Print PageFind ComponentFind LegislationHistory ON
Rules of Practice 1994 (S.R. 1994, No. 229)
Requested:  22 Jul 2017
Consolidated as at:  17 Mar 2006

PART 5 - Money for mortgage investment

Division 1 - Mortgages and securities

62. First mortgage

(1) A first mortgage is a mortgage that has priority over any other encumbrance or over any charge, other than a statutory charge, in respect of the land to which it relates and under which the amount advanced does not at the time of any advance under the mortgage exceed –

(a) two-thirds of the security valuation if the mortgage is not insured; or

(b) 90% of the security valuation if the mortgage is insured in respect of so much of the amount advanced as exceeds two-thirds of the security valuation; or

(c) 50% of the government valuation in force at the date of the mortgage if there is no security valuation.

(2) If the amount secured under a first mortgage does not exceed the limits specified in subrule (1), a mortgage includes a further mortgage or further charge between the same parties in relation to the same estate if no other creditor of the mortgagor has priority over the claims under the further mortgage or charge by reason of any other encumbrance or any charge that is not a statutory charge.

63. Second mortgage

(1) A second mortgage is a mortgage –

(a) that, if deferred, is deferred only to a first mortgage; and

(b) under which the amount secured, together with all money secured under any first mortgage, does not exceed –

(i) 80% of the security valuation if the mortgage is not insured; or

(ii) 95% of the security valuation if the mortgage is insured in respect of so much of the amount advanced as exceeds 80% of the security valuation; or

(iii) 70% of the government valuation in force at the date of the mortgage if there is no security valuation.

(2) If the amount secured under a second mortgage does not exceed the limits specified in subrule (1)(b), a second mortgage includes –

(a) a mortgage that has priority over any other encumbrance and over any charge, other than a statutory charge, under which the amount secured exceeds the proper valuation limits for a first mortgage; and

(b) a further mortgage or further charge between the same parties in relation to the same estate if no other creditor of the mortgagor who is deferred in priority to that second mortgage has priority over the claims under the further mortgage or charge by reason of any other encumbrance or any charge that is not a statutory charge.

64. Contributory mortgage

A contributory mortgage is a first or second mortgage, the principal sum of which is –

(a) recorded in the accounts and records of a fund operator as being held wholly, in one or more specific parts, for one or more identified investors; and

(b) invested in accordance with the authority of that or those investors.

65. Securities

(1) Securities are assets arising from the application of money for investment.
(2) Securities do not include –

(a) assets arising by their deposit or investment with an approved institution; or

(b) assets to be held by, or in the name of, an investor; or

(c) assets to be held by one or more members of a firm, or a body corporate which is not a fund operator, as bare trustee for an investor in accordance with an authority in writing signed by the investor and on behalf of the firm or body corporate identifying the assets and specifying the terms and conditions on which the assets are to be held.

66. Security valuation

A security valuation is to be made in writing by a registered valuer not earlier than 3 months before the date of the first mortgage or second mortgage on the security of which money is advanced to the borrower.

Division 2 - Controlled fund operators

67. Controlled fund operator

(1) A fund operator must not operate as a controlled fund operator unless it is registered with the Society.
(2) A fund operator may apply to the Society to register a fund operator as a controlled fund operator.
(3) An application is to be –

(a) in writing; and

(b) lodged with the Executive Director.

(4) The Society is to register a fund operator as a controlled fund operator if it is satisfied that the fund operator will comply with the provisions of this Part.

68. Control of fund operators by practitioners

(1) A legal practitioner must not allow a fund operator to –

(a) carry on business in that legal practitioner's office; or

(b) be represented by a member of that legal practitioner's firm in any dealing with an investor.

(2) Subrule (1) does not apply to a fund operator that is exempt from or complies with the provisions of the Corporations Act in relation to its activities.

69. Controlled fund operators that are corporations

If a controlled fund operator is a corporation –

(a) each practitioner who is a member of the related firm is to be a director of the corporation; and

(b) only a practitioner who is a member of the related firm may be a director of the corporation; and

(c) the corporation's articles of association are to provide that only a practitioner who is a member of the related firm may be a shareholder of the corporation; and

(d) the controlled fund operator must have its accounts and records audited at least once a year by a trust account inspector.

70. Controlled fund operators that are not corporations

If a controlled fund operator is not a corporation –

(a) each practitioner who is a member of the related firm is to be a member of the controlled fund operator; and

(b) only a member of the related firm is to be a member of the controlled fund operator.

71. Investments by controlled fund operators

(1) A controlled fund operator must not –

(a) invest money for investment other than –

(i) with an approved institution; or

(ii) in a first mortgage or second mortgage; or

(iii) in a loan to a short-term money market dealer in accordance with the conditions specified in section 5(1)(h) of the Trustee Act 1898; or

(b) pledge or charge money for investment or securities held by the controlled fund operator.

(2) Subrule (1)(a) does not apply to –

(a) money invested by a controlled fund operator and secured by mortgage securities before 31 December 1994; or

(b) money invested in substitution for any money referred to in paragraph (a).

(3) A controlled fund operator may take or acquire additional collateral security in respect of a loan that is secured by a first mortgage or second mortgage.
(4) A controlled fund operator must not accept money for investment unless, at or before the time the money is accepted, the investor is given a notice in writing signed –

(a) by or on behalf of the firm; or

(b) if the firm is not the controlled fund operator, by or on behalf of the controlled fund operator.

(5) A notice is to specify –

(a) the amount or identity of the money; and

(b) the nature of the securities in which the money may be invested; and

(c) how the rate of interest payable to the investor is to be determined and any condition under which the interest is payable; and

(d) the expenses to be paid by the investor; and

(e) the conditions under which the investor is entitled –

(i) to redeem the money; or

(ii) in the case of a contributory mortgage, to a transfer of the security in which the money is invested; or

(iii) in the case of any other security, to a transfer of a security equivalent in value to the money.

72. Deregistration of controlled fund operators

(1) The Society, by notice in writing, may suspend or revoke the registration of a fund operator as a controlled fund operator if it is reasonably satisfied that the fund operator or the related firm has contravened the provisions of this Part.
(2) A suspension or revocation does not take effect until 14 days after the day on which the notice is given to the fund operator.
(3) At any time while the registration of a fund operator as a controlled fund operator is suspended, the Society may –

(a) cancel the suspension; or

(b) reduce or extend the period for which the registration is suspended.

(4) While the registration of a fund operator as a controlled fund operator is suspended, that registration remains in effect for the purposes of rules 69, 70, 73 and 74.

Division 3 - Liability of related firms

73. Liability of members of related firms

(1) If a fund operator is a controlled fund operator, each member of the related firm is responsible for any act of the controlled fund operator done while the member is a member of the related firm as if it were an act of a member of the related firm.
(2) A person who is a member of a firm is liable for any act of a fund operator done while that person is a member of the firm in so far as that act arises from –

(a) a business transaction of the fund operator carried on from within the office of the firm; or

(b) a business transaction in which the fund operator was represented by a member or agent of the firm.

(3) The members of a related firm who are, or have been, members or directors of a controlled fund operator at the time any loss of money is incurred are jointly and severally liable as guarantors to any investor for –

(a) the repayment of money for investment placed by or on behalf of that investor with that controlled fund operator; and

(b) for the payment of the interest due on that money for investment.

(4) Subrule (3) does not apply to money that is –

(a) advanced on a contributory mortgage; or

(b) invested with an approved institution; or

(c) invested in a loan to a short term money market dealer.

(5) The liability of a member of a related firm under subrule (3) –

(a) is not extinguished by the death of that member; and

(b) ceases at the expiration of 3 years after the date on which that member ceases to be a member of the firm or a director of the fund operator.

Division 4 - Books of account

74. Books of account

(1) The books of account and other accounting records of a controlled fund operator are taken to be part of the books of account and other accounting records of the related firm.
(2) The books of account and records of the related firm and of the controlled fund operator are subject to the provisions of Part 3.


CURRENT VIEW: 31 Dec 1994 - 1 Oct 2016
VIEW THE AS MADE VERSION