The Government has released for public consultation the exposure draft of the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 which will extend the consumer unfair contract term protections to small businesses.
If passed, the Bill will amend both the ASIC Act and the Competition and Consumer Act.
The amendments to the ASIC Act will apply the new provisions to standard form contracts for financial products and financial services to small businesses.
What is a small business contract?
A contract is defined as a small business contract if:
(a) at the time the contract is entered into, at least one party to 1 the contract is a small business; and
(b) either of the following applies:
(i) the upfront price payable under the contract does not exceed $100,000;
(ii) the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $250,000.
A business is defined as a small business if it employs fewer than 20 persons. In counting the persons employed by a business, a casual employee is not to be counted unless he or she is employed by the business on a regular and systematic basis.
The phrase ‘upfront price’ is defined as the consideration that is provided, or is to be provided, for the supply under the contract, and which is disclosed at or before the time the contract is entered into.
In working out the upfront price payable under a contract under which credit is or is to be provided, any interest payable under the contract is to be disregarded.
The definition of “unfair” in Section 12BG of the ASIC Act will apply to affected small business contracts.
A court will be able to declare void an unfair term of a standard form small business contract.
The protections will apply to small business-to-small business contracts, and for all contracts that meet the criteria, regardless of whether the small business is involved in the acquisition or supply of goods and services
Transition
Once the legislation receives Royal Assent, there will be a transition period of 6 months before it commences, which is anticipated to be in early 2016. Contracts that are entered into or renewed, or terms of existing contracts that are varied on or after the date the legislation comes into effect, will be required to comply with the new protections.
Financial service providers will need to review their contract terms and their procedures in relation to small business customers.
