In Cigno Pty Ltd v Australian Securities and Investments Commission [2020] FCA 479  the Federal Court of Australia decided that Cigno was unsuccessful in its challenge to the ASIC Corporations (Product Intervention Order – Short Term Credit) Instrument 2019/917. Background.

UPDATE June 2021: Cigno’s appeal to Federal Court Full Court dismissed.

The Product Intervention Order provides that a “short term credit provider” must not provide credit to a retail client under a “short term credit facility”, except in accordance with the condition in s 5(5) of the PIO.

The condition in s 5(5) is that the total of the amount of credit fees and charges that may be imposed or provided for under the “short term credit facility” and the amount of collateral fees and charges that may be imposed or provided for under a “collateral contract” must not exceed the maximum amount of credit fees and charges allowed under s 6(1) of the National Credit Code.

Section 6(1) of the National Credit Code provides that the Code does not apply to the provision of credit if the provision of credit is limited to a total period not exceeding 62 days, the maximum amount of credit fees and charges that may be imposed or provided for does not exceed 5% of the amount of credit and the maximum amount of interest charges that may be imposed or provided for does not exceed an amount equal to the amount payable if the annual percentage rate was 24% per annum.

Justice Stewart found ASIC had wide powers in making a PIO and had validly exercised them:

“the product intervention power contemplates that a financial product or class of financial products might be likely to cause significant detriment because of the particular circumstances in which it is issued or offered, and not because of something inherent in the product or the products in the class of product concerned. Thus, significant detriment indirectly caused by the product or the class of product is sufficient to enliven the power….

It is apparent from s 1023A of the Corporations Act that the object of Pt 7.9A is to provide ASIC with powers that it “can use proactively” to reduce the risk of significant detriment to retail clients resulting from financial products. Also, s 1023D(3) provides for the exercise of the product intervention order power on the basis not only of detriment that has actually occurred, but also detriment that “will or is likely to” occur as a result of a class of financial products. Thus, there need be no existing product, let alone more than one, for the power to be able to be exercised.”

Cigno’s business model

Gold-Silver Standard Finance Pty Ltd (GSSF), between 2016 and 13 September 2019, provided short term credit to retail clients. The terms of the short term credit were such that GSSF had the benefit of the short term credit exemption. GSSF would therefore be a “short term credit provider” for the purposes of the PIO if it continued to provide such short term credit facilities.

During the same period, Cigno provided services to GSSF’s customers in exchange for fees including application, management and collection services.

Cigno accepted that it may be assumed for the purposes of the application that if it continued to engage in such transactions it would be an “associate” of GSSF and would be providing services to retail clients under “collateral contracts” for the purposes of the PIO.

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