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 the Chair of our Board and an internationally renowned insolvency and restructuring lawyer. He is an inaugural Fellow and a member of the Board of INSOL International. Scott is also Vice President of the Australian Restructuring Insolvency and Turnaround Association (ARITA).

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.

">
see my profile
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 is a banking lawyer who specialises in corporate finance transactions, as well as restructuring and work outs. He is recognised as a leader in his field by his clients, peers and legal directories. 

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.

">
see my profile

Claudine Salameh Partner

Claudine has over 15 years' experience dealing with legal issues in the financial services sector.

She is a banking and insolvency litigator and regulatory expert. She acts for the major Australian financial institutions in matters involving customer disputes and litigation, fraud, regulatory and compliance issues, regulatory investigations, inquiries and enforcement matters, security enforcement and insolvency litigation. 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. She 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 has been instrumental in working with clients to provide insights into the field of behavioural economics, which over the past few years, has been of interest to policy makers and regulators as a tool to engage in 'choice architecture'. On a practical level, Claudine has worked closely with clients to design approaches to customer engagement that make use of behavioural insights.   

Claudine is an expert in the conduct of review and remediation programs and provided assistance to the regulator, by way of submissions and her involvement in an industry working group, on ASIC's regulatory guide on review and remediation programs.

Claudine is very familiar with ASIC's powers to obtain documents and information from financial institutions and is called upon by financial institutions to provide assistance in these matters. She has a style that is conducive to having a fruitful dialogue with both the regulator and the various stakeholders within a financial institution.

">
see my profile
Noel McCoy

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

Noel McCoy Partner

Noel is a specialist in complex turnaround, restructuring and insolvency matters with over 14 years' experience in advising and representing cross-border, financial services and government clients.

He has helped lead some of Australia's most significant cross-border insolvency engagements, including in conducting the first appellate decision in Australia under the UNCITRAL Model Law on Cross Border insolvency (Saad Investments). Noel acts for the foreign liquidators of Centaur Litigation in conducting Australian investigations and litigation and has advised on the Caledonian Bank restructure. Noel also has extensive experience in international judgment enforcement & offshore asset recovery.

Noel currently advises a variety of NSW and Commonwealth government agencies on their financial commitments and exposures. He helps lead HDY's engagement with the Commonwealth Department of Employment in connection with the Fair Entitlements Guarantee Program.

Noel has advised major Australian financial institutions and not-for-profit organisations about lending and restructuring taking into account the unique challenges and profiles of not-for-profit organisations. Noel had primary carriage of HDY's receivership engagement giving rise to the landmark decision of Re Anglican Development Fund Diocese of Bathurst (2015) 336 ALR 372.

">
see my profile