Landmark Supreme Court decision impacts lending to religious and charitable organisations

10 December 2015

Today's landmark decision of the Supreme Court of New South Wales provides important guidance on lending to churches, religious institutions and other not-for-profit organisations. 

In the decision of Commonwealth Bank of Australia v Palmer [2015] NSWSC 1856, Justice Hammerschlag held that the Anglican Diocese of Bathurst is legally obliged to meet its obligations to repay the debt of its corporate arm, the Anglican Development Fund, as promised in letters of guarantee issued by the Diocese and as set out in the Diocese’s internal rules. The ruling requires the debt to be repaid from assets of the Diocese.
 
This important judgment provides guidance on issues relating to lending and enforcement with respect to Churches and charitable organisations more generally, including:

  • the enforceability of letters of guarantee and other contracts with religious institutions and other not-for-profit organisations
  • the enforcement of contracts against unincorporated associations and in particular clarification of the "committee liability" rule
  • the authority of Church leaders and officers of charitable institutions to bind organisations under contracts in the absence of an "indoor management" rule
  • the scope of powers and obligations conferred by state legislation on individual Church denominations, including to marshal assets to meet their debt obligations.

Who is affected?

Lenders who have exposures to or are considering lending to religious organisations, schools and other forms of not-for-profit and charitable organisations.
 

To find out more please contact one of our team members listed below.

Scott Atkins

I'm unapologetically determined and fearless. I pursue excellence. Always.

Scott Atkins Partner

Scott is a trusted adviser to Australia's leading banks and insolvency and restructuring practitioners and has acted on some of the industry's most complex and sensitive banking and insolvency advisory and dispute resolution matters.

Prior to joining HDY, Scott practiced for 7 years as in-house counsel with Commonwealth Bank Group. He is now our Client Relationship Partner for the CBA Group. He is also the co-leader of our cross-border insolvency practice and our regulatory enforcement practice. Scott is recognised by his peers for his leading expertise in cross-border insolvency, acting on both inbound engagements in Australia and advising Australian clients on outbound engagements in the USA, UK, Cayman Islands, Hong Kong and The Netherlands, among other jurisdictions.

Scott was the Australian delegate on the Advisory Committee on Comparative Law established by the American Bankruptcy Institute as part of its Commission to Study the Reform of Chapter 11 of the US Bankruptcy Code. This resulted in a landmark report for the reform of Chapter 11.

He is a published author on insolvency and cross-border insolvency. Most recently, Scott was one of the Australian contributors to the 2015 publication 'International Contributions to the reform of Chapter 11 U.S. bankruptcy code' which is volume 2 of the European and International Insolvency Law Studies series. He also authored the Australian chapter of Avoidance of Antecedent Transactions and Cross-Border Insolvency (INSOL International). Among other publications, he is the co-author, together with Professor Rosalind Mason, of the Australian chapter of Look Chan Ho's leading text: Cross-Border Insolvency: Cases and Materials (Kluwer International).

Scott is a visiting lecturer on cross-border insolvency at the University of Sydney in its undergraduate and postgraduate law programs lead by Professor John Stumbles.

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Simon McSweeney

I like to win, with integrity. I'm not easily deflected; where there's a will, there's a way.

Simon McSweeney Partner

Simon has over 25 years' experience advising our banking clients in the structuring and implementation of a broad range of corporate finance transactions, and in devising strategies to maximise opportunities and minimise legal risk during periods of fluctuating economic circumstances.  He also advises banks and other financial institutions on restructuring and work out transactions.

Simon has also been a key adviser to a number of government agencies and undertaken documentation and legislative framework reviews involving public infrastructure assets to resolve complex and sensitive legal issues concerning those assets.

He has been involved in various projects dealing with the grant of concessions or the commercialisation of government assets, including advising on the appointment of a new terminal operator for the third stevedore terminal at Port Botany as well as advising in relation to the Intermodal Logistics Centre at Enfield.

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Claudine Salameh Partner

Claudine is a banking and insolvency litigation and regulatory expert. She acts for the major Australian financial institutions in relation to matters involving customer disputes, fraud, regulatory and compliance issues, security enforcement and debt recovery. She also acts for insolvency practitioners in formal receiverships, voluntary administrations and liquidations.

Claudine is well known for her ability to manage risks posed by litigation and regulatory inquiries and investigations. She is particularly attuned to reputational and business risks.

Claudine is highly strategic and creative and is recognised by her clients for being able to achieve the perfect balance between legal arguments and commercial and practical outcomes.

Claudine is currently assisting a financial institution in a review and remediation scheme and in a large scale recovery matter against a religious organisation. She is also involved in advising financial institutions in relation to their compliance with regulatory obligations.

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Noel McCoy

I want you to win and will leave no stone unturned until you do.

Noel McCoy Special Counsel

Noel has over 12 years' experience in advising and representing Australia's leading banks and insolvency practitioners in both contentious and non-contentious aspects of banking, insolvency and restructuring.

His cross-border experience includes acting for the liquidators of an insolvent bank and liquidators of a multinational investment vehicle.

In the not-for-profit space Noel has assisted in restructuring lending arrangements taking into account the unique challenges in lending and enforcement in respect of charities.

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