What are the consequences if I fail to submit a Report as to Affairs (RATA) and deliver books of the company to the liquidator?

What are the consequences if I fail to submit a Report as to Affairs (RATA) and deliver books of the company to the liquidator?

Every director of a company is required to (amongst other matters):

  1. Submit a RATA to the liquidator or provisional liquidator within 14 days after a wind up order or other order appointing the provisional liquidator is made pursuant to sections 475(1), (4) of the Corporations Act 2001 (Cth) (the Act); and
  1. As soon as practicable after the court orders that a company be wound up or appoints a liquidator or a provisional liquidator, or a company resolves that it be wound up:(a) Deliver to the liquidator or to the provisional liquidator all books in the director’s possession that relate to the company other than books which the director is entitled to retain; an(b) If the director knows where other books relating to the company are, tell the liquidator or provisional liquidator where those books are;

pursuant to section 530A(1) of the Act.

The consequences of failing to submit the RATA and deliver the books are:

  1. section 475(1) of the Act – 25 penalty units ($4500) and/or 6 months imprisonment; and
  1. section 530A(1) of the Act – 50 penalty units ($9000) and/or 12 months imprisonment.

Generally, the courts are reluctant to order imprisonment and may order the director to pay a fine. However, this depends on the circumstances surrounding the offence.

Pursuant to sections 475(11) and 530A(6B) of the Act, a director will not be deemed to have committed the offences if they have a reasonable excuse.

A reasonable excuse refers to any “physical or practical difficulties in complying with a requirement”.[1] In Jovanovic v Australian Securities and Investment Commission (2001) TASSC 6 Cox CJ stated at paragraph 9[2]:

“…the appellant’s failure to complete and lodge the report within the initial 14 days was reasonably excused by his undoubted ignorance of the day to day operations of the company and his inability to access the books of the company which were then in the possession of the earlier administrator of the company, Mr Green.  I think it was clearly impossible for the appellant to have provided meaningful answers to the questions posed in the prescribed form given his unchallenged evidence about his involvement with the company and his inability to view the books at that time.”

In Leydon v Forrest[3] the Supreme Court of South Australia held that it was not a reasonable excuse to say that the officer had not been paying attention to the affairs of the company. In this case, a company secretary had been absent from the state and did not know that a winding up order had been made.

Recently, JHK Legal represented a company director who was charged under sections 475(1) and 530A(1) of the Act. It was his first offence and he did not have a criminal history.

We were successful in achieving the following great result for the client:

  1. The offence under section 530A(1) of the Act was dismissed;
  2. A guilty plea was entered in respect of the offence under section 475(1) of the Act.
  3. No conviction was recorded.
  4. No fine was ordered.
  5. A good behaviour bond for 6 months was granted and he was released on his own recognisance.
  6. No order as to (legal) costs was made.

Offences under sections 475(1) and 530A(1) of the Act are serious and criminal penalties apply if you are found guilty. It is important to act in a timely manner as a director has a continuing obligation to the liquidator or provisional liquidator which essentially means that he or she must still comply with these sections after being charged.

Author: Aleksandra Symenovych

[1] Corporate Affairs Commission (NSW) v Yuill (1991) 172 CLR 319 Per Dawson J at 336

[2] Jovanovic v Australian Securities and Investment Commission (2001) TASSC 6 at paragraph 9

[3] Leydon v Forrest (1980) 4 ACLR 502

When is your “employment contract” a Sham?

The Fair Work Act 2009  (“the Act”) has been implemented to protect employees legal rights of employment and provide strict guidelines for employers to follow with respect to  employee and employer agreements. However, too often than not, employers are found not to have fulfilled their obligations under the Act and have exploited employees rights by way of sham contracting. In some instances, this is not an intentional act by the employer, but rather an act of unbeknownst to the employer. Accordingly, it is essential that employees are aware of their contractual and statutory rights and entitlements with respect to their employment and employers are aware of their obligations under the Act to ensure that their employees are not being exploited through a sham contract.

What is Sham Contracting?

A sham contract is formed when an employer makes a representation to an employee that they are an independent contractor as opposed to an employee. However, the contract that is formed contains all the relevant provisions to that of an employment contract and in essence the employee should be recognised as an employee and receive the benefits and privileges an employee is entitled to  receive in accordance with the Act.  These sham contracts are normally offered by the employer to avoid paying the employee some benefits and entitlements under the Act. However, in some instances, the sham representation may not be deliberate.

The Act prohibits sham contracting and provides for serious penalties for employers who contravene the Act. For any organisation this could include a penalty of up to $51,000.

Under the Act, the employer must not:

Section 357 of the Act

Represent to an individual that the contract of employment is a independent contractors agreement;

Section 358 of the Act

Dismiss the employee to engage the individual as an independent contractor to perform the same work under the Agreement;

Section 359 of the Act

Make a statement, that the employer knows is false, in order to persuade the individual to enter into a contract for services as an independent contractor for the same work performed under the Agreement.

While it is legislatively clear that an employer must not form a sham contract, in some instances, both the employee and employer are unaware that a sham contract has been formed. This however, does not dismiss the liability of the employer for penalties under the Act.

The recent case of Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd [1](“Quest”) found that terminating the employment of an employee and re-engaging them as sub-contractors, through a labour hire business “Contracting Solutions”, to provide the same services of labour, was a misrepresentation of the status of employment  as independent contractors.

In essence, the High Court found that while section 357 of the Act provides that it is a misrepresentation and breach of the Act if an employer makes a representation that an individual is a subcontractor when they are clearly an employee, it will also be considered a misrepresentation if the employer makes a representation to the employee that they are a sub-contractor for a third party. According to the decision in Quest, the employer is in breach of the Act if they misrepresented the employee’s status, regardless of who the employee is contracted by. Furthermore, upon the determination of the construction of section 357 of the Act, the High Court found that Quest   was liable for Sham Contracting.[2]

Who is an employee and who is an independent contractor?

In order for employers and employees to clearly distinguish between employees and contractors, the Fair Work Ombudsmen has created an indicator table of factors that may assist in determining when the individual is an employee or independent contractor. [3]

Indicator Employee Independent Contractor
Degree of control over how work is performed Performs work, under the direction and control of their employer, on an ongoing basis. Has a high level of control in how the work is done.
Hours of work Generally works standard or set hours (note: a casual employee’s hours may vary from week to week). Under agreement, decides what hours to work to complete the specific task.
Expectation of work Usually has an ongoing expectation of work (note: some employees may be engaged for a specific task or specific period). Usually engaged for a specific task.
Risk Bears no financial risk (this is the responsibility of their employer). Bears the risk for making a profit or loss on each task. Usually bears responsibility and liability for poor work or injury sustained while performing the task. As such, contractors generally have their own insurance policy.
Superannuation Entitled to have superannuation contributions paid into a nominated superannuation fund by their employer. Pays their own superannuation (note: in some circumstances independent contractors may be entitled to be paid superannuation contributions).
Tools and equipment Tools and equipment are generally provided by the employer, or a tool allowance is provided. Uses their own tools and equipment (note: alternative arrangements may be made within a contract for services).
Tax Has income tax deducted by their employer. Pays their own tax and GST to the Australian Taxation Office.
Method of payment Paid regularly (for example, weekly/fortnightly/monthly). Has obtained an ABN and submits an invoice for work completed or is paid at the end of the contract or project.

While the above table can provide a good indication as to which category an employee and contractor may fall within, it is important to consider the factors as a whole and not individually in determining the engaging arrangement.

We make note that as there is a fine line as to what would be considered as an employee and an independent contractor. For both employees and employers, it is vital to seek expert legal advice. JHK Legal provides advice as to employment contracts regularly, and you should contact our office for more information.

Author: Hayley Tibbie, Lawyer

Published: September 2016

[1] [2015] HCA 45

[2] Ibid 14-22.

[3] Fair Work Ombudsman, Independent contractors and employees( 2015) 

Australian Insider Trading Laws – Forever unclear and inconsistent?

This Article provides a brief insight into the Australian insider trading laws and how their judicial application has been perceived as vague and complicated, hindering public confidence and market integrity.

Section 1042A of the Corporations Act 2001 (Cth) (“the Act”) defines information to mean:

“a)  matters of supposition and other matters that are insufficiently definite to warrant being made known to the public; and

b) matters relating to the intentions, or likely intentions, of a person”.[1]

It is not contended that this definition is ambiguous; however, case law has sought to extrapolate the meaning of Section 1042A of the Act. In Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (ACN 113 114 832) (No 4)[2] (“Citigroup”) the definition of ‘information’ was broadened to include “factual knowledge obtained by means of a hint or veiled suggestion from which the receiver of it can impute other knowledge”.[3]

But when is it ‘inside information’?

The realisation and acting upon any obtained information, understandably, does not necessarily negate the legality of resulting business. That is, unless it can be adduced that the means of which the information was obtained can be deemed as constituting ‘inside information’, namely whether:

“a)  the information is not generally available; and

b) if the information were generally available, a reasonable person would expect it to have a material effect on the price or value of particular Division 3 financial products”.[4]

So what constitutes ‘generally available’ information?

The Act tends to indicate that for information to be general available it must be readily observable or disseminated within a reasonable time period. More specifically, whether:

a) “It consists of readily observable matter; or

b) Both of the following apply:

i It has been made known in a manner that would, or would be likely to bring, bring it to the attention of persons who commonly invest in Division 3 financial products of a kind whose price might be affected by the information: and

ii Since it has been made known, a reasonable period for it to be disseminated among such persons has elapsed; or

c) It consists of deductions, conclusions or inferences made or drawn from either or both of the following:

i information referred to in paragraph (a);

ii information made known as mentioned in subparagraph (b)(i)”.[5]

‘Readily observable’ is described as “facts directly observable in the public arena”,[6] or with regard to (a)(i), whether the information has been made available to common investors regardless of the size of the respective sector and applicable to both listed and unlisted companies.[7]

It is noteworthy that the words ‘public arena’ have not been confined to matters within Australia, and ‘generally available’ and ‘readily observable’ information includes information that is available overseas[8] and information that is obtained whilst within a subsidiary of a non-Australian conglomerate.[9]

When is it deemed to have had a ‘material effect’?

Despite a lack of clarity in the Act, Jacobson J in Citigroup commented in the context of share prices, that there would need to be information that ‘would, or would be likely to, influence persons’ who commonly acquire shares in deciding whether or not to acquire or dispose of[10] said shares, and/or the potential influence on general investor behaviour[11] before such information would have a material effect on the share price. Hence, information is deemed to have a greater material effect when it is derived from a more credible source.

In R v Bo Shi Zhu[12] the seniority of an employee was deemed directly relevant in considering the serosity of the matter, It was stated that generally an employee in a higher position possessed greater better ability to hide a breach of insider trading.[13]

What if the information was factually untrue?

The High Court in Mansfield v R and Another[14] rejected that the information possessed must be of a factual reality,[15] false facts and stipulations of fiction would not be excluded, regardless of whether they were acquired knowingly or unknowingly.[16] Rather, greater focus is placed on the intent and use of said information rather than its underlying validity.

Insider trading laws in Australia

In the late 1980’s the Griffiths Committee report[17] established various policy objectives as a basis for addressing and hindering insider trading, including:

a. Market Fairness;

b. Fiduciary duty theory;

c. Economic efficiency; and

d. Misappropriation theory (corporate injury).

The fiduciary duty theory lost applicability with the introduction of insider trading laws in Australia which removed the requirement of a link between the ‘insider’ and ‘the corporation’ in order to constitute insider trading.[18]

Misappropriation theory refers to damage caused to a respective company as a result of having inside information,[19] yet lacks the consideration that price sensitive information in possession, whilst not generally available, without misappropriation, does not necessarily ‘injure’ a company.[20] Section 1043A[21] of the Act, sets out the prohibited conducted of a person in possession of inside information. The High Court in He Kaw Teh v R[22] noted that ‘possession’ requires a cognitive element of awareness that the information was “in fact in the possessor’s physical control”.[23]

As a result, market fairness and economic efficiency remain the accepted rationales for prohibiting insider trading according to The Companies and Securities Advisory Committee (CAMAC).[24] Market fairness (as the name suggests) proposes that the access to information should be fair and equal within the market place, whereas economic efficiency focuses on protecting investor confidence in the market.[25]

These two rationales have been the subject of debate by both academics and professionals, with arguments that they envision conflicting goals, and are incompatible with one another.[26]


Without divulging into deliberation on the apparent ‘legislative astigmatism’ between the policies, the effect of the current legislation on endorsing a benchmark for prohibiting insider trading with regard to both policies clearly demonstrate that there is a underlying consensus of the court’s need for increased efficiency in legislature interpretation.

Whilst the current legislation meets a satisfactory standard of these policy objectives, there still remains an inconsistency in common law decisions and conflicting interpretations between judges, which in return, hinders investor confidence.

The almost feeble attempts at reform have done little to assist with this longstanding problem which suggests that there is a need for redefined practical legislation before there can be a noticeable change in public confidence in the accessibility of price sensitive information by market participants.

This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.

For any further information concerning this article, please contact JHK Legal.


Author: Matthias Klepper, Paralegal

Published: June 2015


[1] Corporations Act 2001 (Cth), s 1042A.

[2] (2007) 241 ALR 705.

[3] Ibid at 534.

[4] Corporations Act 2001 (Cth), s 1042A.

[5] Ibid, s 1042 C.

[6] Explanatory Notes, Corporations Legislation Amendment Bill 1991 (Cth) at 328.

[7] Ibid.

[8] R v Kruse [1999], (Unreported, O’Reilly J, Dec. 2, 1999) (District Court, NSW 1999).

[9] R v Bo Shi Zhu [2013] NSWSC 127.

[10] Ibid at [566].

[11] Hannes v DPP (No 2) (2006) 60 ACSR 1 at 9.

[12] R v Bo Shi Zhu [2013] NSWSC 127.

[13] Ibid at [190].

[14] (2012) 293 ALR 1.

[15] Ibid at [6].

[16] Ibid at [72].

[17] The Anisman Report in 1986; the Griffiths Committee in 1898; 2001 CASAC Discussion Paper on insider trading; The CAMAC Insider Trading Report (2003), and the Insider Trading Position and Consultation Paper (March 2007) (PCP).

[18] D. Pompilio. ‘On the Reach of Insider Trading’ (2007) 25 Company and Security Law Journal, 468.

[19] A. Jacobs. ‘Time is Money: Insider Trading from a Globalisation Perspective’ (2005) 23 Company and Security Law Journal, 237.

[20] D. Pompilio. ‘On the Reach of Insider Trading’ (2007) 25 Company and Security Law Journal, 469.

[21] Corporations Act 2001 (Cth).

[22] (1985) 60 ALR 449.

[23] Ibid at [450].

[24] The Hon Chris Pearce MP, ‘Insider Trading: Position and Consultation Paper 2007’.

[25] Simon Rubenstien, ‘The regulation and prosecution of insider trading in Australia: towards civil penalty sanctions for insider trading’ (2002) 20 Company and Securities Law Journal 89 at 93.

[26] R v Firns [2001] NSWCCA 191 at [53].

Why a Corporate Trustee is always a good idea

The trust is a commonly used asset protection mechanism allowing clients to quarantine assets from access by their creditors.  Whether to appoint a corporate trustee is often the subject of considerable contemplation by clients and in some circumstances clients’ determine that it will be more cost effective to act in their personal capacity as a trustee to avoid the yearly ASIC compliance costs and additional financial returns.

A trust, in its simplest expression, is a personal obligation binding on the legal owner of property to deal with that property for the benefit of the beneficiaries.  As the trust is not a separate legal entity and the trustee is the legal owner of the property held on trust for the beneficiaries, unless that trustee ensures that it incurs liabilities on the basis that only assets held on trust are available for payment of the debt, the trustee may be personally liable.

If there is no express agreement between the trustee and the other contracting party, whether the trustee is personally liable is determined by looking at the transaction as a whole and the terms of the documents.  The general position is that a trustee has the right to be indemnified/reimbursed from the assets of the trust (this right is not removed on resignation of the trustee as the right of indemnity arises on the date the trustee incurs the liability to the third party, so the date of the debt).

Example: where a trust is being used to operate a business, if the trustee is lax and does not ensure that contracts with suppliers are limited to enforcement against the trust assets only, those supplier creditors are able to look to the trustee personally for payment.  This means that if an individual decides to be a trustee of a trust their personal assets may be at risk to claims by creditors.

So, when looking at the above example:

the trustee would be entitled to utilise the trust assets to pay the debts (or if a former trustee, to apply to the new trustee for the debts to be paid from the assets of the trust);

if the assets of the trust were insufficient to cover the liability and the relevant contract limited the other party’s right of action as against the assets of the trust, the other party would be unable to claim the balance owing from the trustee;

if the relevant contract was silent, the other party could proceed to seek to hold the trustee personally liable for the balance owing after the assets of the trust were used and the trustee would need to argue that the facts and circumstances warranted restricting the liability to the assets of the trust.

It should be remembered that provided a trustee has acted in accordance with its obligations, it should be entitled to a form of reimbursement or indemnification from the assets held on trust pursuant to the terms of the trust deed or under applicable trust law statute.

But it also means that a trustee may be left personally liable for the debts if:

(a)           the terms of agreements entered into as trustee are not limited to enforcement as against the trust assets; or

(b)           there are insufficient assets held in trust for the trustee to satisfy the debts; or

(c)           there has been a change of trustees and the new trustee has divested the assets of the trust (the trust property will vest in the new trustee as at the date of appointment and the former   trustee will need to apply to the new trustee for reimbursement from the trust property.  Liabilities incurred in relation to the trust property do not transfer to the new trustee but remain  with the former trustee as at the date they were incurred).

This personal liability of the trustee extends so far as allowing a creditor to seek to have the trustee wound up (in the case of a company) or bankrupted (in the case of a natural person) if the trustee has insufficient assets to satisfy the debts.

This is where the use of a corporate trustee is of benefit particularly given the modern commercial approach adopted by financiers where finance is provided to trustees on terms that the trustee is bound personally and in its trustee capacity for the debt.

A corporate trustee can be removed and subsequently wound up without the personal assets of the operators of the business being affected (unless they have provided guarantees).  In the instance of a corporate trustee, it allows families and businesses to asset protect by using the shareholder and director liability safeguards in the Corporations Act 2001 (Cth) and allowing, for instance, one party to a marriage to be asset rich and removed from the business transactions while the other takes on the financial risks associated with a business.

Considering the above, the risks of deciding to act in your personal capacity as trustee must be carefully weighed against the financial costs of establishing and administering a corporate trustee, which, over the life of the trust may be minimal in comparison to the monetary value of your personal assets being placed at risk by you being a trustee and your personal assets being considered accessible by a Court.

If you would like to discuss the above further please contact JHK Legal on 07 3859 4500.

Author: Belinda Pinnow, Associate

Published: June 2016

Foreign Judgments in Australia – Tips and Traps of the Statutory Regime

Sarah Jones, Legal Practitioner Director

In these days of close international relations, the need to enforce a judgment made by a foreign court against a person who has moved to or is residing in Australia is becoming more common. Australia has a statutory regime to assist with this: the Foreign Judgments Act 1991 (Cth) (“the Act”) and the Foreign Judgments Regulations 1992 (Cth) (“the Regulations”).[1]

Which judgments can be registered?

A money judgment that is final and conclusive and was given in a superior court of a county to which Part 2 of the Act extends may be registered in Australia.[2]

The Regulations list the superior courts of the countries with substantial reciprocity of treatment. Judgments given by those courts will be registrable in Australia via the Act. This includes higher courts (for example, Supreme Courts and/or High Courts) of 35 countries.[3]

Section 6 of the Act requires an applicant to bring the application to register the judgment (if it meets the requirements above) within 6 years of the date of the judgment.

What is the process to register?

The application to register should be made in the Supreme Court of the relevant state or territory of Australia where the applicant wishes to enforce.[4] The relevant factors to meet are included within each state’s legislation. For the purposes of this article, the New South Wales process is used, but it is generally referable in the different Australian states and territories.

In New South Wales, an originating summons, along with supporting affidavits must be filed with the Supreme Court in order for the application to be heard. The Registrars of the Supreme Court in New South Wales do not have delegated power to deal with the application where it is ex parte, and therefore it must be heard by a Supreme Court Judge.[5]

What factors must be met?

The New South Wales Uniform Civil Procedure Rules 2005 (NSW) includes a statutory list of evidence which must be provided to the Supreme Court in order to successfully register a foreign judgment.

This includes:[6]

  1. The judgment or a verified or certified copy of the judgment from the original court; As well as evidence that the judgment can be enforced in the country of origin and that, if it were registered by the Supreme Court, it would not be liable to be set aside;
  2. Advice where only some of the provisions of the judgment are the subject of the application;
  3. Evidence showing the amount originally payable;
  4. Evidence showing that the Supreme Court is the appropriate court pursuant to s 6 of the Act;
  5. Evidence of the name, trade or business, and the usual or last known address of both parties;
  6. Evidence showing that the judgment creditor is entitled to enforce the judgment;
  7. Relevant interest calculations;
  8. The extent to which the judgment is unsatisfied; and
  9. Any such other evidence as may be required.[7]

The evidence may be produced by way of the supporting affidavits.[8]


It’s important when calculating interest that: the rate of interest, the amount of interest up to the time of the application, and the daily amount of interest sought thereafter are all attested to and calculated.[9]

Further, as the judgment will be in a foreign currency, within 24 hours before filing the application a currency exchange to Australian dollars should be calculated. Our view is that three (3) different exchanges should be considered, and the median should be used for the calculations.

Which orders should be sought?

The following orders ought to be sought:

Registration of a foreign judgment pursuant to part 2 of the Act and the relevant rule of the state legislation;[10]

An order that the summons/application need not be served on the judgment debtor;[11]

An order that, once the registration is completed, the judgment debtor will have a limited time to make an application to set it aside.[12]

As to point 3, it is appropriate to make this a timeframe that is reasonable in the relevant state (for example: 21 days).

How do you then enforce the judgment?

Once the order has been made by the Court, a Notice of Registration of Foreign Judgment, a copy of the orders made and a copy of the original judgment should be personally served on the judgment debtor (usually an individual for the purposes of registering a foreign judgment).

Once the timeframe to set aside the order has lapsed, if no such application is made, the applicant (judgment creditor) may seek a copy of the registered judgment from the Registrar of the Supreme Court,[13] and that judgment may be enforced as if it were an Australian money judgment.


Author: Sarah Jones, Legal Practitioner Director

Published: June 2016


[1] It should be noted that this article will not cover common law principles where there is no international agreement or the very specific laws which exist between New Zealand and Australia with respect to some judgments.

[2] Section 5 of the Act.

[3] Schedule to the Regulations.

[4] Section 6 of the Act and Rule 53.2 of the UCPR (NSW).

[5] Section 13 Civil Procedure Act 2005 (NSW).

[6] Rule 53.3 UCPR (NSW).

[7] For example, where a Plaintiff’s name has changed between instituting proceedings in the original court and bringing the application for registration of a foreign judgment, an affidavit annexing appropriate evidence showing the names are one in the same party, will be acceptable evidence: Bank of South Pacific Tonga (Formerly Westpac Bank of Tonga) v Tricia Emberson [2016] NSWSC 383.

[8] See, for example, Raffaele Viscardi SRL v Quality Centre Food Services Pty Ltd [2013] NSWSC 1104; Bank of South Pacific Tonga (Formerly Westpac Bank of Tonga) v Tricia Emberson [2016] NSWSC 383.

[9] Rule 53.3(i) UCPR (NSW).

[10] The Act.

[11] Rule 53.2 of the UCPR (NSW).

[12] Section 6(4) of the Act.

[13] Section 15 of the Act.

The future is here – Paperless Conveyancing

A standardized national conveyancing system has been implemented in Australia to allow numerous property transactions to take place entirely paperless via the online platform Property Exchange Australia (PEXA).  Paperless conveyancing is now available in all States and Territories except South Australia, which will join in 2016.  The privately-owned PEXA is anticipated to handle 60 – 70% of all conveyancing transactions in Australia once fully-integrated into every day legal practice.

Continuing our commitment to take law out of the past and into the present and to provide our client’s with expedient legal service, JHK Legal has embraced this move towards electronic conveyancing and is in the process of incorporating PEXA into the firm’s practice.  This exciting development will enable a client’s transaction to move expediently with less “hands on” involvement from the client.

PEXA creates a single land titles registration system.  It is not replacing the current land law in Australia, rather it makes it possible to settle a conveyance of real property electronically and to lodge all required documents online with the land registry.  Each State and Territory retains its existing real property laws but via new legislation in each state will be allowed to effect transfers online subject to the national Electronic Conveyancing National Law (ECNL) and associated regulations.

What does this mean for clients?

  1. Electronic documents are as valid as paper documents and once submitted via PEXA will have the same status as if signed original paper documents – for example, you will no longer need to sign a Form 1 and Form 24 Transfer and hand over originals at Settlement. These will all occur online.
  2. Solicitors are authorised to digitally sign documents on behalf of their client once the solicitor obtains “client authorisation” which is a process whereby the solicitor must verify the client’s identity and establish that the client has authority to provide instructions to purchase/sell the property.
  3. Digital signatures are able to be used by the person designated as the “signer” for a subscriber. Only certain parties can be a subscriber, these include financial institutions, lawyers and conveyancers.  In Queensland, only a legal practitioner can be a “signer” for a subscriber.  Once a digital signature is applied to a document:

a) the document will be deemed signed by the subscriber; .

b) the signature is binding on the subscriber and any person whom the subscriber is acting under client authorisation; and

c) the signature of the subscriber may be relied upon by each party to the transaction.

So, practically, how will this work?

To illustrate, John decides to sell a house to Paul.  They execute a contract and tick that they consent to the transaction being completed by PEXA.  Paul is self-financed.

  1. John brings us his contract. We note that it is a PEXA contract.  We complete the “client authorisation” process with John allowing us to sign all documents on his behalf electronically.
  2. Paul takes his copy of the contract to XYZ Lawyers who are also registered for PEXA. They similarly complete the “client authorisation” process with Paul to enable them to sign all documents on his behalf electronically.
  3. The firm (each being subscribers) generate all transfer documents required to complete the sale electronically and when instructed by their client the authorised signer places a digital signature on those documents which is deemed binding on their client.
  4. At settlement, a live portal is opened whereby both solicitors are logged in. XYZ Lawyers do a real time transfer of the funds for settlement to our firm’s trust account and pay the OSR (also on PEXA).  On seeing the transfer of funds completed, we authorise lodgement of the transfer to the titles office digitally.
  5. The transaction is complete. No multiple communications of documents and need to get JP witnesses for the parties.
  6. Once funds are cleared in account, they are released to John.
  7. Paul now owns the Property.

Where to from here?

All new things take time to adjust to and the use of PEXA is no different.  Both parties have to consent to using PEXA otherwise the current paper based system will continue to apply.

There are still some transactions which will not be able to be done via PEXA, but standard “cottage” conveyancing is capable of full digitalisation and represents a more cost and time efficient method of completing transactions.

If you have any questions about this article, please contact our Brittany Biron on 07 3859 4500 or [email protected] for further information.


Author: Brittany Biron, Lawyer.

Published: March 2016

Contracts of Insurance: Your Rights and Interests

Until now, litigation arising from motor vehicle collisions also known as ‘Crash ‘n’ Bash’ litigation instigated more often than not, by the Insurer of one of the motor vehicle, as a debt recovery action, has not legally been able to be named in the proceedings. Most Insurance Policies list as a term that should legal proceedings be instigated as a result of a motor vehicle collision, it is the owner and/or driver of the insured vehicle that will be named, and not the insurance company (Insurer) on the legal documents.

Assignment within Insurance

What we are seeing now are cases where the Insurer is being named and sued directly. Litigation of this nature arising when, without the knowledge or authorization of the Insurer, the Insured enters into a Deed of Assignment purporting to assign to a Third Party Repairer (Repairer) all “rights and interest under the Contract of Insurance to claim against the Insurer in respect to (the) claim”

Consider this scenario:

  • Policy of comprehensive motor vehicle insurance with the Insurer of choice, covered by an Insurance Certificate;
  • Motor vehicle was damaged whilst covered by the Insurer;
  • The Insured lodges a claim under the insurance policy;
  • The Insurer undertakes an assessment of the damaged vehicle, and compiles a quotation of the repairs;
  • Without the Insurer’s knowledge, the Insured obtains an alternative quote from an alternative repairer;
  • A disparity exists between the two quotes; the quote obtained by the Insured is significantly higher than that obtained by the Insurer; and
  • Without the Insurer’s authorisation, the Insured enters into a Deed of Assignment purporting to assign to
  • the repairer all “rights and interest under the Contract of Insurance to claim against the Insurer in respect to (the) claim”.

The Insurer has never authorised the repairs to the Insured’s vehicle, nor implied any intention to pay the repairer for works allegedly conducted under the Deed of Assignment. If the Insurer did not authorize the repairer, do the terms of the insurance policy protect the Insurer, or is the repairer entitled to recover directly from the Insurer?

Surely without the Insurer’s authorisation for the repairs, the Insurer’s responsibility, if any, is limited to the amount of the Insurer’s own assessment of damages – the lesser of the two in this scenario. If paid by the Insurer to the Insured, who is responsible for the difference between that and the actual amount of repairs conducted under the alleged Deed?

The two issues to be considered:

  • the validity of the assignment; and
  • if the Insurer did not authorise the repairer, do the terms of the insurance policy protect the Insurer, or is the repairer entitled to recover directly from the Insurer?

In order to comment on these matters, it is necessary first to consider the Insured’s position under their policy before moving to the question of any assignment of rights. The Product Disclosure Statement contained within most Insurance Policies outlines the Insured’s entitlements.

In this scenario the basis of cover states that:

  • only with the authorisation of the Insurer can the Insured nominate a repairer of choice; and
  • the quotation provided by Insured’s nominated repairer must be competitive; else the Insurer can decide to instruct another repairer.

Failure to obtain prior authorisation

However, just because the Insured may have failed to obtain authorization before conducting the repairs does not necessarily mean that the Insured has breached any policy terms. These terms do not prohibit the repairs being undertaken without the authorization of the Insurer, but rather identify exactly when the repairs shall be paid for, hence the introduction of s.54(1) of the Insurance Contracts Act, 1984.

If the policy is questioned, s.54(1) requires an examination of the prejudice caused to the Insurer by the Insured failing to obtain the Insurer’s authorisation and reduces the amount of the claim to a sum that fairly represents the extent to which the Insurer’s interests were (so) prejudiced. Here, the prejudice would be represented by the differential between the Insured’s repairer’s cost of repairs and the lower sum as provided for by the Insurer’s assessment.

Alternatively, the Insurer could offer a ‘cash settlement’ to the Insured for their assessed cost of repairs, not only because this is the authorised sum, but because the Insurer believes the nominated repairer’s quotation is not competitive. If the disparity between the two amounts is of such a magnitude, there exists a suggestion that the higher figure could be outside the parameters of the competitive market place.

Such a test of competitiveness is objective rather than subjective following from an ordinary and natural interpretation of the provisions, and the pure belief of the Insurer. Hence, the onus of proving that the repairer’s figure is not competitive solely rests with the Insurer. Especially given that it is the Insurer, itself, that seeks the benefit of a clause within its own policy limiting its own liability. In order to be able to satisfy a court that it was entitled to settle the Insured at the lower figure, the Insurer would also carry the onus of establishing that the lower sum represented the reasonable cost of a competent and guaranteed repair.

Has the Insured lawfully assigned their rights to the Repairer?

If so, can the repairer stand in the Insured’s shoes as assignee and prosecute a cause of action for the higher amount against the Insurer?

The Deed of Assignment seeks to assign to the repairer all of the Insured’s rights and interest under the Contract of Insurance to claim against the insurer. Accordingly, it does not purport to assign the policy, but merely the Insured’s right to recover under the policy. This right to recover is a legal chose in action, and may be assigned. A legal assignment of a chose in action requires express notice in writing (to be) given to the debtor, refer s.134 of the Property Law Act, 1958.

Whilst the failure to provide written notice does imply that a legal assignment has not been perfected, it does not necessarily mean that a valid equitable assignment of the right to recover has not occurred see Alma Hill Constructions Pty. Ltd. v Onal (unreported) [2007] VSC 86. In that decision, his Honour Kaye J deals with some conflicting authorities to conclude that, otherwise valid assignments of choses in action without notice pursuant to s.34 are enforceable in equity.

In this scenario the Insured’s assignment was valid in both law and equity as having bestowed a right upon the repairer to pursue the Insurer for the recovery of the Insured’s entitlements under the policy, with respect to this claim. Of course, Product Disclosure Statements differ between Insurers, and may in alternate circumstances purport to prohibit or limit any right of assignment on the part of the policy-holder.


Author: Shan Auliff

Published: April 2016

Unfair Contract Terms in Small Business Contracts

From 12 November 2016, a new law will be in effect which will extend the unfair contract term protections to small business contracts.[1]

What contracts will be covered?

The new law will apply to a small business contracts entered into or renewed on or after 12 November 2016. This means that current contracts will still stand, but if the contract is varied or begins on or after 12 November 2016, the new law will apply to the varied contract terms.

The following contracts will be affected:

  • where the contract is for the supply of goods or services or the sale of an interest in land;
  • at least one party is a small business, being a business that employs less than 20 people (which includes part-time and casual employees employed on a regular and systematic basis); and
  • the upfront price payable under the contract is no more than $300,000, or $1 million if the contract is for a term of more than 12 months.

What is a standard form contract?

A standard form contract is one that has been prepared by one party to the contract and the other party has little or no opportunity to negotiate the terms – that is, it is offered on a “take it or leave it” basis. For example, the same Credit Application is normally given to each new customer by goods/services providers and the customer does not always have the opportunity to negotiate individual terms.

The factors relevant in determining whether a contract is a standard form include:

  • the bargaining power of both parties to the transaction;
  • whether the contract was prepared before any discussion relating to the transaction occurred between the parties;
  • whether a party was required to accept the terms of the contract;
  • whether a party was given an opportunity to negotiate the terms of the contract; and
  • whether the terms of the contract take into account the specific characteristics of a party or the particular transaction.

What is an unfair contract term?

Under the Australian Consumer Law (“ACL”) [2], an unfair term is a term that:

  • causes a significant imbalance in the parties’ rights and obligations;
  • is not reasonably necessary to protect the interests of the party who would be advantaged by the term; and
  • causes detriment (financial or otherwise) to a party if it were to be relied upon.

In order for the term to be unfair, it must satisfy all three criteria. The court will look at the contract as a whole to determine whether the term is unfair.

The following are examples of unfair terms:

  • enables one party (but not another) to avoid or limit their obligations under the contract;
  • enables one party (but not another) to terminate the contract;
  • penalises one party (but not another) for breaching or terminating the contract;
  • enables one party (but not another) to vary the terms of the contract; or
  • enables one party (but not another) to assign the contract without consent.

What are the consequences if a contract contains an unfair term?

If a party to the contract considers a term to the contract is unfair, they can apply to the Federal Court for a declaration that the term is unfair. If the term is considered unfair, then the unfair term will be void. This means the term will be unenforceable and treated as if it did not exist. The contract will only continue to bind the parties if it can operate without the unfair term.

What should you do now?

The law does not take effect until November 2016, so you have time to review your current contracts to determine whether they contain any unfair terms. It will be important to look at any indemnities, releases from liability and termination clauses in your contract.

JHK Legal has vast experience in drafting and reviewing contracts and is able to assist with ensuring your contract complies with these new laws.

For more information, please contact our office and speak with one of our lawyers.


Author: Cassandra Garton, Lawyer

Published: March 2016


[1] Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015.

[2] Schedule 2 of the Competition and Consumer Act 2010.

Entitlement of Administrators to Make Assumptions on Validity of Appointment

In a recent decision of the Supreme Court of South Australia in Ross & Anor as Joint & Several Administrators of GNC Homes Pty Ltd (Administrators Appointed) –v- GNC Homes Pty Ltd (Administrators Appointed) [2015] SASC 168 (“GNC Case”), the Court was required to decide on the validity of the appointment of Administrators in circumstances where the director who appointed the Administrators had been removed from his position prior to appointment. JHK Legal was instructed to act on behalf of the Administrators and a number of significant issues were raised by the Shareholders of the Company for which the Court had to consider in determining the validity of the appointment.

  1. Facts of the Case

GNC Homes Pty Ltd (Administrators Appointed) (“Company”) traded a business of providing residential building services in Adelaide. On 20 July 2015, the Administrators were appointed to the Company by resolution of the sole director of the Company on the basis that the Company was unable to maintain payments to creditors and the accounts of the Company had been frozen (“the Appointment”). Upon advice and taking into account the numerous director guarantees that had been provided to creditors, the sole director made the decision to appoint the Administrators to the Company.

On the day of Appointment, the Administrators had undertaken standard searches of the Australian Securities and Investments Commission’s (“ASIC”) records which confirmed that the director who had made the appointment remained the sole director of the Company.

Following the Appointment of the Administrators, the Shareholders wrote to the Administrators outlining that the sole director had been removed as a director of the Company by way of special resolution on 16 June 2015, some five (5) weeks prior to the Appointment. As the removal was prior to the Appointment, the Shareholders maintained that the Appointment was invalid and as such did not bind the Company and that the Administrators had no choice but to resign from their position.

The issue with the removal of the sole director from his position was that the Shareholders failed to advise him of the resolution removing him as director and at the time of the Appointment had not lodged relevant forms with ASIC outlining the resolution passed to remove the director.

The Administrators were forced to commence proceedings in the Supreme Court of Adelaide seeking orders confirming the validity of the Appointment pursuant to section 447C of the Corporations Act 2001 (Cth) (“the Act”) and in the alternative sought orders deeming the Appointment valid pursuant to section 447A of the Act.

  1. Statutory Assumptions under the Act

Pursuant to section 447C (2), the Court was required to make an order declaring whether or not the purported appointment was valid on the ground specified in the application or on some other ground.

It was argued on behalf of the Administrators that section 128 and 129 of the Act could be relied upon by the Administrators to bind the Company and as such the Appointment was valid.

Section 128 of the Act provides that a person is entitled to make certain assumptions as outlined in section 129 of the Act in relation to dealings with a company. Further the company is not entitled to assert in proceedings in relation to the dealings that any of the assumptions are incorrect.

The relevant assumption relied upon by the Administrators were, amongst others, pursuant to section 129 (2) of the Act which provides:

A person may assume that anyone who appears, from information provided by the company that is available to the public from ASIC, to be a director or a company secretary of the company:

  • Has been duly appointed;
  • Has authority to exercise the powers and perform the duties customarily exercised or performed by a director or company secretary of a similar company.

The Administrators argued that as result of the ASIC search conducted on the day of the Appointment, which evidenced that the appointing director was duly appointed, assumptions could be made that he had the authority to act and perform the duties customarily performed by a sole director of the Company, including the appointment of the Administrators.

The shareholders of the Company argued that the effect of sections 128 and 129 of the Act do not make an invalid act valid and that the assumptions only had operation until the Administrators became aware of the fact that the assumptions were incorrect.

  1. Decision

The Court ultimately held that the Administrators were able to rely upon the assumptions outlined under section 128 and 129 of the Act and thus held that the appointment was valid. Justice Dart outlined in his decision at paragraph 34 as follows:

“An estoppel is created against the Company. The estoppel arises because s 128 (1) provides that the Company is not entitled to assert in a proceeding in relation to a dealing that an assumption is incorrect. Thus, between a company and a party to a dealing with the company an incontrovertible set of facts are imposed whether those facts are correct or not. The legal result is to be ascertained from those facts.”

The Court noted the lack of notice provided by the shareholders to the director of the Company of the resolution passed removing him and that for unexplained reasons five weeks after the resolution was passed, the record at ASIC had not been corrected. The Court held that the appointment of the Administrators must be taken as valid because the Company is not entitled to dispute that the director was the sole director validly exercising powers customarily exercised by a director.

Despite the finding by the Court of the validity of the appointment pursuant to section 447C of the Act, the Court also made comment in relation to section 447A of the Act and held that it would have also exercised discretion to validate the Appointment if it was otherwise invalid.

The Court held that the evidence provided to the Court indicated that the Company was insolvent, was no longer trading at the time of the Appointment and that the options to creditors whilst the Company was in administration were broader given the relevant facts.

  1. Costs

Following the decision, the Administrators sought an order that the shareholders of the Company pay the costs of the Administrators for the proceedings on the basis of the shareholders actively opposing the orders sought by the Administrators regarding the validity of the Appointment.

Whilst the Court noted that the Administrators would have had to seek the orders in any event, the conduct of the shareholders in opposing the making of the orders caused significant additional costs for the Administrators. The Court also highlighted the lack of cooperation from the accountants of the Company which was an indication of the attitude of the shareholders to the Appointment.

On the basis that the opposition was unsuccessful in that the shareholders failed to have the appointment held to have been invalid and the additional costs for the creditors of the Company, the shareholders were ordered to pay 50 per cent of the costs of the Administrators.

  1. Application

There are a number of important lessons that can be taken from the decision in the GNC case for directors, shareholders and insolvency practitioners:

  • It is important for directors and shareholders to update the records of ASIC as soon as possible after a change of office holder so that it is public record. The decision also highlights that it is fundamental that notice is provided to any director or secretary upon resolution for removal from position of office holder;
  • The statutory assumptions as outlined under section 128 and 129 of the Act can be relied upon by insolvency practitioners under certain circumstances in relation to dealings with a company;
  • In actively opposing proceedings that would ordinarily have to be made by insolvency practitioners, a party could be liable for costs of the insolvency practitioner if unsuccessful in opposition. This is on the basis that creditors should not be put to extra costs in the event insolvency practitioners have more work to do as a result of opposition to orders being sought from the Court.

JHK Legal is well versed in dealing with all forms of insolvency matters.  We have previously acted on behalf of creditors, shareholders, directors, insolvency practitioners and other professionals involved in the insolvency process. If you have any enquiries or require any assistance with any insolvency matter you may be involved in, please don’t hesitate to contact our office.


Author: Patrick Hanrahan, Legal Practitioner Director

Published: March 2016

Hall v Poolman and the Impact on Liquidators Pursuing Insolvent Trading Claims

Prior to appeal, the decision in Hall and Ors v Poolman and Ors [2007] NSWSC 1330 was cause for concern for liquidators seeking to pursue directors of liquidated companies for insolvent trading and to a lesser extent, preferential payment claims against unsecured creditors; in particular where liquidators had entered into litigation funding agreements to pursue such matters.


The Reynolds Group of companies (“Reynolds”) owned a vineyard and winery near Orange, New South Wales.

In August 2003, the Reynolds Wine Group opted to enter into voluntary administration and then subsequently went into voluntary in November of the same year. At the time of Reyonolds entering into liquidation. Secured creditors were collectively owed approximately $30 million, with unsecured creditors totalling around the $99 million mark with no assets available and limited funds on hand. The pool was so dry that there were insufficient funds to cover the costs of the initial voluntary administration. Suffice to say that there was very minimal chance that a dividend would be paid to creditors nor would there be funds to pay liquidators costs.

The Defendants, Peter Poolman and Malcolm Irving acted as Directors of the company between October 2002 and August 2003.

After conducting further investigations into Reynolds, the liquidators sought to persue the Directors of Reynolds. The liquidators entered sought to proceed with having the directors examined and the proceeding litigation under a litigation funding agreement. Despite taking steps to issue proceedings against the directors of Reynolds in the Supreme Court of NSW, it was still highly unlikely that regardless of a successful outcome for the directors, it was still unlikely creditors would be receiving a dividend, or that if there were a dividend available, it would be minimal. Any funds recovered as a result of the litigation would largely go towards covering the liquidator’s fees.

The liquidators mainly sought to claim the following:

  • Against Mr Poolman and Mr Irving, loss and damage suffered by creditors as a result of Wines and Vineyards trading while insolvent in the Period, pursuant to 588Mof the Corporations Act 2001 (Cth); and
  • Against Mr Poolman, a declaration pursuant to 37A of the Conveyancing Act 1919 (NSW) in respect of the transfer of Mr Poolman’s share in the Fourth Defendant (Kalivise Pty Limited) to the Third Defendant (Constance Poolman) on or about December 2003. The liquidators sought to claim that the alienation was made with the view to defrauding creditors and was as such voidable.

In defence of the Claim, the Defendants sought to argue that under sections 1317S and 1318 of the Act they should not be held liable in circumstances where the majority of the proceeds of the proceedings would go towards the liquidator’s costs and the litigation funders costs. Justice Palmer rejected the argument, however his honour considered that the conduct of the liquidators was such that an inquiry under s536 of the Act was justified.

Notably, his honour stated that the liquidators ought to have known or at least considered what the costs of the proceedings would be and what the potential return to creditors would have been and then subsequently sought directions from the Court under section 511(1)(a) of the Act.

What the decision meant for liquidators:

Whilst the liquidators were successful in some aspects of their pursuit of the Directors; Palmer J’s criticism of the liquidators and the decision to make inquiries into the liquidators conduct under section 536 left the doors open for Defendants to use his honours criticism to threaten liquidators with potential ASIC investigations. As such, this had the potential to leave doubts in the minds of liquidators to pursue insolvent trading claims, and in some instance, preferential/voidable transactions where such proceedings would yield limited benefit to creditors.

The Appeal:

Post Justice Palmers decision, the liquidators felt that his Honour was incorrect in his criticism and sought leave to appeal the decision to the NSW Court of Appeal regarding the section 536 inquiry[1].

The liquidators appealed on a number of grounds including that Justice Palmer did not apply a proper interpretation of s536 of the Act and failed to properly exercise his discretion under that section.

The appeal was heard before Chief Justice Spigelman, Justice of Appeal Hodgson and Justice Austin, who in summary determined the following:

  1. Palmer J did not give enough importance to the question of overall public interest in pursuing insolvent trading claims;
  2. The Court of Appeal thought that the fact Palmer J indicated that the liquidators ought to have sought directions from the Court before entering into a litigation funding agreement was irrelevant;
  3. Liquidators may bring proceedings (even with the assistance of a litigation funding agreement);
  4. The liquidators incurred costs in the preliminary stages of their investigations, including holding creditors meetings; and
  5. There were still prospective benefits of pursuing their claims for insolvent trading against the directors, which of course, would incur further costs[2];

However, the Court also noted that despite the above points, there are still some provisions liquidators need to follow before pursuing including:  the pre-litigation costs must have been either necessary or reasonably considered to be justified because of the prospective benefits to creditors;  the litigation costs themselves must have been reasonably incurred and proportionate to the prospective benefits (including not only possible direct benefits to creditors but also the benefits derived through the reimbursement of the liquidator’s fees and expenses); and the litigation funding agreement must not be on manifestly unreasonable terms[3].

Most notably, the Court of Appeal determined that the anticipated or potential lack of dividend for creditors is not sole relevant factor that a liquidator needs to consider when deciding whether or not to bring issue proceedings , but rather, it is the anticipated total recovery for creditors that is the more important factor[4].

The Court also noted that there is a public benefit to pursuing insolvent trading claims, given insolvent trading is offence under the Act, and that should threats and implications of improper behaviour be hanging over liquidators, they may be inclined to avoid preliminary investigations[5].


After the decision of the NSW Court of Appeal, Liquidators can feel safer knowing that it is a lot more difficult for potential Defendants to throw threats of ASIC investigations at them in light of the original Hall & Poolman decision. As mentioned above, although liquidators ought to exercise care when deciding to pursue insolvent trading and preferential payment claims where there is limited prospect of a dividend to creditors coming to fruition (particularly proceedings that may be supported by a litigation funding agreement); ultimately the public benefit and the potential whole benefit to creditors will allow to liquidators to pursue investigations into the behaviour of directors.


Author: Dylan Trickey, Lawyer

Published: March 2016


[1]Hall v Poolman [2009] NSWCA 64

[2] Ibid at 150

[3] Ibid at 151

[4] Ibid at 117

[5] Ibid at 153