Money

What is AUSTRAC and what does it do?

So, what is AUSTRAC and what does it do?

The Australian Transaction Reports and Analysis Centre (AUSTRAC) is tasked with enforcing compliance with the Financial Transaction Reports Act 1998 (FTR Act) and the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

One of the purposes of the FTR Act and AML/CTF Act is to seek to ensure that instances of tax evasion, money laundering and the potential financing of terrorists are reported to the appropriate authorities.

The AML/CTF Act

The AML/CTF Act imposes obligations on entities that provide ‘designated services’ (such as account/deposit-taking services, cash carrying/payroll services, currency exchange services, life insurance services and lending).

Entities that provide one or more designated services under the AML/CTF Act are ‘reporting entities’.

Threshold transactions

Reporting entities must submit a Threshold Transaction Report (TTR) to AUSTRAC within 10 business days after the entity provides a customer with a designated service involving a ‘threshold transaction’.

Threshold transactions involve the transfer of physical currency or e-currency of AUD$10,000 or more (or foreign currency equivalent).

International funds transfers

The ‘sender’ of an International Funds Transfer Instruction (IFTI) transmitted out of Australia, or the ‘recipient’ of an IFTI transmitted into Australia, must report the instruction to AUSTRAC within 10 business days after the day the instruction was sent or received.

Suspicious matter reports

A reporting entity must submit an Suspicious Matter Report (SMR) to AUSTRAC within 24 hours after forming the relevant suspicion if the suspicion relates to terrorism financing (or otherwise within 3 business days) if it is suspected on reasonable grounds that:

  • a person (or their agent) is not the person they claim to be, or
  • information the reporting entity has may be: relevant to investigate or prosecute a person for; an evasion (or attempted evasion) of a tax law, or § an offence against a Commonwealth, state or territory law; or of assistance in enforcing: the Proceeds of Crime Act 2002 (or regulations under that Act); or a State or Territory law that corresponds to that Act or its regulations
  • providing a designated service may be: preparatory to committing an offence related to money laundering or terrorism financing; or relevant to the investigation or prosecution of a person for an offence related to money laundering or terrorism financing.

The FTR Act

Where an entity is covered by the AML/CTF Act (which was enacted years after the FTR Act), they are generally not covered by the FTR Act.

The FTR Act covers cash dealers include financial institutions, corporations that provide financial or insurance services, trustees and managers of unit trusts and a person who carries on a business of operating a gambling house or casino. The obligations of solicitors are also prescribed by the Act.

Where a significant cash transaction takes place (a cash transaction involving AUD$10,000 or more (or foreign currency equivalent including transactions which, when aggregated, exceed that amount), a Significant Cash Transaction Report (SCTR) is to be lodged with AUSTRAC.

Cash dealers who are a party to a ‘suspect’ transaction must report that transaction to AUSTRAC. The cash dealer must submit a suspect transaction report (SUSTR) to AUSTRAC as soon as practicable after forming the suspicion.

The objective of the FTR Act is that by preparing the reports to AUSTRAC, businesses can more easily identify their customers and are therefore more likely to reduce the incidence of fraud.

What does a Bankruptcy Notice do?

A Bankruptcy Notice is a document that, once served, requires the person served to either pay a debt (or enter into an arrangement for payment of a debt) within a specified period of time, usually 21 days.

If the Bankruptcy Notice is not complied with within that time, the person has committed an “act of bankruptcy” entitling the person owed the money (creditor) to commence bankruptcy proceedings.

It is usually a good idea not to try to do this yourself but rather to engage a lawyer to assist, including obtaining a National Personal Insolvency Index (NPII) search beforehand.

How is a Bankruptcy Notice issued?

Bankruptcy Notices are issued by the Australian Financial Security Authority (AFSA) (formerly the Insolvency & Trustee Service Australia (ITSA)) at the request of a creditor.

In order to apply for a Bankruptcy Notice, you must hold a final judgment for at least $5,000 that is no more than 6 years old.

Once issued, the Bankruptcy Notice needs to be served on the debtor. There are various ways to achieve this (including by post in some circumstances).

If the debtor does not dispute the validity of the Bankruptcy Notice or pay the judgment debt or come to a satisfactory arrangement for payment of the debt within the 21 day period, then the debtor will have committed an “act of bankruptcy” as defined in the Bankruptcy Act 1966 (Cth) and the law will presume the debtor to be insolvent, entitling the creditor to commence bankruptcy proceedings. The order declaring someone a bankrupt is called a “sequestration order“.

What is the effect of bankrupting someone?

Most people do not wish to be made bankrupt due for various reasons including:

  • the stigma associated with being declared bankrupt (and the effect this can have on obtaining certain employment etc);
  • the fact that all of the bankrupt’s property (subject to some exceptions) vests in the appointed trustee; and
  • because of the adverse effect of bankruptcy on a person’s credit rating (and therefore their ability to get a loan later in life).

This is why issuing a Bankruptcy Notice and, if necessary, commencing bankruptcy proceedings can be an effective way of obtaining payment if you are a creditor.

What does the court look at before bankrupting someone?

Bankruptcy proceedings are commenced by filing a Creditor’s Petition in the Federal Court of Australia or the Federal Circuit Court of Australia.

Before a person is declared bankrupt, the Court must be satisfied that the person has committed an “act of bankruptcy” in the 6 months before the commencement of the bankruptcy proceedings. The most common act of bankruptcy is failing to comply with a Bankruptcy Notice.

Effect of bankruptcy on company directors

For those in business for themselves, one of the effects of being declared bankrupt, in addition to losing control of the majority of your assets, is that s.206B of the Corporations Act 2001 (Cth) provides that undischarged bankrupts or those who have entered into personal insolvency agreements cannot act as a director or take part in the management of a company.

AFSA and ASIC have a Data Matching Protocol such that ASIC will receive notification of a director’s bankruptcy. Although a bankrupt automatically ceases to be a director, the director must notify ASIC by lodging a Form 296 - Notice of Disqualification from Managing a Corporation and further, the Company also has an obligation to notify ASIC of the cessation of an officeholder by lodging a Form 484 - Change to Company Details within 28 days of the change taking effect.

The Court has the power to grant leave to an undischarged bankrupt to take part in management of a company, subject to ASIC being notified of the application. Such leave, which can be granted both with or without conditions, is not available however, where the disqualification was imposed by ASIC (as opposed to an automatic disqualification due to the operation of the Corporations Act).

The court will not easily be convinced that the usual prohibition should not apply and will exercise its discretion with a view to balancing the considerations relevant to the bankrupt and the public policy behind the prohibition. In such an application, the applicant bears the onus of establishing that the Court should make an exception to the legislative policy underlying the prohibition. The policy behind the law is protect the public and among other things, to seek to ensure that investors, shareholders and others dealing with a company are not disadvantaged.

Hardship to the proposed director is not of itself a persuasive ground for the granting of leave although it is one of many factors which may be considered by the court in exercising its discretion. The court will have regard to the reason for the disqualification, the nature of his or her involvement, the general character of the applicant including the applicant’s conduct in the intervening period since being removed from office or prevented from being in office, the structure of the company, its business and the interests of shareholders, creditors and employees.

Although such applications are not commonplace, an undischarged bankrupt may be granted leave to take part in the management of companies generally or, more frequently, in the management of a particular company. The disqualification imposed by the Corporations Act continues despite the Court granting leave and care must be taken to ensure that any conditions on the leave are complied with as failure to do so can result in the leave being revoked and the commission of an offence.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to bankruptcy, insolvency, debt recovery, commercial law or business disputes, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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Planning on giving money to your kids?

THERE ARE BETTER WAYS TO HELP YOUR KIDS THAN A GIFT

Most parents want to give their kids a headstart in life. Often, this takes the form of money for a car or a deposit for a first home.

Have you considered what would happen to that money if your son or daughter either:

  • broke up with their partner,
  • passed away; or
  • ran into financial difficulties or became a bankrupt?

There are better ways to help your kids than a simple gift of money – protect it so it can continue to be used for their benefit even if they get into financial trouble.

If you give money to your kids, it won’t automatically come back to you if any of those things happen

  • on their separation or divorce, it would be an asset of their relationship and be available for distribution between your son or daughter and their partner under the Family Law Actor the Property (Relationships) Act.
  • on death, those funds will flow to their beneficiaries as stated in their Will (or if they don’t have a Will, in accordance with the laws of intestacy).
  • on bankruptcy, their trustee in bankruptcy will be able to use those funds to pay themselves and any creditors.

In order to protect against these types of events, the advance needs to be documented as a loan. In the absence of such a document, the “presumption of advancement” applies because of the relationship of parent and child and it will be considered a gift.

If your child died, got into financial strife or had matrimonial issues, the loan could be called in – and would be available to lend again once things had settled.

Ideally, in addition to a Loan Agreement, some form of security for the loan could be provided, such as a Mortgage or Caveat over land or a Security Interest registered on the Personal Property Securities Register.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to litigation and dispute resolution or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

 

Do you have customers that owe you money?

WHAT OPTIONS ARE THERE TO CHASE DEBTS?

Where a customer has not complied with the terms on which goods or services have been provided, in that they have failed to make payment as and when required and despite repeated requests, it can often be of assistance for a demand letter to be sent by a lawyer.

The letter of demand will usually require payment in full by a defined time or may propose a payment plan with payment by instalments.

McKillop Legal is often called upon to advise in relation to debt recovery issues. We find that a strongly worded demand, clearly setting out the situation and seeking payment within a reasonable period usually results in payment.

There are various options available for business owners to recover moneys due.

If a letter of demand does not result in payment, there are various options available.

Where the debt is due by a company and the debt is more than $2,000 and it has not been disputed, a Creditor’s Statutory Demand can be issued under the Corporations Act giving the company 21 days to either pay the debt or to come to an arrangement to you for payment of the debt, failing which the company is presumed at law to be insolvent and can be wound up on application to the Supreme Court.

If an individual or partnership owes the debt, a company owes the debt and it is less than $2,000 or if a company debtor disputes the debt, then usually the commencement of proceedings will be necessary (and you would need to weigh up the costs and benefits of doing so to make a commercially sensible decision).

If the debt is over $5,000 and the debt is the subject of a judgment of a court, you can issue a Bankruptcy Notice. A Bankruptcy Notice provides for payment of the debt or a satisfactory arrangement for payment of the debt to be made within 21 days, failing which an “act of bankruptcy” has been committed, entitling you to commence proceedings in for a bankruptcy/sequestration order.

Options for enforcement of judgments also include:

  • Garnishee orders
  • Write of Execution over property – where the Sheriff sells personal property, land etc
  • Instalment orders

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to business succession, estate planning, litigation and dispute resolution or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au