Australia

Risk assessment 

Growth expected to slow in 2013

Growth rebounded in 2012, buoyed by investment momentum in the mining sector and household spending. Nonetheless, the slowdown observed in the last quarter of 2012 is expected to continue into the first few months of 2013, resulting in slower activity over the year, with household consumption and investment contributing less and the contribution of the external balance remaining negative.

Weakening household confidence

Household consumption will continue to drive growth in 2013, but the rise in spending will be less sustained.The cut by the Reserve Bank of Australia (RBA) in its key rate to 3.25% in late 2012 will have a positive impact on household finances, especially as it will ease the servicing of their variable-rate-mortgage debt. As a result, disposable income will rise slightly, fuelled too by an improvement in real wage evolution. Despite this, household confidence will remain vulnerable to the economic environment, in line with the stagnating labour market and the rise in inflation triggered by the introduction of a carbon tax in July 2012. Accordingly, discretionary spending will remain tight with households preferring to pay off their debts (over 150% of disposable income) and continuing to build up their precautionary savings (10% of disposable income compared with 3.1% in 2007). Credit supply could reverse thanks to the interest rate cut and boost the residential sector, especially in the State of New South Wales, where the local government decided to increase allocations to first-time house buyers. Despite the chronic lack of housing in most large Australian cities, the increase in house prices will probably remain limited.

Deceleration in mining investment and exports impeded by a high Australian dollar

Activity in the mining (coal and iron ore) and energy (coal gas and natural gas) sectors is largely dependent on demand from China. The export slowdown at the end of the year should ease thanks to one-off measures to support infrastructures and construction announced by some Chinese local governments. However, the mining sector is unlikely to return to the momentum of recent years. While in the short term mining groups will have to contend with pressure on margins due to declining raw materials prices and the strength of the Australian dollar, in the long term they will also have to adapt to China’s decision to diversify its supply sources. This means they are unlikely to notably reverse their decisions to cancel several investment projects (extension of the Olympic Dam uranium and copper mines, construction of an export terminal at Port Hedland…). Mining investment, one of the traditional growth drivers will nevertheless expand significantly this year, especially in the liquefied natural gas sector. As for manufacturing and services (tourism, education), they will continue to suffer from the unfavourable price competitiveness as a result of the Australian dollar’s high exchange rate. However, the RBA’s key rate cut and the expected slowdown in mining activity in the longer term could help stem the appreciation of the national currency.
In this context, fiscal revenue growth could slow, jeopardising the government’s aim of returning to a budget surplus in 2013. To address this constraint, and all the more so with the House of Representatives and the Senate elections due in the autumn, the government has little room for manoeuvre as deeper cuts in public spending would put even more pressure on growth. The public debt, for its part, will remain at a very satisfactory level.  

Sharp uptrend in company bankruptcies

Since the early 2000s, the Australian economy has been fuelled by the exceptional boom in the mining sector, which represented 7.5% of GDP and 2% of the workforce in 2011. But the slowdown observed in late 2012 is likely to affect other directly-related sectors: construction of factories and extraction sites, manufacturing industry for specialised mechanical engineering, research and development, exploration, transport and port and railway infrastructures, scientific, financial and insurance services. In this context, payments could continue to be delayed. Company bankruptcies accelerated in the first eight months of 2012 (+ 6.5% year on year) and remain above their pre-crisis level. This is reflected in Coface’s payment incidents index which points to worsening payment behaviour by Australian companies.

Payment incident index

Insolvency trends

MEANS OF PAYMENT AND COLLECTION METHODS

As a former colony of the British crown, Australia’s legal system and legal precepts are broadly inspired by British “common law” and the British court system.

On 1^st January 1901, the six British colonies formed the dominion of Australia as an independent federated union within the Commonwealth.

Bills of exchange and promissory notes are not widely used in Australia and are considered, above all, to authenticate the existence of a claim. 

Cheques, defined as “bills of exchange drawn on a bank and payable on presentation”, are commonly used for domestic and even international transactions.

SWIFT bank transfers are the most commonly used payment method for international transactions. The majority of Australian banks are connected to the SWIFT electronic network, offering a rapid, reliable and cost-effective means of payment.

The Australian dollar, along with the main foreign currencies, is now also part of the Continuous Linked Settlement System / CLS, a highly automated interbank transfer system for processing international trade settlements.

Moreover, the handling of payments via the client bank’s Internet site is becoming increasingly commonplace.

The collection process starts with service of an order to pay via a registered “seven-day letter”, reminding the client of his obligation to pay the amount due plus any contractually agreed interest penalties or, lacking such a penalty clause, interest at the legal rate applicable in each state.

Failure of payment by the debtor company and if the creditor’s claim is due for payment, uncontested, and over 2,000 AU$ (or after a ruling has been made), the creditor may issue a summons demanding payment within 21 days. Unless the debtor settles the claim within the required timeframe, the creditor may lodge a petition for winding-up of the debtor’s company, considered insolvent (statutory demand under section 459E of the Corporations Act 2001).

Under ordinary proceedings, once a statement of claim (summons) has been filed and where debtors have no grounds on which to dispute claims, creditors may solicit a fast-track procedure enabling them to obtain an enforcement order by issuing the debtor with an “application for summary judgement”.

This petition must be accompanied by an affidavit (a sworn statement by the plaintiff attesting to the claim’s validity) along with supporting documents authenticating the unpaid claim.

For more complex or disputed claims, creditors must instigate standard civil proceedings, an arduous, often lengthy process lasting up to two years, given the fact that court systems vary from one state to the next.

During the preliminary phase, the proceedings are written insofar as the court examines the case documents attesting to the parties’ respective claims. During the subsequent “discovery phase”, the parties’ lawyers may request their adversaries to submit any proof or witness testimony that is relevant to the matter and duly examine the case documents thus submitted.

Before handing down its judgement, the court examines the case and holds an adversarial hearing of the witnesses who may be cross-examined by the parties’ lawyers.

Local Courts or Magistrates Courts (depending on the State) hear minor disputes involving amounts ranging from a minimum of 40,000 AU$ in the State of South Australia up to a maximum of 150,000 AU$ in the State of Queensland.

Beyond these various thresholds, disputes involving financial claims up to 750,000 AU$ in New South Wales, Western Australia, or Queensland, for example, are heard either by the County Court or District Court, depending on the State.

Claims equal to those threshold amounts or greater are heard by the Supreme Court of each State.

Since January 2007, the State of Victoria grants the County Court the jurisdiction to hear disputes irrespective of size of claims involved.

As a general rule, appeals lodged against Supreme Court decisions, where a prior ruling in appeal instance has been handed down by a panel of judges, are heard by the High Court of Australia, located in Canberra, which may decide, only with “leave” of the court itself, to examine cases of clear legal merit.

The right of final recourse before the Privy Council, in London, was abolished on 3 March 1986 (Australia Act 1986).

Lastly, though the Australian legal system does not have commercial courts per se, in certain states, such as New South Wales, commercial sections of the District or Supreme Courts offer fast-track proceedings for commercial disputes.

Since 1^st February 1977, Federal courts have been created alongside the State courts and established in each State capital. The federal courts have wide powers to hear civil and commercial cases (like company law, winding up proceedings) as well as fiscal or maritime matters, intellectual property, consumer law, and so on.

In certain cases, the jurisdictional boundaries between State and Federal Courts may be indistinct and this may lead to conflicts depending on the merits of each case.

Arbitration and Alternative Dispute Resolution (ADR) procedures may also be used to resolve disputes more rapidly and obtain out-of-court settlements, often at a lower cost than through the ordinary adversarial procedure.