How to Transfer or Sell Your Australian Credit Licence (ACL)

Introduction

The transfer or sale of an Australian Credit Licence (ACL) involves specific regulatory processes overseen by the Australian Securities and Investments Commission (ASIC). Unlike typical assets, an ACL itself isn’t directly sold; instead, the licence effectively changes hands when the ownership or control of the licensed business undergoes a change.

Understanding the nuances of this change in control process is crucial for both buyers acquiring a licensed business and existing licensees considering a sale or significant business restructuring. This guide provides essential information on navigating ACL ownership changes, including the notification requirements mandated by ASIC, as well as alternative processes like varying or cancelling a licence when business circumstances change.

How Australian Credit Licences are Transferred Through Change of Control

Licence Transfers Primarily Occur Through Acquiring the Licensed Entity

An ACL is typically not sold as a standalone asset. Instead, the transfer of a licence usually happens through a change in control of the business entity that holds the licence. This often involves:

• One company acquiring another, or
• Crossing specific corporate control thresholds

The most common method for this transfer or acquisition is through the purchase of shares in the licensed company. When sufficient shares are transferred to a new controller, the ownership of the entity holding the licence changes hands.

While most licences are held by body corporate entities, a small number are held by trustees or partnerships. In these cases, control changes involve appointing new trustees or changes in partners.

ASIC’s Role in Licence Transfers

ASIC has a limited role in scrutinising or approving licence transfers before they occur, particularly when the transfer happens via a change in control through share purchase. The law, as it stands, generally does not permit ASIC to conduct an entirely new assessment of the incoming licence holder at the point of transfer.

ASIC’s ability to examine these off-market transfers of licences before completion is described as very low. While ASIC must grant a licence initially based on a point-in-time assessment, it doesn’t automatically reassess the new controllers when ownership changes post-notification.

However, ASIC does possess powers to act after being notified of a change in control. Following legislative changes in 2020, ASIC can:

• Request information from licensees after a change in control
• Determine if they still meet the necessary standards, such as the ‘fit and proper person’ test
• Undertake risk-based surveillance
• Take regulatory action, like suspension or cancellation, if the licensee fails to comply with obligations

The Process for Notifying ASIC Regarding a Change in Control

When Notification is Required

Australian Financial Services (AFS) licence holders are subject to specific conditions regarding changes in business ownership or control. A key condition requires the licensee to notify ASIC if another entity begins or ceases to control the licensee. This notification obligation is triggered by a change in control.

A change in control is defined as a transaction, or a series of transactions occurring within a 12-month period, that results in a person gaining control of the financial services licensee. This control can be held either alone or together with associates of that person.

The requirement to notify ASIC about such changes was reinforced by the implementation of section 912DA of the Corporations Act 2001 (Cth), following recommendations from a 2017 ASIC enforcement review. This section was introduced by the Financial Sector Reform (Hayne Royal Commission Response-Stronger Regulators (2019 Measures) Act 2020 (Cth).

The 30-Day Notification Window

When a change in control occurs for an AFS licensee, there is a specific timeframe within which ASIC must be informed. The licensee is required to provide the particulars of the change in control to ASIC.

This notification must be made by the end of 30 business days after the day the entity starts or stops controlling the AFS licensee. This 30-day timeframe was established through legislative amendments in February 2020, updating the previous requirement.

Failure to comply with this notification requirement constitutes an offence under section 912DA of the Corporations Act 2001 (Cth).

Implications for Buyers and Sellers

The Role of Due Diligence in Assessing the Licence and Business

Prospective buyers involved in a transaction leading to a change in control of an ACL holder should conduct thorough due diligence. This process is crucial because the transfer often happens through acquiring the shares of the licensed business, meaning the buyer inherits the existing licence and its associated compliance history.

Before finalising the sale, it’s essential to assess:

• The specific authorisations granted under the licence
• Any conditions imposed by ASIC
• The overall compliance standing of the business

Understanding the existing licence ensures the buyer acquires a business that can legally perform the intended credit activities. Additionally, this assessment helps identify any potential compliance issues or limitations associated with the licence that could impact future operations or require rectification after the change in ownership.

How the Fit and Proper Test Applies During Post-Transfer Assessment

Following a change in control of an ACL holder, ASIC does not automatically reassess the new controllers. However, legislative amendments introduced in 2020 grant ASIC the power to request information from the licensee to determine if the new controllers meet the ‘fit and proper person’ requirements outlined in the National Consumer Credit Protection Act 2009 (Cth). This assessment mirrors the scrutiny applied during the initial licence application.

ASIC can initiate this assessment on a case-by-case basis, often triggered by risk-based surveillance or specific concerns. The ‘fit and proper person’ test involves evaluating several key factors regarding the new controllers, including:

• Competence: Assessing their knowledge, skills, and experience relevant to the credit activities authorised by the licence.
• Character: Considering attributes such as diligence, honesty, and integrity.
• Disqualification: Checking for any legal disqualifications, such as banning orders or specific criminal convictions within the last 10 years.
• Conflicts of Interest: Evaluating whether any conflicts exist that could materially risk the proper performance of their roles.

If ASIC has reason to believe the new controllers do not meet the fit and proper standard, it can take regulatory action, which may include suspending or cancelling the ACL.

Varying Your Credit Licence as an Alternative to Transfer

Reasons for Licence Variation

Sometimes, changes within your business may require you to vary your ACL rather than transferring ownership or cancelling it entirely. A licence variation adjusts the specific authorisations or conditions attached to your existing licence to reflect new circumstances.

Common situations that necessitate applying for a licence variation include:

• Changes in Business Activities: If your business plans to engage in new credit activities not covered by your current licence authorisations, a variation is needed. For instance, a company offering personal loans that wants to expand into providing business loans must vary its licence to include this new activity legally.
• Changes to Licence Conditions: You may need to vary your licence if specific conditions imposed by ASIC change. A frequent example involves the ‘key person’ condition. If a responsible manager named as a key person on your licence certificate leaves the business, you must notify ASIC and apply to vary the licence to change or remove that key person condition.
• Business Restructuring: Significant changes like merging with another company, acquiring a business, or altering the legal entity under which you operate often require a licence variation to reflect the new structure.
• Change in Responsible Managers: Responsible managers are vital for compliance. If the individuals holding these roles change, you must apply for a variation to update your licence and appoint new responsible managers to meet financial services compliance requirements.

The Licence Variation Application Process

Applying to vary your ACL involves a specific process managed through ASIC. You must complete and lodge Form CL03 Vary authorisations or conditions of an Australian credit licence online.

The application can be submitted via:

• The ASIC credit portal
• The AFS licensees portal, if you also hold an AFS licence

Before starting the application, it is advisable to review ASIC’s Regulatory Guide 204 Applying for and varying a credit licence (RG 204). This guide details the necessary information and supporting documents required based on the type of variation sought.

When applying for a variation, particularly one involving changes to key persons or responsible managers, you will need to provide supporting documentation. This often includes:

Requirement	Details
Explanation for the Change	Clearly state why the variation is needed (e.g., a key person leaving).
Details of New Personnel	Provide information on any new responsible managers you wish to rely on, including their qualifications and experience.
Fit and Proper Person Information	For each new fit and proper person (including responsible managers), typically provide the following: a completed Statement of Personal Information Copies of background checks (national criminal history and bankruptcy checks, usually not more than 12 months old). Copies of relevant educational qualifications
Updated Business Description	A summary describing your business and the credit activities undertaken may also be required.

ASIC aims to decide on variation applications within 150 days, but complex issues or incomplete applications can extend this timeframe. If ASIC considers refusing the variation, perhaps due to concerns about capacity or the appropriateness of proposed changes, they must offer the licensee a hearing before making a final decision.

Cancelling Your Credit Licence as Another Alternative to Transfer

When Licence Cancellation is Necessary

There are specific circumstances where cancelling your ACL becomes the appropriate course of action, rather than seeking a transfer or variation. Licence cancellation is necessary if your business situation changes significantly.

You may need to cancel your credit licence if:

• You cease credit activities: If your business stops engaging in all credit activities covered by the licence, cancellation is required.
• You become a credit representative: If you plan to operate as a credit representative under another licensee, and the credit activities you will undertake are the same as those authorised by your current licence, you should cancel your own licence.

It is important to actively request cancellation when your licence is no longer needed. Do not assume your licence will automatically lapse if you fail to lodge an Annual Compliance Certificate, as this constitutes a breach of the law with potential penalties.

How to Request Licence Cancellation

If you determine that your ACL is no longer required, you must formally request its cancellation from ASIC. This process ensures your licence status is officially updated.

To initiate the cancellation, you need to:

1. Complete and lodge Form CL08 Request to change licence status
2. Submit this form online through the Credit registers portal

The cancellation request must be signed by an appropriately authorised person, which varies depending on your business structure. This could be:

• An individual licensee
• A director/secretary of a company
• A partner
• A trustee
• A liquidator if under external administration

Once ASIC receives your request, they will conduct a review to ensure the cancellation can proceed before sending you confirmation.

Conclusion

Navigating changes to an ACL involves understanding that transfers typically occur through a change in control of the licensed business, requiring notification to ASIC within 30 business days. Alternatives like varying the licence for business changes or cancelling it when ceasing credit activities are also key processes managed through ASIC.

For trusted expertise in ACL applications, managing your ACL transfer, variation, or cancellation, contact AFSL House today. Our specialists in financial services law provide tailored solutions to ensure your business remains compliant with ASIC requirements through every change in ownership or operation.

Frequently Asked Questions