Australia: Doing Business in Australia - Business Practices

Last Updated: 30 April 2012
Article by Tony Holland

As with a number of aspects of doing business in Australia, federal and state laws and regulations combine to influence how business practices are conducted.

Fundamental to Australia's economic goals and achievements is a competitive and vibrant economy. The market economy is fostered by a key Federal Government law, the Competition and Consumer Act 2010 (Cth) (CCA), administered by an independent statutory authority, the Australian Competition and Consumer Commission (ACCC).

Based on the assumption that markets must be encouraged to perform efficiently, the CCA aims to improve the welfare of Australians by promoting competition and fair trading and providing consumer protection. The CCA includes complementary state and territory legislation so that its anti-competitive conduct prohibitions apply to virtually all businesses in Australia.

The ACCC is the only national agency dealing generally with competition matters and the only agency with responsibility for enforcing the CCA and the state and territory application legislation.

In broad terms, the CCA covers anticompetitive and unfair market practices, mergers or acquisitions of companies, product safety and liability and third-party access to facilities of national significance. Part VIIA of the CCA enables the ACCC to, in limited circumstances, hold price inquiries, examine proposed price rises and monitor the prices, costs and profits of an industry or business under the direction of the minister.

REGULATION OF ANTI-COMPETITIVE CONDUCT

The CCA contains specific provisions prohibiting activities that limit competition, such as:

  • Mergers or acquisitions that have the effect of substantially lessening competition
  • Exclusive dealing, which is the imposition of various vertical restraint practices – generally this type of conditional dealing will only breach the CCA if it has the purpose, or likely effect, of substantially lessening competition in a relevant market in Australia
  • Resale price maintenance, where a wholesaler specifies a minimum resale price to a retailer
  • Contracts, arrangements or understandings between corporations that have the purpose, or likely effect, of substantially lessening competition in a relevant market
  • A corporation with a substantial degree of market power taking advantage of that market power for an anticompetitive purpose
  • Cartel behaviour, including price fixing, restricting outputs in the production and supply chain, market sharing and bid rigging.

In some circumstances, the CCA prescribes criminal penalties for cartel behaviour, including jail terms for individuals.

ACCESS TO ESSENTIAL FACILITIES

Part IIIA of the CCA establishes a national framework for access to infrastructure services considered to be of national significance. Most significantly, this access regime establishes legal rights for third parties to share these services on reasonable terms and conditions in three ways:

  • Declaration of those services
  • Access in line with an existing effective access regime, generally a state or territory legislative regime
  • Access under terms and conditions set out in a voluntary undertaking approved by the ACCC.

UNFAIR TRADE PRACTICES

Unfair trade practices, such as misleading or deceptive conduct and unconscionable conduct, are prohibited by the CCA and Fair Trading Acts, which are administered by state consumer and business affairs offices.

Unconscionable conduct is prohibited in consumer and commercial transactions. While "unconscionable" is not defined in the CCA, there are two kinds of such conduct in commercial transactions it prohibits. The first is where a weaker party is in a position of special disadvantage that the stronger party knew about, or should have known about, and takes unfair advantage of that special disadvantage. A special disadvantage may arise where a person's ability to understand and assess what is in their best interests may have been affected by circumstances such as infirmity of mind or body, illiteracy or extreme financial need.

The second type of unconscionable conduct applies in transactions of up to AU$10 million. This simply allows the court to assess, against a list of nonexhaustive factors, whether the conduct was unconscionable in all circumstances. To amount to unconscionable conduct, there must be more than unequal bargaining strengths between the parties and more than merely a hard bargain.

Also prohibited under the CCA are:

  • False or misleading representations in trade or commerce
  • Component pricing
  • Pyramid selling
  • Bait advertising
  • Referral selling
  • Payment without supply
  • Harassment or coercion.

PRODUCT LIABILITY

Schedule 2 of the CCA (known as the Australian Consumer Law) contains a no-fault product liability regime for consumers, which imposes strict liability on a manufacturer if goods have a defect, ie their safety is not as one is generally entitled to expect. The importer is deemed to be the manufacturer when the manufacturer does not have a business presence in Australia.

At a state level, remedies are available based on terms implied into contracts and negligence. These terms involve merchantable quality, compliance with description or sample and fitness for purpose. Negligence involves a failure to take reasonable care.

States have introduced proportionate liability legislation in failure to take reasonable care cases where claims of economic loss are made. Under this legislation, a party is liable only for an amount reflecting the proportion of the loss that the court considers just, taking into account that party's responsibility for loss and damage. For example, if a court finds a party is 25% liable, then damages are limited to 25%. Proportionate liability does not apply to personal injury loss or in matters where there is a strict obligation.

Manufacturers customarily hold product liability insurance indemnifying for loss or damage caused by products.

There is also other federal and state consumer protection legislation that addresses consumer information and safety standards and consumer protectionrelated measures.

For more information on proportionate liability, see the Dispute Resolution chapter.

PRIVACY LAW

Privacy law in Australia is a mixture of federal and state instruments. For most businesses operating in Australia, the key law is the Privacy Act 1988 (Cth) (Privacy Act).

The Privacy Act sets out 10 National Privacy Principles (NPPs) regulating the collection, use, storage, disclosure of and access to personal information. Under an exemption for small business, businesses with an annual turnover of less than AU$3 million are exempt from the Privacy Act. Employee records are also exempt. These two significant exemptions mean that Australia's privacy law is not considered equivalent to that of the European Union. However, reforms have been recommended by the Australian Law Reform Commission (ALRC) which, if accepted and enacted by the Federal Government, will remove these exemptions.

Organisations in the federal public sector are subject to 11 Information Privacy Principles (IPPs) under the Privacy Act. Businesses with contracts to supply services to them will often be required to comply with these IPPs.

Most states have privacy laws regulating their state-run public sector organisations. New South Wales, Victoria, the Australian Capital Territory and Western Australia also have laws regulating the collection, use, storage and disclosure of and access to health information held by businesses. Most states also regulate the use of surveillance in workplaces including the use of cameras, listening devices and monitoring of employee internet use and emails.

Other federal laws impacting the issue of privacy are those regulating Tax File Numbers, restrictions on recording or intercepting telecommunications and privacy provisions in various government programs, for example Medicare and other social services. There is also a federal law restricting electronic marketing or "spam" emails and faxes, enforced with substantial penalties. Consent to collection of a person's personal information does not allow electronic marketing or spam to be sent to that person. Consent to receive electronic marketing must be specific and on an "opt-in" basis. Also, all electronic marketing must include a functional unsubscribe mechanism.

All privacy laws give a person the right to see, subject to limited exceptions, what personal information is held about them by businesses and to seek correction of incorrect information.

While possibly confusing, the NPPs, IPPs and other state privacy laws all broadly follow the same approach:

  • Businesses can only collect personal information where such information is reasonably required for the specific business purposes for which it is being collected.
  • The person concerned should be made aware at the time of collection that their personal information is being collected, who it is being collected by, the purposes for which it will be used and should consent to such.
  • Personal information should be retained only for as long as reasonably necessary for the specific business purposes for which it was collected and to which the individual consented.
  • The business should take reasonable steps to protect the confidentiality, security and accuracy of the personal information it holds.

The ALRC's suggested reforms that the Federal Government has accepted (but not yet enacted) include harmonising the privacy principles for all federal public, state public and private organisations in to one set of nationally applicable Australian Privacy Principles. Once enacted, this will simplify the Australian privacy regime, but the general approach noted immediately above will continue to apply.

All of Australia's privacy laws are administered by privacy commissioners, who can receive and investigate complaints alleging a breach of privacy. If a business fails to abide by a commissioner's determination, the business can be taken to a court or tribunal and enforceable orders, including compensation, can be made.

INSOLVENCY REGIMES IN AUSTRALIA

There are three principal regimes that apply to corporate insolvency in Australia – liquidation, voluntary administration and receivership. The law relating to corporate insolvency in Australia is set out in Chapter 5 (External Administration) of the Corporations Act 2001 (Cth) (Corporations Act).

Liquidation

Liquidation involves the control and realisation of the company's property by a liquidator and the application of that property to discharge the debts of the company. Upon the conclusion of the process, the company is deregistered and ceases to exist.

A company can enter liquidation in a number of ways. If the company is solvent, the shareholders can resolve to wind up the company (this is particularly useful to foreign companies seeking to wind up a solvent Australian subsidiary). If the company is insolvent, the creditors may appoint a liquidator at a creditors' meeting or, on the application of a variety of parties including a creditor, shareholder or director, a court may order that the company be wound up and a liquidator be appointed. It is usual for the applicant (in particular a creditor) who is applying for the company to be placed in liquidation to nominate a preferred liquidator.

In principle, all creditors of a company in liquidation are to be treated equally. There is a moratorium preventing most unsecured creditors' actions, and the liquidator has statutory rights to avoid certain pre-appointment creditor transactions that are proved to the court to comprise unfair preferences or uncommercial transactions. The liquidator has powers to investigate the affairs of the company and persons who have dealt in those affairs to establish any wrongdoing. In Australia, directors can be personally liable for the debts incurred by the company whilst it was insolvent in the lead up to the collapse of the company (subject to certain defences). The directors' powers are suspended following the appointment of a liquidator.

Generally, secured creditors retain priority over the assets the subject of the security. Subject to complex rules, priority is also afforded to the costs of the liquidation and then employee entitlements before distribution is made on a pari passu basis to those unsecured creditors who have lodged a proof of debt in the liquidation and whose proofs have been admitted at least in part by the liquidator. In the uncommon event that there is a surplus after the creditors are paid in full, the shareholders (members) receive the surplus.

A provisional liquidator may be appointed where there is a risk of dissipation of company property, pending the court's determination as to whether the company should be wound up.

Voluntary administration

A voluntary administration is usually initiated by the directors of the company in circumstances where they consider the company is insolvent or likely to become insolvent. An administrator is appointed to assume control of the company's business with a view to maximising the chances of the business continuing by way of sale or a restructure, or if that is not possible, entering into a Deed of Company Arrangement (DoCA) in order to achieve a better return to the company's creditors than what would have otherwise been achieved through liquidation.

The directors' powers are suspended during the administration and, subject to certain exceptions, there is a moratorium on creditor action. Secured creditors may still enforce a charge and appoint a receiver without the consent of the administrator or the court, provided the charge extends over at least almost all of the assets of the company and the appointment is made within the first 13 business days of the administration. The powers of lessors are limited.

The courts have only a limited supervisory role in relation to administrations, and the decision as to whether the company should be wound up, returned to its directors (uncommon) or made the subject of a DoCA is left to the creditors who vote after considering the report and recommendation of the administrator. If the creditors vote in favour of a DoCA, all unsecured creditors, and those secured creditors who voted in favour of the DoCA, will be bound by its terms. The administration process is required to be completed within the short period of approximately five weeks, although this period can be extended by the court.

Receivership

A receiver is usually appointed by a secured creditor of the company in accordance with the terms of the relevant security documentation (for example, a charge or a mortgage). Upon an event of default under the security documentation, the receiver will take over possession and control of the assets that are the subject of the security. This may include continuing to trade the company's business.

Although the receiver is the agent of the company and not of the appointor (unless the company is also in liquidation), a receiver will be concerned primarily with realising the value of the secured assets for the benefit of the appointor, and not the interests of the general body of creditors (compare the duty of an administrator and liquidator). The courts also have the power to appoint a receiver.

If the receiver's appointment extends to most of the company's assets, the directors' powers will be effectively superseded by the powers of the receiver. Unlike liquidation and administration, no moratorium applies where a receiver is appointed, although if the receiver controls all of the assets of the company, there may be little incentive for a creditor to proceed with action against the company.

RECOGNITION OF FOREIGN INSOLVENCY REGIMES IN AUSTRALIA

In 2008, the Federal Parliament enacted the Cross-Border Insolvency Act 2008 (Cth), which adopts to a large extent the United Nations Commission on International Trade Law Model Law. This legislation therefore implements a regime of recognition and assistance to "foreign proceedings" that relate to insolvency administrations and reorganisations that arise from a foreign insolvency law and which involve the control or supervision by a foreign court of the assets and affairs of the debtor.

As a result, foreign representatives can apply to the Australian courts for recognition of the foreign proceeding as a foreign main proceeding or nonmain proceeding. If recognition as a foreign main proceeding is achieved, the proceeding is availed automatic assistance and stays and suspensions in relation to the debtor and its assets.

The relief available to non-main proceedings is more limited. Whether a foreign proceeding is recognised as a foreign main proceeding requires an examination by the court of the debtor's Centre of Main Interests (COMI). COMI is not defined in the legislation, but the courts are expected to be guided by the body of case law that is developing throughout overseas jurisdictions on this issue.

This Act does not apply to foreign proceedings concerning banks and insurance companies. Assistance in relation to these proceedings can be obtained by a letter of request to the Australian courts requesting the appointment of a liquidator to the debtor, or by proceeding under local law.

DEBT RECOVERY IN AUSTRALIA

Recovery of debts can be achieved through the various federal and state courts of Australia, subject to various jurisdictional limits.

Creditors of debtor companies may issue a demand in a form prescribed by the Corporations Act, which gives rise to a statutory presumption that the debtor is insolvent, if within 21 days of service, the demand is not satisfied by the debtor or the debtor does not apply successfully to the court to have the demand set aside on the basis that there is a genuine dispute as to the debt or the debtor is owed a larger debt by the creditor. The presumption of insolvency entitles the creditor to commence an action in the court to wind up the debtor company and appoint a liquidator to wind up the company and realise the assets.

A secured creditor has the rights conferred by its security, in particular to take possession of the secured property or to appoint a receiver to those assets of the debtor that are secured by the creditor's security. A mortgagee of occupied real estate generally requires an order of the court to obtain possession of the property.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.


DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com

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