transactions are not invalid simply because they rely on electronic communications or electronic signatures; the establishment of guidelines for determining the time and place of despatch and receipt of an electronic communication; allowing for the electronic recording of information and retention of electronic documents where legislation requires information to be recorded or retained in writing; provision for the use of electronic forms of authentication instead of a handwritten signature; and subject to certain restrictions. The Electronic Transactions Acts do not apply to all legislation or transactions. Each Electronic Transactions Act lists legislation or types of transactions which are exempt from the rules set down in that Act or the Regulations under each Act. The Regulations to the Federal Act were amended in 2013 to repeal several exceptions in order to remain relevant in light of current and emerging digital channels and consumer preferences. However, the Regulations to the Federal Act provide that the Federal Act continues to apply to electronic communications under the National Consumer Credit Protection Act 2009, and facilitates the giving of documents by electronic communication and the serving of notices by electronic communication under certain circumstances. The Electronic Transaction Acts are based on the UNCITRAL Model Law on Electronic Commerce 1996 (Model Law). In 2005, the United Nations adopted the Convention on the use of Electronic Communications in International Contracts, as a means of updating some of the concepts contained in the Model Law. In April 2009, all Australian jurisdictions agreed to make changes to their Electronic Transactions Acts in order for Australia to accede to the Convention. The Convention applied to international business contracts only. However, in 2011 the Federal, State and Territory Electronic Transaction Acts were amended to encompass personal, family and household contracts. The amending Acts clarified the traditional rules on contract formation to address the needs of electronic commerce, including the recognition of automated message systems, clarification of an invitation to treat, rules to determine the location of the parties, updating the electronic signature provisions and default rules for time and place of dispatch and receipt. CONTRACT LAW There is no fundamental principle of contract law that prevents contracts being formed electronically. Consequently, the laws applicable to contracts online are the same as those applicable to nonvirtual transactions. One issue that arises for online contracts is the validity of click-through agreements, being agreements where the customer clicks on an on-screen icon to accept the standard terms and conditions. There is little case law specifically in relation to click-through agreements. There is no reason in principle however why contracts cannot be formed in this manner. Another issue that arises is whether the terms and conditions of an online contract have been adequately incorporated into the agreement. For effective incorporation of terms and conditions under Australian law, the offerer must do all that is reasonably necessary to bring the terms to the attention of the customer in time to give the customer a reasonable opportunity to consider them and decide whether to enter into the contract on those terms. 35 Doing Business in Australia

37 COMMERCIAL ELECTRONIC MESSAGES CAN ONLY BE SENT WITH THE RECIPIENT S CONSENT PRIVACY The main legislative scheme in Australia in regards to privacy is the Federal Privacy Act 1988 which covers: private sector and non-profit organisations with an annual turnover of more than A$3 million; all health service providers and Federal Government contractors regardless of their turnovers; Federal Government agencies; and businesses with an annual turnover of A$3 million or less (small businesses) that: trade in personal information; are related to a larger business; or are reporting entities (with the meaning of the Federal Anti-Money Laundering and Counter-Terrorism Financing Act 2006), but only in relation to the activities carried on by the small business for the purpose of that Act or rules or regulations made under that Act, such as the reporting of suspicious transactions and cross-border movements of cash over A$10,000. Small businesses that are not automatically covered by the Federal Privacy Act have the option to opt in to the Act. The Federal Privacy Act contains 10 National Privacy Principles which set down broad principles on how organisations must deal with personal information. These principles cover the life cycle of personal information and include: restrictions on the collection of personal information (ie. any information that can identify a person such as name and address) and sensitive personal information (such as information related to a person s racial or ethnic origin, or religious or philosophical beliefs); restrictions on the use and disclosure of personal information so collected; requirements designed to ensure that personal information collected, used or disclosed is kept securely and is accurate, complete and up to date; obligations on organisations to ensure that individuals are provided with access to their personal information and given the opportunity to correct that information; restrictions on the use of government-issued identifiers (such as tax file numbers); restrictions on the transfer of personal information to other individuals and organisations both within and outside Australia; and obligations to ensure that individuals are able to access an organisation s privacy policy. A number of activities by organisations are exempt in certain circumstances from the obligations imposed under the Federal Privacy Act. These include the handling of current and former employee records by employers where the handling is directly related to the employment relationship, the collection and use of personal information by media organisations in the course of journalism and the collection and use of personal information by contractors working for registered Australian political parties or political representatives. The collection, use and disclosure of personal information by State and Territory Government agencies and contractors are regulated by relevant State and Territory legislation. Health information is also regulated in some cases on a State and Territory basis. Organisations may apply to the Privacy Commissioner to be bound by a specific Privacy Code. If approved, the organisation will be required to comply with that Privacy Code instead of the National Privacy Principles. Examples of approved Privacy Codes include the Market and Social Research Privacy Code and the Biometrics Institute Privacy Code. From 12 March 2014, amongst other changes, the National Privacy Principles were replaced by 13 Australian Privacy Principles (APPs) when the Privacy Amendment (Enhancing Privacy Protection) Act 2012 came into effect. The APPs are a set of new, harmonised privacy principles that regulate the handling of personal information by both Australian Government agencies and organisations. The APPs impose obligations in addition to those found under the existing NPPs. A number of the APPs are significantly different from the existing NPPs, including APP 7 on the use and disclosure of personal information for direct marketing, and APP 8 on cross-border disclosure of personal information. 36 Doing Business in Australia

38 The APPs are structured to reflect the personal information lifecycle. They are grouped into five parts: Part 1 sets out principles that require APP entities to consider the privacy of personal information, including ensuring that APP entities manage personal information in an open and transparent way (APPs 1 and 2). Part 2 sets out principles that deal with the collection of personal information including unsolicited personal information (APPs 3, 4 and 5). Part 3 sets out principles about how APP entities deal with personal information and government related identifiers. Part 3 includes principles about the use and disclosure of personal information and those identifiers (APPs 6, 7, 8 and 9). Part 4 sets out principles about the integrity of personal information. Part 4 includes principles about the quality and security of personal information (APPs 10 and 11). Part 5 sets out principles that deal with requests for access to, and the correction of, personal information. Where an act or practice of an APP entity occurs on or after 12 March 2014 and breaches an APP in relation to personal information about an individual, that act or practice will be considered an interference with the privacy of the individual. From 12 March 2014, the Information Commissioner will also have enhanced powers, which will generally be exercised by the Privacy Commissioner, including the ability to: accept enforceable undertakings; seek civil penalties in the case of serious or repeated breaches of privacy; and conduct assessments of privacy performance for both Australian Government agencies and organisations. The Information Commissioner will also have the power to recognise external dispute resolution schemes to handle privacy-related complaints. COMMUNICATIONS INTERCEPTION The interception of telecommunications (including , Short Message Services (SMS), Multimedia Message Services (MMS), instant messages (sent using programs such as MSN Messenger and Yahoo! Messenger), amongst other forms of communications) is regulated by the Federal Telecommunications Act Under the Telecommunications Act and the Telecommunications (Interception and Access) Act 1979, telecommunication carriers (owners and operators of telecommunications networks) and carriage service providers (those who provide services over those networks, such as internet service providers) must ensure that their systems permit interception. The Telecommunications Act prohibits carriers and carriage service providers from disclosing certain information, including information relating to the substance of a communication carried over their networks. Carriers and carriage service providers have an obligation under the Telecommunications Act to provide assistance to law enforcement authorities and to do their best to prevent their network and facilities from being used to commit criminal offences. The Telecommunications (Interception and Access) Act prohibits the interception of communications over a telecommunications system (such as listening or recording a telephone conversation) or to access stored communication (such as s, SMS, MMS) without the knowledge of the maker, sender or intended recipient of the communication, in most circumstances, apart from interception carried out under a warrant obtained by law enforcement and or intelligence authorities. The Telecommunications (Interception and Access) Act also permits the disclosure of certain telecommunications data to specified law enforcement or intelligence authorities. Additionally, the Telecommunications (Interception and Access) Act requires carriage service providers to preserve stored communications at the request of certain enforcement or interception agencies, including the Australian Federal Police and state police, in advance of a warrant to access the information being issued. The Australian Federal Police can also issue a foreign preservation notice if a request has been made by a foreign country in accordance with the Telecommunications (Interception and Access) Act. State and Territory listening devices legislation prohibits the recording of private conversations by third parties without the consent of the parties to that conversation or without an appropriate warrant. In some States and Territories this prohibition also extends to recording by parties to the conversation. 37 Doing Business in Australia

39 SMALL BUSINESSES THAT ARE NOT AUTOMATICALLY COVERED BY THE FEDERAL PRIVACY ACT HAVE THE OPTION TO OPT IN TO THE ACT. SPAM The Federal Spam Act 2003 prohibits the sending of unsolicited commercial electronic messages such as s, SMS, MMS and instant messages which have an Australian link. The meaning of Australian link is very broad and includes those messages sent: from within Australia; by an individual or organisation whose central management and control is in Australia (whether or not the message is actually sent from Australia); where the computer, server or device that is used to access that message is located in Australia; and where the account holder or organisation receiving that message is present in Australia. The Spam Act does not cover messages sent by way of a voice call or faxes. Whether or not a message is deemed to be commercial depends on the way in which the message is presented and the content (including any links, telephone numbers or contact information) contained in that message. Commercial electronic messages can only be sent with the recipient s consent, must include information which accurately identifies the sender and must contain a functional unsubscribe facility. Consent can either be express or implied. Information which accurately identifies the sender must also include how the sender can be contacted and must be valid for 30 days after the message is sent. The unsubscribe facility must permit the recipient to opt out of s from that sender in future and must be presented in a clear and conspicuous manner. The Spam Act also prohibits individuals in Australia and organisations that carry on business in Australia from supplying, acquiring or using address harvesting software and harvested address lists. Government agencies, registered Australian political parties, charities, religious organisations and educational institutions are exempt from the provisions of the Spam Act in certain circumstances. There are significant financial penalties for breach of the Spam Act including fines of up to A$1.1 million a day. 38 Doing Business in Australia

40 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW Steven Klimt Partner T sklimt@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

41 EMPLOYMENT & INDUSTRIAL RELATIONS THE INDUSTRIAL RELATIONS LANDSCAPE IN AUSTRALIA IS PREDOMINANTLY GOVERNED BY THE FAIR WORK ACT 2009 EMPLOYMENT LAW IN AUSTRALIA The industrial relations landscape in Australia is predominantly governed by the Fair Work Act 2009 (Cth) (FW Act). The majority of employers within Australia are subject to the requirements of the FW Act, regardless of whether their employees employment relationships are governed by an award set by an industrial body, a collective agreement negotiated between an employer and an employee group, or an individual employment contract. All employees are entitled to the minimum conditions of the National Employment Standards (NES) set out in the FW Act, the key points of which are summarised below: basic rates of pay and casual loadings; that a maximum of 38 ordinary hours per week be worked (although an agreement may provide for this figure to be averaged out reasonable additional hours may also be included in the agreement); four weeks paid annual leave per year; 10 days paid personal/carer s leave (including sick leave) per year (which accrues on a pro rata basis), together with an additional two days of unpaid carer s leave and a further two days of paid compassionate leave; 52 weeks of unpaid parental leave for both parents at the time of birth or adoption of a child with the option for one parent to request an additional 52 weeks. A request for flexible working arrangements by employees who are parents or carers of children under school age or under 18 with a disability. The employee must have at least 12 months continuous service and the request may be refused on reasonable business grounds; long service leave pursuant to Federal instrument, State law or in the future, an expected national law; unpaid community service leave of a reasonable period for an employee engaged in an eligible community service activity such as jury service or voluntary emergency management; and severance pay where termination of employment is for redundancy and the employee has at least 12 months service. The amount of payment is on a scale depending upon the length of the employee s service. The FW Act provides eligible employees with the right to make a claim against their employer for unfair dismissal in the event of a termination; effectively if the termination can be demonstrated to be harsh, unjust or unreasonable. However an unfair dismissal claim can be defended by an employer if the dismissal was due to a genuine redundancy. Small businesses which employ 15 or fewer employees and comply with a Code for dismissals also are exempt from unfair dismissal laws. Equally, employees are not protected if they have: not served the minimum employment period (12 months for a small business employer or 6 months otherwise); been engaged on a fixed term contract or for a specified task; been engaged as short-term casual employees; been engaged as trainees for a specified time period; or been engaged as seasonal employees. Employees who earn more than the high income threshold (which is $136,700 after 1 July 2015) are also not protected unless they are covered by an award or enterprise agreement. This threshold is adjusted every year on 1 July. 40 Doing Business in Australia

42 THE MAJORITY OF EMPLOYERS WITHIN AUSTRALIA ARE SUBJECT TO THE REQUIREMENTS OF THE FAIR WORK ACT The FW Act also contains provisions in relation to workplace discrimination, which is considered to occur when an employer takes adverse action against an employee (or prospective employee) because of attributes of the employee such as race, religion, sexual preference, pregnancy or age. Australian employees have the benefit of Federal legislation which requires the payment of statutory superannuation contributions by employers on behalf of their employees. Work health and safety legislation imposes quite strict obligations on all employers to ensure the safety of their employees while at work. There has been a move towards harmonisation of work health and safety laws across Australia, which has occurred in most jurisdictions apart from Victoria and Western Australia. EMPLOYEE-RELATED TAXES Since 1 July 2000, Australia has used the payas-you-go (PAYG) tax withholding system. The PAYG regime requires employers to withhold tax from the remuneration paid to employees and to remit the tax to the Australian Taxation Office on a regular basis. The amount withheld is calculated according to scales prescribed by the Commissioner of Taxation. Fringe benefits tax is payable by employers on the value of certain fringe benefits provided to employees in connection with employment. Fringe benefits are widely defined to include a range of privileges, services or facilities including the private use of motor vehicles, interest-free or low interest loans or accommodation. Payroll tax is a State tax levied monthly by each State on the payroll of employers who pay wages in excess of a prescribed threshold. The rate of tax imposed varies from State to State. Generally, States will require employers to register when monthly wage payments reach certain levels. Federal legislation requires employers to provide a prescribed minimum level of superannuation contribution for each of their employees. Where employers provide less than the required minimum level of support, they will be liable to pay a nondeductible charge called the Superannuation Guarantee Charge. The prescribed minimum level of superannuation support that employers must provide for each of their employees is currently 9.5% of an employee s notional earnings base, which, for most employees, is the remuneration earned in their normal working hours. There are also limits on the maximum amount of superannuation contributions made for the benefit of an employee that an employer can claim as a tax deduction. The maximum limits differ depending upon the age group to which each employee belongs. 41 Doing Business in Australia

43 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW Saul Harben National Practice Group Leader Workplace Relations, Employment & Safety T sharben@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

44 BUSINESS MIGRATION INTERNATIONAL BUSINESS PEOPLE HAVE, OVER THE YEARS, CONSIDERABLY BOOSTED THE SKILLS BASE OF THE AUSTRALIAN ECONOMY International business people have, over the years, considerably boosted the skills base of the Australian economy, expanded local business and export activity, and maximised employment opportunities for Australians. Although there are a number of ways that international business people can enter Australia, all are required to have a visa. The Australian Government has developed a number of reforms in legislation, immigration policy and procedure in recent years to encourage business migration and make it easier to enter Australia for business purposes. This has particularly been the case for business visitors and for those entering for business purposes temporarily. All visa applicants are required to meet public interest criteria concerning health, character, national security and foreign relations. The longer the period of stay, the more rigorous the criteria. While our firm presently does not undertake business immigration law work, we have a close affiliation with specialists in the area to whom we can refer clients if they have any immigration law issues. 43 Doing Business in Australia

45 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW Bruce Cooper Deputy Chief Executive Partner T bcooper@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

46 FUNDRAISING LAWS SUBJECT TO A NUMBER OF EXEMPTIONS, A PERSON MUST NOT MAKE AN OFFER OF FINANCIAL PRODUCTS UNLESS A DISCLOSURE DOCUMENT IS PREPARED Australia is generally regarded as having an issuerfriendly legal regime in respect of fundraising which over the years has been conducive to primary and secondary equity capital raisings when market conditions have permitted. The Corporations Act regulates all fundraising activity within Australia. It applies to all financial products offered within Australia whether or not the financial products are issued by an Australian or a foreign issuer. Financial products is defined to include shares, units in a trust, partnership interests, debentures and many other financial instruments. The rules apply to offers of, or invitations to subscribe for, financial products that are received in Australia, regardless of where any resulting issue, sale or transfer occurs. NO OFFERS WITHOUT DISCLOSURE TO INVESTORS Subject to a number of exemptions, a person must not make an offer of financial products unless a disclosure document is prepared and in certain circumstances lodged with ASIC. The disclosure document must comply with the content requirements set out in the Corporations Act, and a number of procedural steps must be followed. Unless an exception applies, disclosure to investors is required for an off-market offer of new or existing financial products. Disclosure is not generally required for an offer for sale of existing financial products, but in the case of sales within 12 months of the issue of securities (ie. shares or debentures) and off-market sales of securities by controllers, disclosure may be required. There are two types of disclosure documents for securities in Australia: offer information statement (OIS) and a prospectus. If a disclosure document is required, the general rule is that a prospectus must be prepared for the offer unless an OIS can be used. There are different varieties of prospectus including a full prospectus, a short form prospectus and a transaction specific prospectus. FULL PROSPECTUS A full prospectus is typically used for an initial public offering of securities on ASX. The Corporations Act provides general disclosure requirements for full prospectuses which include all of the information that investors and their professional advisers may reasonably require to make an informed assessment of: the rights and liabilities attaching to the securities offered; and the assets and liabilities, financial position and performance, profits and losses and prospects of the body that is to issue the securities. 45 Doing Business in Australia

47 AUSTRALIA IS GENERALLY REGARDED AS HAVING AN ISSUER-FRIENDLY LEGAL REGIME IN RESPECT OF FUNDRAISING SHORT FROM PROSPECTUS A short form prospectus is the same as a full prospectus except that it incorporates by reference certain documents already lodged with ASIC. Therefore, rather than setting out all of the details of a document in the prospectus, it may simply refer to a document that has been lodged with ASIC. TRANSACTION SPECIFIC PROSPECTUS Transaction specific prospectuses have lesser disclosure requirements than a normal prospectus and may only be issued by bodies that are already listed on a stock exchange. An OIS can be used to raise up to A$5 million and has fewer information content requirements. EXCEPTIONS An offer of financial products does not require disclosure if the offer is excluded under the Corporations Act or ASIC grants general or specific relief for certain offers (eg. in relation to certain employee incentive schemes). These exceptions include: where the amount payable on acceptance of the offer for the financial product exceeds A$500,000 or when added to amounts previously paid by a person for the same class of financial product that is held by that person adds up to at least A$500,000; an offer to an investor whose gross income for each of the previous two financial years was at least A$250,000 or who has net assets of at least A$2.5 million, certified by a qualified accountant; and There are also a range of exceptions potentially open to foreign issuers and for issues under takeovers or schemes of arrangement. In eligible cases, rights issues and entitlement offers can be conducted without formal disclosure documents. Similarly, security purchase plan offers are able to be conducted without formal disclosure documents in eligible cases. The combination of these exceptions means that the legal regime in Australia is more favourable to equity capital raising activity compared to many overseas jurisdictions and facilitates offers to be conducted relatively quickly and, in the case of secondary offerings (ie. placements, rights issues, entitlement offers), often without a formal prospectus or PDS. LIABILITY There are two main ways in which an issuer can be liable in connection with offering securities under the Corporations Act: by offering securities without a disclosure document when one is required; or by incorporating misstatements in, or making omissions of required information from, a disclosure document. Contravention may give rise to civil or criminal liability. In certain circumstances, the issuing company s directors, advisors and underwriters may also be exposed to liability. A disclosure document for financial products other than securities is called a Product Disclosure Statement (PDS). The Corporations Act also contains restrictions on unsolicited offers of financial products and advertisements regarding offers of financial products. offers to other specified sophisticated or institutional investors (including stockbrokers, certain pension and life insurance funds, and persons who control at least A$10 million for the purpose of investment in securities). 46 Doing Business in Australia

48 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW Stuart Byrne Partner T sbyrne@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

49 TAKEOVER LAWS THE TAKEOVER RULES APPLY TO ACQUISITIONS WHETHER BY AUSTRALIAN RESIDENTS OR FOREIGN INVESTORS The Australian takeover rules under the Corporations Act regulate acquisitions of interests in Australian companies or managed investment schemes, including Australian REITs listed on the ASX and unlisted Australian companies with more than 50 members (regulated entities). While the rules are at times technical, the acquisition process is usually quite certain and fundamentally the same methods of acquisition have been used in the last 20 or so years. A person is prohibited from acquiring (except pursuant to a limited number of exceptions) a relevant interest in a regulated entity if, because of the transaction, any person s voting power in the regulated entity increases: from 20 percent or below to more than 20 percent; or from a starting point that is above 20 percent and below 90 percent. A person s voting power is broadly their relevant interest plus their associates relevant interests in voting securities in the regulated entity. The relevant interest concept is broad. Basically a person has a relevant interest in securities if they hold the securities, or have the power to control the exercise of votes attached to those securities or the disposal of the same. It can be traced through corporate groups and arrangements with third parties. The takeover rules apply to acquisitions whether by Australian residents or foreign investors. Offshore acquisitions can have downstream Australian takeover consequences, particularly where the overseas target has, directly or indirectly, voting power of more than 20 percent in an Australian regulated entity (underlying control principles). The rules are designed to ensure that the market for control of regulated entities is efficient, competitive and informed, and that all security holders are afforded reasonable and equal opportunities to participate in proposed acquisitions and are given adequate information and time to consider proposals under which a person may acquire a substantial interest in a regulated entity. There are a number of exceptions to the takeover prohibition. These include off-market and onmarket takeover bids, court approved schemes of arrangement, target shareholder approved acquisitions, selective reductions of capital and three percent acquisition creep every six months. In addition, ASIC has power to exclude or modify the operation of the takeover rules. If 100 percent control is the objective, there are two types of compulsory acquisition (leaving aside a scheme of arrangement or a selective reduction of capital which are by their nature compulsory), but generally these minority squeeze-outs do not apply until the acquirer has a minimum of a 90% relevant interest in relevant classes of the target s shares. Acquisitions of voting power in a listed regulated entity of, or beyond, five percent also require disclosure to the ASX and the relevant entity. The Takeovers Panel also generally expects disclosure of economic interest held through derivatives, in the context of a control transaction, where the combined swap long position and physical position exceeds five. A number of regulatory bodies are involved in the takeover process: ASIC, which regulates compliance with the Corporations Act and has power to modify and grant exemption from compliance with provisions of the Corporations Act. ASIC can post vet bidders and targets statements and reviews scheme documents and statements made in the conduct of a takeover under its Truth in Takeovers policy (a policy which requires market participants to meet publicly released statements as to their future intentions). The Takeovers Panel which is responsible for reviewing conduct during takeovers both in terms of whether the conduct complies with the letter of the law or is otherwise unacceptable (ie. offends the underlying control principles). It has power to make a broad range of orders if it determines that unacceptable circumstances exist. Its powers may be exercised on the application of ASIC, a shareholder or an interested party but not by the Panel of its own volition. 48 Doing Business in Australia

50 A PERSON S VOTING POWER IS BROADLY THEIR RELEVANT INTEREST PLUS THEIR ASSOCIATES RELEVANT INTERESTS IN VOTING SECURITIES IN THE REGULATED ENTITY The ASX, which, in part, regulates what listed entities are permitted to do. The Foreign Investment Review Board (FIRB)/Treasury, which considers applications for foreign investment approval. The Australian Competition and Consumer Commission (ACCC), which regulates our anti-trust laws. ASIC and the ASX also monitor compliance by listed entities with their continuous disclosure obligations, that is, the obligation to notify the market immediately it becomes aware of any information that a reasonable person would expect would have a material effect on the price or value of the entity s securities. TAX SCRIP RELIEF In relation to Australian income tax, target security holders who would otherwise be subject to Australian capital gains tax on selling their shares may qualify for CGT roll-over relief (scrip for scrip relief) where they receive equivalent securities in the purchasing entity in exchange for their target securities. This scrip relief effectively means that the target security holders will defer any capital gains tax liability until they dispose of their securities in the purchasing entity. One of the key requirements for scrip for scrip relief to apply is that the purchasing entity must, as a result of the arrangement, acquire 80% or more of the voting securities in the target entity. 49 Doing Business in Australia

51 GET IN TOUCH Rory Moriarty National Practice Group Leader Corporate/M&A T rmoriarty@claytonutz.com Rod Halstead Director - Strategic Corporate/M&A T rhalstead@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

52 GENERAL TAX ISSUES INCOME TAX REPRESENTS APPROXIMATELY 70 PERCENT OF THE TOTAL TAX REVENUE OF THE AUSTRALIAN FEDERAL GOVERNMENT Income tax represents approximately 70% of the total tax revenue of the Australian Federal Government. Of that, personal income taxes account for 48%, with a further 2% from taxes levied on superannuation and 1% from taxes on employee fringe benefits. Company income taxes account for 22% of total taxation revenue. The remaining 28% comes mainly from Goods and Services Tax (GST) and excise and customs duties. Although GST is imposed by the Federal Government and is collected by the ATO, most GST receipts go to State and Territory Governments. This summary touches on some of the main tax issues which may be relevant to a foreign entity that invests in Australia, either directly through a branch or indirectly through an interest in, or ownership of, an Australian incorporated company. Australia is a party to international double tax agreements which may impact on the applicable taxation treatment. It is likely that there will be many other taxation issues affecting a particular investment in Australia that are not referred to in this summary. TAXES Different forms of direct and indirect taxes are levied by both the Federal, State and Territory Governments which include the following: Australian Federal Government Income tax; Fringe benefits tax; Superannuation tax; Indirect taxes (on petrol, oil, tobacco and alcohol, customs duty); GST; and Petroleum Resource Rent Tax (PRRT). State and Territory Governments Employers payroll tax; Land tax; Stamp duty; Gambling taxes; and Motor vehicle taxes. TAXATION OF INCOME AND GAINS The general rule for Australian residents (excluding temporary residents) is that they are taxed on their foreign and domestically-earned income and capital gains. Particular capital gains tax rules apply if an individual ceases to be resident (which can result in the taxation of capital gains) and where an individual or an entity become permanent residents of Australia. Non-residents who do not become Australian residents (temporary or permanent) are generally only taxed on their Australian sourced income, excluding dividends, royalties and interest which are subject to withholding tax. So, non-residents are generally not taxed on their foreign income or on any capital gains from their assets that are not taxable Australian property. Similar treatment may apply to individuals who are or who become temporary residents of Australia for tax purposes (regardless of the time spent in Australia). Individuals who hold a temporary visa and fall within the definition of temporary resident may be exempt from Australian tax on income from sources outside Australia, but will be taxed in respect of employment or services income earned while a temporary resident. 51 Doing Business in Australia

53 In addition, capital gains made and losses incurred by eligible temporary residents from their assets (assets that are not taxable Australian property) are not recognised for Australian tax purposes. An exception applies to gains from employee shares or options attributable to employment or services in Australia. Where all or part of a relevant employment is performed in Australia, employee share or option discounts may be partially taxable or exempt, depending on the nature and timing of the discount benefits, and of any gains from the shares or options (and other factors). Certain capital assets are taxable Australian property so that capital gains are assessed to non-resident (as discussed at 13.5 below). Interest payments by temporary residents to non-resident lenders are not subject to interest withholding tax obligations. TAXATION PERIODS AND SCALES A company is an Australian resident if it is incorporated in Australia or has its central management and control in Australia and either carries on business in Australia or has its voting power controlled by Australian resident shareholders. The standard income year for the taxation of income and gains is the 12 month period ending 30 June, but approval may be obtained to adopt a different accounting period ending on another date. Typically, approval is given where a foreign parent company has a tax year ending on another date. A graduated income tax scale applies to individuals. Resident individuals are entitled to a tax-free threshold in the rates scales. Non-resident individuals are subject to the graduated income tax scale, but without the tax-free first step and are not liable to pay the Medicare levy. The top personal marginal rate is currently 45% but, with the addition of the Medicare levy (for resident taxpayers), effectively becomes 47% for most residents. The Federal Budget introduced the temporary budget repair levy, a 2% levy on the top marginal tax rate. This additional charge is due to expire in July 2017 but in the interim the effective top marginal tax rate, accounting for both the Medicare and temporary budget repair levies, is 49%. Companies (resident and non-resident) are taxed at a single specified flat rate, for both ordinary income and capital gains. Since 2001 the corporate rate has been 30%, although small businesses have a reduced tax rate of 28.5%. Following the release of the Federal Budget, it has been proposed that the corporate tax rate be reduced to 25% by Where a foreign enterprise has a branch office (permanent establishment) in Australia, and a double taxation agreement applies, profits are attributed to the permanent establishment as they would be if the permanent establishment were a separate enterprise dealing independently with its head office and other parties. The foreign enterprise is taxed in Australia, in relation to the profits of its permanent establishment, at the general corporate rate. Gains on CGT assets used by a permanent establishment in conducting its business are also taxed in Australia. If a foreign enterprise has no Australian permanent establishment, earns business profits sourced in Australia and a double tax treaty applies, its effect will generally be that the business profits will not be subject to Australian tax. BUSINESS DEDUCTIONS Taxable income for both residents and nonresident individuals and companies is calculated by deducting allowable deductions from assessable income. Partnerships and trusts calculate net income in a similar manner. Typically, an accruals basis of taxation will apply to business taxpayers, but in accordance with particular taxation principles, rather than the financial accounts of the enterprise. Allowable deductions include deductions for expenses incurred in carrying on a business, capital allowances for depreciating assets, and tax losses from previous years, which may be carried forward to be offset in later years (indefinitely, until absorbed). However, a distinction is drawn between revenue losses and net capital losses. Revenue losses may be carried forward for offset against later assessable income and gains. A net capital loss carried forward may be offset only against later year capital gains. Special integrity rules or restrictions apply to the prior year tax losses of companies and trusts to prevent trafficking in losses. 52 Doing Business in Australia

54 COMPANIES (RESIDENT AND NON-RESIDENT) ARE TAXED AT A SINGLE SPECIFIED FLAT RATE, FOR BOTH ORDINARY INCOME AND CAPITAL GAINS CAPITAL GAINS TAX Capital assets (CGT assets) are subject to capital gains tax where a taxable event (a CGT event) occurs and a capital gain or loss is recognised. A wide definition of CGT asset applies but capital gains or losses are not recognised for CGT assets acquired before 20 September Certain exemptions apply and there are various categories of CGT rollovers (tax deferrals). Duplication is prevented by a rule that gives priority to ordinary income taxation if a transaction would otherwise be taxed under both regimes. Capital gains (and losses) of foreign residents are only recognised in relation to certain Australian assets. The only categories of CGT assets relevant to foreign residents now are: taxable Australian real property, indirect interests in Australian real property, the business assets of an Australian permanent establishment, and any options or rights to acquire such assets. Indirect interests in real property are non-portfolio interests (10% or greater) in interposed entities whose assets are wholly or principally Australian real property, held directly or through other entities. Capital gains are offset against any capital losses (current or prior year) and the net capital gain for the year is included in assessable income. A net capital loss may be carried forward to a later tax year, but may be offset only against a capital gain in a later year. The net capital gain of a corporate taxpayer is taxed at the general corporate tax rate. Resident individuals may qualify for a 50% discount (Discount) in the assessable capital gain for assets held for at least 12 months, but that discount does not apply to corporate taxpayers. The indexation of capital gains for inflation, and an averaging calculation system for individuals, have been discontinued. Various forms of capital gains tax rollover relief are provided. These have the effect of deferring or disregarding a capital gain or loss with respect to a particular asset or replacement asset. Certain rollovers facilitate corporate restructures that satisfy prescribed conditions, generally based on the economic continuity of the ownership interests held. Share for share and unit for unit exchanges, and demerger relief, are often important elements of corporate reorganisations. The measures regarding taxable Australian property apply to foreign residents and the trustees of foreign trusts. Foreign investors in trusts will need to determine whether or not their trust interest constitutes an indirect interest in Australian real property. A specific exclusion applies in respect of interests of foreign residents in a fixed trust if a gain made in respect of the interest is attributable to CGT assets of the fixed trust that are not taxable Australian property. The trustee of the fixed trust is also not taxed in respect of the relevant taxable event. Further requirements apply where the asset of the fixed trust is itself an interest in an underlying fixed trust. A new withholding regime, effective from 1 July 2016, applies a 10% withholding obligation (taxed at the source) to disposals of taxable Australian real property (except residential property) by nonresidents. Gains realised by non-resident and temporary resident individuals are not eligible for the Discount. Australian multinational companies and their controlled foreign companies are, subject to certain conditions entitled to capital gains tax reduction in connection with the sale or disposal of non-portfolio (10% or more) share interests held in a foreign company with an active business. TAXATION OF BUSINESS ENTITIES Companies Companies (resident and non-resident) are generally treated as separate taxpayers. The tax consolidation regime allows for 100%-owned Australian companies, partnerships and trusts to elect to be taxed for income tax purposes as a single consolidated entity as though subsidiary members were merely divisions of the head company. Tax consolidation is also available for groups wholly owned by foreign parents where there is no single Australian resident holding company multiple entry consolidated (MEC) groups. Where an election is made, all wholly-owned entities must be included in the consolidated group. Complex rules deal with the formation of consolidated groups and the entry of new members, as well as the exit of members from the group. Tax losses in relation to a consolidated group are also governed by an elaborate regulatory regime. The head company of a consolidated group is liable, in the first instance, for all group tax liabilities. In the event of default, however, subsidiary members may have a joint and several liability, but this may be prevented by the operation of a valid tax sharing agreement between group members that deals with the allocation of liabilities between group members. In relation to consolidated groups there have been a number of reforms that are proposed to be introduced to minimise any unintended tax benefits that create tax planning opportunities that may arise from the current provisions. Although certain distinctions are maintained for taxation purposes between private and public companies, the same general corporate rate of taxation applies to both. Generally, a public company is one listed on an official stock exchange (where the company is not directly or indirectly closely held in relation to the paid up capital, voting power and dividend rights throughout the year). Private companies are those that are not public companies. 53 Doing Business in Australia

55 Trust Generally, trusts are not treated as taxpayers and, although a trust income tax return is required, distributions of trust income are taxed at the level of the beneficiaries. The recently enacted attribution managed investment trust (AMIT) legislation has established an alternative mechanism for the taxation of certain trusts. This regime operates in parallel with the conventional present entitlement methodology. Under the present entitlement approach, the trustee may be taxed on the net tax income where there are no beneficiaries presently entitled to trust income. They may also be taxed on behalf of certain beneficiaries, including non-resident beneficiaries. To this extent, pass through taxation applies to fixed trusts, discretionary trusts and unit trusts that fully distribute trust income. Certain corporate unit trusts and public trading trusts are, however, taxed as companies. The alternative approach established by the AMIT legislation applies only to managed investment trusts (MITs), as defined, that make an irrevocable election into the AMIT regime. This method does not depend on the beneficiaries present entitlement and there is no requirement to make a distribution to the beneficiaries. Rather, if the beneficial entitlements to the income and capital of the trust are clearly defined, the trustee will generally not be taxable, provided there has been a fair and reasonable allocation of the taxable income to the beneficiaries in any given income year. MITs are subject to certain tax rules that do not apply to other types of trust. Importantly, MITs are subject to a specific withholding regime (at potentially concessionary withholding tax rates) that applies when distributions are made to nonresidents. The regime applies an administrative obligation on the trustee to withhold tax from any fund payment where the recipient of the payment has an address outside of Australia or if the trustee is authorised to make the payment to a place outside of Australia. A fund payment is a distribution of net income of the Fund (other than interest, dividends, royalties and capital gains from non-taxable Australian property). A separate withholding tax regime exists for interest, dividends and royalties. The tax rate that applies to the withholding will depend on where the non-resident investor resides for tax purposes. If the non-resident investor is resident in a country with which Australia has an Exchange of Information agreement, the rate of withholding tax will be 15%. A concessional withholding rate of 10% applies if the MIT holds only newly constructed energy efficient commercial buildings. In all other circumstances, the rate that applies is 30%. Superannuation funds Superannuation funds, approved deposit funds and pooled superannuation trusts are subject to special taxation provisions. These categories are linked to the regulation of resident superannuation funds by the Australian Prudential Regulation Authority. Partnerships Partnerships are subject to pass through taxation treatment (ie. the shares of partnership profit or loss are taxed at the level of the partners), although a partnership is required to file, what is in effect, an information tax return. Capital gains and losses in relation to partnership interests and CGT assets of a partnership are made by the partners individually. Certain categories of foreign hybrid limited partnerships and limited liability companies may qualify for similar partnership treatment. Limited partnerships that are corporate limited partnerships are, however, taxed as companies. Joint ventures A joint venture is typically where each venturer contributes something to the joint venture and each venturer shares in the output of the joint venture. Accordingly, participants in a joint venture who receive income jointly may be subject to taxation as tax partners. In other circumstances, joint venturers who separately derive their individual shares of the joint venture proceeds are, in all respects, treated as separate taxpayers. Dividends paid by a comapny Under the imputation system of taxation, dividends paid by Australian resident companies may be franked with an imputation credit that reflects the tax paid at the corporate level on the profits distributed. Before payment, companies determine whether dividends are wholly or partly franked, depending on the level of franking credits available. Individual shareholders who receive franked dividends are required to include both the cash dividend and the attached franking credits in their assessable income. They are then entitled to a tax offset equal to the franking credit that reduces or eliminates the tax payable by them on the dividend. Individual shareholders are generally entitled to refunds where the franking offset is greater than the tax payable. In general, different rules apply depending on whether dividends are paid to individuals, trusts, partnerships, superannuation funds and related entities, life assurance companies or corporate shareholders. Companies and other corporate tax entities that receive franked dividends are required to apply the same treatment as that which applies to individuals; ie. the franked distribution must be grossed up by the attached franking credits and included in the company s assessable income and a tax offset is applied to reduce the corporate tax payable. Companies and other corporate tax entities are not, however, entitled to 54 Doing Business in Australia

56 DIVIDENDS PAID BY AUSTRALIAN RESIDENT COMPANIES MAY BE FRANKED WITH AN IMPUTATION CREDIT a refund for excess franking offsets (but in certain circumstances, the excess franking offsets may be converted into a carry forward tax loss). Where the recipient company is a franking entity, the franking credits provide a franking credit of an equivalent amount in the franking account of the recipient company, enabling it to similarly frank distributions made by it. Special rules govern the extent to which distributions may be franked. Under a benchmark rule, all frankable distributions made by an entity during a franking period must be franked to the same percentage. The object of the rule is to ensure uniformity of the franking of distributions to recipients and to prevent streaming of franking credits in ways that produce taxation advantages. A range of additional protective measures seeks to prevent the manipulation of franking benefits. Dividend withholding tax is potentially payable in respect of any part of a dividend paid by a resident company to a non-resident shareholder, to the extent that the dividend is not franked. Nonresident shareholders do not qualify for imputation credits or franking rebates, but a dividend paid to a non-resident shareholder is exempt from dividend withholding tax to the extent that the dividend is franked. Withholding tax is imposed on the gross amount of the unfranked dividend. The general dividend withholding tax rate is 30% but, for dividends paid to residents of double tax treaty countries, the rate provided in the treaty applies (generally 15% or lower). Dividends (whether franked or not) paid by an Australian company to an Australian permanent establishment of a foreign resident (ie. are attributable to the branch) are not subject to dividend withholding tax. Instead, they are included in the assessable income of the non-resident and are taxed by assessment. Where the dividend is franked, the non-resident may be entitled to a franking tax offset. A conduit foreign income regime currently applies to certain distributions by an Australian company to a foreign resident shareholder, with the result that the amounts are not assessable income and unfranked distributions are not subject to dividend withholding tax. Broadly, conduit foreign income is confined to offshore income and gain amounts that would not ordinarily be taxed in Australia if the company were non-resident; for example foreign branch income, foreign non-portfolio dividends (on a voting interest of at least 10%) and gains from the sale of non-portfolio interests in foreign companies that have an underlying active business. TAXATION OF FINANCIAL ARRANGEMENTS In its most basic form, a financial arrangement is an arrangement pursuant to which a taxpayer has a right to receive, or an obligation to provide, a financial benefit of a monetary nature. Broadly, where the rules apply, the overall gain from a financial arrangement will be assessable and the overall loss from a financial arrangement will be deductible (subject to certain exceptions). The gain or loss will be spread over the term of the financial arrangement in accordance with one of the methods set out in the provisions. The rules mandatorily apply to all financial arrangements that certain taxpayers start to hold in an income year and to certain financial arrangements that are qualifying securities. There are a number of exceptions to the application of these rules. DEBT AND EQUITY CLASSIFICATION Shares and debt interests in companies, and debt interests in entities, are subject to debt/equity classification rules that apply for various taxation purposes. The provisions include an equity test, for the purpose of identifying interests that are in-substance equity interests, and a debt test for the purpose of identifying interests that are insubstance debt interests. If a particular instrument or interest satisfies both tests, characterisation as a debt interest prevails. An interest in a company that is not a share may nevertheless be treated as equity and an interest that has the legal form of a share may be classified as a debt interest rather than an equity interest. Classification as a debt interest or an equity interest is material to the treatment of the return on the instrument as an amount that is either interest or a dividend for tax purposes. In turn, this treatment is relevant to the assessability of the return, the portion/percentage of distributions that are frankable, allowable deductions for interest, the thin capitalisation measures (discussed later) and also the application of the relevant withholding tax. 55 Doing Business in Australia

57 DEBT FUNDING OF AN AUSTRALIAN COMPANY Interest withholding tax (IWT) is typically imposed on interest paid by an Australian resident as an expense of an Australian business to a nonresident lender that does not have a permanent establishment in Australia. It also applies to interest paid to such a non-resident lender by a non-resident borrower where it is an expense of an Australian branch of the non-resident borrower. In addition, the conditions for liability extend to interest incurred by a non-resident borrower as an expense of an Australian business that is derived by a foreign permanent establishment of an Australian resident. A flat rate of 10% applies on the gross amount of the interest paid. In most cases this rate is not affected by double taxation treaties but certain treaties provide exemptions for interest paid to foreign banks and financial institutions. Interest includes amounts in the nature of interest and amounts deemed to be interest. The debt/equity tests also apply when classifying amounts payable. Also, a concessional IWT rate of 5% applies to foreign bank branches borrowing from their overseas head office. If, however, the beneficial owner of the interest (the lender) has a permanent establishment in Australia and the interest is effectively connected with the permanent establishment, the interest is taxable by assessment in Australia and is not subject to interest withholding tax. An exemption is available for interest paid on certain publicly offered debentures, global bonds and debt interests. Thin capitalisation rules impose certain limitations on allowable deductions for interest and other debt expenses, based on acceptable levels of debt and equity (gearing). The object is to prevent excessive reliance by Australian businesses on the taxation treatment of debt funding, relative to the treatment of equity funding. The measures apply to foreign entities investing directly in Australia (through a branch), foreigncontrolled Australian entities, as well as Australian enterprises with controlled foreign investments. Where applicable, the rules disallow debt deductions that an entity can claim against Australian assessable income where the entity s debt used to fund Australian assets exceeds the limit prescribed. The rules distinguish between different categories of foreign-controlled Australian entities and Australian-controlled foreign entities, taking account of whether the entities are Authorised Deposit-taking Institutions (ADIs) or non-adi entities (including non-adi financial entities). Under a threshold rule, the provisions apply only where the debt deductions of an entity (with associates) are greater than A$2,000,000 Depending on the type of entity, different rules apply for the calculation of the maximum allowable debt. In a typical case involving an Australian entity controlled by a non-adi foreign entity, the maximum allowable debt is the greater of either a specified safe harbour debt amount or an arm s length debt amount. Broadly, the safe harbour debt amount is set at 60%. Where the maximum allowable debt is exceeded, the rules limit interest deductions on a proportional basis to the extent that the maximum allowable debt is exceeded. The debt/equity tests apply in characterising interests held and comprehensive rules deal with associated parties. Where a consolidated group is involved, the thin capitalisation rules apply to the head company of the consolidated or MEC group. A comprehensive regime applies to the taxation of foreign exchange gains and losses on transactions for most taxpayers. These measures deal with the inclusion in assessable income of gains from forex realisation events, and allowable deductions for losses arising from a forex realisation event. The regime also provides a general translation rule under which foreign currency denominated amounts are converted into Australian dollars, or an applicable functional currency, for tax purposes. 56 Doing Business in Australia

58 UNDER THE PAYG SYSTEM MOST BUSINESS PAY CORPORATE INCOME TAX, FRINGE BENEFITS TAX, GST ON A QUARTERLY BASIS ROYALTIES PAYABLE TO A FOREIGN COMPANY If royalties are paid by an Australian company to a foreign resident, the royalties will be subject to royalty withholding tax, at the general rate of 30%, but at a reduced rate (generally 5 to 15%) under an applicable double tax treaty. However, where the beneficial owner of the royalties carries on business in Australia through a permanent establishment and the property or right in respect of which the royalties are payable is effectively connected with that permanent establishment, the royalties will be taxed by assessment in Australia. A withholding tax regime applies to certain other categories of foreign resident payments. The object of these measures is to bring particular categories of assessable income of foreign residents outside the existing withholding tax categories, within a withholding regime. The categories of payments to foreign resident entities are prescribed by regulations, which also set the rate of withholding. The first three categories are payments for promoting casino gaming junkets (3%), payments for entertainment and sports activities (ordinary tax rates) and payments under contracts for the construction, installation and upgrading of buildings, plant and fixtures (5%). TRANSFER PRICING International transfer pricing (profit shifting) occurs when taxable profits are shifted outside the scope of Australian tax through the use of non-arm s length prices for goods or services passing between foreign entities and Australian entities or branches. Australian tax may be reduced where the prices charged by a foreign parent or entity to an Australian company, or charged between an overseas head office and a local branch, are excessive, or if payments received are inadequate. Low or no-interest loans may also have the effect of redirecting profits. In certain circumstances, the Commissioner of Taxation may substitute for tax purposes arm s length prices in relation to the supply or acquisition of property or services under an international agreement (defined broadly). Where a challenge to the Commissioner s assessment is litigated, the Courts have indicated that they will rely heavily on the testimony of relevant experts (Chevron Australia Holdings Pty Ltd v Commissioner of Taxation (No 4) [2015] FCA 1092). Further, it is imperative that the expert(s) address the relevant question namely: what the consideration would have been if it had been negotiated at arm s length. Interestingly, the Court in Chevron accepted evidence that lenders perform their own independent credit analysis and do not rely on the published reports of ratings agencies. Accordingly, the practices and procedures of the ratings agencies were not relevant. This presents some uncertainty going forward as it is not clear how an arm s length interest rate can be practically determined without recourse to independent expert analysis. Considerable emphasis is placed on the need for taxpayers to create contemporaneous documentation (documentation that is in place when the relevant tax return is lodged) that supports an acceptable pricing methodology. This means that prices payable by an Australian entity or branch for goods or services acquired from a non-resident should be substantiated with documentation which demonstrates that the prices have been established on an arm s length basis, in accordance with an acceptable pricing methodology. A number of reforms have recently been introduced which include: the endorsement of OECD material; and the failure to prepare any contemporaneous documentation means that a taxpayer will not have a reasonably arguable position and in the event of an additional tax assessment being issued, the taxpayer will also be liable for a base tax penalty. MULTINATIONAL TAX AVOIDANCE Multinational tax avoidance has become a major focus area for Government. In 2015, the Government introduced the Multinational Anti- Avoidance Law (MAAL). MAAL is designed to prevent multinationals from avoiding their taxable presence in Australia and is intended to ensure that they pay tax on the profits sourced from their economic activities in Australia. MAAL only applies to significant global entities (foreign entities or entities which are part of a global group that have an annual global income in excess of A$1 billion) where: a foreign entity makes certain supplies to an Australian customer; activities are undertaken in Australia directly in connection with the supply; some or all of those activities are undertaken by an Australian entity (or Australian permanent establishment) that is associated with or commercially dependent on the foreign entity; the foreign entity derives income from the supply; and some or all of that income is not attributable to an Australian permanent establishment of the foreign entity. 57 Doing Business in Australia

59 MAAL also includes a purpose test that is satisfied if a principle purpose of the scheme is to obtain a tax benefit for the taxpayer(s) in connection with that scheme. If a scheme is found to contravene the MAAL provisions, the Commissioner has the power to cancel the tax benefit obtained from the scheme and significant penalties of up to 100% of the tax avoided may apply (or even up to 120% if aggravating factors are present). Recently, the Government proposed further unilateral measures designed to combat multinational tax avoidance. The Federal Budget papers endorsed the OECD s 2015 Base Erosion and Profit Shifting (BEPS) Final Reports and have proposed to introduce a UK style Diverted Profits Tax. In its current form, the proposed tax would apply to large companies with global revenue of A$1 billion or more where arrangements with related parties result in: less than 80% of tax being paid overseas than would otherwise have been paid overseas; where it is reasonable to conclude that the arrangement is designed to secure a tax reduction; and that do not have sufficient economic substance. If the arrangements fall within the ambit of the tax, a 40% rate applies, a rate that is significantly higher than the prevailing corporate tax rate. TAX ADMINISTRATION A uniform instalment withholding regime, the pay-as-you-go (PAYG) regime, applies to a large number of withholding payments, including payments by employers to employees. Employers who are required to make deductions from the wages and salaries of employees must register with the ATO for PAYG withholding and must report their periodic withholding obligations, either on a Business Activity Statement (BAS), where registered for GST, or an Income Activity Statement (IAS), where not registered for GST. In addition, all businesses that receive goods or services are required to withhold tax at the top rate plus the Medicare and temporary budget repair levies from the payment if the supplier does not quote an Australian Business Number (ABN) on its invoice or some other document in connection with the supply. An ABN is a single identifier for use in business dealings with other businesses, the ATO and other Federal Government agencies. Foreign companies that make supplies that are connected with Australia or carry on business in Australia even for a short period of time are generally entitled to apply for an ABN. A Tax File Number (TFN) regime applies to certain categories of income, including salaries and wages and various types of investment income, for non-business taxpayers who do not have an ABN. Where a valid TFN is quoted, specific rates of withholding tax apply. Where a TFN is not quoted, the rate of withholding is set at the top marginal tax rate plus the Medicare and temporary budget repair levies. PAYG instalments were originally required to be paid quarterly, however the 2013 Budget proposed making this obligation monthly. These changes have been rolled out in a staggered manner such that most entities are now obliged to make their payments monthly. Smaller entities that do not exceed A$1 billion in base assessment instalment income (threshold) are not subject to this requirement. From 1 January 2017, entities that exceed a threshold of A$20 million will need to pay monthly. The PAYG system also provides that most businesses pay corporate income tax, fringe benefits tax, and GST on a monthly basis, and these amounts are generally reported in a BAS. Provision exists for a branch of a registered entity to be registered as a PAYG withholding branch. Under this system the branch may submit a separate BAS, notifying the PAYG withholding obligations of the branch. In general, non-residents are required to file annual income tax returns where any income is derived from a source in Australia (other than exempt income or income subject to withholding tax). A system of self-assessment applies. FRINGE BENEFITS TAX Fringe benefits tax (FBT) is a separate Federal taxation regime under which the tax liability is imposed on the employer, not the employee, in relation to a wide range of fringe benefits. FBT is imposed on the designated taxable amounts of the particular benefit, grossed-up under a formula intended to result in a level of tax that equates with the cash equivalent of the fringe benefit. The FBT rate applied to the grossed-up amount is 49% for the FBT year, and will revert to 47% in later FBT years. Generally, employers are entitled to income tax deductions for the cost of providing fringe benefits and the amount of FBT paid. Separate rules apply regarding self-assessment by the employer and the quarterly instalments of tax payments required. The fringe benefits tax year ends on 31 March. 58 Doing Business in Australia

60 CUSTOMS DUTY IS PAYABLE AT THE TIME GOODS ENTER AUSTRALIA PAYROLL TAX Payroll tax is a State or Territory tax levied at specified rates by reference to annual wages and salaries of employees that exceed prescribed threshold amounts in each State or Territory. Employers are required to register with the relevant State or Territory revenue authority. Although the taxes are similar in each State or Territory, there are differences in each jurisdiction. Rates range from 4.75 to 6.85%. Particular areas of difficulty arise in connection with the very broad rules applicable to payments to contractors, and the rules relating to the grouping of employer companies for the purposes of the aggregation of wages and salaries of group employees. STAMP DUTY Stamp duty is charged in all Australian States and Territories on the transfer of real property and transfers of other types of property (which differs between jurisdictions). The rates of duty vary by jurisdiction and are imposed on a sliding scale. The rates are applied to the greater of the consideration paid for the property and the value of the property that is subject to duty. The maximum rate of transfer duty ranges between 4.5% to 7% depending on the jurisdiction (although an additional 3% duty applies to foreign purchasers of residential property in Victoria, and this will increase to 7% from 1 July 2016 based on announcements in the Victorian budget). CUSTOMS AND EXCISE DUTY Customs duty is payable at the time goods enter Australia. The payment of customs duty is generally handled by an Australian customs broker who will be familiar with the Australian customs duty applicable to the relevant products, and who will deal with the Australian Customs Service for the release of the goods once duty is paid. Customs duty is generally levied on the customs value of goods. The customs value is determined in accordance with Australian law and may not necessarily be the same as the sale price of the goods. The precise amount of customs duty which may be payable will turn on a detailed classification of the goods for customs duty purposes by the Australian Customs Service. Excise duty is a tax imposed on certain goods (including tobacco, petroleum and alcohol) that are produced or manufactured in Australia. GOODS AND SERVICES TAX (GST) The Australian GST commenced on 1 July 2000 and is a broad-based consumption tax similar to GSTs and VATs in many jurisdictions throughout the world. Australian GST is imposed at the standard rate of 10% on: most supplies by businesses (for example, of goods, services, information, rights and real property) that are made for consideration and which have a relevant connection with the indirect tax zone (ITZ) (ie. Australia, excluding external Territories and certain offshore areas); and the importation of certain goods. GST ON SUPPLIES GST will only be payable where the entity (defined to include individuals, companies, partnerships and trusts) making the supply is registered or required to be registered for GST purposes. Generally, an entity will be required to be registered for GST purposes if its annual turnover for the previous 12 month period or projected annual turnover for the next 12 month period in relation to supplies that are connected with the ITZ exceeds A$75,000 (A$150,000 for non-profit entities). Where a supply is made by a registered entity for consideration, that supply will generally be a taxable supply (ie. a supply on which GST will be payable). The GST payable on that supply will be calculated as 1/11th of the total consideration that the entity receives for making the supply (including GST). Generally, the GST on a taxable supply must be paid to the ATO by the entity making that supply. There are a number of exceptions, including supplies that are reverse charged (including voluntary reverse charging) and supplies made by non-residents through resident agents. These are discussed below. An entity is not liable to remit GST on supplies it makes that are not connected with the ITZ. In certain circumstances, however, GST on supplies that are not connected with the ITZ, but are made to registered recipients in Australia, may be reverse charged to the recipient. 59 Doing Business in Australia

61 The test for determining whether an entity s supplies are connected with the ITZ is closely linked to the type of supplies that the entity makes. Different rules apply based on whether the thing being supplied is goods, real property or something else. In certain cases, an entity that acquires a taxable supply may be entitled to claim an input tax credit for the GST included in the price of that acquisition. An input tax credit will be available where the entity makes its acquisition in the course of carrying on its business and is registered or required to be registered for Australian GST purposes. Where the acquisition relates to making input taxed supplies or is of a private or domestic nature, however, the registered entity may be restricted in its ability to claim input tax credits for that acquisition. A foreign company that is only eligible to be registered (ie. where it carries on a business in the ITZ but does not meet the registration turnover threshold), will need to elect to be registered in order to claim input tax credits. Generally speaking, registered entities remit the GST liabilities for their supplies to the ATO on a monthly or quarterly basis and it is reported in their BAS. At the same time, registered entities may claim back from the ATO any input tax credits for the GST included in the price of their business purchases. The Federal Government has introduced rules to extend GST to supplies of digital products and other intangible supplies made by foreign suppliers to Australian consumers, effective from 1 July These rules are based on similar models in operation in other jurisdictions. Under these rules, foreign suppliers exceeding the GST registration turnover threshold will be required to register for GST in Australia and remit GST on such digital/intangible supplies, although in some circumstances the responsibility for the GST liability may be shifted to the operator of an electronic distribution platform (eg. an online store or portal). INPUT TAXED AND GST - FREE SUPPLIES Some supplies are classified as zero-rated or GST-free (including certain health, food and education supplies, exports and sales of businesses as going concerns). No GST is payable on GST-free supplies. Most exports of goods or services from Australia will be GST-free. GSTfree treatment may also apply to certain supplies relating to international transport (of both people and goods). Other supplies may be exempt from GST or input taxed (including, those relating to financial services (but not general insurance), and the sale or leasing of existing residential property). No GST is payable on input taxed supplies. An entity will, however, generally be precluded from claiming an input tax credit for any acquisition it makes that relates to making input taxed supplies. GST ON IMPORTS An entity will make a taxable importation and be liable to pay GST where it imports goods into the ITZ and enters those goods for home consumption ; ie. it identifies itself as the owner of the goods to Australian Customs. In most cases, registered importers are entitled to recover an input tax credit for a taxable importation equal to the GST liability. Where a foreign company exports goods to Australia and does not expect to register or be required to be registered for Australian GST purposes, care should be taken to ensure that the person who enters the goods for home consumption is entitled to this input tax credit. Currently, GST is not imposed on goods imported into the ITZ with a customs value of less than A$1,000 (known as the low value threshold ). The Federal Budget has proposed removing the low value threshold from 1 July 2017, extending GST to low value goods imported by consumers. A vendor registration model has been proposed, whereby overseas suppliers with Australian turnover exceeding A$75,000 will be required to register for and remit the GST. 60 Doing Business in Australia

62 ALTERNATIVE ARRANGEMENTS FOR GST In certain circumstances, various arrangements can be made to significantly reduce the compliance burden of GST on foreign companies. In particular, it may be possible to eliminate the need for a foreign company to: The Federal Government has implemented measures aimed at reducing the need for foreign entities to register for GST in Australia as a result of cross-border business to business transactions, which will have effect from 1 October register for Australian GST purposes; meet the compliance obligations associated with any GST liability; and be exposed to an additional creditor risk in respect of GST. For example, provided certain conditions are met, where a non-resident not carrying on an enterprise in Australia makes a taxable supply, the non-resident supplier and the Australian recipient of that supply may agree that the GST on that taxable supply will be reverse charged to the Australian recipient. In these circumstances, the Australian recipient will only need to pay an amount to the ATO if the GST on that supply is greater than the input tax credit to which it is entitled for its acquisition. Such agreements can be very beneficial to non-resident suppliers. Other arrangements relate to the terms on which goods that are imported will be delivered. 61 Doing Business in Australia

63 GET IN TOUCH Andrew Sommer National Practice Group Leader Tax T asommer@claytonutz.com Mark Friezer Partner T mfriezer@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

64 NATURAL RESOURCES TAXATION ROYALTIES Every State and Territory of Australia (except the Australian Capital Territory) collects royalties from mining and petroleum activities. Most jurisdictions collect royalties ad valorem or a percentage of the value of the mineral or petroleum product. Mining royalties usually cover a wide range of minerals including base metals, precious metals, coal, bauxite and iron ore. Petroleum royalties usually cover all forms of hydrocarbons including oil, natural gas, liquid petroleum gas and coal seam gas. The rates vary across jurisdictions and across mineral types and are commonly divided into brackets depending on the average price per unit. Most mining royalties are calculated at their ex-mine value and most petroleum royalties are calculated at their wellhead value. The actual rates of royalties vary by State and Territory and by resource. By way of indication, the following resources may attract the following royalties: 63 Doing Business in Australia Base and precious metals: 2.5%-5%. Brown coal: AUD per-gigajoule. Other coal: 5%-15%. Petroleum: 10%-12.5% Each jurisdiction and each resource should always be separately reviewed for the appropriate royalty rate. Entities subject to royalties must lodge periodic returns. In most jurisdictions, the liability to pay royalties arises in the period in which the mineral or petroleum is sold, disposed of or used. Intra-group transfers of minerals and petroleum may also trigger royalty liability. In addition, offshore petroleum projects that are beyond State or Territorial waters, but within Federal waters are collected by the Federal government and shared with the relevant State or Territory. All states allow some form of deductions for mining and petroleum royalties which may include freight and insurance costs, industry levies, exploration expenditure, and contributions to port infrastructure. PETROLEUM RESOURCE RENT TAX ( PRRT ) AND MINERAL RESOURCES RENT TAX ( MRRT ) In addition to State royalties and the taxes mentioned above, entities undertaking the extraction of certain natural resources (iron ore, coal, petroleum and their derivatives) may be subject to the Petroleum Resource Rent Tax (PRRT) which has existed since Australia previously imposed the Mineral Resources Rent Tax (MRRT) which was repealed on 5 September As a result, MRRT is payable on certain profits generated from extracting certain resources (broadly, coal and iron ore) extracted between 1 July 2012 and 30 September The PRRT is a resource rent tax broadly comparable to rent type taxes in other countries, such as the Norwegian resource rent tax for North Sea oil. The taxes share many similarities, with revenue and expenditure from both broadly being calculated in the same manner. A short table containing the key features of the PRRT is available below. The PRRT is imposed on entities which have a taxable profit in a year in relation to a petroleum project. The tax is imposed on the project holders, rather than individual entities. Broadly speaking, a petroleum project is taken to exist where an eligible production licence is in force. A person is deemed to have a taxable profit if in that year the assessable receipts derived from a project exceed the sum of deductible expenditure incurred and carried forward or transferred. The PRRT applies at a rate of 40% to most onshore and offshore oil and gas projects (the extension to onshore projects was part of the MRRT package legislated in 2012 and the extension was not repealed in 2014).

65 TAXABLE PROFIT The PRRT taxable profit is calculated by determining assessable receipts less allowable deductions upstream of the valuation point, which is the point at which the resource becomes either: a marketable petroleum commodity, which is any product produced from petroleum including stabilised crude oil, sales gas, condensate, liquefied petroleum gas, ethane or any other product declared by the regulations to be a marketable petroleum commodity; or an excluded commodity, which is a market petroleum commodity that has been sold, further processed or treated after production or which has been moved away from the place of its production (other than to an adjacent storage site) or from such an adjacent storage site. If there is an arm s length sale upstream of the valuation point, the assessable receipt is the amount received. In other circumstances (such as where the resource is to be processed further down the chain) it will be necessary to determine the market value of the resource at the valuation point by applying a fair and reasonable method. Consideration receivable upon the loss or destruction of property upon which capital expenditure is incurred is also included in assessable receipts, though the consideration received from disposals of interests in projects themselves is not. PRRT DEDUCTIBLE EXPENDITURE To be eligible deductible expenditure, the expenditure must be made in carrying on or providing operations and facilities preparatory to the project (ie. exploration expenditure), including the carrying out of feasibility or environmental studies, or in carrying out or providing the operations, facilities and other things comprising the project. The expenditure may be of either a capital or revenue nature. Excluded expenditure (which cannot be deducted) includes borrowing costs (ie. interest); dividend payments; repayment of equity capital, private override royalties, GST and payments for administration, accounting, wages, salary or other work costs indirectly incurred in carrying on or providing operations, facilities or other tasks. The cost of acquiring an interest in a petroleum tenement itself is also excluded expenditure. ADMINISTRATION AND TRANSFERS OF INTERESTS IN PETROLEUM PROJECTS Any person deriving assessable receipts is required to provide the ATO with a return no later than 60 days after the end of the tax year (generally 30 June). The PRRT is then payable within 21 days of an assessment being issued. However, liable entities are required to pay in quarterly instalments (21 October, 21 January and 21 April of each year) in the estimated quarterly PRRT liability. The PRRT history of a petroleum project is taken to move with it to the new owner, who will be deemed to have incurred the expenditure and received the assessable receipts in respect of the project in the year in which the transfer occurs (or a proportion of them, in the transfer percentage ). PRRT CONSIDERATIONS FOR LIABLE ENTITIES Companies which expect to be liable to the PRRT should consider: pass on clauses in supply contracts to determine whether they allow the recovery of tax; accounting systems or procedures to identify incidental production of taxable resources from other activities; the effect of take or pay contracts and whether amounts received under pay clauses are treated as assessable revenue for PRRT purposes; financing issues such as additional costs which need to be factored into project financial modelling, the impact of financial ratio requirements and the allocation of losses between entities and projects. 64 Doing Business in Australia

66 ENTITIES UNDERTAKING THE EXTRACTION OF CERTAIN NATURAL RESOURCES (IRON ORE, COAL, PETROLEUM AND THEIR DERIVATIVES) MAY BE SUBJECT TO ONE OF AUSTRALIA S TWO RESOURCE TAXES SUMMARY OF KEY FEATURES OF PRRT PRRT Rate 40% Coverage Onshore and offshore oil and gas projects. No minimum threshold. Credit for State royalties. Interaction with State royalties and income tax Unused credits uplifted at PRRT augmented bond rate. Deductible for income tax purposes. Valuation point When there is a marketable petroleum commodity. All eligible expenditure immediately deductible. Treatment of expenditure Only eligible exploration expenditure able to be transferred between projects. Carried forward expenditure uplifted: Treatment of carry forward expenditure / losses general project expenditure LTBR + 5%; exploration expenditure: LTBR + 15% where incurred within 5 years of a production licence. 65 Doing Business in Australia

67 GET IN TOUCH Phil Bisset Partner T pbisset@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

68 ANTI-TRUST, COMPETITION AND TRADE PRACTICES REGULATION LEGISLATION HAS RECENTLY BEEN PASSED WHICH INTRODUCES CRIMINAL SANCTIONS FOR CARTEL CONDUCT The object of the Competition and Consumer Act 2010 (Cth) (CCA) is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection. It has a wide range of provisions which are used to achieve this objective. Its scope has made it one of the most frequently litigated pieces of legislation and has made the principal regulator, the Australian Competition and Consumer Commission (ACCC), one of the most active and high-profile regulators in Australia. The principal provisions contained in the CCA include: prohibitions on anti-competitive conduct, including arrangements between competitors, new concerted practices laws and merger control in relation to mergers or acquisitions; obligations on infrastructure owners to allow others to access that infrastructure; prohibitions on misleading and deceptive conduct and on unconscionable conduct; unfair contract terms for small business and consumers; statutory guarantees of safety and quality for goods and services in consumer contracts; and a strict liability regime for manufacturers liability for defective goods. The last two categories are partly the province of product liability law and are dealt with in Chapter 16. This section primarily addresses the competition aspects of the CCA. HARPER REVIEW RECENT AMENDMENTS A series of amendments will be made in early 2018 to broaden and strengthen the competition laws following the Harper Review released in March The amendments are in two Bills: the Competition and Consumer Amendment (Misuse of Market Power) Bill 2017 (MMP Bill) and the Competition and Consumer Amendment (Competition Policy Review) Bill 2017 (CPR Bill). The MMP Bill passed Senate on 14 August 2017 although the date on which it will come into effect is still to be determined. The reforms proposed in both Bills are discussed in this chapter. COMPETITION PROVISIONS The competition provisions of the CCA seek to regulate conduct in markets and, to a lesser extent, the structure of those markets. The provisions operate by: prohibiting certain conduct absolutely, including cartel conduct (for which criminal sanctions apply); prohibiting other conduct where it has the purpose or effect of substantially lessening competition in a market in Australia; preventing mergers or acquisitions which have the effect of substantially lessening competition in a market in Australia; and requiring infrastructure owners to provide access to certain infrastructure under a general national access regime or a telecommunications-specific access regime in certain specified circumstances. CONDUCT WHICH IS PROHIBITED ABSOLUTELY The principal forms of conduct which are prohibited absolutely are: agreements between competitors on price; agreements between competitors to restrict supply to particular people or groups of people (collective boycotts, bid rigging, or market allocation); and setting the minimum price at which goods or services can be on-sold (resale price maintenance). At the date of writing, third line forcing, which involves a supplier making the supply of goods or services conditional on the customer also acquiring other goods or services from an unrelated third party, is also prohibited outright. However, amendments which are proposed under the CPR Bill will amend these provisions so that only conduct which has the purpose, effect or likely effect of substantially lessening competition, will be prohibited. Such conduct may also be authorised if the public benefit from the conduct outweighs the anti-competitive effect. 67 Doing Business in Australia

69 Any attempt to enter into these types of arrangements will contravene the CCA. These prohibitions are vigorously enforced by the ACCC and fines are substantial. The maximum liability for a corporation is the greater of A$10 million, three times the gain from the unlawful conduct, or 10% of turnover in the relevant market and, for an individual, A$500,000. These amounts apply to each individual instance of a breach, so where there are several instances of breach, penalties can easily exceed these amounts. The CCA also provides for criminal sanctions for cartel conduct. This means that individuals who engage in cartel conduct now face jail terms. In general, a cartel provision is a provision in a contract, arrangement or understanding between two or more competitors that: sets the prices which some or all of them will charge (price fixing); limits or restricts the supply or acquisition 1 of goods or services some or all of them produce; allocates customers, suppliers or territories between competitors (market share); or rigs a bid (bid rigging). 1 An amendment is proposed in the CPR Bill to include acquisition. The current provisions only relate to supply, which is incomplete. It is illegal to make, or give effect to, an agreement that contains a cartel provision. The effect on competition of this cartel provision is not important. The question of whether or not particular conduct is a criminal offence will depend on the person s knowledge or belief that the cartel conduct was occurring. All that is required to attract a criminal prosecution is proof, beyond reasonable doubt, that: the conduct occurred; and a person had knowledge or a belief that the alleged cartel conduct was occurring. An example is if a person knows or believes that a contract has been made with a competitor and that a provision in the contract has the effect of fixing prices. It does not matter whether the person understands that the conduct was wrong or illegal. In August 2017 the first penalty for criminal cartel conduct was awarded against NYK, an international shipping line that admitted it had given effect to cartel provisions in an arrangement or understanding with other shipping lines relating to the transportation of motor vehicles to Australia between 2009 and The criminal penalty awarded against NYK was AUD$25 million, the second highest penalty to be awarded for contravention of the CCA to date. In certain circumstances, parties may make an application to the ACCC for the notification or authorisation of certain conduct. Where a notification is accepted or an authorisation is granted, the relevant parties are permitted to engage in the notified/authorised conduct and will not contravene the CCA. In some limited circumstances conduct may fall within one of the exceptions to the cartel provisions. One such exception involves conduct engaged in for the purposes of a legitimate joint venture by the joint venture parties. CONDUCT WHICH HAS AN ANTI-COMPETITIVE PURPOSE OR EFFECT There is a broad range of conduct which is prohibited if it has the purpose or effect of substantially lessening competition in a market, including: agreements, arrangements or understandings of any kind which have this purpose or effect; any arrangement involving the exclusive supply of goods or services to a particular persons; and some tying arrangements. This range of conduct therefore catches exclusive territory arrangements, restrictions on the types of customers to whom products can be supplied, and refusal to supply for reasons related to stocking the products of a competitor. Some conduct which is automatically prohibited or which has an anti-competitive purpose may be permitted where there are public benefits that outweigh any anti-competitive detriment and the parties seeking to engage in the relevant conduct first apply to the ACCC for an authorisation (e.g. immunity). Authorisation involves a public process and a consideration by the ACCC of the anti-competitive effects and the public benefits which arise from the conduct. The recent amendments proposed to the CCA will include two major changes. Firstly, introduce the concept of a prohibited concerted practice that has the purpose, effect or likely effect of substantially lessening competition. This is not a term that has appeared in Australian law to date, but will draw on the learning in the UK and European competition law to catch communications between competitors which achieve cooperation and something less than an understanding. This concept will not require there to be any element of commitment between parties concerned, as is currently required under the cartel provisions, for there to be a breach of the CCA. Secondly, expand the current probation on unilateral conduct or misuse of market power. The new Bill will prohibit corporations with substantial market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in markets in which they directly or indirectly participate. This is a substantive change from the previous law which prohibited a corporation with substantive market power from taking advantage of that power for a prohibited purpose only (i.e. eliminating or substantially damaging a competitor; preventing the entry of a person into that or any other market; or deterring or preventing a person from engaging in competitive conduct in any market). There was no effect on competition test in the old law to assess unilateral conduct, and this was regarded by the ACCC as a weakness. In addition, the element of having to show that there was taking advantage of substantial market power had proven complex in the cases brought on that provision. This will bring the provision into greater 68 Doing Business in Australia

70 THE OBJECT OF THE COMPETITION AND CONSUMER ACT 2010 IS TO ENHANCE THE WELFARE OF AUSTRALIANS THROUGH THE PROMOTION OF COMPETITION AND FAIR TRADING AND PROVISION FOR CONSUMER PROTECTION alignment with the concept as understood in Europe, but is a substantive change for Australian law. MERGER REGULATION The CCA prohibits any acquisition of assets or shares if the effect, or the likely effect, is to substantially lessen competition in any market in Australia as a whole, or in a State or Territory or region of Australia. There is no compulsory prenotification requirement for mergers or acquisitions in Australia. The ACCC has an informal clearance process however, which enables merger parties to seek the ACCC s view on whether it will seek an injunction to stop a merger from proceeding. The ACCC encourages merger parties to notify the ACCC where both of the following apply: the products of the merger parties are either substitutes or complements; and the merged firm will have a post-merger market share of greater than 20% in the relevant market/s. The ACCC s Merger Guidelines 2008 outlines the analytical and evaluative framework applied by the ACCC when reviewing mergers and acquisitions and provides guidance on the factors the ACCC considers relevant to its consideration. In considering the effect of a merger, the ACCC will examine a range of factors including: the level of actual and potential import competition; the height of barriers to entry; the level of concentration in the market; the degree of countervailing power in the market; the ability of the merged entity to effect a significant and sustainable price increase; the extent to which substitutes are available in the market; the extent to which the market is undergoing change in terms of technological innovation, growth or concentration, or product differentiation; the nature and extent of vertical integration in the market; and whether the acquisition would result in the removal of a vigorous and effective competitor. It is common practice to make an approach to the ACCC seeking an informal clearance for a proposed merger. Such an approach can be made on a confidential basis. However, the ACCC will usually reserve the right to make market inquiries once the transaction becomes public, and any confidential clearance will be qualified at least to that extent. The ACCC publishes Merger Guidelines and Merger Review Process Guidelines, which provide for a transparent process and the publication of timelines and statements of reasons for merger review decisions by the ACCC. In addition, authorisation of a merger on public interest grounds is possible even if it is likely to have an anti-competitive effect. The recent amendments proposed to the CCA will repeal a formal merger clearance process which has never been used, and mergers will become subject to a general authorisation process where the decision-maker at first instance will change from the Australian Competition Tribunal (Tribunal) to the ACCC. This change will address a trend in recent years, in which has not been unusual for a merger clearance process to commence as an informal review with the ACCC and for the parties to take the merger to the Tribunal following the release by the ACCC of a Statement of Issues (i.e. just prior to the commencement of the second stage of the merger review). The amendment to make the ACCC the decision-maker at first instance for merger authorisations will mean that this approach will now be closed for merger parties who will need to apply formally to the ACCC for authorisation and will not be able to apply directly to the Tribunal. Further, the proposed amendments will provide for a limited merits reviews by the Tribunal of first instance merger authorisation determinations by the ACCC with little scope for fresh evidence. It will also result in a change of language such that the ACCC will be able to grant a merger authorisation (rather than clearance) if it is satisfied that conduct: will not (or is not likely to) substantially lessen competition; or is likely to result in a net public benefit. ACCESS REGULATION Australia has introduced a range of statutory mechanisms which regulate access rights to infrastructure of national significance, sometimes colloquially called essential facilities. Australia has both a generic form of access regulation in the CCA and industry-specific schemes which are found in an array of specific legislative instruments and industry codes and schemes. The following industries are specifically regulated: telecommunications; gas; electricity; water; rail infrastructure; airports; and postal services. The level of intervention found in these regimes varies. For example, the telecommunications and electricity regimes are the most interventionist, both in terms of the services which are regulated and the level of prescription they impose on industry participants. 69 Doing Business in Australia

71 THE CCA HAS SPECIFIC RULES ABOUT COUNTRY OF ORIGIN LABELLING AUSTRALIAN CONSUMER LAW Since 1 January 2011, Australia has had a national Australian Consumer Law (ACL) which applies at the State, Territory and Federal levels. Before this, both State and Federal laws regulated consumer or fair trading matters. The ACL specifically includes a national unfair contract terms scheme which was extended in November 2016 to cover unfair terms in small business contracts, a national product safety legislative and regulatory framework and penalties, enforcement powers and consumer redress options (the latter are discussed in more detail below). The consumer protection provisions can be grouped into four broad categories: Product safety provisions, which provide for mandatory consumer standards, product information and notification of voluntary recalls, and the power to order mandatory recalls. Prohibitions against conduct affecting consumers such as unconscionable, misleading or deceptive conduct in trade or commerce, which are extremely wide-ranging (and discussed in more detail below), unfair contract terms, consumer guarantees, and restrictions or requirements on unsolicited contracting, such as door-to-door or telephone sales processes. A prohibition on the manufacture of defective products, which are restricted to consumer goods. A strict liability prohibition on manufacturers and importers of defective goods. MISLEADING OR DECEPTIVE CONDUCT AND UNCONSCIONABLE CONDUCT A corporation must not engage in conduct which is misleading or deceptive, or which is likely to mislead or deceive, or make false representations. A person aggrieved as a result of such conduct has a cause of action in damages and may be entitled to other compensatory remedies. These provisions have been relied upon in a wide variety of cases, including pre-contractual negotiations and misleading advertising. The ACCC is vigilant in relation to consumer advertising. There is also a prohibition on conduct in trade or commerce that is, in all the circumstances, unconscionable. What is unconscionable is determined by considering a range of criteria, including by way of illustration: the relative bargaining positions of the parties; whether conditions imposed were reasonably necessary for the protection of legitimate interests; whether the party allegedly imposed upon was able to understand the relevant documents; the terms and conditions on which equivalent goods or services could have been obtained from another supplier; whether any undue influence or pressure was placed on, or unfair tactics were used, against a party; any applicable industry code; and the extent to which parties acted in good faith. However, the mere fact that one party to a transaction may have superior bargaining power does not render that party s conduct to be unconscionable. The party with superior bargaining power must take advantage of its position so as to act without conscience or without regard as to what is right and reasonable in order for a Court to find that it has acted unconscionably. CONSUMER GUARANTEES AND UNFAIR CONTRACT TERMS Since January 2011, businesses must honour statutory guarantee consumer products and services they manufacture, sell, hire or lease. Consumer goods or services are those sold for: under A$40 000; and over $ if they are normally bought for personal or household use. There are automatic guarantees included in the CCA, regardless of any other express warranties that may be offered by the supplier. A supplier cannot deny these guarantees, nor can a consumer sign away their rights to these guarantees. A consumer may seek a repair, replacement or refund from the supplier for goods that are faulty, or alternatively, cancel a service or seek compensation for damages and loss. The guarantees in summary are: that the product acquired is of acceptable quality (i.e. without faults and in the condition that could be expected of the product) and matches the product description; that services are provided with acceptable care and skill or technical knowledge and taking all necessary steps to avoid loss and damage, and be fit for the purpose for which the service was acquired. A consumer may claim against the guarantees for a reasonable time after acquisition of the relevant product or service. What is a reasonable time may change depending on the nature of the particular good or service. The guarantees are not imposed where goods are acquired at auction, or in the course of one off sales from private sellers, or if the goods or services cost more than $40,000. The prohibition on unfair contract terms only applies to terms in standard form contracts (i.e. contracts entered into on a take it or leave it basis). A term in such a contract will be unfair, and therefore void and severable, if: it would cause a significant imbalance in the parties rights and obligations arising under the contract; it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and 70 Doing Business in Australia

72 it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. However whether a term is unfair must be considered in the context of the contract as a whole. Terms that set out the price, define the product or service being supplied or that are required or permitted by another law (such as terms limiting liability permitted by Australian Consumer Law) are not unfair. In November 2016 the ACL was amended so as to extend the unfair terms prohibition to small business contracts. A contract is a small business contract if: the contract is standard form ; the contract is for a supply of goods or services, or a sale or grant of an interest in land; and at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and either (i) the upfront price payable under the contract does not exceed $300,000; or (ii) the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000. In determining whether a term is unfair, a court must consider the extent to which the term is transparent and the contract as a whole. Terms that are expressed in plain language, are legible and presented clearly, are likely to be considered transparent. COUNTRY OF ORIGIN LABELLING The CCA has specific rules about country of origin labelling. Country of origin labelling is not mandatory for all products, except in relation to food for human consumption, pharmaceuticals and some other products such as devices which emit or receive electromagnetic radiation or contain lasers (which includes many consumer electronics and which have specific regulations), but where such claims are made these rules must be followed. A Made in Australia label, for example, may only be affixed to a product that has been substantially transformed in Australia, and 50% or more of the cost of producing or manufacturing the goods must have occurred in Australia. To be able to label goods as the product of or grown in a certain country (such as Product of X ), each significant ingredient or significant component of the goods must be derived from the named country and all, or virtually all, processes involved in the production or manufacture must have occurred in that country. There are also related provisions concerning the use of logos intended to designate a country of origin, such as the mark used to indicate that an article is Australian Made. On 1 July 2016, a new country of origin food labelling system commenced under the ACL. Businesses will have two years to change their labels to comply with the new law before it becomes mandatory on 1 July Under the new system, most foods that are produced, grown or made in Australia will be required to display a label with: the kangaroo in a triangle symbol so that the food s Australian origin can be easily and quickly identified; a statement indicating that the food was grown, produced or made in Australia; the minimum proportion, by ingoing weight, of Australian ingredients, indicated by a percentage amount and shown in a bar chart. Labelling requirements will vary depending on the type of food product and whether it was grown, produced, made or packed in Australia or another country. For most imported food (food grown, produced, made or packaged in a country other than Australia), the country of origin will need to be specified on the labelling in a clearly defined box. 71 Doing Business in Australia

73 GET IN TOUCH Linda Evans Partner T levans@claytonutz.com Kirsten Webb National Practice Group Leader Competition T kwebb@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

74 PRODUCT LIABILITY OVER THE LAST TWO DECADES, AUSTRALIA HAS SEEN A SIGNIFICANT GROWTH IN THE LEVEL OF PRODUCT LIABILITY LITIGATION Australia is experiencing a growth in the level of product liability litigation. In part, this is attributable to an increasing level of public awareness about consumer rights, the activity of consumer watchdog groups, an active plaintiffs bar and increasing activity by the main product safety regulator, the Australian Competition and Consumer Commission (ACCC). It has also been influenced by a number of high-profile product safety cases involving contaminated food, pharmaceuticals, medical devices, motor vehicles and homewares. It is also due to legal developments which have expanded the avenues available to a plaintiff, or groups of plaintiffs, wishing to claim that they have been injured by a defective product. These developments include increased class action activity and a more complex reporting regime for defective consumer products. HOW PRODUCT LIABILITY LITIGATION IS CONDUCTED Product liability litigation in Australia is typically conducted in either the Federal Court or the Supreme or District/County Courts of one of Australia s States or Territories. Most actions of significance are commenced in a State capital. Sydney, Melbourne, Brisbane and Perth have been the centres of multi-plaintiff product liability litigation. Australian courts operate on an adversarial basis. The Australian legal system has its origins in the English legal system and utilises rules of practice, procedure and evidence which have more in common with those of the English courts than with the courts of the United States. As a result, there are a number of fundamental differences between the procedures in Australia and the United States: Australia does not have any procedure for depositions before trial, but places greater emphasis on documentary discovery (ie. producing documents which are relevant to determining the issues in dispute). However, recent civil litigation reform proposals have suggested the adoption of a deposition procedure in Australia; although the courts of the States and Territories make provision for jury trials in civil actions, juries are rare in most jurisdictions other than Victoria. There are no jury trials in the Federal Court; and in Australia, a successful party to litigation will usually recover a proportion of the costs of the litigation, including lawyers fees and disbursements, from the unsuccessful party. CLASS ACTIONS Australia has a well-developed, and increasingly active, class action environment. The Australian rules are, in some respects, friendlier to plaintiffs than the rules in the United States. The Federal Court s class action procedure allows proceedings to be commenced by one or more applicants representing a class of seven or more persons who all have a claim against the same person or entity which: arises out of the same, similar or related circumstances; and gives rise to a substantial common issue of law or fact. An action commenced in this way is described as a representative proceeding. 73 Doing Business in Australia

75 In product liability litigation, class actions allow persons, who have each allegedly suffered an injury by reason of their use of a particular allegedly defective good, to sue the manufacturer(s) in a single action brought on behalf of all represented parties. In contrast to the United States, there is no requirement that a court certify a representative proceeding. Rather, the onus is on the defendant to seek an order that the proceedings no longer continue as representative proceedings because they do not meet the requirements of the rules, or the procedure is otherwise unsuitable. Such orders have proven difficult to obtain. Since the introduction of class actions in Australia in 1992, there has been over 450 class actions commenced. A class action procedure was also adopted in the Victorian Supreme Court in 2000 and in the NSW Supreme Court in Class actions have been commenced in a range of different product liability contexts such as financial products or services, pharmaceuticals, medical devices, motor vehicles and a wide range of consumer products. LITIGATION FUNDING Although previously viewed as an abuse of process, litigation funding is now viewed in Australia as a vehicle for access to justice (a view endorsed by the High Court of Australia). Litigation funding from third parties provides plaintiffs with a means of prosecuting actions which they would not otherwise have had the means to bring. Australia now has a mature, developed market of litigation funders, some of which are publicly listed and regularly involved in class action activity. IMF Bentham Ltd is Australia s largest litigation funder and was the first to be listed on the Australian Stock Exchange. Traditionally, litigation funders in Australia have focused on class actions in the financial services sector and shareholder class actions. However, with increased competition in the litigation funding market it is yet to be seen whether there will be increased involvement of litigation funders in product liability class actions. Sources of liability Actions in respect of the quality or safety of products are likely to be based in one or more of three areas of Australian law: the Australian Consumer Law (ACL); For completeness, there are a range of additional statutes and federal and State/ Territory regulatory bodies which govern the supply of certain categories of consumer goods including food, pharmaceuticals, medical devices, electrical articles and automobiles. THE AUSTRALIAN CONSUMER LAW The ACL includes a range of consumer protection provisions, which impose obligations on all parts of the supply chain for consumer goods, including suppliers, importers, manufacturers and those responsible for advertising consumer goods in Australia. The consumer protection provisions provide the basis for actions including for: A breach of a safety standard or information standard, which are minimum mandatory standards which must be met for particular consumer goods; Misleading or deceptive conduct, usually by advertising or the information which accompanies a product. Many product liability claims (for property damage or economic loss) will include an allegation that the manufacturer, importer or seller of the product engaged in misleading or deceptive conduct; A breach of a statutory consumer guarantee, which is actionable against a supplier of consumer goods, and includes guarantees that goods will be of acceptable quality, fit for purpose and meet a description given of products sold in that manner; Loss or damage suffered because goods had a safety defect. The ACL sets up a strict liability regime for manufacturers and importers of defective goods, broadly based on the European Community Product Liability Directive. That is, a person who suffers loss because of defective goods can recover damages from the manufacturer of that good without proving fault on the part of the manufacturer. Goods have a safety defect if their safety is not such as persons generally are entitled to expect. There are rules which govern how these claims may be made, including where commenced by an individual, by a regulator on behalf of one or more individuals or by a regulator for civil or criminal penalties. For example, personal injury damages are not payable for misleading or deceptive conduct claims, and the Australian law (both within the ACL and State/Territory civil liability legislation) sets limits on compensation for personal injury damages in product liability claims. 74 Doing Business in Australia the common law of contract; and the common law of negligence (now partially codified in most Australian jurisdictions). Recent activity (utilising its wide powers to obtain documents and information as well as in Court penalty proceedings) by the ACCC suggests it has an increasingly proactive position to taking action for product safety and product quality issues. At

76 WHERE A PRODUCT IS SUPPLIED BY A MANUFACTURER TO A SUPPLIER OR BY A SUPPLIER TO A CONSUMER THERE WILL BE A CONTRACT BETWEEN THE TWO PARTIES the beginning of 2016, a large Australian retailer received a penalty of AU$3 million in respect of allegations by the Australian regulator that the retailer engaged in misleading or deceptive conduct in offering for sale certain consumer products after it became aware that those products were associated with personal injury, as well as by making certain express representations as to the characteristics of certain consumer goods. In addition to the above, the ACL imposes requirements relating to the supply of consumer goods in two other important respects: notification of product-related death, serious injury or illness, and product recalls. There are a number of specific defences to an action based on a claim that goods have a safety defect: the defect alleged did not exist when the goods were supplied by the manufacturer; the goods were defective only because there was compliance with a mandatory standard; the state of scientific or technical knowledge at the time the goods were supplied was not such as to enable the defect to be discovered; or in the case of the manufacturer of a component used in the product, the defect is attributable to the design of the finished product or to any markings, instructions or warnings given by the manufacturer of the finished product, rather than a defect in the component. MANDATORY PRODUCT REPORTING Under section 131 of the ACL, if a supplier becomes aware of the death, serious injury or illness of any person and: considers that incident was caused, or may have been caused, by the use or foreseeable misuse of the consumer goods; or becomes aware that a person, other than the supplier, considers that the incident was caused by the use or foreseeable misuse of the consumer goods, the supplier must provide written notice of the incident to the Minister within two days. Serious injury or illness is defined as an acute physical injury or illness that requires medical or surgical treatment by, or under the supervision of, a medical practitioner or a nurse (whether or not in a hospital, clinic or similar place). Given the requirement of death or personal injury or illness, the existence of a safety defect in a product is not sufficient to trigger the reporting obligation. Similarly, property damage in the absence of death or serious injury or illness is not a trigger of the mandatory reporting requirement. It is often difficult to discern whether or not a report should be made. A failure to report a death, serious injury or illness in accordance with the requirements of this section carries a heavy penalty. PRODUCT RECALL Voluntary product recall action may be initiated by a supplier at any time, upon discovery and appropriate investigation of a product safety or product quality issue. At common law, manufacturers and suppliers of consumer products have a duty to take reasonable care to ensure that their products do not injure consumers. This duty extends beyond the production and sale of the product. A manufacturer must act if a hazard is revealed once the product is on the market or in use. When deciding what action to take, the manufacturer should have regard to: the seriousness of the potential harm involved; the probability of such harm occurring; and the expense, difficulty and inconvenience of the proposed remedial action. The manufacturer must balance these considerations but must recognise that it is not simply a cost-benefit exercise. Importance must be placed on the safety of consumers. If the consequences of the materialisation of the harm are death or serious bodily injury, there are good reasons for conducting a recall. Limited legislation governs the conduct of voluntary recall action. Under the ACL, the person taking recall action in relation to a safety issue must notify the Minister within two days of taking that action. What constitutes a recall action is not defined, but it is likely to include product modifications or improvements for safety reasons, as well as removing product from the market. Legislation and guidelines (both federal and State/ Territory) relating to specific categories of products including food, pharmaceuticals, medical devices, electrical goods and automobiles, must also be considered in the conduct of a product recall. Although legislation does not govern the conduct or progress of a voluntary recall, the ACCC as well as the specialist Federal and State/ Territory regulators each have their own powers to recall or stop supply of product which is unsafe. In general, those compulsory recall powers will only be exercised where the goods will or may cause injury to a person, and it appears that the supplier has not taken satisfactory action to prevent the goods from causing injury. State law also imposes reporting obligations in some instances concerning intentional contamination or tampering. 75 Doing Business in Australia

77 THE COMMON LAW OF CONTRACT Where a product is supplied by a manufacturer to a supplier or by a supplier to a consumer there will be a contract between the two parties. The terms of the contract will, in the first instance, govern the relationship between those parties. However, because of the rules governing privity of contract, a third party who is not a party to the contract but who is injured by goods, will not usually be able to recover against a supplier under contract law. Under both the State and Territory Sales of Goods legislation, terms about the quality of the product are implied into contracts for the supply of goods. In some instances, these conditions cannot be excluded or modified. If those terms are breached then the party which received the product will have an action for breach of contract. Statutory guarantees (eg. of acceptable quality) also apply to the supply of goods to a consumer under the ACL. THE COMMON LAW OF NEGLIGENCE The common law tort of negligence remains an important source of legal rights and remedies in relation to product liability claims under Australian law. Under the law of negligence, a plaintiff may recover damages from a manufacturer if: the manufacturer (as defendant) owes the plaintiff a duty of care at law; the defendant breaches that duty by failing to meet the standard of care required by the law; and the plaintiff suffers damage because of the breach of duty. In Australia, it is well settled that a broader duty of care is owed by the manufacturer and a more limited duty of care by the supplier of goods to the purchaser or user. The common law provides that the manufacturer ought reasonably to have the user in contemplation when considering issues of design, manufacture, safety and distribution of goods. In 2003, in response to community concern over the size of personal injury awards and rising insurance premiums, the State and Territory Governments undertook an extensive program of civil liability reform. The reforms have made it more difficult for plaintiffs to commence and succeed in, personal injury claims brought in negligence, in addition to limiting the award of damages recoverable. The reforms are not identical in each jurisdiction, but, broadly speaking the reforms: partially codify the law of negligence; create special defences in relation to some categories of claim (product liability, except cases involving asbestos or other dust diseases, is not one of the special categories); and introduces caps and thresholds for the award of damages and, in some jurisdictions, a compulsory pre-court claims resolution procedure. REMEDIES DAMAGES There are a number of technical differences between the calculation of damages in contract and negligence and under the statutory causes of action. However, in broad terms, a successful plaintiff in a product liability action will be able to recover: compensatory damages for any pain and suffering; damages for any expenses incurred to treat an injury or repair damage to property, including medical expenses; compensation for any loss of income because of injury or damage; an amount in respect of any costs which will be incurred in the future to treat an injury or repair damage to property; and compensation for any loss of life expectancy or ongoing impairment of earning capacity. Exemplary, punitive or aggravated damages can be awarded by the courts, although not in relation to claims brought under the ACL and, in some Australian jurisdictions, not in negligence actions seeking damages for personal injury. A supplier is under a duty not to supply defective goods and to pass on warnings about particular goods. In some cases, statutory duties have been used to impose what is, in effect, strict liability. Monetary compensation is available for both pecuniary and non-pecuniary loss. Courts may additionally grant injunctions to restrain some breaches or attempted breaches of the consumer protection provisions. A court is given very broad power to make such orders as it thinks appropriate against a person who was involved in a contravention. In relation to claims in negligence for personal injury, civil liability reforms limit the amount of damages recoverable in relation to these heads of damages. Further, the law of contract and statute both provide the courts with a range of alternative remedies, enabling the courts to order manufacturers and suppliers to undertake remedial conduct. 76 Doing Business in Australia

78 GET IN TOUCH Colin Loveday Partner T cloveday@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

79 CONSUMER PRODUCT REGULATION CURRENTLY, AROUND 2,400 AUSTRALIAN STANDARDS ARE REFERENCED IN LEGISLATION, EITHER IN WHOLE OR IN PART Legislation at State, Territory and Federal levels imposes a number of controls in relation to the composition, design and labelling of consumer products. These laws often set out minimum safety and information requirements that aim to minimise the risk of injury and to enable consumers to make more informed purchasing decisions. Regulatory authorities often conduct random inspections and sampling to determine whether products comply with mandatory requirements. An investigation can also be initiated by a complaint from a consumer or competitor. Failure by a manufacturer, supplier or importer to comply with these laws could result in more than simply incurring penalties under the relevant legislation. Entry into Australia may be refused for non-compliant imported goods. Consumers may take private legal action for damages suffered as a result of failing to comply with a standard. This could result in hefty legal fees and court costs, loss of reputation from bad publicity, and loss of customers to competitors. This highlights the need for companies dealing in consumer goods to have an effective compliance program in place to ensure that all risks in their products are identified and effectively managed. COMPLEXITY OF LAWS The legal requirements which apply to consumer goods are overlapping. In some cases, there are considerable variations in the way in which different jurisdictions regulate certain products and identifying what laws apply to each product can be difficult. Additional labelling requirements are imposed on certain imported goods. There is also other more general legislation such as the ACL and other consumer protection legislation. Industry guidelines and codes of practice may also be relevant. With the passage of the ACL, a harmonisation process has begun to identify existing State and Territory standards to become national. In future, permanent bans and mandatory standards will only be made by the Federal Government. Further difficulty may arise if products cannot be easily classified under legislation. For example, at the cosmetic-medicine interface (and also the food-medicine interface) it is possible that products with a similar composition, but arguably different functions, can attract different regulatory requirements. In such cases, the presentation, proposed use of and claims made in marketing the product will be important in determining its classification. AUSTRALIAN STANDARDS Australian standards are generally voluntary and are not binding in themselves unless adopted by law. Many of them, however, are adopted by State, Territory and Federal legislation and compliance becomes mandatory. Australian standards, for example, may require specified goods to comply with particular performance characteristics, composition, methods of manufacture or process, construction, packaging rules or may define the type of information to be given to consumers. Currently, around 2,400 Australian standards are referenced in legislation, either in whole or in part. In some cases, independent certification for compliance with a standard is also required. For example, under electrical safety laws, common household appliances such as toasters and heaters must comply with the relevant Australian standards, hold a certificate of approval, and be marked to show that approval. Australian standards are also used as the basis of mandatory consumer product standards under the ACL. Products that must comply with Australian standards under the legislation include bicycles (performance and safety requirements), children s nightwear (design and fabric specifications and labelling requirements) and sunglasses (performance and safety requirements). Failure to comply with a standard that has been adopted by legislation constitutes an offence. Failure to comply with a standard, whether voluntary or mandatory, may also be evidence of negligence and may be evidence that the product is defective or not fit for purpose. 78 Doing Business in Australia

80 REGULATORY AUTHORITIES OFTEN CONDUCT RANDOM INSPECTIONS AND SAMPLING TO DETERMINE WHETHER PRODUCTS COMPLY WITH MANDATORY REQUIREMENTS HAZARDOUS GOODS Products containing ingredients that, because of their chemical properties, have the potential to harm people or the environment, are subject to strict legislative control. For example, household cleaning products and medicines containing poisonous substances fall into this category. There is a range of legislation that imposes restrictions on the storage, handling, transportation, packaging, labelling and advertising of these goods. The level of control will depend on a number of factors including the proposed use of, and the nature of, the active constituents and their quantities in the products. Many of the labelling and packaging requirements for poisons are set out in the Standard for the Uniform Scheduling of Drugs and Poisons and are adopted in various degrees by legislation. They provide for information to be included with these products such as instructions for use, cautions and safety directions. In some cases, special packaging is required, for example, child resistant safety closures. Dangerous goods legislation also contains requirements for the transportation, labelling and construction of packaging of goods that are explosive, poisonous, flammable or corrosive. REGISTRATION OF CERTAIN GOODS Registration requirements often apply to manufacturers of goods or to the goods themselves. Examples of products that must be registered before they can be available for sale in Australia are therapeutic goods. Therapeutic goods can only be manufactured by a licensed manufacturer, and must also be included on the Australian register of Therapeutic Goods as either listed or registered goods. There are standards for the manufacture, composition, handling, labelling and advertising of such goods. Therapeutic goods may be assessed for safety and efficacy, depending on the level of risk and the claims made on the product. Sponsors of therapeutic goods must hold the relevant level of evidence to support claims made on packaging and in advertising. The legislation also provides a procedure for pre-publication clearance for advertisements of certain therapeutic goods. Other consumer goods that require registration include chemical products that kill pests, such as herbicides and pesticides, other products such as fertilisers, and certain pool chemicals. Any persons wishing to supply such products must apply through the Australian Pesticides and Veterinary Medicines Authority. There are also standards for the labelling of these products. FOOD The States and Territories have food legislation to regulate the composition, packaging, advertising and labelling of food and the hygiene of food premises and equipment. The Australia New Zealand Food Standards Code has been adopted by all the States and Territories which prescribes labelling requirements for all food. Certain statements are prohibited and others are regulated and may only be used in specific circumstances. For example, health and nutrition claims and claims that a food is one for a specific dietary use are strictly regulated. These restrictions may become tighter in the future depending upon the outcome of certain reform proposals. There is also a general prohibition on the addition of substances to food, such as additives, vitamins and minerals, and certain botanicals, unless specifically permitted for a particular food. In addition to the general requirements, the Code sets out the prescribed standards for particular foods. Some foods must undergo rigorous safety assessments before they can be made available for sale; for example, novel and genetically modified food. TRADE MEASUREMENT State and Territory trade measurement legislation also imposes certain labelling requirements for packaged foods and other packaged consumer products. These requirements are also being harmonised. The requirements of the legislation apply to all goods packed imported for sale in Australia, unless specifically exempted from the marking requirements. The legislation also includes offences in relation to short measure of packaged goods. ADVERTISING CLAIMS The ACL contains a general prohibition on misleading or deceptive conduct when occurring in trade or commerce. It also prohibits certain false representations: for example, that goods are of a particular standard, quality, value, grade, composition, style or model or have a particular history or a particular previous use. Labelling and advertising claims on products are susceptible to challenge under these provisions and must be capable of substantiation. Regulators have the power to issue substantiation notices requiring evidence for claims and infringement notices (fines) for claims which they consider infringe the legislation. In assessing whether claims are misleading, courts will look at whether the express and implied representations are correct and whether the overall impression is accurate. 79 Doing Business in Australia

81 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW Kirsten Webb National Practice Group Leader Competition T kwebb@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

82 PROPERTY LAW FOREIGN INVESTMENT REVIEW BOARD APPROVAL Recent changes in Australia s foreign investment laws enable the Treasurer to make a range of orders relating to significant actions and notifiable actions. All significant actions in relation to Australian land are notifiable actions, including for agricultural land, commercial land, residential land or mining or production tenements, unless an exception applies. What is an interest in land? An interest in Australian land includes a legal or equitable interest in land (except in certain circumstances); an interest in a security in an entity that owns Australian land; an interest as lessee or licensee; an interest in an agreement that gives rise to an interest in land; an interest in a share in an Australian land corporation or agricultural land corporation; and an interest in a corporation that acts as trustee of an Australian land or agricultural land trust. An interest in land does not include an interest under a lease or licence for less than five years. What is a significant action in relation to land? A significant action is an acquisition of an interest in Australian land above the monetary thresholds set by the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (Regulations). An acquisition includes entering into an agreement or option including where they are dependent on the fulfilment of a condition. What are the monetary thresholds? The monetary thresholds for significant actions relating to land are: Residential land (except in certain circumstances), vacant commercial land, mining or production tenement land (except a tenement being acquired by investors from USA, New Zealand (NZ), Chile, Japan, South Korea or China (except a foreign government investor)), any land being acquired by a foreign government investor, land held by an Australian land corporation (except an agricultural land corporation or trust) if the interest in Australian land acquired is a share in the corporation or a unit in the trust and the total value of interests in residential land and vacant commercial land is 10% or more of the value of the total assets of the corporation or trust no threshold; Agricultural land $15 million (Investors from USA, NZ or Chile (other than a foreign government investor) or an enterprise or national of Singapore or Thailand are not required to apply for approval to acquire agricultural land); for all other land: $1,094 million for investors from USA, NZ, Chile, Japan, South Korea or China (other than a foreign government investor); $50 million for land being acquired by an enterprise or national of Singapore or Thailand used wholly or exclusively for a primary production business; $55 million for land that is acquired by a foreign person (except for investors from USA, NZ, Chile, Japan, South Korea and China) where such land meets the conditions set out in section 48(6) of the Regulations for the low threshold land test; and $252 million for all other foreign investments. These thresholds do not apply if the Regulations exclude their application, for example for some acquisitions of land from the Commonwealth. Notifiable actions Notifiable actions involve acquiring an interest in Australian land above the monetary threshold set by the Regulations. Application Fees When making an application, the correct application fee must be submitted. The current application fees are: Commercial Land (not vacant): $25,300 Commercial Land (vacant): $10,100 Residential Land: Depends upon the value of the Land 1 1 < $1m = $5,000 fee; between $1m and $2m = $10, Doing Business in Australia

83 Treasurer s powers Failure to inform the Treasurer of a significant action may result in the Treasurer making a disposal order blocking or unwinding the significant action if the Treasurer determines that the significant action is contrary to the national interest. Notifiable actions cannot proceed without the Treasurer s approval unless no response is received from the Treasurer within the prescribed time periods set out in the FATA. Disposal orders can be made by the Treasurer if notifiable actions proceed without approval, or contrary to any conditions placed on approval, subject to these orders being made within the prescribed time periods. Exemptions The Regulations set out a number of exemptions for certain actions being significant and notifiable actions, which include: a foreign person does not need to notify the Treasurer of the acquisition of a new dwelling where an exemption certificate has been granted in advance to a developer selling the new dwelling; a foreign person with a high volume of acquisitions of interests in Australian land, where an exemption certificate has been granted to the person in advance, subject to a maximum value of interests that can be acquired and a period during which the acquisitions can be made, which are specified in the certificate; acquisition of an interest in land from a Government entity; and acquisition of an interest in land acquired by will. The list of exemptions is updated regularly and therefore exemptions need to be considered on a case by case basis. Offences and civil penalties Both criminal and civil penalties apply where a foreign person breaches notification requirements, or fails to comply with conditional approval. These include maximum criminal penalties of a fine and up to three years imprisonment for individuals, and a fine and divestment orders for companies. These penalties also apply to developers with exemption certificates who fail to advertise their new dwellings in Australia in accordance with the conditions of their exemption certificate. Further civil penalties in relation to the acquisition of residential land are extensive. For example, the penalty applicable to a foreign person (who is not a temporary resident) for not notifying the acquisition of an existing dwelling or not complying with a condition of acquisition is the greater of: the amount of capital gain; 25% of the consideration of the acquisition; and 25% of the market value. These penalties may even extend to third parties such as company officers, lawyers, accountants and real estate agents. Unpaid penalties will result in a charge being placed on the land, which will only be removed upon payment of the outstanding amount. NATIVE TITLE AND CULTURAL HERITAGE Since 1992, the Australian courts have recognised that native title to land and waters, as recognised under the laws and customs of the Aboriginal inhabitants of Australia, may have survived the process of European settlement. The courts have held that native title will have survived unless extinguished, either by an act of Government such as the creation of title to land which is inconsistent with the continued existence of the native title right (for example, a grant of freehold title or the creation of a lease giving the right of exclusive possession) or act of Parliament, or by the loss of connection between the land and the group or clan of Aboriginal peoples concerned. Native title may in some cases also have been extinguished in and around the location of certain public works, such as buildings and roads constructed or established by or on behalf of the Crown. This means that native title may continue to exist over large areas of the Australian continent particularly in relation to State-owned reserves, parks, forests, beaches, and other Crown lands as well as in relation to waters both within and beyond the territorial limits of each State and Territory. These developments in the common law are supported by the Federal Native Title Act 1993 (Cth) (NTA), which recognises and protects native title, and under which a national register of native title claims has been established. Under the NTA, any future act of Government which would extinguish (or be inconsistent with the continued existence or enjoyment of) native title will be invalid, to the extent of any inconsistency with native title, unless the act (for example, the grant of a title or of statutory authority to use socalled Crown land) falls into one of the exceptions in the NTA. These include future acts which permit the construction or operation of certain types of infrastructure operated for the public. Future acts will also be done validly for native title purposes where the Government concerned strictly follows certain procedures laid down in the NTA giving both registered holders of, and registered claimants to, native title the right to make submissions in relation to the future acts and, in some instances, negotiate over the doing of the future act. Such validation procedures have been prescribed for a range of types of future acts, including those that permit the construction or operation of certain types of infrastructure operated for the public. In project development it will, of course, be of considerable importance for there to be no uncertainty over the validity of titles and permits granted by Governments for the purposes of the project. 82 Doing Business in Australia

84 ALL ACQUISITIONS OF AUSTRALIAN URBAN REAL ESTATE BY FOREIGN INTERESTS SHOULD BE SUBMITTED TO THE FOREIGN INVESTMENT REVIEW BOARD Since 1998, the NTA has allowed an alternative future act process. Many businesses and developers find it more convenient to commence the process of negotiation and registration of an indigenous land use agreement (ILUA) with the people who hold or may hold native title over the project area (for example, the registered native title claimants) at an early stage of project development. Any act to which consent is given in conformity with a registered ILUA will be valid. An ILUA will commonly deal with such matters as the preservation of sacred or important sites, the exchange of important cultural information concerning the Aboriginal group or clan concerned, the employment of members of the group or clan by the project developer, and the payment of compensation for the effect on native title of the project development. The recognition of Aboriginal native title is a relatively recent development in Australian property law, and it can present challenges, both in mining in remote areas and in infrastructure development. The early commencement of negotiations with native title claimants, however, will generally result in native title presenting no insurmountable obstacles to a successful project. The Federal Government and each of the States and Territories have also passed legislation to protect Aboriginal cultural heritage and, in the case of major projects, Cultural Heritage Management Plans generally must be negotiated with relevant Aboriginal parties (unless there is in place for the project a registered ILUA that deals with 83 Doing Business in Australia such issues). These negotiations should also be commenced at an early stage of the project development and held contemporaneously with the negotiation of native title issues. PROPERTY DUE DILIGENCE Due diligence is the process of investigating and verifying information, records and documentation relating to an entity or an asset. Due diligence is important as it allows an investor to be fully informed of the risks involved in the purchase of an asset. It also allows an investor to make informed decisions about the pricing of the asset. Common property due diligence inquiries include: investigating the title to the property; reviewing leases over the property; and reviewing planning certificates, as well as planning instruments and regulations, which affect the property s use and future redevelopment potential. TIPS AND TRAPS OF PROPERTY PURCHASE AND DISPOSAL Examples of common tips and traps are: Start early it is often advantageous to undertake due diligence as soon as the materials are available. This provides purchasers with a timing advantage if the seller is looking for a purchaser who is ready to progress to the next stage of the transaction. Use professional consultants engaging high quality consultants such as lawyers, engineers and environmental consultants will provide investors with the most comprehensive analysis of the property. Third party reliance if a purchaser wishes to rely on a report which has been prepared by a consultant for the seller, the purchaser would usually need to seek permission from the consultant in order to be able to rely on the report. Sometimes, a payment for the reliance is involved. Insurance it is important to obtain sufficient insurance for the property that the investor wishes to purchase.

85 GET IN TOUCH Sydney Level 15 1 Bligh Street Sydney NSW Nikki Robinson National Practice Group Leader Real Estate T nrobinson@claytonutz.com Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

86 ENVIRONMENTAL LAWS ENVIRONMENTAL, CONTAMINATION AND PLANNING LAWS IN AUSTRALIA HAVE UNDERGONE, AND CONTINUE TO UNDERGO, SIGNIFICANT CHANGE Environmental, contamination and planning laws in Australia have undergone, and continue to undergo, significant change. There is new legislation at both the Federal and State levels in all jurisdictions including laws which specifically respond to climate change. This, combined with changes in the policies and practices of regulatory authorities, particularly in relation to enforcement, means that the extent to which that legislation impacts on the day-to-day operation of businesses has significantly increased. Generally speaking, environmental, contamination and planning legislation is State and Territory based, with limited involvement of federal laws. However, Federal laws play an increasingly important role in the regulation of the environment. The divergence of legislation can cause significant difficulties in interpretation across State and Territory borders. In addition, there can be considerable duplication of environmental, contamination and planning considerations across the various approval requirements within the same jurisdiction. Most, but not all, Australian jurisdictions contain extensive appeal provisions that include third partyinitiated appeals. Some appeal processes provide a merits review forum while others are strictly limited to the identification of legal errors in the decision-making. FEDERAL LAWS Federal laws usually give effect to environmental obligations under international treaties or are triggered where the relevant undertaking requires Federal involvement. For example, the activity may take place on Federal land, or potentially impact on a matter of national environmental significance. The primary Federal legislation, the Environmental Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act), principally applies to proposals which impact on matters of national environmental significance : world heritage properties; national heritage places; wetlands of international importance; listed threatened species and ecological communities; migratory species; Commonwealth marine areas; nuclear actions (including mining of uranium); and water resources in respect of impacts from coal seams gas and large coal mining development. The EPBC Act generally covers environmental, planning and heritage matters. Under the EPBC Act, directors may be found civilly or in some instances criminally liable for offences if: they are in a position to influence the conduct of the company; failed to take reasonable steps to prevent the contravention; and knew that or were reckless or negligent as to whether the offence would be committed. Other specific Federal legislation may also apply if the proposed undertaking involves indigenous heritage, nuclear safety, the import and export of particular waste products or offshore petroleum activities. Federal legislation may also apply uniform standards which are supported by complementary State legislation (such as National Environmental Protection Measures and the transportation of dangerous goods). 85 Doing Business in Australia

87 Where Federal environmental legislation may apply to a particular business or activity, this will invariably be in addition to any obligations under the legislation of the State or Territory in which the business operates. Further, in some situations the environmental considerations for a project may be significantly different under the Federal and State or Territory processes because of differences in thresholds and listing criteria. However, there are some situations where joint Federal and State assessment of proposals are undertaken. The Australian Government has taken steps under the One Stop Shop initiative to create a single environmental approval process for nationally protected matters. This initiative would simplify the approval process for businesses and reduce regulatory costs. However the implementation of the One Stop Shop is ongoing, with approval bilateral agreements between the Commonwealth and each of the States and Territories still to be finalised. STATE AND TERRITORY LAWS State and Territory laws, policies and practices relating to environment, contamination and planning vary in their provisions, complexity and focus. As environment, contamination and planning decision-making involves considerable exercise of discretion, it is common for decision-making in a State or Territory to make reference to decisions made or standards of other Australian jurisdictions. This is most often the case when there is an existing policy or data gap in a jurisdiction. However, care needs to be taken with the application of those decisions and standards because of the differences that exist in the overarching legislative frameworks. STATE AND TERRITORY ENVIRONMENTAL LAWS Environmental offences Generally, the environmental legislation at a State and Territory level creates various environmental offences. This can be under a general environmental duty to avoid pollution or specific offences involving environmental harm to biodiversity factors, waters, air or land. The expansive definition of environment means that offences may also arise for amenity impacts such as the generation of noise, odour, dust or electromagnetic emissions. All State and Territory jurisdictions contain provision for directors and persons involved in the management of a corporation to be held personally liable under the environmental offences provisions. This deemed liability for breach of environmental legislative obligations is subject to various specific defences available to defendants in respect of personal liability for the offence of a body corporate. Environmental impact assessment All States have a statutory authority whose responsibility it is to protect the environment. Approvals and licences issued by those authorities determine how the activity may be carried out and may impose obligations by way of conditions. Conditions can relate to such issues as limits on emissions and discharges, providing financial assurances for compliance with the environmental obligations imposed under the licence, the undertaking of monitoring and public reporting, the provision of offsets or requiring payment of licence fees calculated according to the quantity of pollutants generated by the activity. More specific obligations may be imposed by State or Territory legislation where the activity has or may have an impact on threatened fauna or flora, Indigenous and non-indigenous heritage, water resources, waste, hazardous chemicals and dangerous goods. Further approvals or permits may be required under this secondary legislation. Licensing and permits Environmental legislation may also prescribe that certain businesses, or businesses which undertake specific activities, require approvals or licences from environmental regulatory authorities. These approvals generally act as a defence to pollution offences within certain limits. 86 Doing Business in Australia

88 FEDERAL LAWS PLAY AN INCREASINGLY IMPORTANT ROLE IN THE REGULATION OF THE ENVIRONMENT STATE AND TERRITORY CONTAMINATION LAWS Most Australian jurisdictions have legislation which addresses the reporting of, classification of, management of and responsibility for contamination of land. Initial responsibility is usually (but not always) cast on the person whose activities are likely to have caused the contamination. In some circumstances, however, other classes of persons such as an owner or occupier of land may bear some responsibility at law for contamination of that land (such as on a change of land use). This may have repercussions for the acquisition of land, or for corporate entities which own or have owned contaminated land in Australia, or the contractual obligations of parties when leasing land. Whether land is contaminated may also affect the suitability of that land for particular uses, resulting in obligations to investigate, remediate, monitor or control contamination (including under legally enforceable directives from environmental regulators). Whether in terms of land tenure agreements or acquisition, contamination concerns often involve contractual warranties and releases and associated issues, which should be considered early in any negotiation process. STATE AND TERRITORY PLANNING LAWS Businesses in Australia which involve the use or development of land may also require planning approvals. Planning legislation in the States and Territories controls development, subdivision, building, and the manner in which it may be carried out. Planning approval requirements depend on the land zoning of the relevant parcel of land and the nature of the business to be conducted. In some jurisdictions, rezoning can be initiated by landowners, in others it is by Local or State Government authorities. In addition, planning approval requirements are removed or limited for some public works and under some project specific forms of legislation. The form and detail of the impact assessment process for new development varies greatly between the States. Depending on the type of development, assessment may be undertaken at a local or a State Government level, or by a specific statutory authority or independent assessment panel. In certain circumstances, assessment at the Federal level may also be required in place of, or in addition to, the State level. Planning processes may also overlap with separate processes for cultural heritage or Indigenous heritage approvals. Planning legislation usually allows for public participation in the assessment process by requiring public consultation/advertising before any decision is made, and through rights of third parties to appeal to the courts or tribunal. Third party rights of appeal are not available in all State and Territory jurisdictions. Inquiries and public hearings may also form part of the assessment process. Invariably, planning approvals for development of major infrastructure projects will be subject to conditions which will regulate the manner in which the development can be carried out and operated. Conditions may also require financial or other contributions (such as dedication of land or provision of ecological offsets). Consequently, the conditions which attach to a planning approval can have significant implications for the conduct of a business. DUE DILIGENCE Whether acquiring a business or setting up a new business in Australia, it is essential that the applicable State, Territory and Federal laws, policies and procedures are identified in order to determine the obligations and responsibilities that the business will have in relation to the environment and the carrying out of development. It will also be essential to identify potential risks and liabilities that the business may have under environmental, contamination, planning and related laws. Appropriate due diligence will assist in identifying those obligations, responsibilities and risks. 87 Doing Business in Australia

89 GET IN TOUCH Karen Trainor National Practice Group Leader Environment & Planning T ktrainor@claytonutz.com Brad Wylynko Partner T bwylynko@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

90 CLIMATE CHANGE IN FEBRUARY 2011, THE FEDERAL GOVERNMENT ANNOUNCED ITS INTENTION TO INTRODUCE THE CARBON PRICE MECHANISM Since Australia ratified the Kyoto Protocol in December 2007, climate change has been the subject of a number of significant policy developments at the Federal level. Australia signed the Paris Agreement in April 2016 under which it has committed to reducing its emissions to 26-28% on 2005 levels by 2030 and for the review of this commitment every five years. The Paris Agreement is set to commence in In the meantime, Australia is working towards its goal under the second commitment period of the Kyoto Protocol, under which it has pledged to limit average annual emissions to 99.5 per cent of 1990 emissions by There is no bipartisan support within the Federal Parliament for either Australia s Nationally Determined Contributions under the Paris Agreement or its domestic implementation of these international obligations. Leadership changes have resulted in substantive policy change in Australia s domestic response to addressing climate change. Consequently, it is important to regularly review climate change policy and regulation due to the evolving and changing policies that have occurred and which are likely to continue. CARBON REPORTING In 2008, a national scheme requiring the reporting of greenhouse gas (GHG) emissions, and the consumption and production of energy (called NGERs), commenced operation. Controlling corporations which themselves, or through subsidiaries, have operational control of facilities which exceed prescribed thresholds of emissions, or production and consumption of energy, or as a corporate group exceed group thresholds, are required to annually report those details to the Clean Energy Regulator (CER). CARBON PRICE MECHANISM Building on the reporting data collected through NGERS, the then Labor Federal Government introduced the Carbon Price Mechanism (CPM), which commenced in April The CPM established an emissions trading scheme that imposed liability on large emitters, where covered emissions of GHGs from a facility exceeded a threshold of 25kt CO2-e in any financial year. The entity with operational control of the facility was required to report its emissions under NGERs and surrender permits equal to the amount of reported emissions, or pay a shortfall charge. The CPM had broad coverage, capturing GHG emissions and removals in stationary energy, industrial processes, fugitive emissions (other than from decommissioned coal mines) and emissions from non-legacy waste. With bipartisan support, emissions from agriculture were dealt with separately under the Carbon Farming Initiative (CFI). The CFI has since been substantially expanded (see below). The CPM commenced initially at a fixed price, with the intention that it would increase annually before converting to a cap-and trade system in However, it was repealed before the flexible price period commenced. DIRECT ACTION PLAN In 2014, the incoming Coalition Federal Government, was elected on the policy that it would repeal the CPM and implement its Direct Action Plan (DAP) in its place. The DAP is made up of three key components: the Emissions Reductions Fund (ERF), the Safeguard Mechanism and the Renewable Energy Target (RET). 89 Doing Business in Australia

91 CLIMATE CHANGE HAS BEEN THE SUBJECT OF A NUMBER OF SIGNIFICANT POLICY DEVELOPMENTS AT THE FEDERAL LEVEL EMISSIONS REDUCTIONS FUND The ERF is the centrepiece of the DAP and acts as an expansion of the existing CFI. Through a reverse auction process, the Government contracts to purchase Australian Carbon Credit Units (ACCUs) from registered proponents for emissions abatement achieved under approved CFI methodologies. The Government has allocated $2.55bn to the ERF. Under the ERF, the CFI now applies to industry as well as agriculture and new CFI methodologies have been approved for fugitive emissions from coal mines, transport, commercial and industrial energy efficiency and landfill and alternative waste treatment. SAFEGUARD MECHANISM The Safeguard Mechanism, operating from 1 July 2016 through amendments to the NGERs legislation, complements the ERF to require responsible entities to keep emissions at or below business as usual scenarios. Facilities with direct, scope 1 emissions that exceed the 100,000 t CO2-e threshold, are covered by the Safeguard Mechanism. The CER will make determinations to set baselines for these facilities using the Safeguard Rule. Responsible emitters are accountable for adhering to their set baseline and reporting on their emissions to the CER. The baseline set for a particular facility will depend on the individual circumstances of that facility, for example, whether there is NGERs data for the facility, whether it is a new facility, or whether the facility will undergo expansion. Where there is NGERs data, baselines are set at historical emissions highpoints. RENEWABLE ENERGY TARGET In contrast to the position of the CPM and the DAP, there is bipartisan support for Australia s Renewable Energy Target (RET) scheme, which sets a target for the amount of Australia s electricity supply that comes from renewable energy sources by The scheme has been substantially reformed since it commenced in 2001 with a 2% target, which target was increased to 20% in It is separated into small scale and large scale RET schemes. The large scale RET is the key component of the Government s DAP to meet Australia s 2020 emissions pledge. Nonetheless, following a review of the RET in 2014, the RET target for 2020 was decreased from 41,000GWh to 33,000 GWhpa in OTHER CLIMATE CHANGE INITIATIVES Given the instability of the Federal response to climate change, some Australian States and Territories have commenced their own emissions reduction and energy efficiency programs. While some of these schemes were wound back or abolished as a consequence of the commencement of the CPM, some states have reinvigorated them since its repeal. For example, the ACT has its own legislation for GHG emissions reductions and renewable energy target. It is working towards a principal target of zero net emissions by Victoria, South Australia and Queensland are also reviewing their climate change policies. There are various options for complying with set baselines, such as surrendering ACCUs, applying to have the baseline varied, or spreading an exceedance over multiple years. The CER has broad enforcement powers including enforceable undertakings and injunctions, infringement notices or civil penalties, with maximum penalties of $1.8 million. 90 Doing Business in Australia

92 GET IN TOUCH Brendan Bateman Partner T bbateman@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

93 FINANCIAL SERVICES AUSTRALIA HAS A SOPHISTICATED AND STABLE BANKING AND FINANCIAL SERVICES SYSTEM Australia has a sophisticated and stable banking and financial services system. The banking system is prudentially regulated by the Australian Prudential Regulation Authority (APRA). At the same time, the Australian Securities and Investments Commission (ASIC) operates as the regulator for Australian companies, financial markets, financial services organisations and professionals who deal and advise in investments, superannuation, insurance, deposit-taking and credit. There are four major banks in Australia (ie. Australia and New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited and Westpac Banking Corporation) as well as investment banks and a number of regional banks. Significant foreign banks have a presence in Australia such as Citigroup and the Bank of China. Non-bank financial institutions also operate within the financial system in Australia; for example, credit unions, building societies, friendly societies and finance companies. Together, these entities offer a full range of banking and financial services and products to Australian businesses and consumers. For businesses, these include corporate finance, project finance, derivatives, asset and structured finance, property and construction finance and debt capital markets transactions. For consumers, it also includes retail and electronic banking. FOREIGN CURRENCY/ DOMESTIC CURRENCY REPORTING OBLIGATIONS There are no restrictions on the amount of currency (whether in cash or by an international funds transfer instruction) that may be brought into or taken out of Australia. However, there are reporting obligations for certain transactions under the Financial Transaction Reports Act 1988 (Cth) and the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). The main object of the Financial Transaction Reports Act is to assist in the administration and enforcement of taxation laws. It also aims to identify and prosecute money-laundering activities. The Anti-Money Laundering and Counter-Terrorism Financing Act targets money laundering and terrorism financing and requires participants in the banking and financial services industry to perform certain actions in connection with the banking and financial services they provide. There are areas of overlap between the Financial Transaction Reports Act and the Anti-Money Laundering and Counter-Terrorism Financing Act. FINANCIAL TRANSACTION REPORTS ACT 1988 (CTH) The Financial Transaction Reports Act places reporting obligations largely on individuals and organisations known as cash dealers. Cash dealers include financial institutions, financial corporations, insurance companies and intermediaries, securities and derivatives dealers, trustees or managers of unit trusts and gaming institutions. One of the primary obligations under this Act is that cash dealers are required to report certain transactions, including the following, to the Australian Transaction reports and Analysis Centre (AUSTRAC): suspect transactions such as where the cash dealer has reasonable grounds to suspect the transaction relates to evasion or breach of taxation or certain other laws or dealings with the proceeds of crime; cash transactions of A$10,000 (or the foreign currency equivalent) or more; or international funds transfer instructions. The legislation provides penalties for avoiding the reporting requirements and in respect of false or incomplete information. It also has penalties for a person who facilitates or assists in these activities. 92 Doing Business in Australia

94 If, however, these transactions are reportable under the Anti-Money Laundering and Counter- Terrorism Financing Act then compliance with the Financial Transaction Reports Act is not required. Compliance with the Financial Transaction Reports Act will therefore primarily only have ongoing relevance for cash dealers who are not reporting entities under the Anti-Money Laundering and Counter-Terrorism Financing Act. ANTI-MONEY LAUNDERING AND COUNTER-TERRORISM FINANCING ACT The Anti-Money Laundering and Counter- Terrorism Financing Act established an anti-money laundering and counter-terrorism financing reporting and regulation regime for Australia. The Act commenced on 12 December The Act imposes obligations on reporting entities that provide certain designated services. Reporting entities include, for example, businesses operating in the financial services sector, gambling service providers and bullion dealers. While the Federal Government has recently been presented with recommendations to extend the operation of the Act to those who provide professional services (including lawyers, conveyancers, real estate agents, accountants, and trust and company service providers), the implementation of these second tranche reforms is still being considered. Designated services currently include a broad range of activities such as providing bank accounts, providing loans, factoring receivables, providing finance lease facilities, trading in derivatives, issuing units in managed funds, providing hire purchase facilities, issuing bills of exchange, promissory notes or letters of credit and many other financial transactions. Reporting entities providing a designated service will be required to, amongst other things: implement an Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) compliance program, which includes verifying the identity of clients before a designated service is provided and collecting and verifying information about beneficial owners of clients; report specific kinds of transactions and suspicious matters to AUSTRAC; perform ongoing customer due diligence; and keep accurate records (the initial record keeping obligations commenced on 13 December 2006). The AML/CTF Act (through a reporting entity s AML/CTF compliance program) requires a reporting entity to identify, mitigate and manage the risk of a designated service facilitating money laundering or terrorism financing, and further obliges the reporting entity to verify the identity of a customer before providing that customer with most designated services. In some circumstances the identity of a customer (or its agent) will need to be re-verified such as where a suspicious matter arises in relation to an existing customer. Verification can be completed by obtaining reliable and independent documentation or electronic data or a combination of both. Certain minimum information will be required to be collected and verified depending on the type of customer. Ongoing customer due diligence is also required to be undertaken by reporting entities to protect against involvement in, or facilitation of, money laundering or the financing of terrorism. This involves the collection of customer identification information, the monitoring of customer transactions to detect complex or unusual transactions, and the collection or verification of additional customer identification information, if the risk of money laundering increases, or a suspicious matter arises. Reporting obligations under the Act require a reporting entity to report the following information to AUSTRAC: suspicious matters; for example, any potential tax evasion steps, false identities, the use of funds for terrorism financing or the commission of other crimes; cash transactions over a threshold of A$10,000 (or the equivalent in any other currency); and certain designated services relating to international funds transfer instructions. Reporting entities are also required to enrol with AUSTRAC and to keep enrolment details up to date. Remittance service providers are also required to apply to be registered with AUSTRAC (and to show suitability for registration). CONSUMER CREDIT REGIME The Australian credit regime that regulates consumer credit and leases was introduced by the National Consumer Protection Act 2009 (Cth) (NCCP) and the National Credit Code (as Schedule 1 to the NCCP). It: provides a uniform licensing regime for providers of consumer credit and other credit services; requires mandatory membership by a credit provider of an external disputes resolution scheme; imposes responsible lending conduct requirements on credit providers; and 93 Doing Business in Australia

95 GENERAL AND LIFE INSURERS MUST BE AUTHORISED UNDER THEIR RESPECTIVE STATUTES IN ORDER TO CARRY ON INSURANCE BUSINESS IN AUSTRALIA imposes sanctions and enforcement powers for ASIC as the regulator of the regime. The regime regulates consumer credit and leases throughout their lifecycle - from advertising, pre-contractual conduct, contract formation, loan administration, termination and enforcement of credit contracts and leases. However, the regime will only apply to credit activities in relation to credit that is covered by the National Credit Code. Relevantly, section 5 of the National Consumer Code states that consumer credit is credit that is provided where: the debtor is a natural person or a strata corporation; it is provided wholly or predominantly: for personal, domestic or household purposes; to purchase, renovate or improve residential property for investment purposes; or to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and a charge is made for providing the credit; and the credit provider provides the credit in the course of a business of providing credit carried on in Australia or incidentally to another business carried on in Australia. AUSTRALIAN CREDIT LICENCE Where an entity engages in credit activities while carrying on a business in Australia, it will generally need an Australian credit licence or an authorisation from a credit licensee before commencing business, unless it is able to rely upon an available exemption. Whether an exemption is available is factually driven and will depend, among other things, on the scope of the activities undertaken by the entity in Australia. A credit activity is defined in the NCCP to include certain activities relating to credit contracts and consumer leases, securing payment obligations by related mortgages and guarantees and the provision of credit services, acting as an intermediary or providing credit assistance. If a credit licence is obtained, it will be issued subject to various conditions, which will restrict the licensee to certain credit activities that are consistent with their experience and qualifications. RESPONSIBLE LENDING One of the key provisions in the NCCP is the responsible lending obligation which is intended to ensure that lenders and brokers engage in prudent lending and leasing. In broad general terms, the provisions contain two sets of requirements: A credit contract or lease cannot be entered into or an unconditional representation made that the consumer is eligible to enter into a contract or lease unless a responsible lending assessment has been undertaken and based on that assessment, the credit contract or lease is not unsuitable. In making a responsible lending assessment, reasonable inquiries must be made about the consumer s requirements and objectives in relation to the credit contract and reasonable inquiries made about, and reasonable steps taken to verify, the consumer s financial position. The contract or lease must be assessed as unsuitable and cannot be entered into if: the consumer will be unable to comply with their financial obligations under the contract or lease or could only apply with substantial hardship; or the contract will not meet the consumer s requirements or objectives. Obligations are imposed upon credit licensees and their credit representatives to provide disclosure documents at particular points in time in the loan and lease origination process. These disclosures are key details about the licensees themselves and will assist the consumer to understand who they are dealing with, the dispute resolution services available to the consumer and an indication of any cost the consumer may incur. 94 Doing Business in Australia

96 SUPERANNUATION Generally, all employers in Australia contribute quarterly a percentage of an employee s ordinary time earnings into a fund established to comply with superannuation legislation requirements (known as a complying superannuation fund). At present, the minimum level of contributions by an employer in respect of an employee is 9.5% of that employee s ordinary time earnings (up to the maximum contributions base), gradually increasing to 12% by 1 July Employees generally have the right to choose a superannuation fund and move their superannuation savings between funds. If an employee does not choose a superannuation fund, an employer must contribute in respect of that employee into a superannuation fund that is authorised to offer a MySuper Product (a simple, low-cost default superannuation product). Although the minimum superannuation contribution is currently nine and a half percent, any employer and employee can contribute additional amounts. These voluntary contributions may be made as part of overall terms and conditions of employment. Alternatively, employees may make additional contributions to superannuation through salary reductions (or salary sacrifice ). However, there are caps on the amount that a person can contribute into the superannuation system each financial year that are taxed at lower rates. By way of a disincentive, if a person contributes in excess of the cap, they will need to pay excess contributions tax. If the minimum contribution is not made by the employer, a special tax, called the Superannuation Guarantee Charge (SGC), is imposed upon the employer. While contributions are not compulsory under legislation, the SGC makes contributing to a superannuation fund the lower cost option for employers. In June 2015, there were more than 560,000 separate superannuation entities in Australia, managing over A$2.04 trillion in assets on behalf of around 30 million member accounts. It is forecast that this figure will increase to A$9 trillion by Regulated superannuation funds are licensed and regulated by APRA (other than self-managed superannuation funds, which are regulated by the Australian Taxation Office) under the Superannuation Industry (Supervision) Act Superannuation funds are subject to ongoing capital adequacy, governance and reporting requirements, and the conduct of their business and product disclosure is heavily regulated by legislation and prudential standards. A complying superannuation fund is generally taxed at the concessional rate of 15% of its assessable income. Capital gains, including gains on the disposal of shares and other securities held by the fund, are taxed at the rate of 10% where the asset was held for 12 months or more. Generally employers superannuation contributions and deductions for contributions by people who are substantially self-employed are tax deductible. In general, superannuation fund members are unable to access superannuation benefits until they reach age 65 or retire after a minimum age. This is known as the preservation age. The preservation age for persons born before 1 July 1960 is 55 years. For persons born after this date but before 30 June 1964, there is a gradual increase in the preservation age up to 59 years. For all persons born after 30 June 1964 the preservation age is 60 years. Payments made from a taxed superannuation fund to persons age 60 or more are tax-free. This encourages people to delay receiving superannuation benefits until they reach 60 years. INSURANCE AND RISK MANAGEMENT The Australian insurance market is highly regulated by statutes, delegated legislation, guidelines and codes. General and life insurers must be authorised under their respective statutes in order to carry on insurance business in Australia, subject to some exceptions relating to foreign insurers. They are subject to ongoing capital adequacy, solvency and reporting requirements, administered by APRA, and their conduct of business is heavily regulated by legislation governing market conduct and the operation of insurance contracts. Insurers require an Australian Financial Services Licence (AFSL) if they provide financial services directly to retail clients. Insurance brokers must also hold an AFSL in order to provide financial services (including financial product advice) to retail clients in Australia. Reinsurers must also be authorised in order to carry on business in Australia and they have similar ongoing capital adequacy, solvency and reporting requirements, but are subject to far less regulation affecting individual contracts. Contract Certainty rules apply, but have a much narrower scope in their application to Australian reinsurance than is the case in the UK. Many of the major international reinsurers accept inwards business from Australia, however, there is an additional capital charge factor which has to be applied by APRA-regulated cedents, in respect of outwards reinsurance to offshore reinsurers which are not regulated by APRA, in calculating their minimum capital requirement. Businesses seeking insurance in Australia will find a small but highly competitive and mature insurance and reinsurance market, with all of the large international brokers active. Australian insurance legislation treats captive insurers the same as market insurers for most purposes, however APRA will sometimes grant concessions in relation to some of the requirements on a caseby-case basis. 95 Doing Business in Australia

97 Alternative risk transfer methods are in use, with leading service providers offering specialist skills in appropriate risk management techniques. Risk management is highly developed, with first-rate skills available and a highly qualified, regulated profession. Risk management, including by insurance, is a legislative requirement in many Australian industries, including the insurance industry itself. Since the financial crisis of 2008, new risk management and good governance measures have been implemented for APRAregulated entities. The new measures include Prudential Standard CPS 220 Risk Management. The current Australian Standard for managing operational risk is AS/NZS ISO 31000:2009. FINANCIAL SERVICES REGIME The Australian financial services regime: provides a uniform licensing regime for entities which provide financial services such as providing financial product advice, operating managed investment schemes or dealing in respect of any of a range of financial products such as shares, debentures, interests in managed investment schemes, superannuation (pensions), deposit products and derivatives; provides a uniform licensing regime for entities operating financial products markets (such as stock and futures exchange) and clearing and settlement facilities; prescribes a uniform set of training, competency and other conduct requirements, particularly for those who sell or offer products to retail clients; and implements a uniform selling and disclosure regime with respect to the products and services covered by the regime. AUSTRALIAN FINANCIAL SERVICES LICENSING Where an entity carries on a financial services business in Australia it will need to be covered by an Australian Financial Services Licence unless it is able to rely upon an available exemption. Before commencing any financial services related activities in Australia a foreign financial services provider will need to carefully consider the availability or otherwise of licensing exemptions. It should be noted that where a financial services licence is obtained it is usually issued subject to various conditions and there are various statutory notification and client obligations imposed on licence holders. Foreign financial service providers who only wish to provide financial services to Australian wholesale clients may be able to take advantage of certain licensing exemptions for qualifying foreign jurisdictions on the basis that they are subject to regulation in a jurisdiction which is comparable to the regulation that local Australian providers are subject to. In addition there are a number of exemptions for specific financial services, the availability of which is factually driven. INVESTMENT PRODUCTS There are two principal types of investment products (as distinct to superannuation or pension products) offered in the Australian market: securities (which includes shares and debentures in a body corporate) and interests in managed investment schemes. It is important to note that, notwithstanding the product type, each entity which provides financial services to persons located in Australia in relation to the product, including, of course, the issuer or operator of the interests in the product together with any promoter, distributer or manager of the product will need to consider whether it is required to hold an Australian Financial Services Licence. In addition, there is a separate requirement that a foreign financial services provider (including an issuer/operator of an offshore collective investment) register as a foreign company in Australia and appoint a local agent if it is a body corporate and it carries on business in Australia. INVESTMENT COMPANIES The offer of interests in an investment vehicle which is structured as a body corporate (be they shares or debentures) to persons in Australia will likely be regulated and, as such, it will be necessary for both the investment vehicle and distributor to consider what licensing and registration requirements might apply. As a general observation it is significantly easier from a licensing perspective to offer interests in an investment company to persons located in Australia than it is interests in a managed/collective investment scheme. MANAGED/COLLECTIVE INVESTMENT SCHEMES Australia s financial services sector is resilient and growing. The strength of the Australian markets during the global financial crisis was highlighted by the World Economic Forum, which in 2009 ranked Australia as the world s second-best financial centre after the UK. With around A$2.6 trillion in assets currently under management, Australia is the largest funds management market in Asia, and the third largest funds market in the world. Funds under management in Australia, including managed funds and superannuation, has a projected average annual growth rate to 2021 of over 6%. Australia has the highest level of managed funds per capita in the world, with total investment fund assets in Australia projected to reach A$7 trillion by The concentration and quality of skills and expertise have enabled Australia to become the funds management hub for the Asia-Pacific region, and is an additional major drawcard for global funds to establish operations in Australia. 96 Doing Business in Australia

98 Collective investment vehicles are referred to in Australia as managed investment schemes. Managed investment schemes can be in various legal forms: some are mere contract-based schemes under which the promoter gives a personal promise that under certain conditions the investor will receive benefits. The most common legal form, however, is a unit trust. Unit trust products exist for each of the traditional and alternative asset classes including direct property, property securities, equity (domestic and foreign), cash, private equity, hedge funds and infrastructure. A managed investment scheme is a scheme to which investors contribute funds that are pooled or used in a common enterprise to produce financial benefits for the investors. The most distinctive feature of interests in a managed investment scheme that sets it apart from shares and debentures is that investors do not have day-today control over the operation of the scheme, and instead leave this task to a professional manager. In order to operate a managed investment scheme, an Australian financial services licence is required, which authorises the licensee to operate the scheme. To obtain a licence, an entity must meet financial requirements, as well as several general licensing requirements that set minimum standards of competency, educational levels and experience for participants. In addition to this licensing requirement, if interests in a scheme are offered on a retail basis, the scheme will generally require registration. If, however, interests in the scheme are only offered to Australian wholesale investors, the scheme is not required to be registered. There is a clear distinction between retail and wholesale investors and unless classified as wholesale, investors will be deemed to be retail. Typical wholesale investors include institutional investors or investors who are regarded as being sophisticated or experienced investors making large investments. A scheme that requires registration is highly regulated and must comply with the Corporations Act. Included in these regulatory requirements is the need for a responsible entity, being a public company, to operate the scheme. The responsible entity fuses the role of trustee and manager into one. The responsible entity is solely responsible to investors and the regulator for the operation of the scheme, and consequentially the responsible entity is subject to a number of duties that are imposed by the Corporations Act. These include the duties to act in the best interests of the members and to act with a degree of due diligence and care. There are a number of options for foreign asset managers wanting to enter the Australian market. A number of foreign managers have established funds in Australia that are established under Australian law and operate on the same basis as domestic managers. Alternatively, a foreign manager may market established foreign schemes directly in Australia, either exclusively to Australian wholesale investors, or to retail investors as well. In order to do so, however, where the target market is Australian wholesale investors, exemptions from certain provisions of the Corporations Act are required and are available to operators regulated in certain foreign jurisdictions (such as the United Kingdom, the United States, Singapore and Hong Kong). If the target market is Australian retail investors, then exemptions are much more limited and some Australian regulation of the foreign scheme or manager or both will be inevitable. Typically, a strategic alliance is entered into by foreign managers with Australian licensees to minimise the Australian regulatory burden and gain access to Australian retail distribution. 97 Doing Business in Australia

99 GET IN TOUCH Matt Daley Partner T mdaley@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

100 AUSTRALIA S POSITION ON URANIUM URANIUM EXPLORATION AND MINING IS PERMITTED IN SOUTH AUSTRALIA, THE NORTHERN TERRITORY, WESTERN AUSTRALIA AND QUEENSLAND Australia has the largest proportion (approximately 31%) of Known Recoverable Resources of uranium in the world. While only four uranium mines are currently operating in Australia, there remains a number of advanced projects across the country. In addition, South Australia, the Northern Territory, Western Australia and Queensland are considered to be highly prospective, and relatively under-explored uranium provinces. Uranium exploration and mining is permitted in South Australia, the Northern Territory, Western Australia and Queensland. New South Wales permits exploration of uranium only, while exploration and mining is banned in Victoria. Currently, Tasmanian legislation does not have any restrictions on uranium mining, while the Australian Capital Territory has no proven reserves. Uranium mining within Australia remains a controversial issue, which attracts vocal opposition from some community sectors (and in some cases legal challenges). Activities associated with the mining of uranium in Australia are governed by a complex and integrated framework of legislation, policy, and guidelines across a multitude of agencies and organisations at both the Federal and State Government levels. While the Federal Government has specific regulatory powers that extend to environmental assessment, transportation and export control, day-to-day regulation of uranium mining is largely a State or Territory responsibility under the relevant mining and exploration legislation. Issues of long-term mine closure standards and tailings storage and management figure prominently in mining and environmental approval conditions at both the Federal and State level. Current Federal and Northern Territory standards require modelling for a minimum of 10,000 years. FEDERAL LAWS The power to deal with most environmental issues is effectively conferred concurrently on both the Commonwealth and the States and Territories. However, the Commonwealth Government retains the overarching control under its export licensing powers (due to its obligations under international convention). The Northern Territory differs from the State jurisdictions in that uranium mining requires Commonwealth approval, as Commonwealth owns these uranium resources under the Atomic Energy Act 1953 (Cth). Within the State jurisdiction, the States commonly own the uranium resources under the applicable mining legislation. The Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) confers power onto the Federal Government in relation to the management of nuclear actions. This is an expansive head of power (compared to many other matters of national environmental significance under the EPBC Act), in that it empowers the Commonwealth to consider all environmental issues that may be associated with the mining project (ie. the Commonwealth is not just limited to radiation impacts). However, the power to regulate nuclear actions under the EPBC Act does not extend to the offshore use of uranium products mined within and exported from Australia. Although presently untested, there is a question over whether the Commonwealth s powers under the EPBC Act extend to uranium exploration in addition to uranium mining. The Commonwealth also imposes legislation which aims to protect the health and safety of people and the environment from the effects of radioactive material. Radiation standards are published by the Australian Radiation Protection and Nuclear Safety Agency under the Australian Radiation Protection and Nuclear Safety Act 1998 (WA). 99 Doing Business in Australia

101 URANIUM MINING WITHIN AUSTRALIA REMAINS A CONTROVERSIAL ISSUE, WHICH ATTRACTS VOCAL OPPOSITION FROM SOME COMMUNITY SECTORS In addition to environmental and health and safety approvals, uranium mining, transportation, nuclear activities and waste disposal activities are subject to an extensive array of Commonwealth approvals, permits and requirements, including: The Atomic Energy Act 1953 (Cth) imposes a duty on any person discovering uranium in Australia to report that discovery to the Commonwealth Minister within one month of the discovery. A permit is then required from the Australian Safeguards and Non-Proliferation Office to mine uranium. The Customs (Prohibited Exports) Regulations 1958 (Cth) imposes a requirement to obtain Ministerial permissions for the export of uranium containing the mixture of isotopes occurring in nature. Notification obligations for maritime transportation under the Navigation Act 1912 (Cth). The Nuclear Non-Proliferation (Safeguards) Act 1987 (Cth) imposes an obligation to obtain a permit for possessing nuclear material, which is defined by reference to particular plutonium and uranium isotopes. Further, Australian uranium is produced only for export for peaceful purposes under Commonwealth longstanding uranium export policy and regulation. This includes applying nuclear safeguard conditions to the export of uranium, which are intended to ensure the uranium is not used for, or diverted to, nuclear weapons programs. Exports are permitted only to countries which are a party to and comply with the Treaty on the Non-Proliferation of Nuclear Weapons, have a bilateral safeguards agreement with Australia and, for non-nuclear weapon States, have an Additional Protocol that ensures the International Atomic Energy Agency has access to and inspection rights in the recipient country. Uranium mining operations and associated infrastructure (such as railways, pipelines, water and power supplies) may also require resolution of native title issues under the Native Title Act 1993 (Cth). In addition, any application for a mining interest in the Northern Territory made over Aboriginal land under the Aboriginal Land Rights (Northern Territory) Act 1976 (Cth) must be consented to by the relevant Minister and the relevant Aboriginal Land Council. STATE AND TERRITORY LAWS The day-to-day regulation of uranium exploration and mining is governed by the State and Territory Governments. Most States and Territories which permit uranium exploration and mining have in place a stringent regulatory system involving a complex system of licences and approvals, reporting requirements and verification by inspection. Generally, uranium mining operations are prohibited unless a mining lease or retention lease is held, along with approved mining proposals and mine closure plans. In most States and Territories there is also a requirement for an approved radiation management plan and radioactive waste management plan. In Western Australia the radiation management plan is approved by the Radiological Council of Western Australia rather than the Department of Mines and Petroleum. Licensing regimes also apply for the terrestrial transportation of radioactive substances and radioactive waste. However, currently only South Australia and the Northern Territory permit the export of uranium oxide through its ports. Consequently, licensing from multiple jurisdictions may be required to enable export. In 2009 the Western Australian Government lifted a ban on uranium mining with the commitment that all necessary environmental approvals will be obtained in relation to the mining of uranium and the transport of uranium oxide. Uranium oxide must be transported by road to South Australia or the Northern Territory for shipment. In 2012 the LNP Queensland government removed the prohibition on uranium mining however, in March 2015 the following Labor Government announced the prohibition would be brought back. The prohibition on mining uranium remains in place in New South Wales, although exploration is permitted. However, mining of uranium will not constitute an offence if the recovery of uranium is incidental to the mining of other minerals, provided the amount removed does not exceed 0.02% of the total mineral removed. In Victoria it is still prohibited to explore, mine or quarry for uranium or thorium. State or Territory legislation may also prohibit nuclear waste disposal without a licence, or ban it entirely. The establishment of uranium enrichment and nuclear power facilities is also opposed or prohibited in all the States and Territories. No such prohibition exists in relation to Commonwealth land. 100 Doing Business in Australia

102 THE ROYAL COMMISSION The Nuclear Fuel Cycle Royal Commission was established by the South Australian Government on 19 March 2015 to undertake an independent and comprehensive investigation into the potential for increasing South Australia s participation in the nuclear fuel cycle, specifically in four areas: expanded exploration, extraction and milling of minerals containing radioactive materials; the further processing of minerals and the processing and manufacture of materials containing radioactive and nuclear substances; the use of nuclear fuels for electricity generation; the establishment of facilities for the storage and disposal of radioactive and nuclear waste. The Commission released their final report on 6 May 2016 and found that South Australia could safely increase its participation in nuclear activities, particularly in the disposal of international used fuel and intermediate level waste. A waste disposal facility was estimated to be capable of generating over $100 billion income in excess of expenditure over the 120 year life of the project. The following recommendations were made: South Australian Government pursue the simplification of state and federal mining approval requirements for radioactive ores, to deliver a single assessment and approvals process. Undertake further geophysical surveys in priority areas, where mineral prospectively is high and available data is limited. Remove at a State level, and pursue removal of at the Federal level, existing prohibitions on the licensing of further processing activities to enable commercial development of multilateral facilities as part of nuclear fuel leasing arrangements. Promote and actively support commercialisation strategies for the increased and more efficient use of the cyclotron at the South Australian Health and Medical Research Institute. Pursue the removal at a Federal level of existing prohibitions on nuclear power generation to allow it to contribute to a low-carbon electricity system. Promote and collaborate on the development of a comprehensive national energy policy that enables all technologies, including nuclear, to contribute to a reliable, low-carbon electricity network at the lowest possible system cost. Collaborate with the Australian Government to commission expert monitoring and reporting on the commercialisation of new nuclear reactor designs that may offer economic value for nuclear power generation. The South Australian Government to remove the legislative constraint in section 13 of the Nuclear Waste Storage Facility (Prohibition) Act 2000 that would preclude an orderly, detailed and thorough analysis and discussion of the opportunity to establish such facilities in South Australia. 101 Doing Business in Australia

103 GET IN TOUCH Stuart MacGregor Partner T smacgregor@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

104 ANTI-BRIBERY AND CORRUPTION AUSTRALIAN COMPANIES AND DIRECTORS MUST ALSO UNDERSTAND LEGISLATION IN OTHER JURISDICTIONS. Strengthened by the enactment of new offences, increased penalties and larger budgets, regulators around the globe have been increasingly aggressive in the investigation and enforcement of anti-bribery and corruption laws. Australia is no exception and this has been demonstrated by the following: the setting up of an Australian Federal Police (AFP)-led Fraud and Anti-Corruption Centre within its multi-agency Serious Financial Crime Taskforce; a Ministerial Direction which identifies the investigation of foreign bribery as one of the AFP strategic priorities; the expansion of anti-bribery and corruption offences in the Criminal Code (Cth), to include false accounting provisions which criminalise both intentional and reckless conduct; the touted broadening of anti-bribery and corruption investigations to treat foreign bribery as a predicate offence for serious money laundering offences which will enliven and justify government authorities use of more intrusive and covert investigative powers to investigate suspects than would otherwise be lawfully permitted; and the expected enhancements to anti-bribery and corruption laws which will make it easier for authorities to establish contraventions of the law. The consequences of breaching anti-bribery and corruption laws can be serious. In a number of cases overseas, severe penalties (including terms of imprisonment) and fines have been imposed on individuals and corporations for involvement in bribery and corruption, breaches of relevant legislation and/or failing to mitigate the risk of bribery and corruption by implementing a robust compliance program. Indeed, the consequences are more far-reaching and include reputational damage as well as a loss of confidence amongst employees and business counterparts. As the global economy becomes increasingly integrated, regulators are also co-operating across international boundaries and focusing on highrisk regions as is evidenced by the creation of an OECD Global Network for investigators and prosecutors. This means that as well as being subject to Australian anti-bribery and corruption legislation, Australian companies and directors (or companies doing business in Australia) must also understand legislation in other jurisdictions. The most relevant jurisdictions are the United States and the United Kingdom, which have particularly onerous provisions coupled with strong enforcement and prosecution cultures. Both locally and globally, the potential for corporate liability has seen an increased focus on the development and implementation of compliance programs. Implementing an appropriate anti-bribery compliance regime is critical to demonstrate a culture of compliance. CORRUPTION RISKS IN AUSTRALIA Transparency International s 2015 Corruption Perception Index has seen Australia drop to being ranked as the thirteenth least corrupt country in the world and a continual drop in its index rating from While this ranking still gives the perception that Australia is a comparatively low-risk environment, there has been a recent focus on anti-bribery and corruption in Australia through a number of developments, including: the Australian Senate s Inquiry into Foreign Bribery and the anticipated release of its Report in 2016 in relation to the effectiveness and improvement to Australia s foreign bribery laws; the Australian Parliament passing new false accounting offence provisions in the Criminal Code (Cth) that criminalises both intentional and reckless conduct with respect to dealing with accounting documents; the Commonwealth Director of Public Prosecutions ongoing criminal prosecution of the Reserve Bank of Australia s subsidiary companies, Securency International Pty Ltd and Note Printing Australia Pty Ltd and the more recent foreign bribery prosecution of the company director of Lifese Engineering Pty Ltd; the Australian Federal Police s 17 ongoing investigations into foreign bribery and corruption offences, including publically known investigations into BHP Billiton Ltd, Leighton Holdings (now known as CIMIC Limited), Oz Minerals Ltd and Tabcorp Limited; 103 Doing Business in Australia

105 EACH AUSTRALIAN JURISDICTION HAS DIFFERENT LAWS (STATUTE AND COMMON LAW) TO DEAL WITH BRIBERY AND CORRUPTION. the Royal Commission into Trade Union Governance and Corruption which delivered its final report on 28 December 2015; the Western Australia Corruption and Crime Commission s inquiry into information technology companies contracts with the Department of Health which are reportedly due to blow out by over $130 million; the charging of the Managing Director of Orix Australia with serious corruption and money laundering charges; and the recent charging of the Commissioner of Police of the Northern Territory for perverting the course of justice arising out of an Australian Federal Police investigation. Australia is a party to the OECD Anti-Bribery Convention (which provides the international framework for laws dealing with transnational bribery) and is therefore subject to ongoing progress reports. The OECD is clearly still pressing for Australia to work harder in the area of enforcing foreign bribery and corruption laws. As a consequence of these matters, local and international stakeholders (including the legislature, NGOs and the media) are paying closer attention to Australia s level of commitment to the war on bribery and corruption. LAW ENFORCEMENT Given the federal nature of the Australian system of government, there is no single government anticorruption policy. Each jurisdiction has different laws (statute and common law) to deal with bribery and corruption. The investigation of bribery and corruption offences is divided between the AFP, ASIC and the State and Territory police forces. An investigation is referred to the relevant Director of Public Prosecutions who then decides whether to commence a prosecution. In addition, there are a number of independent commissions at both the Federal and the State level to investigate possible corruption of public officials (including politicians) and police. This includes: The Independent Commission Against Corruption in New South Wales (ICAC); The Independent Broad-Based Anti-Corruption Body in Victoria; The Corruption and Crime Commission in Western Australia; The Crime and Corruption Commission in Queensland; The Independent Commission Against Corruption in South Australia; and While these commissions cannot charge individuals or corporations with substantive anti-bribery and corruption offences, they have extraordinary investigative/inquisitorial powers. For example, reports following an investigation can be given to the police for further investigation, Parliament, or in some circumstances released publicly to expose corruption. In New South Wales there has been significant public debate and legal reviews conducted in respect of ICAC s powers, including in relation to conducting public hearings of witnesses whose common law right to silence is abrogated. At this stage it is unclear whether there will be any significant change to ICAC s powers in New South Wales. DOMESTIC BRIBERY Bribery of a Commonwealth public official It is an offence under the Criminal Code (Cth) to dishonestly provide or offer to someone (directly or indirectly) a benefit with the intention of influencing a Commonwealth public official in the exercise of their duties or where the receipt of the benefit would tend to influence a Commonwealth public official in the exercise of their duties. Benefit is broadly defined to include any advantage and is not limited to money or property. Penalties Individuals found guilty of bribing a Commonwealth public official face up to 10 years imprisonment and/or a fine of up to A$1.8 million. For companies, it s the greater of a fine of up to A$18 million, a disgorgement penalty of up to three times the value of the benefit reasonably attributable to the conduct or (where the value of the benefit cannot be determined) up to 10% of the annual turnover of the corporate group. Similar offences exist for Commonwealth public officials who receive such bribes/corrupting benefits, or abuse their public office. Persons who aid, abet, counsel or procure the commission of an offence by another person are taken to have committed the offence. Finally, conviction for bribery offences could lead to possible penalties or forfeiture of profit under proceeds of crime legislation. The Australian Commission for Law Enforcement Integrity. Commonwealth public official covers all employees of the Commonwealth and any Commonwealth authority. 104 Doing Business in Australia

106 WITH THE AFP DECLARING FOREIGN BRIBERY A KEY ORGANISATIONAL PRIORITY, IT IS LIKELY THAT THERE WILL BE MORE FOREIGN BRIBERY PROSECUTIONS IN AUSTRALIA IN COMING YEARS. State/Territiory public officials There are offences in State and Territory laws for corruptly giving or offering an inducement or reward to an agent for doing or not doing something regarding the affairs of the agent s principal. It is also an offence to aid, abet, counsel, procure, solicit or incite the commission of these offences. The penalties differ in each State and Territory but for individuals can include a fine and/or up to 10 years imprisonment. Bribery offence at common law Some Australian jurisdictions still criminalise bribery and misconduct in public office through the common law, rather than codifying it under statute. It is also an offence at common law to offer or receive any undue reward to or by any person in public office in order to influence that person s behaviour in that office. Commercial bribery Generally speaking, the above State and Territory laws prohibiting the giving or receipt of corrupt commissions or rewards also apply to rewards given to employees or agents of private or public companies and individuals. An employee who receives a bribe will likely also contravene the Corpoations Act 2001 (Cth) and faces a pecuniary penalty of up to $200,000, a disqualification order or a compensation order. FOREIGN BRIBERY Australia implemented the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 1999 by enacting the anti-bribery and corruption provisions in the Criminal Code (Cth). Under the Criminal Code (Cth), it is an offence to provide or offer to someone (directly or indirectly) a benefit that is not legitimately due to that person with the intention of influencing a foreign public official in the exercise of their duties in order to obtain or retain business or a business advantage. A recent amendment to the foreign bribery provision clarifies that intention to bribe a particular foreign official is not a requirement in order to establish an offence. Foreign Public Official includes employees, contractors or officials of a foreign government department or agency, a foreign controlled company or public international organisation, members of a foreign military or police force or members of the executive, judiciary or magistracy of a foreign country. Australian authorities can prosecute companies and individuals for such offences provided a sufficient connection can be established between the entity under investigation and Australia. More specifically, the conduct constituting the offence must occur wholly or partly within Australia, or wholly or partially on board an Australian aircraft or ship. The offence will also apply where the conduct is committed wholly outside Australia, but at the time of the offence, the person who is alleged to have committed it is an Australian citizen, a resident of Australia, or an Australian corporation. Defences are available in two circumstances: where the conduct was lawful in the foreign public official s country (in the sense that it is permitted or required by written law); or where a payment is a facilitation payment made to expedite or secure the performance of a routine government action of a minor nature and the payment is of minor value. Routine government action excludes a decision about the awarding of new business, continuing existing business, or the terms of new or existing business. To rely on this exception companies must demonstrate that they have appropriate record keeping procedures which include adequately recording the value, date, recipient and the purpose of any transaction with a foreign public official. Australia is currently considering removing the facilitation payment defence from the statute book. The foreign bribery offence gives rise to obvious compliance risks for companies doing business in high risk environments in particular where those activities are carried on by agents, or through joint venture vehicles. Thorough due diligence and ongoing monitoring (together with the existence of an anti-bribery compliance program) will help to minimise risk in this area. The maximum penalties under the Criminal Code (Cth) for foreign bribery offences mirror the domestic bribery offences for bribery of a Commonwealth public official. 105 Doing Business in Australia

107 FALSE ACCOUNTING In 2016 false accounting offences were introduced into the Criminal Code (Cth). These offences criminalises the intentional or reckless acts or omissions in respect of accounting documents and could also apply to offences which occur wholly outside of Australia. The provisions capture conduct where there is an intentional or reckless making, altering, destruction or concealment of accounting documents (or the failure to make or alter the document) to facilitate, conceal or disguise the receiving or giving of an illegitimate benefit or loss to another person that is not legitimately incurred by the other person. The maximum penalties under the Criminal Code (Cth) for the intentional false accounting offences mirror the foreign bribery and domestic bribery offences referred to above. The maximum penalties for the reckless accounting offences equate to 50% of that which applies to intentional false accounting offences. CORPORATE LIABILITY Under the Criminal Code (Cth), corporations can be held to be criminally responsible for the conduct of a corporate agent in a range of situations, in particular where the corporate culture directs, encourages, tolerates, or leads to breaches of the legislation, or where the company fails to create or maintain a corporate culture that requires compliance with the legislation. GIFTS/HOSPITALITY TO AUSTRALIAN PUBLIC OFFICIALS Greater care needs to be taken with provision of gifts/hospitality to Australian public officials than to private sector employees. Australian public officials are usually subject to additional guidelines. For example, each Commonwealth, State and Territory government has its own public service with its own code of conduct. These codes of conduct are often supplemented by agency-specific codes of conduct. There are no generally allowable limits for gifts/ hospitality to public officials, although some agency specific codes of conduct may specify dollar limits. Although it will depend on the applicable guidelines, generally speaking: gifts of more than token value, or excessive hospitality, should be avoided; and it will usually be inappropriate to pay for transport or accommodation of a public official (without prior approval from the relevant agency). WHAT NEXT FOR AUSTRALIA? The increasing pressure on the AFP from both within and outside of Australia to increase its anti-bribery and corruption efforts will lead the AFP to make significant efforts to hold persons and corporations accountable under the criminal law. As more and more Australian businesses continue to expand into offshore markets, and with the AFP declaring foreign bribery a key strategic priority, it is likely that there will be more prosecutions of foreign bribery and other anti-bribery and corruption offences such a false accounting offences and money laundering, in the coming years. Australia is continuing to look at ways to enhance its ability to bring about enforcement outcomes and it is expected that steps will be taken to bring about further statutory change to assist with this process. Furthermore, due consideration is being given to the notion of deferred prosecutions in Australia. 106 Doing Business in Australia

108 GET IN TOUCH Gary Berson Partner T gberson@claytonutz.com Tobin Meagher Partner T tmeagher@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

109 RESTRUCTURING AND INSOLVENCY THERE ARE SEVERAL FORMS OF EXTERNAL ADMINISTRATION TO MANAGE INSOLVENT COMPANIES IN AUSTRALIA. Australia is a common law jurisdiction with a federal structure of government. The incorporation, governance and insolvency of companies is governed nationally by the Corporations Act While there is a single regulatory authority for companies, the Australian Securities and Investments Commission, the Federal and State/ Territory courts share judicial oversight of the Corporations Act. Interests in real and personal property in Australia are also regulated by legislation, real property on a State by State basis and personal property nationally under the Personal Property Securities Act Australia has a highly regulated corporate and financial system, so specialised legal and accounting assistance will be required in most restructuring and insolvency situations in Australia. SIGNIFICANCE OF INSOLVENCY IN AUSTRALIA A company is considered insolvent in Australia if it is unable to pay all of its debts as and when they fall due. Solvency is assessed primarily on a cash flow basis but regard may also be had to the company s balance sheet. Australian law seeks to protect creditors and third parties dealing with insolvent companies. Directors and officers who trade a company while it is insolvent potentially expose themselves to both civil and criminal liability under Australian law. Civil liability is more common and, if established, typically requires the directors to compensate the company (by then in liquidation) for the trading debts incurred during the period of insolvency. There are several forms of external administration available under Australian law designed to manage insolvent companies in Australia with a view to protecting and maximising value for creditors (see below). Before considering those, we make some brief observations about available restructuring techniques in Australia. RESTRUCTURING IN AUSTRALIA Most modern international restructuring techniques used in the UK and the US are available in a similar form under Australian law (including sell-offs, spin-offs, equity carve outs, leverage buy-outs, recapitalisation, debt for equity swaps, prepacks and forbearance and creditor compromise arrangements). There is no US Chapter 11 equivalent in Australia, however many of the benefits of that system can be achieved under Australia s regime (including creditor enforcement moratoriums and priority lending). Restructuring can occur both inside and outside of external administration in Australia (external administration is discussed below). Whether a form of external administration is required to implement a restructuring plan will depend on the solvency of the company and whether it is necessary to take advantage of any of the statutory protections or rights available under those processes (such as, a moratorium on creditor enforcement, a mechanism to extinguish creditor claims and the suspension of the powers of directors in favour of an external administrator) to implement the restructure. A company may also engage a chief restructuring officer or turnaround manager to assist with, manage or implement the restructuring plan. Both external legal and accounting advisers will typically be engaged to advise on the preparation and implementation of the restructuring plan. EXTERNAL ADMINISTRATION The most common forms of external administration in Australia are: receivership; voluntary administration; deed of company arrangement; and liquidation. In all of these forms of external administration, the external administrator appointed to the company or its assets will be an independent third party, typically a specialised insolvency accountant, with official accreditation to hold such a role. 108 Doing Business in Australia

110 IF A COMPANY IS UNDER EXTERNAL ADMINISTRATION, THAT STATUS WILL BE RECORDED IN THE RECORDS FOR THAT COMPANY MAINTAINED BY THE AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION. The external administrator s remuneration, cost and expenses will usually be a first ranking priority from the company s assets protected by a lien. If a company is under external administration, that status will be recorded in the records for that company maintained by the Australian Securities and Investments Commission. The Corporations Act also requires that the company state that status after its name in all communications. Receivership A receivership is a form of external administration where a receiver or receiver and manager (also referred to as a controller) is appointed by a secured creditor or the court to administer certain or all of a company s property. The most common form of appointment is made by a secured creditor pursuant to a contractual right within a security instrument granted in its favour by the company. The court may also appoint a receiver where it considers it appropriate (typically where the security instrument does not contain a power to appoint a receiver), however, this is not common. The role of the receiver is to take possession of, and sell, the company s property subject to the security and to apply the proceeds from such sale to the amount owed to the secured creditor. In selling property, a receiver is required by law to take all reasonable care to sell the property for its market value or the best price obtainable in the circumstances. The powers of the directors are limited during a receivership. The receiver will have all the rights and powers to deal with the assets the subject of their appointment to the exclusion of the directors, which often, if the security instrument is broad enough (all present and future acquired property), enables the receiver to manage the company to the exclusion of the directors. A receivership ends when the appointing secured creditor is paid in full, all of the secured assets have been realised or on order of the court. Voluntary administration Voluntary administration is a form of external administration under which a qualified insolvency accountant is appointed to take control of a company for the purpose of investigating its financial affairs and reporting to the company s creditors with a recommendation as to the future direction of the company, upon which the creditors will vote at a (second) meeting convened under the Corporations Act. The voluntary administrator has a statutory timeframe for investigations, reporting to creditors and convening and holding meetings of creditors, the whole process typically taking days unless extended by court order. To assist the administrator to undertake and complete this process, the administrator will have all the powers of the directors (which will be suspended during that period) and the benefit of a statutory moratorium preventing creditors or third parties taking action against the company or its property without the consent of the administrator or the leave of the court. To complete the voluntary administration, the administrator must recommend to, and have creditors vote on, the future direction of the company, which are for the company to: be returned to its directors; enter into a deed of company arrangement (see below); or be placed in liquidation (see below). A secured creditor, with security over the whole (or substantially the whole) of the company s assets, may appoint a receiver or controller to a company s property within the first 13 business days of the voluntary administration and the receiver s rights and powers in relation to that property will be superior to those of the voluntary administrator. Deed of company arrangement A deed of company arrangement (known as a DOCA ) is a form of external administration where a deed administrator administers a contractual compromise between a company and its creditors. A voluntary administrator will seek DOCA proposals prior to convening the second meeting of creditors in the administration, with the aim of tabling a proposal for creditors to vote on at that meeting. For a DOCA proposal to succeed, it will usually need to demonstrate to creditors that they will receive a greater return on their debts in a DOCA than they would in a liquidation scenario. 109 Doing Business in Australia

111 A COMPANY CAN BE PLACED IN LIQUIDATION IN ONE OF THREE WAYS. The typical objective for a DOCA is for the deed administrator to generate a monetary fund from the company s assets or through a contribution from a third party (often the directors or their associates) to be distributed to admitted creditors in full and final satisfaction of their claims (which will then be extinguished) and the company returned to its existing, or new, directors free from debt. There is no standard form DOCA and the Corporations Act provides significant scope for a DOCA to be flexible enough to be tailored to suit most restructuring situations, which may involve selling or transferring assets, issuing shares, compromising debts and agreeing priority payments to creditors outside of the usual statutory order in a liquidation scenario. Liquidation Liquidation or winding up is the terminal process by which the appointed specialist insolvency accountant winds up the company s affairs, realises its assets, distributes the proceeds to admitted creditors in accordance with statutory priorities under the Corporations Act and ultimately deregisters the company. A company can be placed in liquidation in one of three ways: by resolution of its members, by resolution of its creditors or by order of the court, most commonly where the company is insolvent. The liquidator will control the company during liquidation and the powers of the directors and other office holders will come to an end. In producing a fund available to distribute to admitted creditors, a liquidator is also empowered to apply to the court to seek orders: requiring a director to compensate the company where that director has traded the company while it was insolvent; and to have certain company transactions declared void such as unfair preferences, uncommercial transactions, unfair loans and unreasonable directed related transactions. A liquidator will call for proofs of debt from potential creditors. The liquidator will then formally adjudicate each proof to determine whether that party is a creditor, if they should be afforded any priority for payment under the Corporations Act and the total amount of their admitted debt. There will be no return to shareholders unless all claims of admitted creditors are satisfied in full. A secured creditor may appoint a receiver or controller to a company s property during a liquidation and the receiver s rights and powers to that particular property will be superior to those of the liquidator. However, a receiver cannot assume the powers of the liquidator to pursue insolvent trading or voidable transaction claims. These are only available to the liquidator. 110 Doing Business in Australia

112 GET IN TOUCH Karen O Flynn National Practice Group Leader Restructuring & Insolvency T koflynn@claytonutz.com Sydney Level 15 1 Bligh Street Sydney NSW Melbourne Level Collins Street Melbourne VIC Brisbane Level 28 Riparian Plaza 71 Eagle Street Brisbane QLD Perth Level 27 QV.1 Building 250 St Georges Terrace Perth WA Canberra Level 10 NewActon Nishi 2 Phillip Law Street Canberra ACT Darwin Lindsay Street Darwin NT Doing Business in Australia

113 ABOUT CLAYTON UTZ WE HAVE A TRACK RECORD FOR PROVIDING CONSISTENT AND COMMERCIAL LEGAL ADVICE As Australia s leading law firm, we are known for our independent culture and our confident and engaging approach. With teams of highly skilled and dedicated lawyers working in Sydney, Melbourne, Brisbane, Canberra (the Federal Capital), Darwin and Perth, our strength is our ability to bring together lawyers with the right mix of legal and commercial skills to match our clients business needs. Clayton Utz has a large base of loyal clients who have chosen the firm as their trusted legal advisers. Clayton Utz is a full service firm that represents some of Australia s biggest companies and intermediaries as well as significant public sector organisations and multi-nationals with business interests locally and overseas. Our team is dedicated to providing quality legal services and building long-term client relationships. INTERNATIONAL RELATIONSHIPS OFFER GLOBAL SOLUTIONS Clayton Utz maintains strong relationships with leading firms around the globe. Rather than compete with offshore firms, we develop relationships with them. Through these strong relationships, international clients investing in Australia can be assured that Clayton Utz will perform as a streamlined member of their international legal team, providing the highest level of legal services in the most efficient and effective manner. FOREIGN LANGUAGE CAPABILITY Clayton Utz has a depth of language capability reflecting our commitment to providing outstanding client service. A number of our lawyers are bilingual or multilingual, so appropriately skilled lawyers can be called upon to assist with matters and translations at very short notice. Our foreign language skills include Mandarin, Cantonese, Bahasa Indonesian, Hindi, Japanese, Korean, Malay, Tamil, Vietnamese, Afrikaans, Croatian, Danish, Dutch, French, German, Swedish, Ukrainian, Greek and Italian. 112 Doing Business in Australia