Australian Business Securitisation Fund Act 2019

Australian Business Securitisation Fund. The Fund is established by s 10(1) and comprises the special account and the investments made from it (s 10(2)). It is not a separate legal entity but a notional fund within the Commonwealth’s financial arrangements.

Authorised debt security. This is the only type of investment the Fund may make. Section 12(4) sets out four cumulative conditions: (a) issued by a trustee of a trust or a body corporate that is a special purpose vehicle; (b) expressed in Australian dollars; (c) relates to one or more amounts of credit provided (secured or unsecured) to one or more debtors, where each amount of credit (i) is provided wholly or predominantly for business purposes, (ii) is less than $5 million (or a prescribed amount), and (iii) complies with any other requirements prescribed by rules; and (d) complies with any other requirements prescribed by the rules.

Amount of credit and credit. These terms adopt the meanings given by the National Credit Code as defined in the National Consumer Credit Protection Act 2009 (s 5). The National Credit Code defines “credit” broadly as a contract under which payment of a debt is deferred or one person incurs a deferred debt, and “amount of credit” as the amount actually provided under the contract. This cross-reference imports the entire body of consumer credit law definitions into the Act.

Debtor. Also adopts the National Credit Code meaning. The Code defines a debtor as a person who is liable to pay for credit, or who has provided an indemnity or guarantee in respect of the credit, or who proposes to do so.

Investment. Defined broadly as “any mode of application of money or financial assets for the purpose of gaining a return (whether by way of income, capital gain or any other form of return)” (s 5). This is wide enough to cover any profit-oriented deployment of capital, though the Act then restricts investments to authorised debt securities.

Investment Mandate. A legislative instrument made by the Minister under s 13(1) giving directions about the exercise of the investment power. It may cover strategies, criteria, limits, risk/return, governance, and other matters (s 13(3)). The Mandate is not subject to disallowance or sunsetting, making it a relatively durable instrument that can only be changed by a new legislative instrument.

Eligible delegate. The Minister may delegate powers under the Act (except the powers to make the Investment Mandate, additional credit determinations under s 14, and rules under s 22) to an eligible delegate (s 19(1)). An eligible delegate is an official of the Department of the Treasury, or a listed entity prescribed by the rules, who is an SES employee, an APS employee at Executive Level 2 (or equivalent), or at an equivalent level (s 19(2)). The Minister must consider seniority or appropriate qualifications before delegating (s 19(3)).

Constitutional limits. Section 18 restricts the Minister’s exercise of investment powers to specific heads of Commonwealth power. This reflects the fact that the Commonwealth’s legislative power is limited, and the Act must operate within those limits. The Minister can only invest with respect to: inter-state or overseas trade or commerce; trade or commerce within a Territory; a Territory; the nationhood implied power; or the executive power of the Commonwealth.

The Act directly creates powers and duties for the Commonwealth Minister for Finance and the Treasurer (or their delegates) and for the Australian Office of Financial Management which must report on the Fund’s operation. The immediate counterparties to the Fund will be trusts and special purpose vehicles that issue debt securities meeting the authorised debt security definition. Those entities securitise portfolios of SME loans. Indirectly, the Act is intended to affect small and medium enterprises that borrow from lenders who may on-sell those loans into securitisation structures the Fund purchases. The stated object is to increase availability and reduce the cost of credit for those SMEs (s 3). However, the Act does not give SMEs any direct rights against the Fund or the Commonwealth; they are the ultimate beneficiaries of any market effects the Fund achieves.

Lenders in the SME credit market, particularly non-bank lenders and smaller banks that rely on securitisation for funding, may be affected as potential sellers of debt securities to the Fund. The Act creates a government buyer in the secondary market for securitised SME debt, which could increase demand and lower yields, thereby reducing funding costs for originators. This may advantage those lenders relative to larger banks with deposit-based funding. Conversely, lenders that compete with securitisation-dependent originators could face greater competition in the SME lending market.

The public is affected as taxpayers because the Fund uses consolidated revenue. The initial $2 billion is appropriated through the phased credits. If the Fund incurs losses on investments, that reduces the return to the Commonwealth and ultimately falls on taxpayers. If the Fund is successful, returns flow back to the account. The Act does not guarantee a commercial return; it only requires that investments be made in accordance with the Investment Mandate and the objects of the Act.

Entities acting as trustees of trusts or special purpose vehicles that wish to access the Fund must ensure that the debt securities they issue meet the s 12(4) criteria. They need to show that each underlying credit amount is wholly or predominantly for business purposes, less than $5 million, and complies with any rules. The rules themselves are left to the Minister’s discretion and could impose additional conditions such as industry exclusions, geographic limits, or restrictions on the types of credit (e.g., excluding residential investment property loans).

Duty of the Minister to comply with the Investment Mandate. Section 13(2) provides that the Minister must comply with the Investment Mandate when exercising powers under s 12. This is a statutory duty. If the Mandate imposes specific criteria or limits, the Minister must follow them. Failure to comply could theoretically be challenged by way of judicial review, though the Mandate itself is a legislative instrument and the duty is owed in the exercise of a statutory power.

Power to invest. The Minister may invest amounts standing to the credit of the Account in any authorised debt security (s 12(1)). This is a power, not a duty. The Minister is not required to invest any particular amount or to make any investments at all. The power includes reinvestment upon maturity (s 12(3)). The power is constrained by the constitutional limits in s 18 and the requirements of the Investment Mandate.

Power to make additional credit determinations. The Minister may determine, with the Finance Minister’s agreement, that additional amounts be credited to the Account (s 14(2)). This is a power that can expand the size of the Fund beyond the initial $2 billion. The determination must be for a specified budget year.

Right to reduce the Account balance. The Minister may direct that a specified amount be debited from the Account (s 16(1)). This is a way to wind down the Fund or return capital to consolidated revenue.

Delegation powers and limits. The Minister may delegate investment-related powers to eligible delegates (s 19(1)). The delegate must comply with any written directions of the Minister (s 19(4)). The delegate cannot exercise the powers to make the Investment Mandate, additional credit determinations, or rules.

Duty to cause reviews. The Minister must cause a review of the Act’s operation after the second and fifth anniversaries of commencement (s 21(1)). The review must consider the effectiveness of the Act in meeting its objectives (s 21(2)). The resulting report must be tabled in Parliament within 15 sitting days (s 21(4)).

Duty to include Fund information in annual report. The Chief Executive Officer of the Australian Office of Financial Management must include a report on the Act’s operation in the AGENCY’s annual report (s 20). This provides a degree of public accountability for the Fund’s activities.

No private rights. The Act does not create enforceable rights for SMEs, lenders, or other third parties. An aggrieved party could potentially seek judicial review of a Ministerial decision on administrative law grounds, but the broad discretion afforded to the Minister under the Act would make success difficult.

The Act contains no offence provisions, civil penalty provisions, or enforcement mechanisms of its own. Section 22(2) expressly prohibits rules from creating an offence or civil penalty. Enforcement therefore relies on existing general law mechanisms: the Criminal Code (Cth) could apply if an official misapplies public funds, and the Public Governance, Performance and Accountability Act 2013 imposes duties on accountable authorities and officials that could be enforced through directions or termination, but those are not within this Act.

The Crown is bound by the Act (s 6(1)) but cannot be prosecuted for an offence (s 6(2)). This means the Commonwealth itself is not subject to criminal penalty under this Act.

Accountability mechanisms are political and procedural. The Investment Mandate is a legislative instrument, but it is exempt from disallowance and sunsetting (s 13(1) note). This reduces parliamentary oversight compared to typical legislative instruments. The annual report requirement provides ex-post transparency. The mandatory reviews (s 21) allow Parliament to assess effectiveness, but they do not compel corrective action.

If the Minister makes an investment that is not an authorised debt security (e.g., because the underlying credit exceeds $5 million or is not for business purposes), that investment would be ultra vires. The Commonwealth could face loss and a possible action for breach of statutory duty? No direct private right exists. However, a person with standing (e.g., a taxpayer) could potentially seek an injunction to prevent an unlawful investment, though such challenges are rare and face hurdles including standing and discretionary remedies.

The lack of penalties creates a governance risk: the Minister has wide discretion constrained only by the objects (s 3), the constitutional limits (s 18), the Investment Mandate (s 13), and the definition of authorised debt security. If the Investment Mandate is loosely drawn, the Minister could make investments that generate low returns or high risk, without direct legal consequence. The Act does not require the Fund to achieve a positive return, only that it invest in authorised debt securities in accordance with the Mandate.

Public Governance, Performance and Accountability Act 2013 (PGPA Act). The special account established by s 11 is a “special account” for the purposes of the PGPA Act (s 11(2)). This means the normal PGPA Act rules for appropriations, credits, and debits apply, except as displaced. The most notable displacement is s 12(5), which provides that s 58 of the PGPA Act (the general Commonwealth investment power) does not apply to Fund investments. Instead, the Act provides its own investment regime. The PGPA Act also governs the annual report requirement through s 46, which cross-references s 20 of this Act. The term “listed entity” in the delegation provision adopts the PGPA Act meaning (s 5).

Legislation Act 2003. The Investment Mandate is a legislative instrument but Parliament has carved out the usual disallowance and sunsetting provisions (note to s 13(1) cross-referencing regulations made under the Legislation Act). This means the Mandate cannot be disallowed by either House and does not automatically repeal after 10 years. This is a significant carve-out that reduces parliamentary and public scrutiny.

National Consumer Credit Protection Act 2009. The definitions of “amount of credit”, “credit”, and “debtor” are imported from the National Credit Code (s 5). This means the interpretation of those terms in the Fund context must follow the consumer credit law framework. For example, “credit” includes deferred debt obligations, and “amount of credit” is the actual amount provided. This could affect whether certain financial products (e.g., factoring, invoice discounting) fall within the definition and therefore whether a securitisation referencing them can qualify.

Appropriation Acts. The credits to the Account under s 14 rely on appropriation. The note to s 11(2) explains that an Appropriation Act may allow amounts to be debited against an appropriation and credited to the special account. The actual disbursement of public money requires valid appropriation, which the Act facilitates but does not itself provide.

Australian Securities and Investments Commission Act 2001 and Corporations Act 2001. These Acts regulate the offer and disclosure of debt securities. Debt securities acquired by the Fund will have been issued under those regimes. The Fund’s purchase will be a secondary market transaction, but the issuer must have complied with those Acts. The Act does not modify those obligations.

Competition and Consumer Act 2010. The Fund’s activities could affect competition in the SME lending and securitisation markets. The Act does not grant any immunity from competition law. If the Fund’s investments had the effect of substantially lessening competition, it could theoretically be examined under the Competition and Consumer Act. However, government investment is generally not the target of competition law absent a specific provision.

Constitutional law. Section 18 limits the Minister’s investment power to specific heads of Commonwealth power. This ensures the Act stays within constitutional bounds. The Act extends to external Territories (s 7) and to acts, omissions, matters and things outside Australia (s 8), but the investment power itself is constitutionally confined.

The Act as originally enacted appears as Act No. 46 of 2019, assented to on 5 April 2019 and commencing on 6 April 2019 (the day after Royal Assent). The source text does not include any amending Acts. Given the publication date of the Act is 2019, and this response is being prepared at a later date, it is possible that subsequent amendments have been made. However, the source provided contains only the original text. A thorough compliance analysis would require checking the Federal Register of Legislation for any later amendments. The Act itself provides for rules to be made by legislative instrument (s 22), which could prescribe matters such as alternative credit amount limits (s 12(4)(c)(ii)) and additional requirements for authorised debt securities (s 12(4)(c)(iii) and (d)). The Investment Mandate (s 13) is also a legislative instrument that may be amended from time to time. These instruments would not be reflected in the Act text itself.

The Act requires two statutory reviews: one after the second anniversary (2021) and one after the fifth anniversary (2024) (s 21). The findings of those reviews may have led to legislative or administrative changes, but the source does not provide that information.

No litigation concerning this Act is reported in the source text. The nature of the Act makes litigation unlikely. It creates a government investment programme with broad ministerial discretion, no private rights, and limited justiciability. The constitutional limits in s 18 could theoretically be tested if an investment were made clearly outside the listed heads of power, but such a challenge would require standing and a concrete dispute. The exemption from disallowance for the Investment Mandate could be challenged on ultra vires grounds if the regulations made under the Legislation Act are not valid, but that would be a challenge to the regulations, not the Act. No cases are listed, and none are known to have arisen in the public domain.

Potential grounds for challenge could include: (a) the Minister investing in a debt security that does not meet the authorised debt security definition (e.g., underlying credit not wholly or predominantly for business purposes); (b) the Minister making an investment outside the constitutional limits; (c) the Investment Mandate containing a direction that is inconsistent with the Act; (d) the Minister delegating to a person who is not an eligible delegate. None of these have been litigated. The Act’s short life and its nature as a fiscal instrument likely account for this absence of litigation.

Investment Mandate not disallowable or subject to sunsetting. The note to s 13(1) explicitly refers to regulations made under the Legislation Act that exempt the Mandate from disallowance (s 42) and sunsetting (Part 4 of Chapter 3). This means the Minister can issue binding directions on investment strategy, criteria, limits, and risk that cannot be vetoed by Parliament and do not expire. While the Mandate cannot require a particular investment (s 13(4)(a)), it can sharply constrain or effectively dictate the types of investments without any parliamentary check.

Broad delegation power with limited criteria. The Minister can delegate investment decisions to an SES employee or an Executive Level 2 employee of Treasury, or to a person at an equivalent level in a listed entity prescribed by the rules (s 19(2)). The only preliminary consideration is whether the office is sufficiently senior or the person has appropriate qualifications (s 19(3)). This does not require investment expertise. A relatively junior official could be making multi-million dollar investment decisions with significant taxpayer exposure.

No requirement for commercial return. The objects (s 3) speak of increasing availability and reducing cost of credit, not of achieving a positive return. The Investment Mandate may include directions about risk and return (s 13(3)(d)), but there is no statutory requirement that the Fund be managed on a commercial basis. This opens the door for politically motivated investments that accept lower returns or higher risk than private investors would, which could distort the market and expose taxpayers to losses.

Definition of “business purposes” is not defined. The term “wholly or predominantly for business purposes” in s 12(4)(c)(i) is not defined in the Act. It will need to be interpreted by reference to general law and possibly the Investment Mandate or rules. The ambiguity could lead to debate about whether certain loans (e.g., to a company that uses residential property as security for a business loan, or a loan to a self-managed super fund) qualify. This uncertainty increases compliance risk for issuers.

Constitutional limits may be unclear in practice. Section 18 sets limits but uses broad phrases (“trade or commerce among the States”, “implied power of the Parliament to make laws with respect to nationhood”). The boundaries are uncertain, especially the nationhood power. An investment that appears to be purely intrastate (e.g., loans to SMEs operating entirely within one State) may fall outside the listed heads of power and be ultra vires. The Minister’s decisions need careful mapping to constitutional footing.

No cap on additional credits. While $2 billion is the initial total under s 14(1)(a)-(e), the Minister with Finance Minister agreement can add more (s 14(2)). There is no legislative limit on the total size of the Fund. It could grow beyond $2 billion over time, increasing taxpayer exposure.

Rules can expand or contract definitions. The rules (s 22) can prescribe different amounts for the $5 million threshold (s 12(4)(c)(ii)), add requirements for authorised debt securities (s 12(4)(c)(iii) and (d)), and prescribe listed entities for delegation (s 19(2)). These rules are legislative instruments and are subject to disallowance (unlike the Investment Mandate). However, they can be changed relatively quickly, creating regulatory uncertainty for market participants.

Interaction with National Credit Code definitions may cause mismatches. The National Credit Code definition of “credit” includes certain types of credit that are not typically considered SME lending (e.g., consumer leases). The Act requires that each amount of credit be provided wholly or predominantly for business purposes, but the reference to the Code definition may inadvertently include transactions that were never intended. Also, the Code’s definition of “amount of credit” excludes certain fees and charges, which could affect the calculation of the $5 million threshold.

For the Minister or delegated officials exercising powers under the Act, compliance requires adherence to the following steps and limitations:

1. Investment eligibility screening. Before investing in any debt security, ensure it meets all four limbs of the s 12(4) definition. Verify that the issuer is a trustee of a trust or a special purpose vehicle. Confirm the security is denominated in Australian dollars. For each underlying credit amount, check that it is provided wholly or predominantly for business purposes. Confirm that the amount of credit is less than $5 million (or the amount prescribed by rules, if any). Ensure compliance with any other rules prescribing requirements or restrictions relating to the credit amounts or the security itself.

2. Constitutional due diligence. Under s 18, the Minister must only exercise the investment power within the listed constitutional heads. For each investment, document which head of power is engaged. For example, if the trust or SPV is located in a Territory, that links to s 18(b). If the underlying debtors are in multiple States or involve cross-border trade, s 18(a)(ii) or (i) may apply. If the investment supports national economic stability, s 18(c) or (d) may be invoked. This documentation should be included in the investment file.

3. Compliance with the Investment Mandate. The Minister must comply with any directions in the current Investment Mandate (s 13(2)). Obtain a copy of the Mandate and ensure each investment decision is within its parameters. If the Mandate sets limits on sectors, credit quality, maturity, concentration, or specific criteria, adhere strictly. If the Mandate requires certain governance arrangements (e.g., investment committee approval), follow them.

4. Proper delegation. If the Minister delegates investment powers, the delegation must be in writing (s 19(1)) and only to an eligible delegate (s 19(2)). Before delegating, have regard to the seniority of the office or the qualifications of the person (s 19(3)). Ensure any delegate receives written directions from the Minister (s 19(4)) and that those directions are not inconsistent with the Act or the Investment Mandate (s 19(5)).

5. Account management. Ensure that the special account is credited with the amounts required by s 14(1) on the specified dates. If additional credits are sought, obtain the Finance Minister’s agreement in writing and issue a notifiable instrument (s 14(2)-(5)). Only debit amounts for the purposes in s 15: investment costs, Fund expenses, or balance reduction. Keep records of all debits.

6. Reporting and review. Each year, ensure the Australian Office of Financial Management’s annual report includes information on the Act’s operation (s 20). Ensure the required reviews are conducted after the second and fifth anniversaries (s 21), with written reports tabled in Parliament.

For potential investee entities (trustees and SPVs issuing debt securities the Fund might buy), compliance means ensuring that the pool of underlying credit meets the s 12(4) criteria. Conduct due diligence on each loan in the pool: confirm the borrower’s business purpose, verify the amount of credit is under the threshold, and check that no other rules are contravened. Provide the Minister with sufficient information to satisfy the constitutional heads of power (e.g., evidence of interstate or export trade). Understand that the Minister may require additional certifications or data as part of the investment process.

For SMEs themselves, there is no direct compliance obligation under the Act. However, if they borrow from a lender that uses the Fund, they should be aware that their credit data may be included in a securitisation and that the terms of their loan may affect the eligibility of the securitisation. The Act does not give them any direct rights.