The concept of lending money is relevant to a number of pieces of legislation in Australia and can be either the trigger for the imposition of restrictions or the basis of exemptions.
Such legislation as the Foreign Acquisitions and Takeovers Act 1975, the Stamp Duties Act 1920 (NSW) and the Income Tax Assessment Act 1956 each refer to the concept of lending money in a number of contexts.
It would appear from recent legislative changes and previous analysis of the concept that it is a more restrictive concept than providing financial accommodation or obtaining finance. Indeed, controversy has raged for a long time as to whether or not a bill acceptance and discount facility was the same thing as a loan of money.
The uncertainty of this issue resulted in a number of Australian jurisdictions amending their stamp duties legislation to expand the type of financial accommodation covered by the legislation to include bill facilities as well as loans.
Recent proposals to amend Section 128F of the Income Tax Assessment Act (dealing with interest withholding tax) have removed the reference to 'the raising of a loan' and replaced it with the concept of 'raising finance'. The clear implication is that the concept of 'raising finance' is broader than the concept of 'raising a loan'.
It is therefore interesting to note that despite the legislative trend towards recognizing the limitation of the concept of lending money and the statutory expansion of the concept, the Foreign Acquisitions and Takeovers Act 1975 (FATA) has not been amended to take this matter into account.
As now drafted, foreign financial institutions taking security over Australian Urban Land (as defined in FATA) are generally not required to obtain the approval of the Treasurer or put the Treasurer on notice of the taking of the security as a person shall not be taken to have acquired an interest in Australian Urban Land if the person acquires the interest solely to hold as security for the purposes of a money-lending agreement or by way of enforcement of a security held solely for the purposes of a money-lending agreement.
The term 'money-lending agreement' is itself defined and is determined by reference to agreements entered into by an entity in good faith in the ordinary course of the business of 'lending money'.
In circumstances where the business of the entity taking security over Australian Urban Land is not that of lending money (in the narrow sense), it is arguable that the exclusion referred to above does not apply.
For example, in trade finance, the provider of the finance would not generally be in the business of providing loans of money but would provide either letters of credit or guarantees or letters of confirmation. On the narrow interpretation of the concept of 'lending money', should such a trade financier seek to obtain security over Australian Urban Land, it may be necessary for the approval of the Treasurer to be obtained under FATA or for prior notice of the proposed security to be given to the Treasurer under FATA.
Similarly, a merchant bank or financial institution which is not in the business of 'lending money' but provides other forms of financial accommodation and corporate advisory services may need to comply with FATA if it wishes to obtain security over Australian Urban Land.
Failure to comply with FATA can lead to the imposition of a fine of up to A$250,000 (US$198,000) and the making of certain orders including:
- an order restraining the exercise of any rights attached to any interest held in the land;
- an order directing the disposal of any interest in the land; and
- an order prohibiting or deferring the payment of any sum due to the corporation in respect of its interest in the land.
Clearly, failure to comply with the provision of FATA can lead to significantly adverse consequences.
As there now appears to be a recognition by both federal and state governments that the concept of lending money is inadequate in today's environment, the federal government should amend FATA as soon as possible to broaden the concept of a money-lending agreement to account for the broad range of financial accommodation now available in the world's capital markets.
In the meantime, foreign institutions, trade financiers and suppliers should carefully consider whether they should seek the prior approval of the Treasurer to any security arrangements over Australian Urban Land to be put in place with Australian entities.