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Applying the National Credit Code The National Credit Code may now be in force, but that doesn’t mean brokers understand exactly when it applies. Matthew Bransgrove explains the details
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here is still a great deal of confusion as to when the National Credit Code applies and when it does not. This is resulting in a lot of loans not getting submitted to commercial lenders because brokers wrongly assume the code applies. One scenario where brokers are shaky is where the security is a house, owned by an individual, who is providing a guarantee to secure the obligations of a company borrower, and the loan purpose is to renovate a residential property. Such a loan is not regulated. This is despite the fact the security is a residential property, despite the fact the security is owned by an individual, and despite the fact that the loan purpose is to renovate residential property. The key factor – the element that irrevocably removes the loan from regulation by the NCC – is the fact that the borrower is a company. In summary, when figuring out whether a loan is code regulated, the first question should be, ‘Is the borrower a company?’ If the answer is yes, then that is the end of it. The NCC does not apply.
Why does the code not apply where the company is a borrower?
Section 5 of the NCC states that the NCC applies where: a) the debtor is a natural person … and b) the credit is provided or intended to be provided wholly or predominantly: i) for personal, domestic or household purposes; or ii) to purchase, renovate or improve residential property for investment purposes; or iii) to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes… Debtor means the same as borrower. This is because s204 of the NCC defines debtor “as a person (other than a guarantor) who is liable to pay for the credit”. Because a company is not a natural person s5(a) is not satisfied and so the NCC does not apply. Whether or not s5(b) is satisfied is irrelevant as s5(a) must be satisfied as well.
Section 7(1) of the NCC states that the code applies to a mortgage where: a) it secures obligations under a credit contract or a related guarantee; and… The first question is does such a loan secure obligations under a credit contract? Section 4 of the NCC defines a credit contract as “a contract under which credit is provided, being the provision of credit to which this Code applies”. Thus whether there is a credit contract is a circular reference to s5. If the borrower is a company the loan is not caught by s5 and therefore also not caught by section 7. The next question; does it secure obligations under a related guarantee? The NCC does not define related guarantee. Section 204 of the NCC defines guarantee unhelpfully (as “includes an indemnity”). Thus related guarantee must be given its normal meaning: a guarantee related to a credit contract. Thus whether there is a related guarantee is a circular reference to s5. If the borrower is a company then the loan is not caught by s5 and therefore also not caught by section 7. Section 8 of the NCC states that it applies to a guarantee if:
a) it guarantees obligations under a credit contract; and… Once again a credit contract is a circular reference to s5. If the borrower is a company then the loan is not caught by s5 and therefore also not caught by section 7. In Equititrust v SLJM [2010] NSWSC 1059 the individual guarantor argued he was the real borrower and the use of company borrower was a sham and that therefore the code should apply. The judge rejected this argument noting that the High Court said the expression “sham” had a well-understood legal meaning. It referred to steps that took the form of a legally effective transaction but which the parties intended should not have the apparent, or any, legal consequences. In these situations it is quite clear the lender intended the transaction to have exactly the legal consequences which the documents have on their face. Matthew Bransgrove is senior partner at Bransgroves Lawyers, and co-author of ‘The Essential Guide to Mortgage Law in NSW’ (LexisNexis, 2008)
FINDING THE EMPLOYEES OF THE Futurist Mike Walsh recently painted a bold vision for the future at PLAN Australia’s national conference in Darwin. Here’s what he says top performers will look like in the future. 1) Super synthesisers In the old days, smart employees gathered competitive information in traditional ways – phone interviews, focus groups and industry surveys. Basically – you were clever if you knew how to pick up the phone and make some calls. Now we have the opposite problem – too much information. Super synthesizers are people with the capability of scanning and processing huge amounts of information. They are like human meta filters. With enough technical savvy and familiarity with blogs, social platforms and search algorithms – they can assess the topography of available data, see patterns and collate them as trends, prioritise and then act. 2) Hyper connectors One of these days we will laugh about the fact people used to get fired for using Facebook or LinkedIn at work. Hyper Connectors are people that know how
to swiftly build and exploit relevant networks to get things done. They won’t necessarily have the largest collection of contacts, but they will know how to use digital platforms to find and nurture just the right set of people to reach their goals. These could be internal networks in a huge enterprise, or external webs of journalists, industry influencers and taste makers. You will recognise them in meetings because they are the first to say in the answer to a problem, ‘I think I may know someone who…’ 3) Change optimists The final quality of the future super smart might sound a bit soft but in some ways it is the most vital personal attribute – positivity. The pace of change is accelerating and there are people for whom that is good news, and others who, if they are honest with themselves, view that fact with dread. You can reassure the change pessimists about the future all you like, but believe me – in the end, when faced with disruptive change, pessimists fight for the status quo not for future growth. Your best performers may not know the future, but they should be happy to meet it head on.