PPSR – Time may be running out to extend your registration.

PPSR – Time may be running out to extend your registration.

The Personal Property Securities Register (PPSR) commenced operation on 31 January 2012.

The default registration period starts at 7 years or less, and is the cheapest option when registering a security interest on the PPSR.   What this means is that 7-year registrations will begin to expire from January 2019.  If you were one of the early birds and ensured you had registrations from the commencement of the PPSR, then your PPSR registrations could be due to expire from January 2019.

What happens if I don’t extend my registration

Failure to extend a registration (that is still required to secure personal property) could result in a loss of priority to later security interests.  This is because expired or lapsed PPSR registrations cannot be renewed.  If a registration lapses then a new registration will be required in order to protect the interest in the personal property.  However:

  • the new registration may not have the same priority as the previous registration; and
  • if the grantor of the security interest is a company, then in the event that the grantor company becomes insolvent within 6 months of the new registration, this new registration may vest in the company and the security holder will lose their security interest.

How can I make sure my PPSR registration continues to protect my security

A PPSR registration may be extended, provided that the extension occurs prior to expiry or lapsing of the PPSR registration.  You can undertake a free search using the PPSR search tool to determine if your PPSR registrations are due to expire in 2019 and need to be extended.  This search tool is available from https://www.ppsr.gov.au/registrations-due-expire-report.  This will identify those security interests due to expire from January 2019.  You can then decide whether those registrations require extension or may be due to be discharged.

What can JHK Legal do to help

At JHK Legal we can:

  • assist you in undertaking the necessary searches to determine whether you have any registrations which are due to expire in 2019; and
  • assist you in amending your PPSR registrations as necessary, including extending any registrations which are due to expire.

JHK Legal can also assist you with:

  • registering new security interests
  • providing you with advice in respect of your existing securities, to determine if they are adequate
  • reviewing your terms of trade or other documents relating to the goods and services you provide in your business, to work out if you are able to register security interests (you may not realise you have invalid registrations).

Please contact one of our friendly commercial lawyers to discuss how we may help you.

Senior Associate, Alison De Marco LLM, Acc. Spec. (Bus.) – Qld

DOWNLOAD THIS ARTICLE

 

1 January 2019 is coming – Employers Casual Conversion Obligations

What is casual conversion

Casual conversion occurs when a casual employee, who meets certain criteria, may request a permanent position (either full time or part time) after a certain period of being employed in their casual position.

Who does it affect?

Casual employees employed under a Modern Award and their employers.  This includes casual employees employed by labour hire employers.  From 1 October 2018 a model “conversion term” has been included in Modern Awards.  If your casual employee is covered by one of the Modern Awards then the casual conversion clause will apply to that employee.  Most employees are likely to be covered by a Modern Award.

The clause does not mean that employers must offer permanent employment to eligible casual employees; rather it has the result of giving eligible employees the right to request conversion to permanent employment.

Not all employees entitled to request casual conversion will do so however if they do then employers must comply with their obligations in respect of casual conversion.

How does it work?

The casual conversion clause sets out the steps which must be taken by both employer and employee in respect of casual conversion however in summary:

  • To request casual conversion:
  • the employee must have worked for the employer for a period of 12 months or more (in most cases); and
  • the employee must, over the preceding 12 month period, have worked a pattern of hours on an ongoing basis, which they could continue to perform as a full time or part time employee, without significant adjustment.
  • Employees engaged for short periods and/or who work irregular shifts or hours will not meet the criteria to convert.
  • The right to request conversion is a continually exercisable right while an employee has worked the relevant pattern of hours “in the preceding 12 month period”, which means if a casual employee’s hours become regular for the required period before the request then they have acquired the right to request conversion.
  • A request for casual conversion by the employee to the employer must be in writing.
  • Employers can reject a request, provided that there has been consultation with the employee and there are reasonable grounds to do so based on facts which are known or reasonably foreseeable (for example, where the casual employee’s position could cease or the hours could significantly change).
  • An employer’s refusal must be put in writing with the reasons set out clearly.
  • If the employee seeks to challenge the employer’s refusal, then this will be resolved through the dispute resolution provision of the Award.
  • If a request is granted, it:
  • must be discussed and recorded in writing; and
  • will begin at the commencement of the next pay cycle.

What Do I have to do?

If you are an employer and have casual employees covered by a Modern Award then:

  • you must give all casual employees (not just regular casual employees) a copy of the conversion clause (which applies to their particular Award as there are some differences) within the first 12 months of their first engagement; and
  • for casual employees already employed as at 1 October 2018, employers must provide them with a copy of the conversion clause by 1 January 2019.

Failure of an employer to comply with the obligation to provide the conversion clause to their casual employees is a breach of the Fair Work Act.

Some of the Modern Awards with casual conversion clauses which have widespread coverage include:

  • Banking, Finance and Insurance Award 2010
  • Cleaning Services Award 2010
  • Clerks – Private Sector Award 2010
  • Fast Food Industry Award 2010
  • General Retail Industry Award 2010
  • Professional Employees Award 2010
  • Restaurant Industry Award 2010
  • Security Services Industry Award 2010
  • Storage Services and Wholesale Award 2010

How can JHK Legal help?

JHK Legal can help by:

  • advising you on the requisite conversion clause applicable to your casual employees
  • reviewing your employment agreements to ensure they are compliant – and for new casual employees include the required casual conversion clause
  • assisting you in reviewing any requests for casual conversion from employees and advising you on your obligations and rights as an employer
  • preparing compliant documentation to record any causal conversion matters in accordance with the requirements of the Awards (there are slight differences in the obligations in some of the Awards) including preparing responses and conversion documentation
  • assisting you generally with your employment matters.

Senior Associate, Alison De Marco LLM, Acc. Spec. (Bus.) – Qld

DOWNLOAD THIS ARTICLE

 

STOP! Don’t sign your Contract for Sale of Real Estate before having it Reviewed by a Properly Qualified Lawyer

It is common practice for real estate agents to negotiate between parties looking to buy and sell property.

As a result, most people are unaware of the importance of having a properly qualified lawyer review a draft contract of sale and provide advice in relation to the terms of the contract before it is signed by the parties.

Commonly, a real estate agent will obtain a buyer’s signature on a contract and submit it to the seller. By doing so the buyer makes an “offer” to the seller. The seller accepts the “offer” by countersigning the document and a legally binding contract is formed. Often, it is only at this point that the parties obtain independent legal advice in respect to the transaction.

Contract terms

Real estate contracts establish the property to be transferred, the financial obligations of the parties and outline the timing and key terms of the transaction.

Great care must be taken in the drafting of contract terms to ensure the terms have the intended effect.

Special conditions

It is not uncommon for parties to have specific and individual requirements when buying or selling property. A standard contract of sale is not tailored to reflect the specific requirements or circumstances of the parties (or the property) and special conditions are often required to reflect this.

It is extremely important to ensure all special conditions are properly drafted. It is quite common for ambiguous and poorly drafted special conditions to make their way into contract documents. An inadequate special condition may lead to confusion, disputes between the parties and possibly even litigation.

Examples of special conditions often included in contracts are:

  • purchase of property subject to the buyer’s sale of existing home
  • seller renting back the property from the buyer for a period of time
  • seller being required to undertake repairs or remove items from the property before completion.

Failure to adequately draft special conditions could result in disappointment for the parties to the contract.  Unless properly drafted, an incomplete special condition will not delay settlement – and the disappointed party may be put to unnecessary or fruitless expense in trying to pursue the other party after the main transaction (the purchase or sale of the house) is finalised.

Don’t Forget:  After the parties become legally bound to the contract, any changes to the contract’s terms need to be agreed by BOTH parties.  It’s not easy to fix a deficient contract after the fact, therefore obtaining advice before you sign is extremely important.

Deposits and Instalment contracts

In Queensland, it is standard practice for a deposit to be paid in two instalments. However, the total deposit paid must not exceed 10 percent of the purchase price for an existing lot (or 20 percent for an off the plan lot).

If the total monies paid to the seller before settlement exceeds the prescribed amount an instalment contract may automatically arise (even if the parties did not intend to create one).

Instalment contracts are governed by different laws and significantly change the relationship between the buyer and seller. They can severely impact a seller’s right to terminate a contract (even if the buyer defaults), restrict the seller’s right to deal with the property and effect the timing of payment of transfer duty (and have many other consequences).

Instalment contracts may also arise with respect to clauses providing for non-refundable deposits or the early release of deposits to the seller before settlement. Accordingly, legal advice should always be obtained before including these clauses in a contract.

Examples of situations where MKP Property Lawyers has been able to assist sellers and buyers

  • MKP drafted special conditions on behalf of a buyer to ensure that large items of rubbish on the property were removed prior to completion.  If the seller failed to comply by settlement, the buyer was able to delay settlement or have a reduction in the purchase price to allow for the removal of the rubbish.

It may come as a surprise that, without the special condition, in most cases a buyer would not be able to require the seller to remove the rubbish prior to settlement or delay settlement until this was done – unfortunately, the standard form contract of sale in Queensland does not allow for this.

  • MKP prepared a special condition for a seller who only wanted to sell their property if their purchase contract settled at the same time.  MKP was able to draft suitable conditions that made the sale of the seller’s property subject to the simultaneous settlement of their new property purchase.
  • The standard REIQ contract places the responsibility of risk on the buyer.  For example, if a storm damages the property prior to settlement the buyer is responsible for the repairs.  This is why the buyer must take out insurance over the property by the first business day after the contract date. However, in some circumstances this may not be suitable (for example if there is an unusually long settlement period and the buyer would incur significant costs insuring a property that the seller was still living in). MKP has assisted many buyers in preparing special conditions to address this issue.

How we can help

Many people find the process of buying and selling property one of the most stressful experiences in their lives.

To ensure the process is as straightforward (and stress free) as possible, MKP highly recommend you engage an experienced property lawyer at the outset of the transaction.  The experienced people at MKP can advise you of your rights and obligations under the proposed contract, assist you to negotiate and achieve your desired results and help you to eliminate any foreseeable and unnecessary issues. After all, it is best to avoid problems altogether rather than attempt to “fix” them later.

Zoe Marsh – Senior Lawyer

DOWNLOAD THIS ARTICLE

No difference between liquidation and administration when it comes to distribution of trust funds

JHK Legal has acted in the recent WA Federal Court case of Ross & ors v Manpak Holdings Pty Ltd, in the matter of Manpak Holdings Pty Ltd [2018] FCA 1548 where Justice McKerracher has applied the decision in Killarnee regarding the distribution of pooled trust assets, and confirmed that there is no difference between assets of a company in liquidation and assets held by the administrators of a company subject to a DOCA with respect to the rules of distribution.

Background

Manpack Holdings carried on the business of a product wholesaler, in its capacity as trustee of a trust. During the company’s administration, some of the credit applications received from creditors had however been executed by the company without reference to its role as trustee of the trust. As a result, some of the assets and liabilities had been acquired in the company’s role as trustee of the trust, and others in its own right.

The company was placed into voluntary administration, through which a Deed of Company Arrangement was executed by resolution of the creditors. The company was vacated of its office as trustee upon the appointment of the administrators, making the administrators bare trustees of the trust.

The company entered into a business sale agreement in its own capacity and in its capacity as trustee of the trust, which provided for consideration in a monetary amount, as well as the assumption of various liabilities (including employee and certain secured creditor debts).

The external administrators sought declarations from the Court validating the sale of the business, and sought directions with respect to the distribution of the proceeds for the benefit of creditors.

Manpak followed reasoning in Killarnee

The Federal Court in Manpak first confirmed as settled law that the right of indemnity and its equitable lien in support of that right are ‘property of the company’ within the meaning of section 9 of the Corporations Act 2001 (Cth) (“the Act”). It also outlined that giving the fact the Act does not empower liquidators to sell trust property, liquidators ought to seek orders from the Court regarding any proposed sale of trust property.[1]

McKerracher J in Manpak also confirmed that this ‘property’, being the right of indemnity, may only be used to satisfy debts incurred by the trustee in administering the trust. As a result, the trustee may only apply trust assets to extinguish debts of creditors of the trust, and not the company in its own capacity.

The Court finally considered the practical implications of Killarnee as being, relevantly, that once trust assets are realised, liquidators may distribute the proceeds of the sale pursuant to the priority regime under the Act. It then clarified that in circumstances where a company has acted in both its capacity as trustee and in its own right, liquidators must deal with creditors of each body separately, including by applying the assets of each body to its respective creditors.

McKerracher J found that the reasoning in Killarnee was not “couched in the confined language of liquidations”, rather having consideration of the insolvency regime generally. On this basis, he found no “appreciable difference” between administration and liquidation of a company for the purpose of the distribution of trust assets to creditors, and therefore, Killarnee should be followed.

The decisions in Killarnee, as followed in Manpak, provide guidance as to how external administrators, not just liquidators, are to deal with assets held on trust and how proceeds of such assets may be utilised.

The law seems to be settled for now….until the High Court says otherwise.

[1] Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) 354 ALR 436[79], [82] and [210]

Chiara Becattini – Associate

DOWNLOAD THIS ARTICLE

Tips, tricks and traps of debt recovery litigation

As an unfortunate bi-product of a tough economy, debtor delinquency is on the rise. While sometimes an unavoidable aspect of doing business, an outstanding invoice or neglectful debtor can cause unnecessary stress to any business.

While any number of debt disputes may be sorted with a friendly reminder email or call, an increasing proportion of overdue accounts are finding their way in to some form of debt collection or recovery proceeding.

Although debt collection proceedings can be relatively quick and simple to resolve, it is a common misconception that all debtor disputes will resolve this way.

Debt disputes have an inherent ability to become protracted, laborious and costly if not approached correctly. However, there are a number of steps that can be undertaken before and during litigation that can greatly assist with your prospects of recoverability if litigation is instigated. t’s fairly common in real estate contracts to see the deposit broken down into two components, an initial deposit on signing (or within a couple of business days of signing) and then the balance deposit on the satisfaction of finance, other conditions precedent, or just simply later in the contract negotiations.  The standard form contracts in Queensland contain a condition that allows for the Vendor to claim the balance deposit as a part of its damages in the event that a Buyer defaults on the contract terms.

THE TIPS

Written Contracts & Agreements

It should go without saying, but a timely reminder is always good to remember to confirm your dealings in writing.

Recovery litigation may be made all the more difficult where there is no enforceable contract between the parties, or the terms of the agreement are ambiguous.

A written record of the terms of your agreement clearly setting out the rights and responsibilities of the contracting parties and should be considered critical in all business dealings. A contract will often make it easier to prove and enforce the terms of your contract in a dispute should your matter progress to litigation.

Terms of a contract should ideally be drafted to suit an individual business’s needs.

There are a number of basic clauses that should definitely be included in your contractual terms. These basic terms include (but are not limited to) the following:

  • A definition of the goods/services to be provided;
  • Price, invoicing and payment;
  • Default or payment failure;
  • Guarantees and warranties;
  • Defect liabilities;
  • Variations;
  • Interest; and
  • Dispute resolution.

This is of course by no means an exhaustive list of the terms that should be incorporated. However, the above is a good selection of terms that should in all situations be incorporated in to your contract.

Personal & Directors Guarantees

A personal guarantee is a written promise to guarantee the liability of one party for the debts of another party. Commonly, personal guarantees are given by directors and shareholders of companies to personally guarantee the payment of money or obligations on behalf of their company.

A personal guarantee can be unsecured (general and not attached to an asset) or secured (attached to an asset, i.e. security over land). Importantly, a guarantee may be worded to include sundry items such as collection costs, legal fees, interest and other items.

When drafted and used properly, the use of a personal or directors guarantee allows the corporate veil to be pierced and the director of a company to be pursued for the debts of the company.

When effective, a personal or directors guarantee will provide greater opportunity for recovery and recourse in the event of a payment default or dispute.

The use and effective drafting of a personal guarantee is a subject well covered. Please click here to read on for “everything a small business needs to know about personal guarantees”:

http://www.jhklegal.com.au/everything-a-small-business-needs-to-know-about-personal-guarantees/

Execution

Equally as important to having a well drafted contract and guarantee is ensuring it is properly executed. Taking steps to ensure you are having your contract executed by the correct party is vital.

In all circumstances, the execution of a contract should be done by a company’s director and should co-signed or witnessed appropriately. Your contracts should be executed in accordance with the requirements of section 127 of the Corporations Act 2001 (Cth) being by:

  • 2 directors of the company; or
  • A director and a company secretary; or
  • If a sole director, who is also the sole secretary, by that director.

If you are unsure you are dealing with a company’s director, a search of the public register of the Australian Securities Investments Commission is a relatively simple and inexpensive coverall.

Ensuring your contract is properly executed is a good step in demonstrating the binding intentions of the parties to enter into contractual relations, and a properly executed contract will often be the key piece of evidence in any debt recovery litigation.

THE TRICKS

File noting & supporting evidence

When talking to the customer about an outstanding debt, a key tip is to take careful notes of any discussion. Your notes should include:

  • The date and time;
  • The customer’s name (who you spoke to); and
  • What was discussed (including details of any payment arrangements agreed).

It is best practice to then follow up the discussion with an email to confirm your understanding. Notes and emails of this nature are contemporaneous file notes and are extremely useful to instruct your solicitor and to be annexed to any future affidavits as evidence.

THE TRAPS

Instructions

Timely and relevant communication is key to any litigation. Costs can quickly blow out on any matter where there are lengthy telephone discussions and or correspondence between you and your solicitor. Debt collection litigation is stressful and often there is a long period of time between filing your claim and your day in Court.

However, your litigation can become difficult where your solicitor has difficulty in obtaining instructions from you, or is forced to consider lengthy correspondence sifting through irrelevant material. Be prepared to provide instructions on the critical details, these include:

  • Dates and times of events;
  • The details of conversations had;
  • Attempts to resolve the matter previously; and
  • Periods of delay.

Before you contemplate litigation, you should consider building a timeline of the events of your dispute with supporting documentation (if available). Having a comprehensive timeline of key events is great starting point for any litigation and will:

  • Assist to refresh your memory as to the pertinent details of any dispute;
  • Will provide your solicitor with a good working narrative of the dispute; and
  • Is a useful document to refer to throughout the litigation and build on for any affidavits.
  • Can save you time and costs.

CONCLUSION

Debt recovery litigation can be an effective means of recovering your debts due and payable.

The cost, duration and difficulty of your matter can be greatly minimised by taking active and effective steps before a dispute arises! For example, making sure you have enforceable terms, and an executed contract or agreement.

Being proactive is often the key to a dispute! The creation and maintenance of documentary evidence can have a vast impact on the prospects of the recovery of your debt, and also assist in reducing your overall legal costs.

If you have a delinquent debtor or are considering debt recovery litigation for the recovery of a debt owed to your business, please contact the team at JHK for a chat today.

Kate Witt – Lawyer

DOWNLOAD THIS ARTICLE

Building licences and insolvency – will I lose my licence?

My company has gone into liquidation/I have just got bankrupt and I hold the QBCC licence – HELP!”

We often receive emails like one of the above.

A common situation is a creditor has been trying to wind up a company after non-compliance with a statutory demand, the company has ended up in liquidation, the director held the Queensland Building and Construction Commission (“QBCC”) licence and then a letter arrives from the QBCC advising that the director’s licence has been cancelled and he or she has been excluded from holding a QBCC Contractor or Nominee supervisor license or from being in a position of influence or control for a QBCC-licenced company.

We at JHK Legal appreciate that the above situation is stressful and without proper advice items such as the above can slip through the cracks.

What does it all mean, you ask?

What does it mean to be an excluded individual or company?

Generally, a person is an ‘excluded individual’ under the Queensland Building and Construction Commission Act 1991 (Qld) if they are a director, secretary or influential person for a construction company within the period of two years before the company appoints a provisional liquidator, liquidator, administrator or controller or is wound up or ordered to be wound up for the benefit of a creditor.

A person will also be considered an ‘excluded individual’ if they become bankrupt or takes advantage of bankruptcy laws by entering into a Part IX or Part X agreement under the Bankruptcy Act 1966 (Cth).

The period of exclusion to apply for another licence is 5 years from the date of the insolvency event that occurs prior to 1 July 2015 and 3 years from 1 July 2015 onwards. If a person is involved in 2 separate insolvency events then they may face a life exclusion (there are a number of scenarios that may not result in life exclusion, including when a person becomes bankrupt as a result of company insolvency or two related entities go into liquidation).

Note: if you are an excluded individual not only can you not hold a Contractor or Nominee Supervisor licence during the exclusion period but you also cannot run a QBCC licensed company or be in partnership with a QBCC licensee.

Exclusions can also affect other companies as a company becomes an excluded company if an excluded individual is a director, secretary or influential person for the company. The effect of this is that the excluded company will be unable to reapply for another licence until the exclusion period ends unless the excluded individual stops being a director, secretary or influential person.

Note that for post 1 July 2015 insolvency events, a failed company will only lead to exclusion if the company was a construction company (directly or indirectly carried out building work or building work services within 2 years of the insolvency event).

Influential person

In the company sphere, an influential person is someone that is not a director or secretary of a company but they are in a position to control or substantially influence the company’s conduct.

In our experience, the QBCC takes a wide view of who may be considered an influential person and as such we stress that you contact our office for advice if you are faced with this situation.

How can you minimise the risk of losing a licence?

Careful consideration is required when setting up companies and talking through the worst case scenarios with your trusted advisors is necessary to try to minimise risk.

Can you appeal a QBCC decision?

You can appeal a QBCC decision made under section 56AF or 56AG of the QBCC Act that a person is an excluded individual or excluded company or an individual is still a director or secretary of, or an influential of a company. An internal review with the QBCC or Queensland Civil and Administrative Appeal (QCAT) must occur within 28 days. We often suggest both is necessary, on the basis that you do not miss the time frame for QCAT should the outcome of the internal QBCC appeal process is found not to be in your favour.

Are you in a similar situation as that outlined above? Please give Alicia Auden or Michelle Kelly of our Brisbane office a call on 07 3859 4500 for a confidential conversation.

Alicia Auden – Legal Practitioner Director

DOWNLOAD THIS ARTICLE

Thinking of selling your business – Think again.

You’ve worked hard, built up your business, and now you are thinking of selling your business and moving on.  Before you do, it pays to consider whether or not you and your business are in a position to sell.

There are a number of steps you should consider before thinking of selling your business and in this article, we are covering a few of the main ones.

  1. Talk to your accountant or business advisor

There are a number of factors that you should discuss with your accountant or business advisor:

  • Is this it the right time to sell?  Have you considered capital gains tax implications, transition to retirement issues, structuring and your general tax affairs?  Signing the contract to sell your business is significant and could cost you thousands of dollars in unnecessary tax. Talk to your accountant first before jumping in to signing that great deal which is presented to you.  It may not be all that great in the end if you have not considered these issues first.
  • Are there any personal loans to the business which need to be considered or dealt with?
  • What is your business worth?  It is worth getting your accountant to go through the exercise of a book valuation to give you a starting point.  You may have structured your business affairs to take advantage of tax minimisation strategies but these don’t’ necessarily translate into value when you have a look at what the business is actually worth.  You may find you need some time to structure things differently so that you can get the most value out of your business when you ultimately sell.
  1. Housekeeping

One of the things an incoming buyer is likely to require is to look over the books and accounts of the business to confirm the performance of the business (and its value).  Ask yourself:

  • Do you know where all of the documents for the business are?
  • Do you hold formal agreements for your contracts with suppliers or customers or are you relying on a handshake?  If you do have contracts, are they assignable and will the buyer of the business be entitled to take over those contracts when you transfer the business to them?
  • Is your lease up to date?  Have you considered the conditions and timing of any assignment of the lease – this may be significant when you consider what ultimate terms you may agree to in the business sale agreement.
  • What are the assets of the business?  Who needs to be a party to the business sale agreement in order to transfer the assets of the business to your buyer?  Many people fail to realise that they have structured their business in such a way that some of the assets may be held personally or in an entity which is different to that which owns the business.  Accordingly, understanding what you are selling and who is able t sell it is important.
  1. Consider Employees and employee entitlements

If you have been running your business for some time, you may have some long term employees.  Those employees may have significant employee entitlements which may need to be dealt with at the point of sale.  There are different issues to consider whether the employees are staying with the business or being made redundant.  Significantly, long service leave, annual leave and sick leave entitlements for each employee need to be known and understood so that you can properly consider the cost of selling your business (you may find yourself making employees redundant and having to pay out these entitlements and possibly redundancy pay if the employee is not transferring with the business).  Equally, even if the employee is transferring with the business, there will be some adjustment of these figures at the time of sale.  This is one of the most overlooked aspects of a business sale but should one of the more important aspects of the business when you are considering whether to sell your business.

  1. Who owns what

Do you own all the aspects of y our business or are you relying on licences or other agreements to operate your business with certain assets?  You can’t sell what you don’t own (you can try but we wouldn’t recommend it).  Do an asset audit, find out if there are assets which need to be dealt with differently, for example:

  • If you operate under your company name, but you are not selling the shares in your company but the business only, will you need to arrange to change the name of your company so that the buyer of your business can register and use your name as a company or business name?
  • Do you operate under someone else’s name (perhaps your business is a franchised business) in which case, you will need to consider the terms of your franchise agreement as part of your business sale strategy?  In some cases, your franchise agreement may require you to offer the business for sale to the franchisor first.
  • Are any of your assets affected by business finance?  Have you considered whether you will be in a position to pay out any finance on those assets at settlement of your business sale.
  1. Clean up your backyard

If your business operates out of leased premises, have you considered the following?

  • What the landlord’s requirements may be to transfer the lease?
  • Does the lease contain a first right of refusal for the landlord to purchase the business?
  • Have you even got a lease?  Your lease term may have expired and you may be occupying your premises under a “holding over” arrangement.  While your landlord may be happy to keep renting to you (he or she knows you after all) they may have other plans for the property which you may be unaware.  Understanding whether your landlord will grant you a new lease or will grant the new owner of the business is very important.
  • Is everything documented with respect to the occupation of your premises?  Sometimes the landlord “lets you park your car in the laneway” but such a right is not documented anywhere.  That right may be important to an incoming buyer of the business, and if you can you should consider whether theses unwritten agreements with your landlord should be documented.

If the location of your business is important to its value, then tidying up the lease is an important thing to do before selling your business. It can also take the most time so consider doing it early as part of your preparations for sale.  You can always include such requirements int eh business sale agreement, but only if you know about them, so turning your mind to them sooner rather than later will be to your advantage.

Conclusion

Selling your business can be an exciting experience, but if you aren’t in the best position to sell then you may find yourself having more stress and worry than you need, and unexpected items could cost you time and money as well as your buyer.  The above list is not exhaustive, and as each business is different, the issues that will affect your business sale may be particular to you (and may not be on this list).

At JHK Legal our team has years of experience in undertaking business sales and we can help you figure out the answers to the above questions in respect of your proposed business sale.   If you are thinking of selling your business then you should give us a call first, we would be happy to make the sale of your business as stress free as possible.

Written by Alison De Marco, Senior Associate

DOWNLOAD THIS ARTICLE

Balancing Interests of Creditors v Public Interest Considerations – Eco Heat (Vic) Pty Ltd v the Syndicate Forty Four Pty Ltd (Subject to Deed of Company Arrangement) & Ors

Earlier this year JHK Legal acted on behalf of Deed Administrators (“the Administrators”)  involved in Supreme Court of Victoria proceedings whereby a disgruntled creditor sought to have a Deed of Company Arrangement (“DOCA”) set aside and a syndicate group of companies (which comprised the 38 Defendants in the matter) wound up.

The Deed Administrators remained neutral in the matter, however sought to appear to ensure their appointment as liquidators in the event the Defendants were wound up by the Court. Ultimately, the evidence presented at trial by one of the Administrators proved highly valuable in the Courts decision.

The case provides not only an interesting facts scenario, but the Judgment of His Honour Justice Sifris provides a solid commentary on what factors the Court may place importance on when determining whether a DOCA be set aside.

Background:

In October of 2016, our clients were appointed the Administrators of the 38 named Defendants, forming the Syndicate group of companies (“the Syndicate Companies”).

The Syndicate Companies provided credit finance to fund the purchase of used motor vehicles in Queensland.

The Syndicate Companies sourced the funds for the loans from investors who were mostly clients of the Director’s accounting firm. Funds totalling $250,000.00 collected from investors would be pooled to bank roll the loans, with 80% of the funding to be provided by investors and the remaining 20% to be provided by a related company. In consideration of their investment, investors were allocated shares in the relevant Syndicate Company they invested in.

Once a Syndicate Company had reached the required $250,000.00 investment, the company would be closed and a new Syndicate Company was established to receive further investments to fund the next tranche of loans. Investors were promised that they would receive their capital investment back within approximately 1 ½ years (66-78 weeks as per the letter of offer provided to investors).

The Administrators circulated their report in November 2016 pursuant to section 439A of the Corporations Act 2001 (Cth) (“the Act”). In their report, the Administrators provided a clear recommendation that the creditors resolve to wind up the Syndicate Companies.

The creditors ultimately voted (overwhelmingly) in favour of the DOCA despite the Administrators recommendation. The Plaintiff voted against the DOCA. It is at this time worthwhile noting that the Plaintiff had previously issued Supreme Court proceedings against the Syndicate Companies in 2014 seeking repayment of its principle investment and interest it was owed by the Syndicate Companies. The Syndicate Companies were placed into administration approximately a week before the matter was to proceed to trial and the proceedings were stayed.

Administrators Recommendation:

His Honour provides a detailed rundown of the report issued by the Administrators’, however the key reasons behind the Administrators’ recommendations were as follows[1]:

  1. Legal action against the Syndicate Companies which was on foot at the date of the Administrators appointment may have potentially been recommenced and the stay on proceedings against the Syndicate Companies would end once the Deed was executed. As such, the Administrators were of the view that the sum of $218,000.00 that was paid to the Court by the Syndicate Companies may be lost in a DOCA, but may have been recoverable in a liquidation scenario;
  2. Based on its investigation into the affairs of the Syndicate Companies and actions of the directors during the course of the administration, the Administrators had concerns that the businesses operated either as a Ponzi Scheme or an Unregistered Managed Investment Scheme (“MIS”) or both;
  3. The Administrators had doubts as to the viability of the business and the ability of the proposed Unit Trust to be created under the DOCA to generate profits in the future; and
  4. Apart from “potential future profits”, the DOCA did not provide any surplus funds to those that would be recovered in a liquidation scenario. It was the belief of the Administrator that the cost of continuing to trade the proposed Unit Trust would dissipate any funds from the collection of the car loan ledger.

Key portions of the Administrators report can be found at paragraphs 15 to 21 of His Honours Judgment.

The Plaintiff’s Claim:

The Plaintiff issued proceedings to have the DOCA set aside in February of 2017, on the basis that the DOCA was contrary to the interests of creditors as a whole, and contrary to the public interest and commercial morality.

The Plaintiff sought to terminate the DOCA pursuant to s445D of the Act on the grounds that:

  1. The DOCA did not propose to provide any funds surplus to the funds that would have been recovered in the event the Syndicate Companies were wound up and the assets realised by a liquidator;
  2. The likely costs of continuing to trade will dissipate any funds from the collection of the car loan ledger;
  3. Returning the Syndicate Companies to the control of the directors would have likely caused them to experience the same difficulties they experienced before the commencement of the administration;
  4. The creditors would be deprived of the benefit of an independent investigation of the conduct of the directors and potential recoveries from them whether for insolvent trading or otherwise;
  5. It was contrary to public policy and commercial morality to return the Syndicate Companies to the control of the director on the basis that he had:
  • allegedly operated the business as a form of Ponzi Scheme;
  • repeatedly promised returns that were unrealistic and unattainable;
  • promised interest rates of between 20%-50% per annum, which went unpaid to investors for the most part;
  • failed to operate the business in a manner represented to investors;
  • failed to maintain adequate books and records;
  • mixed the funds of the Syndicate Companies without keeping adequate records;
  • operated the business as an unregistered managed investment scheme;
  • continually set up new companies and invited investment into them when it was clear that the business model was failing;
  • lost approximately $15 million of investors’ funds, most of which was sought and obtained by the Director from superannuation funds even though the Director knew that much of it would never be repaid;
  • improperly resisted the inspection of the books and records of the Syndicate Companies by their members and investors; and
  • improperly caused the Syndicate Companies to defend the Supreme Court proceedings mentioned above when there was no proper basis to do so.

Defence:

Despite the extensive claims raised by the Plaintiff in the proceedings, the Defendant sought to deny every allegation on the basis that creditors of the Syndicate Companies were likely to obtain a substantially greater benefit under a DOCA as opposed to a liquidation scenario.

In support of this, the Defendant sought to rely on affidavit evidence provided by a number of creditors deposing, inter alia, that they understood the better return to creditors would be available under a DOCA scenario, and that despite the advice of the Administrators, opted to rely on the view of the Director that a DOCA was in their best interests.

Two such creditors provided oral evidence at the trial essentially reconfirming the position held by a number of creditors. However, under examination and cross examination it is interesting to note that both witnesses provided evidence to the effect that they were long-time friends/associates with the Director, and despite the obvious failings of the Syndicate Companies, they wholeheartedly trusted the Director to give them good advice despite the Administrators’ clear recommendations.

Decision:

His Honour determined that the DOCA ought to be set aside and the Syndicate Companies be wound up based on the evidence provided at hearing. The Administrators were appointed as liquidators and the Plaintiff’s costs were also ordered to be paid as a priority from the proceeds of the liquidation.

His Honour noted as a general proposition, if a return under a DOCA is not insubstantial or token, and the public interest and commercial morality issues are unlikely to translate into a cause of action realistically worth investigating, this may tip the scale in favour of retaining a DOCA. On the other hand, if a DOCA return is nominal or token, and there may be causes of action that could result in a greater return, these ought to be investigated and the DOCA set aside[2].

His Honour throughout his judgment commented that he was of the view that the anticipated returns to creditors under the DOCA were overstated. His Honour went as far as saying the anticipated returns were “…..extravagant, unsubstantiated and entirely misleading”[3] and the figures provided by the Director were “….nonsense, nonsensical and troublesome”[4].

His Honour was largely uninterested in the prospect of the creditors of the Syndicate Companies receiving something under a DOICA as opposed to potentially nothing in a liquidation given the returns under a DOCA were negligible in comparison to the extravagant returns promised to investors[5].

Generally speaking, His Honour was rather scathing of the Director’s conduct in his judgment (see paragraph 77). His Honour was of the opinion there needed to be an investigation and examination of the Syndicate Companies and that there was sufficient basis for the Administrators’ opinion that there were grounds that the Syndicate Companies were both potentially a Ponzi scheme and that they were operating as a MIS[6]. Importantly, His Honour determined that in the circumstances presented by this case, what went wrong and why were important issues affecting the public, public policy, regulation, commercial morality, and the investors despite their position; and that the loss of the right to investigate is very important in the circumstances[7].

Ultimately, whilst the interests of creditors versus commercial morality and public interests will be a subjective determination by the Courts, His Honour’s decision in this matter demonstrates that where conduct of a company and its directors warrants a public examination/further investigation by liquidators, the public interest aspect of s445D of the Act will outweigh a meagre return to creditors under a DOCA. This however will be balanced against the likelihood any adverse actions by the directors would result in a cause of action.

This matter presented a relatively unique set of circumstances, however, in our view the decision demonstrates the public interest and commercial morality element of s445D of the Act is a very real consideration for the Courts and not something that is simply paid lip service when considered  against the interests of creditors. The decision demonstrates that a party should not assume a Court will deem a DOCA to be appropriate purely on the basis that it presents some form of return to creditors, and that any indication of suspected cause of action against directors may prompt the Court to take a harder look at the value of a DOCA.

[1] Eco Heat (Vic) Pty Ltd v the Syndicate Forty Four Pty Ltd (Subject to Deed of Company Arrangement) & Ors [2018] VSC 156 at 16

[2] Ibid at para 57

[3] Ibid at para 58

[4] Ibid at para 60

[5] Ibid at para 67

[6] Ibid at para 66

[7] Ibid at para 76

The above article is not intended to be a substitute for legal advice.

Dylan Trickey, Solicitor

DOWNLOAD THIS ARTICLE

Property Transactions – New GST Withholding Rules

On 1 July 2018, the Australian Taxation Office (“ATO”) introduced new GST withholding rules for certain property transactions, to deal with the significant loss of revenue that had occurred as a result “phoenix activities” in which GST was collected by some sellers from buyers in property transactions but was not remitted to the ATO.

So, whom does it affect?

The new GST rules are applicable to settlements occurring from 1 July 2018 and apply to buyers and sellers of property transactions relating to the following residential land:

– “Potential residential land” – being land permissible for residential purposes but not yet containing buildings of a residential nature. But does not apply to properties used for commercial purposes; and
– “New residential premises” – being new residential premises that have not previously been sold as residential premises or premises which result from the construction of a new building to replace a demolished building on the same land. But does not apply to commercial residential premises or those that have been substantially renovated.

Importantly, the new rules do not affect contracts entered into before 1 July 2018, unless settlement of the contract takes place on or after 1 July 2020.

An exception also exists in circumstances where the buyer is registered for GST and acquires the property for a ‘”creditable purpose”.

How does it work?

All sellers of residential property or residential land are required to give specific notice to buyers as to whether the purchase of the property is subject to GST withholding.

If GST withholding does not apply, then sellers are merely required to notify buyers of that fact.

However, if the purchase is subject to GST withholding then the seller is required to provide the buyer with written notice of:

– the seller’s name and ABN;
– the amount to be withheld by the buyer; and
– when the buyer is required to pay the withheld amount.

How much GST is required to be withheld?

The amount of GST to be withheld will ordinarily be 1/11th of the contract price. Alternatively, it will be 7% of the contract price in circumstances where the parties have agreed that a margin scheme applies.

What are the penalties for non-compliance?

Strict liability penalties for non-compliance with the new rules exist for both buyers and sellers.

Sellers are required to identify if GST will need to be withheld and if so to give notice to buyers. Failure of a seller to provide notification to a buyer regarding GST withholding can result in penalties of up to $105,000 for companies and up to $21,000 for individuals.

Buyers are required to the withheld GST to the ATO on or before settlement. Failure of a buyer to withhold the GST and to pay the ATO the amount the buyer was supposed to withhold can result in an administrative penalty equal to 100% of the amount that should have been withheld.

Credits for GST withholding tax

Sellers may be entitled to include the GST in their BAS and to receive a credit for the GST that has been withheld.

However, the credit is only available in circumstances where the buyer has actually paid the withheld amount to the ATO.

Therefore, given the GST withholding requirements now provide for the GST liability to be at settlement and that sellers will not be provided with the credit until their BAS is lodged, from a commercial perspective it is important for sellers to effectively manage their cash flow.

Sellers should also give consideration to protecting themselves against buyers failing to remit the withheld GST to the ATO as required.

How can we help?

Contracts of sale in all states and territories need to be updated to incorporate the new GST withholding and notification obligations. Given the strict penalties that apply for non-compliance it is important for both buyers and sellers to seek independent legal and/or taxation advice before entering into a contract.

If you need any assistance on property transactions and your legal obligations, please do not hesitate to contact JHK Legal’s property arm MKP Property Lawyers on 1300 695 397.

The above article is not intended to be a substitute for legal advice.

Michelle Kelly, Associate

DOWNLOAD THIS ARTICLE

Personal Privacy Rights in the Application Generation

In the age of third party Application Programming Interfaces (“APIs”) such as internet banking applications, Facebook and Google Maps, the collection and distribution of personal data is shrouded in mystery. Unless of course you take the time to read the masses of information included in privacy policies. With recent media surrounding the issue it is clear that a large portion of the public may not be educated about the applications and the businesses behind them can collect and/or disclose their information.

What are the privacy rights under the law?

The Privacy Act 1988 (Cth) (“the Privacy Act”), and the 13 Australian Privacy Principles (“APP”) contained within it, are the relevant guidelines for privacy in Australia.

Definition of an APP Entity

These 13 principles are applicable to “APP entities”. An APP entity encompasses:

  • a Commonwealth Government agency; or
  • an organisation (including an individual, body corporate, partnership, unincorporated association,
    or trust).[i]

An APP entity does not include:

  • a State or Territory authority
  • small business operators, which are business with an annual turnover of $3 million or less. Unless the following exceptions apply:
    – The business provides a health service to another individual and holds any health information except in an employee record;
    – The business discloses personal information about another individual for a benefit, service or advantage, or provides a benefit, service or advantage to collect personal information;
    – The business is a contracted service provider for a Commonwealth contract; or
    – The business is a credit reporting body.[ii]

The Privacy Principles[iii]

The Principles as a whole are wide-ranging and cover a whole array of issues. However, the Principles specifically relevant to how your information may be collected and distributed and include:

APP 3:  Collection of solicited personal information

An APP entity must not collect personal information (other than sensitive information) unless the information is reasonably necessary for, or directly related to, one or more of the APP sentity’s functions or activities. Sensitive information must not be collected unless there is consent or the information is reasonably necessary for the APP entity’s functions. Sensitive information can include, but is not limited to:

  • racial or ethnic origin;
  • religious beliefs;
  • membership of a union;
  • criminal record; and
  • health information.

APP 6: Use or disclosure of personal information

An APP entity cannot disclose the information for a purpose (other than the purpose it was collected for), unless there is consent or one of the following applies:

  • there is a reasonable expectation that the APP entity would use or disclose the information; or
  • the use or disclosure is required or authorised by or under an Australian law or a court/tribunal; or
  • a permitted general situation exists. Examples of this include:
    – Lessening or preventing a serious threat to the life health or safety of an individual;
    – The establishment, exercise or defence of a legal or equitable claim; or
    – The purposes of a confidential alternative dispute resolution.
  • a permitted health situation exists. Examples of this include:
    – Providing a health service
    – Research relevant to public health or safety
    – Preventing a serious threat to the life, health or safety of the individual or an individual who is a genetic relative.

APP 7: Direct marketing

An organisation must not use or disclose personal information for the purpose of direct marketing. Exceptions to this include:

  • a reasonable expectation that the organisation would use or disclose the information for direct marketing; or
  • a simple means by which the individual may easily request not to receive direct marketing communications is provided; or
  • consent has been provided.

Sensitive information has more stringent requirements allowing for consent to be the only exception to the disclosure of sensitive information for the purposes of direct marketing.

What amounts to a breach of privacy?

If the business or organisation you are dealing with falls into the category of an APP entity, and collects, uses or discloses your information in a way that is conflicting with the Principles (and no relevant exception applies), this may amount to a breach.[iv]

Taking applications for example, you will commonly find the privacy policies and relevant information being grouped together. This is referred to as bundled consent, or a “click-wrap”. It is a common practice amongst software licenses and online transactions. The potential issue of a “click-wrap” is the effect it has on consent.

There is an argument that being unable to use a service until a “click-wrap” is accepted, or an inability to withhold consent on specific terms may have an influence on whether informed consent was provided.

The penalties for breaching the Privacy Act can amount to $1.8 million for corporate bodies or $360,000 for non-corporate bodies (including government departments/agencies, sole-traders, partnerships, trusts, unincorporated associations).

What can I do if I believe my privacy has been compromised?

If you believe that your privacy has been breached under the Act, you are an APP entity that might be in breach of the Principles, or would like further information, please contact your local JHK Legal office.

The above article is not intended to be a substitute for legal advice.

DOWNLOAD THIS ARTICLE

 

[i] Section 6 of the Privacy Act 1988 (Cth).

[ii] Ibid.

[iii] Schedule 1 of the Privacy Act 1988 (Cth).

[iv] Section 6A of the Privacy Act 1988 (Cth).