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Housing Loans Insurance Corporation (Transfer of Pre-transfer Contracts) Bill 2006

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2004-2005-2006

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

Housing Loans Insurance Corporation (Transfer of

Pre-transfer Contracts) Bill 2006

Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Repeal Bill 2006

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Parliamentary Secretary to the Treasurer, the Hon Chris Pearce MP)

 



T able of contents

Glossary                                                                                                               1

General outline and financial impact............................................................ 3

Chapter 1            Background........................................................................... 5

Chapter 2            Transfer of the pre-transfer contracts................................ 7

Chapter 3            Repeal of the current law.................................................. 13

Index                                                                                                                  17



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

Abolition Act

Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Act 1996

Transfer Bill

Housing Loans Insurance Corporation (Transfer of Pre-Transfer Contracts) Bill 2006

Repeal Bill

Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Repeal Bill 2006

Corporation

Housing Loans Insurance Corporation

Company

Housing Loans Insurance Corporation Limited

 



 

These Bills enable the Commonwealth to finalise residual matters relating to the abolition of the Housing Loans Insurance Corporation in 1997.  The Bills also simplify the operation of the law.

These Bills should be considered as a package.  They are intended to pass through Parliament and receive Royal Assent at the same time.

Transfer of the pre-transfer contracts

The Housing Loans Insurance Corporation (Transfer of Pre-transfer Contracts) Bill 2006 (Transfer Bill) enables the Commonwealth to vest ownership in a person of mortgage insurance contracts, known as the pre-transfer contracts, written under the Housing Loans Insurance Corporation prior to its abolition in 1997.

The provisions do not commit the Commonwealth to a transfer but would enable any transfer to occur, if desired.

Date of effect :  The day after Royal Assent.

Proposal announced :  The measure has not been previously announced.

Financial impact :  Nil.

Compliance cost impact :  Nil.

Repeal of the current law

The Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Repeal Bill 2006 (Repeal Bill) repeals the Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Act 1996 to simplify the operation of the law as much of the Act is now redundant.

Operative provisions in the repealed Abolition Act continue in the Transfer Bill.

Date of effect :  Only if the transfer of the pre-transfer contracts occurs and, in that event, the later of the day after Royal Assent and the vesting day.

Proposal announced :  The measure has not been previously announced.

Financial impact :  Nil.

Compliance cost impact :  Nil.

 



C hapter 1  

B ackground

The Housing Loans Insurance Corporation

Policy objectives

1.1         The Housing Loans Insurance Corporation (Corporation) was established by the Australian Government in 1965 to insure lenders against the costs of mortgage defaults thereby assisting low-income earners to obtain housing finance.  The Corporation met a structural deficiency, or ‘market gap’, in the availability of mortgage insurance in Australia at the time. 

1.2         With the entry of private insurers, there was no longer the same justification for the Government’s continued involvement in the mortgage insurance market where the private sector had a demonstrated capacity.  Rather, the continued operation of the Corporation was distorting prices and inhibiting the growth of the market, as well as imposing a burden on the budget.

1.3         From 1981, a number of attempts were made to sell the Corporation — none of which were successful.  In 1996, the Australian Government decided to restructure the Corporation to place it on a more commercial footing, thereby making it a more attractive sale proposition at some future time.

Abolition of the Corporation, a company and the pre-transfer contracts

1.4         The Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Act 1996 gave effect to the restructure.  It provided that on the ‘transfer day’:

·       The Corporation is abolished.

·       The Corporation’s assets and rights to the ongoing renewal business transfers to a new Government-owned Company by the name of the Housing Loans Insurance Corporation Limited (Company).

·       The Corporation’s employees and their conditions of employment transfers to the Company. 

·       The insurance contracts to which the Corporation was a party to prior to the transfer day (known as the ‘pre-transfer contracts’) is vested in the Commonwealth.

·       The new Company is to manage the run-off of the pre-transfer contracts, with a standing appropriation to meet any payments arising under the contracts.

1.5         The ‘transfer day’ giving effect to the restructure and abolition of the Corporation occurred on 12 December 1997.

Sale of the Company in 1997

1.6         Under a sale agreement executed on 30 October 1997, the Company was sold to a purchaser, GE Capital Australia. 

1.7         The sale provided the purchaser with the ongoing renewal rights to the Company business.  It also required the purchaser to take on certain obligations ascribed to the Company under the law, including taking on the Company’s employees and their conditions of employment.

1.8         These obligations and other conditions of sale were provided for in the sale agreement between the Commonwealth and the purchaser.

1.9         The Minister of Finance and Administration announced the sale and completion of the sale on 31 October 1997 and 22 December 1997, respectively.

Pre-transfer contracts

1.10       The pre-transfer contracts remain vested in the Commonwealth under the current law.  

1.11       The Commonwealth is managing the run-off of these residual pre-transfer contracts, via a paid agent.

 



C hapter 2  

Transfer of the pre-transfer contracts

Outline of chapter

2.1         The Housing Loans Insurance Corporation (Transfer of Pre-transfer Contracts) Bill 2006 (Transfer Bill) enables the Commonwealth to vest ownership of the pre-transfer contracts in a person.

Context of the transfer

2.2         The pre-transfer contracts are contracts of mortgage insurance to which the Housing Loans Insurance Corporation (Corporation) was a party to prior to the Corporation being abolished on the 12 December 1997.

2.3         Ownership of the pre-transfer contracts is vested in the Commonwealth under the current law.

2.4         While the 1997 sale of the Housing Loans Insurance Corporation Limited (Company) enabled the Commonwealth to cease its involvement with the ongoing business, the Commonwealth remains involved in the mortgage insurance business via its continued ownership of these pre-transfer contracts.

Summary of new law

2.5         The Transfer Bill enables the Commonwealth to transfer its ownership, to another person, of mortgage insurance contracts, known as the pre-transfer contracts, written by the Corporation prior to its abolition.

2.6         The Transfer Bill does not commit the Commonwealth to a transfer but would enable any transfer to occur, if desired.

Comparison of key features of new law and current law

New law

Current law

The Australian Government can vest ownership of the pre-transfer contracts to a person, if desired.

Ownership of the contracts vest in the Commonwealth.

Detailed explanation of new law

2.7         The Transfer Bill enables the Commonwealth to vest the rights and obligations under the pre-transfer contracts to a person on a specified vesting day and also provides the administrative arrangements that will give effect to any vesting.

2.8         Provisions in the Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Act 1996 (Abolition Act) that remain operative, after the vesting and the repeal of the Abolition Act, will continue to have effect in the Transfer Bill.

Declaration

2.9         The Minister or his or her delegate, by written instrument, may declare the vesting day and acquirer [subsection 5(1), section 10] .  The vesting day must not be earlier than the day on which the instrument is made [subsection 5(2)]

2.10       Any written instrument must be published in the Gazette, however a failure to do so does not invalidate the transfer [subsection 5(3) and (4)] .  The day specified as the vesting day and the person who is the acquirer for the purposes of giving effect to this Bill will remain valid.

2.11       The instrument is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003 [subsection 5(5)] .  This provision is included to clarify that such written instrument applies to the law in a specific case and is administrative in nature.  It is not an exemption to the Legislative Instruments Act 2003 .



Transfer to acquirer

2.12       The intention of this section is to enable the Commonwealth to wholly divest its interests in the pre-transfer contracts to the acquirer.  Accordingly, on the vesting day, ownership of the pre-transfer contracts ceases to be an asset of the Commonwealth and becomes an asset of the acquirer.  [Paragraph 6(a)]

2.13       A ny rights and liabilities of the Commonwealth under a pre-transfer contract or an associated document become rights and liabilities of the acquirer.  This includes any rights and liabilities in respect of anything done or purported to be done, under a pre-transfer contract or an associated document.  [Paragraph 6(b) and (c)]

2.14       The vesting of liability extends broadly to mean any liability, duty or obligation, whether actual, contingent or prospective.

2.15       The vesting of right extends broadly to mean any right, power, privilege or immunity, whether actual, contingent or prospective.

2.16        Associated documents means a document that is owned by the Commonwealth immediately before the vesting day and which contains information that the acquirer requires to manage a pre-transfer contract.   This covers only information relating to mortgage insurance policies under a pre-transfer contract which is necessary for managing the contract and assessing or paying a claim arising under an active policy. 

2.17       Associated documents do not include documents owned by the Commonwealth and which contain information relating to Government policy considerations regarding the Corporation or anything in connection with the Corporation.

2.18       The acquirer becomes the successor in law to the pre-transfer contracts, associated documents, rights and liabilities. [Paragraph 6(d)]   This broader provision is intended to cover any circumstances which might not be covered by the specific vesting provisions preceding it.  In particular, it ensures that any circumstances relating to assets to be transferred which might have arisen prior to the vesting day, which had not crystallised into actual liabilities as at the vesting day, vest in the acquirer. 

Certain instruments to continue in force

2.19       The current law preserves the effect of instruments that were in force immediately before the 1997 transfer day to which the Corporation was a party or which referred to the Corporation. 

2.20       The Transfer Bill preserves the effect of instruments which continue to be operative, after the transfer, when the Abolition Act is repealed.

2.21       Each pre-transfer contract continues to have effect according to its terms after the vesting day.  Under the current law, references to the Corporation in a pre-transfer contract refer to the Commonwealth.  On and after the vesting day, references to the Corporation in a pre-transfer contract refer to the acquirer [subsection 7(1)] .

2.22       Each legislative instrument continues to have effect according to its terms after the vesting day.  Under the current law, references to the Corporation in a relevant legislative instrument refer to the Commonwealth.  On and after the vesting day, references to the Corporation in a relevant legislative instrument refer to the person specified in regulation or otherwise to the Commonwealth [subsection 7(2)]

2.23       These provisions ensure that the repeal of the Abolition Act does not have the undesired effect of referring to the Corporation which no longer exists.

2.24       Instruments in the Act that refer to the Company are not preserved as it is understood that they are no longer operative.

Exemption from stamp duty and other state and territory taxes

2.25       No stamp duty or other tax is payable under a state or territory law in respect of an exempt matter, including anything connected with an exempt matter [subsection 8(1)] .  An exempt matter is defined as the vesting of an asset, right and liability under the Transfer Bill or the operation of the Transfer Bill in any other respect.  

2.26       The Minister or his or her delegate may certify in writing a matter that is an exempt matter [subsection 8(2), section 10] .   This written instrument is to be taken to be a certificate which has been properly given [subsection 8(4)] .

2.27       The certificate is to be taken in all courts (except than for the purposes of criminal proceedings) to be prima facie evidence of matters stated in the certificate [subsection 8(3)] .

2.28       It is understood that no stamp duty and other state or territory taxes would apply in any case to the vesting of the pre-transfer contracts to another person as provided for by the Transfer Bill.  This clause is included to maintain consistency with other Commonwealth legislation vesting assets in another person.  It also provides certainty to the acquirer. 

Other matters

Appropriation

2.29       The Transfer Bill enables the Australian Government to commence formal discussions to give effect to the transfer of the pre-transfer contracts.  As the outcome of those discussions cannot be known at this time, the Transfer Bill provides the flexibility to implement the details of any final arrangement.

2.30       The Transfer Bill is sufficient for giving effect to the transfer of ownership of the pre-transfer contracts to another person.  Any other agreement would be additional, merely to support the transfer.  The transfer does not require another agreement. 

2.31       Any amount that the Commonwealth agrees to pay to the acquirer under any agreement is to be paid out of the Consolidated Revenue Fund, which has been appropriated accordingly [subsection 9(1) and (2)]

2.32       A standing appropriation ensures that public money can be used for other purposes while providing certainty that any amounts needed to support the transfer will be paid.  Accountability to Parliament will be met through the Treasury Portfolio Budget Statements and the Treasury Annual Report .

2.33       The alternative of an annual appropriation through the annual budget Bill would not be practical as it requires an accurate estimation of the cost of any agreement when an agreement may not be needed or, even if needed, no amount may be payable.  Any estimates prior to the finalisation of the agreement may overestimate the needed appropriation.

2.34       The appropriation is based on the authority of the Housing Loans Insurance Corporation Act 1965 under which the contracts were originally written. 

Delegation

2.35       The Minister may, in writing, delegate his or her powers and functions in declaring the vesting day and acquirer, and in certifying matters relating to the transfer of the pre-transfer contracts that are exempt from stamp duty and other state and territory taxes [subsection 10(1)]



2.36       The delegate is to be either the Secretary of the Department (currently the Treasury) or a Senior Executive Service employee in the Department [subsection 10(1)] .  The delegate is to comply with the directions of the Minister [subsection 10(2)] .

Regulations

2.37       The Governor-General may make regulations prescribing matters that are required or necessary for carrying out the operation of the Transfer Bill [subsection 11(1)] .  This includes matters of a transitional nature relating to the enactment of the Transfer Bill and the repeal of the Abolition Act [subsection 11(2)] .

Application and transitional provisions

2.38       The Transfer Bill commences on the day after it receives Royal Assent.

 



C hapter 3  

Repeal of the current law

Outline of chapter

3.1         The Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Repeal Bill 2006 (Repeal Bill) repeals the Housing Loans Insurance Corporation (Transfer of Assets and Abolition) Act 1996 (Abolition Act) .

3.2         The Repeal Bill commences only if the transfer of the pre-transfer contracts occurs.

Context for the repeal

3.3         Much of the current law is concerned with the restructuring of the Housing Loans Insurance Corporation (Corporation) to become the Housing Loans Insurance Corporation Limited (Company) on the ‘transfer day’ and transitional provisions to support the restructure.

3.4         The ‘transfer day’ occurred on 15 December 1997.  These provisions no longer have any effect as the rights, liabilities and obligations have already been transferred in accordance with the law.

3.5         The Commonwealth sold the Company to a purchaser on 30 October 1997.  The Company’s obligations under the law were provided for in the sale agreement between the Commonwealth and the purchaser.

3.6         The current law has achieved its purpose and is now largely redundant.

Summary of new law

3.7         The Repeal Bill repeals the current law on the vesting day.  Provisions that continue to be operative after the transfer are provided for in the Housing Loans Insurance Corporation (Transfer of Pre-transfer Contracts) Bill 2006 (Transfer Bill).

3.8         A person can seek compensation from the Commonwealth if the repeal of the existing guarantee involves an acquisition of property other than on just terms.

Comparison of key features of new law and current law

New law

Current law

The Abolition Act is repealed. 

If the repeal of the Commonwealth guarantee has the effect of acquiring property from a person on other than just terms, the Commonwealth will pay compensation to the person.

The Corporation is restructured into a new Company.  Employees of the Corporation become employees of the new Company.

Contracts of insurance written prior to the ‘transfer day’, known as the pre-transfer contracts, are vested in the Commonwealth.

The Corporation is abolished.

Detailed explanation of new law

3.9         The Repeal Bill repeals the current law in its entirety on the same day the Commonwealth vests its ownership of the pre-transfer contracts in a person in accordance with the Transfer Bill. 

3.10       Operative provisions that continue to have effect after the transfer continue in the Transfer Bill.

3.11       A person can seek compensation from the Commonwealth if the repeal of the Commonwealth guarantee under the current law has the effect of involving an acquisition of property other than on just terms.

Repeal

3.12       The Repeal Bill repeals the Abolition Act — [Schedule 1, item 1] .

3.13       The Act is now largely redundant following completion of the restructure of the Corporation into the Company and the sale of the Commonwealth’s interests in the Company in 1997.

3.14       The repeal has no adverse effect on lenders holding an insurance contract that is still in force to which the Corporation was a party prior to its abolition on the transfer day.

3.15       In the event that the vesting occurs, all obligations under the pre-transfer contracts will be met by the acquirer in whom the contracts are vested. 

3.16       In the event that the vesting does not occur, the Repeal Bill does not commence.  Ownership of the pre-transfer contracts continue to be vested in the Commonwealth.  All obligations arising under the contracts will continue to be paid by the Commonwealth.

Compensation

3.17       This provision satisfies section 51(xxxi) of the Constitution thereby preserving the validity of the Repeal Bill.

3.18       Under the current law, the Commonwealth guarantees the payment of all money arising under the pre-transfer contracts.

3.19       If the repeal of the Commonwealth guarantee results in an acquisition of property from a person otherwise than on just terms, the Commonwealth will pay compensation to the person [Schedule 2, item 1] .  If the person and the Commonwealth do not agree on the amount of the compensation, the person may take the Commonwealth to court [Schedule 2, item 2] .

3.20       Any amount that is payable in compensation is to be paid out of the Consolidated Revenue Fund, which has been appropriated accordingly [ Schedule 2, item 3] .

3.21       A standing appropriation ensures that public money can be used for other purposes while ensuring that the Commonwealth will meet any payment of compensation.  Accountability to Parliament will be met through the Treasury Portfolio Budget Statements and the Treasury Annual Report .

3.22       The alternative of an annual appropriation through the annual budget Bill would not be practical as it requires an accurate estimation of compensation costs.  It is not possible to estimate accurately the amount of compensation that may be sought as it will depend on various factors, including the quantum of the claim, the failure of the acquirer to fulfil its obligation and a determination that there exists a right for compensation.  Any estimate would likely overestimate the needed appropriation.

Application and transitional provisions

3.23       The Repeal Bill repeals the Commonwealth’s rights and obligations as owner of the pre-transfer contracts.  It also repeals the Commonwealth guarantee to meet payments arising under the contracts.

3.24       The Repeal Bill cannot commence until the Commonwealth transfers ownership of the pre-transfer contracts to another person.  In the event that the transfer occurs, the Repeal Bill commences on the later of the day after Royal Assent and the vesting day.

 



I ndex         

Chapter 2: Transfer of the pre-transfer contracts

Bill reference

Paragraph number

subsection (3) and (4)

2.10

subsection 5(1), section 10

2.9

subsection 5(2)

2.9

subsection 5(3) and (4)

2.10

subsection 5(5)

2.11

paragraph 6(a)

2.12

paragraph 6(b) and (c)

2.13

paragraph 6(d)

2.18

subsection 7(1)

2.21

subsection 7(2)

2.22

subsection 8(1)

2.25

subsection 8(2), section 10

2.26

subsection 8(3)

2.27

subsection 8(4)

2.26

subsection 9(1) and (2)

2.31

subsection 10(1)

2.35 and 2.36

subsection 10(2)

2.36

subsection 11(1)

2.37

subsection 11(2)

2.37

Schedule 1: Repeal

Bill reference

Paragraph number

Item 1

3.12

Schedule 2: Compensation

Bill reference

Paragraph number

Item 1

3.19

Item 2

3.19

Item 3

3.20