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Public examinations: a weapon for liquidators

Public examinations: a weapon for liquidators

Public examinations provide a powerful tool for liquidators to obtain information and establish facts about matters regarding a company’s affairs, history and management.

The key provisions are set out in Sections 596A and 596B of the Corporations Act 2001 (Cth) (Act) and provide liquidators with the power to examine company officers or other parties, which have been involved with the affairs of the company.

Types of Examination

There are two different types of examinations a liquidator can apply for, being:

  1. Mandatory examinations under section 596A of the Act; or
  2. Discretionary examinations under section 596B of the Act.

Generally, liquidators have a right to examine current or former officers or provisional liquidators of a company in relation to that company’s examinable affairs under the mandatory examination provisions. If the liquidator meets the requirements under these provisions, then the court has no discretion and must issue the summons for examination. A mandatory examination must, however, be issued to serve any purpose that will benefit the company, its creditors, its members or the public generally.[1] In any case, the court will not permit the examination to proceed if it is evident that it is an abuse of process to do so.

On the other hand, discretionary examinations provide a mechanism for liquidators to examine a person, beyond an “officer” of the company, if that person is able to give information in relation to the company’s examinable affairs. The court has wide discretion to issue a summons under the discretionary examination provisions, and must be satisfied that the person:

  1. has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or
  2. may be able to give information about examinable affairs of the corporation.[2]

An application for a discretionary examination should be accompanied by an affidavit in support of the application.[3] The affidavit should identify the reason the examination is sought and why the proposed examinee should be examined. The affidavit in support can be filed as a confidential affidavit that is not available for inspection by the proposed examinee unless the court orders otherwise.[4]

Questioning

An examination is generally an inquisitorial or investigative exercise and therefore the scope of questioning can be potentially broad. Although the examination must relate to the company’s examinable affairs, the examiner may be permitted by the Court to ask questions about the company and its examinable affairs as it see’s fit.

Questions in relation to the company’s “examinable affairs” may include:

  1. the promotion, formation, management, administration or winding up of the corporation; or
  2. any other affairs of the corporation (including anything that is included in the corporation’s affairs because of section 53); or
  3. the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation’s examinable affairs because of paragraph (1) or (2).[5]

An examinee generally cannot refuse to answer questions even if it may incriminate the person or make them liable to a penalty. The purpose of this rule is due to the fact that in some cases public examination is the only way a liquidator may be able to obtain information about the events leading to the failure of the company.

However, an examinee may claim privilege over some answers. In this case, a liquidator cannot use these answers as evidence to prosecute the examinee.[6]

A Balancing Act

The Courts have identified that examinations are an important tool for liquidators to gather information which would not generally be available. However, the provisions confer broad powers on liquidators and it is important that liquidators ensure that examinations are conducted for a proper purpose, particularly considering the powers provided under section 596B of the Act. If the examinations are being conducted for an improper purpose, it may be considered an abuse of process and the examinee may be able to apply to the Court to have the orders for examination set aside. Rule 11.5(2) of the Federal Court (Corporations) Rules 2000 allows a person served with an examination summons, within 3 days, to make an application to the Court for it to be set aside.[7]

In deciding whether the orders for examination should be set aside, the Courts will ensure that an examinee is not oppressed by the procedure or unfairly disadvantaged.

In the matter of Queensland Nickel Pty Ltd (In Liq) v Parbery, in his capacity as Liquidator of Queensland Nickel Pty Ltd (In Liq) [2016] FCA 1048 ((Queensland Nickel) the court considered an application to set aside aspects of the examination summons on several bases, including an application that it was unconstitutional. It was found that the power conferred under the mandatory and discretionary provisions make it clear that the examination process falls under the direct supervision of the Court to ensure the process is not abused or conducted oppressively.[8] This was also examined in Saraceni v Jones [2012] WASCA 59; [2012] HCA 38, which was confirmed in Queensland Nickel. The conferral of the power for examinations was not regarded to be unconstitutional and the examination summons in this case were not set aside.

It is important to note that to set aside an examination summons, an applicant must clearly demonstrate that the examinations are not for a proper purpose. Therefore, liquidators should ensure that there are reasonable grounds for the belief the person they wish to examine may be capable of giving information about the company’s affairs or may be guilty of misconduct. liquidators should be cautious when considering the parties it wishes to examine and be mindful to ensure the rights of the party are not oppressed by the procedure.

How can we help you

If you are a liquidator seeking advice on examinations or have any questions please contact us on 02 8239 9600 or email [email protected] to discuss how we may be able to assist you.

Written by Kristina Ghobar,
Associate

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[1] Kimberley Diamonds Ltd, in the matter of Kimberley Diamond Company Pty Ltd (in liq) [2016] FCA 1016

[2] Section 596B(1)(b) of the Act.

[3] Section 596C of the Act.

[4] Section 596C of the Act.

[5] Section 9 of the Act.

[6] Section 597(12A) of the Act.

[7] Rule 11.5(2) of the Federal Court (Corporations) Rules 2000.

[8] Queensland Nickel Pty Ltd (In Liq) v Parbery, in his capacity as Liquidator of Queensland Nickel Pty Ltd (In Liq) [2016] FCA 1048 at 44

Tips on the intersection of the Privacy Act and the Spam Act with Direct Marketing

1. The Privacy Act and Direct Marketing

Pursuant to the Privacy Act 1988 (Cth) (“the Privacy Act”), an entity to which the Australian Privacy Principles apply is known as an APP. If it discloses, or collects, personal information about another individual for a benefit, service or advantage then it will be considered an APP.

 What is direct marketing?

The term ‘direct marketing’ refers to the promotion of goods and/or services, by way of communication sent directly to an individual through the use of disclosed, personal information.

Personal information is described as any information which identifies or could reasonably identify a person.

Some common examples of where an organisation and/or its agents may use personal information for the purposes of direct marketing include; sending special offers addressed personally to the individual at their residential address or targeted advertising on online platforms, such as Facebook or Google using information of the individual.

When is direct marketing allowed?

Whether or not you are permitted to use direct marketing will be dependent on the type of communication you intend to use and your organisation type.

For example, telemarketing companies must ensure they comply with the Do Not Call Register Act 2006 (Cth) (DNCRA), by not contacting (by phone of fax) any numbers on the Do Not Call Register, noting that some exemptions do apply.

Organisations which transmit communication or messages by way of email or SMS, of a commercial nature, must ensure they are complying with the Spam Act, compliance with which is explored in this article.

When is APP 7 triggered?

In the event neither the Spam Act, nor the DNCRA apply, organisations must ensure that they comply with APP 7.

APP 7 will apply to:

  • all businesses and not-for profit organisations with an annual turnover of more than $3 million;
  • small businesses which buy or sell personal information; and
  • any direct marketing communication not covered by the Spam Act or the DNCRA.

Accordingly, APP 7 will commonly be triggered in the following circumstances:

  • any direct marketing calls or faxes when transmitted to numbers not on the DNCR or where the call or fax is transmitted by a registered charity
  • any direct marketing sent by post
  • any door-to-door direct marketing
  • targeted marketing online where personal information is used or disclosed

Compliance with APP 7

APP 7 places restrictions on the circumstances in which you may use or disclose personal information of an individual for the purposes of direct marketing.

Where an organisation intends to use “sensitive” personal information of an individual, i.e. information about their health, political opinions, ethnic origin or sexual orientation, for the purposes of direct marketing, the individual must have provided the organisation with consent to do so.

In using or disclosing personal information of an individual, an organisation will comply with APP 7 in the context of direct marketing if:

  • The organisation collected the information directly form the individual and the individual would reasonably expect the use or disclosure of their personal information for the purposes of direct marketing;
  • The organisation received consent of the individual to use or disclose their personal information for the purposes of direct marketing;
  • It was impractical for the organisation to obtain consent of the individual to use or disclose their personal information for the purposes of direct marketing.

In participating in direct marketing, an organisation must do all of the following in order to be compliant with APP 7:

  • Provide a simple opting out method
  • Upon the request of the individual, cease the use and disclosure of the individual’s personal information
  • Upon the request of the individual and within a reasonable time, inform them of where you obtained their personal information

NB: where there is a reference to reasonable time, this will generally mean no more than 30 days.

Requirements for facilitating direct marketing

APP 7 will also apply to any organisation or entity that collects personal information to facilitate direct marketing by other organisations. That is, any organisation or entity that collects personal information of an individual and provides that personal information to other organisations or entities, must comply with APP 7.

Importantly, these types of organisations or entities facilitating direct marketing must cease to do so upon the request of the individual.

2. Legal ramifications for using customer details from competitor’s websites, with respect to Privacy Act

You need to ensure the entity that owns the website is operating in compliance with the Privacy Act and their own privacy policy.

This can safely be assumed where you are taking information from a website which has a specific privacy policy published on the website.

If there isn’t a published privacy policy you are at risk of breaching the Privacy Act by using any data from that website.

The APP does not prohibit entities from using publicly available information, however the entity is required to comply with APP 7, and specifically, the requirement for the individual’s consent to use or disclose the personal information.

3. Corporate and individual penalties for a breach of the Privacy Act

Following recent amendments to the Privacy Act, penalties for all entities covered by the Privacy Act will increase to, the higher of either:

  • $10 million; or
  • three times the value of the benefit obtained by the entity directly linked to the misuse of information; or
  • 10% of a company’s annual domestic turnover.

In relation to any failure to resolve minor breaches, individuals may face infringements of up to $12,600, and up to $63,000 for body corporates.

Where a dispute is settled between the parties, no fines are imposed against the breaching entity.

4. Legal ramifications of a breach under the Spam Act 2003 (Cth) (“the Spam Act”)

The operation of the Spam Act is triggered where an entity sends an electronic message to an electronic address or where an entity has engaged a third party to send on its behalf, on or more of the following, for the purposes of conveying an offer to supply, provide, advertise or solicitor goods and/or service:

  • An email; or
  • An SMS; or
  • An MMS; or
  • An instant message.

To ensure that you are not in breach of the Spam Act, we recommend contacting the marketing company which sold the customer list for the purposes of ensuring that the list has been legally obtained and that the entities on the list have provided consent with respect to receiving electronically transmitted messages.

Pursuant to the Spam Act, prior to sending the electronic message, you must ensure that:

  • You have permission or consent (can be express or implied) from the recipient to transmit the message;
  • The messages contain the name and contact details of the entity that authorised the transmission of the message; and
  • An avenue, which is clearly visible, for the recipient to withdraw its permission or consent by way of an “unsubscribe” or “opt out” function.

Contact details

You must ensure that in each electronically transmitted message, your contact details are provided. Contact details may include, an address, email address and contact number.

These contact details must be current for at least thirty (30) days following the transmission of the electronic message.

Avenue to “unsubscribe” or “opt-out”

With respect to the “unsubscribe” or “opt-out” avenue, in accordance with the Spam Act, you must have:

  • instructions on the face of the electronic message which are visible and clear for the recipient of the message;
  • a process which is either free or low cost to the recipient;
  • a process which is functional for at least thirty (30) days; and
  • the request to “unsubscribe” or “opt out” must be actioned within five business days.

6. Review of current Privacy Policy

We suggest that you contact us to review your current privacy policy to ensure it is up to date and that it adequately takes into account the requirements of the Spam Act.

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Written by Rod Lindquist,
Consultant

 

 

 

 

 

 

Michell v Onroad Offroad Pty Ltd [2018]: A Case Study

Under Section 5(1)(a) the Limitation of Actions Act 19578 (Vic) (“the Act”) a party is barred from bringing an action in contract, including contract implied in law, more than six years after the date on which the cause of action arose.

A cause of action for breach of contract arises at the date on which a party to a contract commits the breach. By way of example:

  1. A and B enter into a contract (“the Contract”);
  2. B breaches the Contract on 20 November 2019 (“Breach Date”);
  3. A’s cause of action arises on the Breach Date; and
  4. A’s entitlement to bring an action against B for the breach terminates on 20 November 2025, exactly six years after the Breach Date.

The restriction imposed by Section 5(1)(a) is, in most cases, fatal to the claim of a potential litigant seeking to bring an action after the limitation period has elapsed. Using the above example, A would be barred from bringing an action against B as of 21 November 2025.

An exception to the restriction imposed by Section 5(1)(a) is contained in Section 24(3)(b) of the Act which states as follows:

“Where any right of action has accrued to recover any debt or other liquidated pecuniary claim or any claim to the personal estate of a deceased person or to any share or interest therein and the person liable or accountable therefore acknowledges the claim or makes any payment in respect thereof – the right shall be deemed to have accrued on and not before the date of the acknowledgement or the last payment”

To illustrate, if B breaches their contract with A on 20 November 2019,  but, in acknowledgment of their debt to A, makes a part payment to B on 20 November 2022, A’s cause of action will arise on the date of that payment and their entitlement to bring an action against B will then expire on 20 November 2028.

In Stephen John Michell v Onroad Offroad Pty Ltd [2018] VSC 648 (“Michell v Onroad”), Justice Digby of the Victorian Supreme Court provides important guidance on the circumstances in which a party is entitled to rely on this exception.

Facts

  1. Hill was the sole director of Onroad Offroad Pty Ltd (“Onroad”) in the period from 1998 to 2014.
  2. Hill was declared bankrupt in 2014 and Michell was appointed as her trustee in bankruptcy.
  3. Michell alleged, based on his review of Onroad’s books and records, that on or about 17 June 1998 Hill made a loan to Onroad of approximately $1,292,005.88.
  4. Michell commenced proceedings against the Company in 2017 seeking to recover the Loan funds.
  5. Michell was unable to adduce any documentary evidence of the Loan, however he argued that an agreement should be inferred from Onroad’s books and records.

Limitation Defence   

As part of its defence, Onroad argued:

  1. Michell’s cause of action arose on the date of the Loan; and
  2. Michell was barred by Section 5(1)(a) as almost 19 years had elapsed since that date.

Michell sought to rely on Section 24(3)(b) and to that end, adduced evidence of payments made by Onroad to Hill in 2013. Michell argued that:

  1. the payments were loan repayments;
  2. the payments were an admission that the Loan was due and payable to Hill by Onroad;
  3. his cause of action arose in 2013, not 1998 as a result of the alleged loan repayments; and
  4. he was entitled to bring proceedings in 2017, as only four years had elapsed since his cause of action arose.

Decision

Justice Digby rejected Michell’s argument with respect to Section 24(3)(b) and offered the following commentary:

  1. to trigger the operation of Section 24(3)(b), a Plaintiff must “establish a causal link between the payments and the alleged debt”;
  2. it was insufficient for Michell to merely identify payments made by Onroad to Hill and assert that these were tantamount to an admission;
  3. Michell was required to establish that the payments were specifically and/or identifiably made by Onroad in respect to, and in reduction of the Loan, only then would they be construed as admissions for the purposes of the Act; and
  4. Michell was unable to establish that the payments were made specifically for that purpose; as such, his action was barred as of 17 June 2004.

Discussion

The implications of this case are clear with respect to Section 24(3)(b); it is insufficient for a party to rely on mere inference, rather, they must be able to clearly establish that payment from a debtor is made in connection with and in reduction of the debt the subject of the dispute.

Written by Joshua Flory 

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NSW Security of Payment reforms – what you need to know

The New South Wales government has announced the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) (the Amendment Act) commenced on 21 October 2019.

The Amendment Act only applies to construction contracts entered into after the commencement date.

The amendments are broad and include the following significant reforms:

  1. The ‘reference date’ concept has been abolished:

The most significant amendment has been the simplification of the progress payment and payment claim provisions through the removal of the ‘reference date’ concept which was previously used to determine the date on and from which a claimant could claim a progress payment.

A claimant is now entitled by default to serve a payment claim on and from the last day of each month in which they first commenced construction work or supplied related goods and services, with each subsequent payment claim being able to be served on and from the last day of each subsequent month. The amendment serves to prevent respondents from delaying a progress payment by providing for a different regime of reference dates under their contracts.

If, however, a construction contract expressly provides a payment claim can be served on an earlier date in any particular month, then the claimant may serve the payment claim on and from that date.

  1. Payment claims after termination

If a construction contract is terminated, the Amendment Act now provides a claimant with a statutory entitlement to serve a payment claim on and from the date of termination of the construction contract.

  1. The re-introduction of endorsement

Importantly, the Amendment Act once again requires claimants to endorse payment claims expressly stating they are made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

  1. The reduction in the due date for payment to subcontractors

Under the Amendment Act, the maximum payment period by which a head contractor must make a progress payment to a subcontractor has been shortened from 30 business days to 20 business days.

There is no reduction to the time for payment of 15 business days from a principal to a head contractor.

  1. The ability to withdraw an adjudication application:

A claimant is now able to withdraw an adjudication application at any time after its lodgement, but before the appointment of an adjudicator.

If a claimant seeks to withdraw an adjudication application after lodgement and after an adjudicator has been appointed, a claimant will not be able to withdraw its application in circumstances in which the respondent objects to the withdrawal and the adjudicator considers it to be in the interests of justice to uphold the objection and proceed with the determination of the adjudication application.

  1. An adjudication determination may be partly severed

Historically, the Supreme Court of NSW held an adjudicator’s determination was wholly invalidated if a jurisdictional error had been made by the adjudicator.

The Amendment Act now provides the Supreme Court of NSW with new powers enabling it to sever and set aside any part of an adjudication determination which it deems to have been affected by jurisdictional error. The amendment ensures the enforceability of an adjudication determination is not affected in its entirety and removes the incentive for minor jurisdictional errors to be challenged in an attempt to set aside an entire adjudication determination.

  1. Corporations in liquidation

Consistent with recent case law, the Amendment Act now prohibits a claimant corporation in liquidation from taking steps to recover payments under the Act. The Amendment is a policy consideration to prevent a respondent which has made a payment to a claimant in liquidation under the Act from not being able to recover the payment on the basis it has formed part of the liquidation distribution pool for all creditors of the claimant.

How we can help you

JHK Legal can provide expert advice with regards to the above topics. If Kathleen’s article may be relevant to your circumstances and you would like further information, please call us on
02 8239 9600 to discuss how we may be able to assist.

Written by Kathleen Faulkner

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Employment Law Litigation – I have received a Fair Work Claim, what do I do?

While the scope of this article focuses on unfair dismissal claims in the Fair Work Commission (the Commission), it is important that employers and employees take legal advice regarding the issues discussed within this article.

In particular, employers should always consider their legal position including their rights and obligations under the Fair Work Act carefully before dismissing employees given the adverse consequences for employees, as well as the time and cost involved in any prospective litigation.

Scenario

It is a Friday afternoon, you are looking forward to kicking back and heading home for the weekend to see your family and friends.

It’s been a tough week, and amongst other things, you were, as a manager in the team, asked or had to dismiss an employee for serious misconduct at a work function earlier in the week.

While it was a tough conversation to have, you and your boss thought you had dealt with it appropriately and that the employee understood the position and where you were coming from.

You haven’t thought about it again, and then you receive an email from the Commission attaching a legal notice that requires you to respond to the notice which contains lots of information that you do not understand, within a very short time frame.

This scenario happens every day in business to employers and also employees (who have to take those steps where they feel they have been wrongfully dismissed). You should not rest on your laurels and or consider that this is something that will “blow over” or “go-away”.

It should be given the respect it deserves, and early intervention is key so that your legal rights are not prejudiced.

Early intervention also opens up the opportunity for the dispute to be resolved sooner rather than it becoming protracted, and more complicated.

So, what should you do? The short answer is to call an employment lawyer straight away.

Was the employee dismissed?

Under the Fair Work Act, an employee will have the right to lodge an unfair dismissal application to the Commission if he or she was dismissed from their position.

The merits of that application are decided at a later date.

The term “dismissal” means a person’s employment has been terminated at the employer’s initiative.

Importantly, “dismissal” does not (without limitation) mean a voluntary resignation, or a demotion (unless there has been a significant reduction in duties or remuneration), or employees who are on a contract for a specified time or task.[1]

Another important initial consideration is whether the employer has been correctly named on any notices from the Commission. Any claim must name the employer against who the claim is made and not some other entity.

In large businesses, sometimes the corporate structures are so large and complex, that identifying the employing entity is difficult. In those circumstances sometimes the wrong entity maybe named. If that is the case, then that fact ought to be noted.

Time limitations for lodging unfair dismissal claims with the Commission

Under the Fair Work Act, any unfair dismissal application must be lodged with the Commission within 21 days after the dismissal takes effect.

Importantly, the 21-day time limitation does not take into account the day the dismissal took effect. An employee or an employer should note the exact date that the employee’s dismissal took effect with this in mind.

Time limitations for responding to an application with the Commission

Under the Fair Work Commission Rules 2013, an employer must then lodge a response to the application (together with any supporting documents) within 7 calendar days after the employer was served. This is a short timeframe to prepare a response, which means seeking advice as soon as possible after being served with an application is important.

If I am an employer, how do I respond, what do I write, what should I do?

The employer’s response needs to be carefully considered. Each case and the merits of the claims and or allegation will be different depending on the facts. In short, there is no “one size fits all” approach that can be utilised.

For example, as an employer, you may have terminated an employee as a result of a genuine redundancy or restructure rather than performance issues, but the employee’s perspective may be that the termination was not a genuine redundancy.

If the employee’s position is found to have been terminated as a result of a genuine redundancy based on the facts at hand, then the employee’s application will not be successful.

Further, depending on the allegations in the application, the employer may also have to conduct further internal investigations to ascertain the truth or otherwise of the allegations being raised.

As such, given the tight turnaround in responding, as an employer, you will need to give your urgent attention to considering what allegations are being made, and more importantly, what your legal position and response is to those allegations are or will be.

What happens next?

After the response is lodged with the Commission, the Commission will usually schedule a conciliation conference where the employer and employee are requested to both try to resolve the dispute.

The conciliation conference is conducted by trained Commission staff called “conciliators”. Conciliators help the parties reach a resolution, assist in narrowing the issues in dispute between the parties.

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Conclusion

Sadly, but sometimes inevitably, employee and employer relationships will breakdown irretrievably during the employment relationship.

The breakdown in the employer/employee relationship will often lead to conflict with allegations being made about each party which then lead to one party asserting their legal rights over the other (for example by dismissing an employee, and or by the employee lodging a Fair Work application and seeking monetary or reinstatement relief).

Other times, it may come as a complete surprise even if it seems as though an employee who has been dismissed properly understands that they have been dismissed for genuine reasons (as noted in the scenario above).

While all employers and employees should strive to resolve any disputes without first reaching for the levers of the unfair dismissal regime, often it is the only way to resolve disputes.

There are also important cost and commercial considerations for employers resolving employment disputes early given the Commission is a “no cost” jurisdiction.

Accordingly, if you have received an unfair dismissal claim, or any other notice from the Commission or you have been dismissed from your employment and you believe that you may have a claim, you should seek independent legal advice and or contact JHK Legal for legal advice about your position.

Specific time limitations apply in responding to either being dismissed, or being served with an application and if you do not consider the application, or seek advice immediately, you could be inadvertently prejudicing your position.

JHK Legal have an experienced litigation and employment law team that pride themselves on accuracy and being up to date with the latest decisions. If you need assistance with an Unfair dismissal matter or an employment law matter generally, please contact our office on 07 3859 4500 or visit our Website HERE.

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Written by Daniel Johnston

[1] While there are exceptions, they are limited and specific, and therefore we will not consider them in detail in this article.

Liquidators’ struggle to get their remuneration approved is confirmed once again

Practitioners’ remuneration has been under extensive scrutiny by courts, and liquidators continue to struggle to get their remuneration approved without having to adduce extensive evidence of the necessity of the work conducted and the reasonableness of their remuneration.

In recent years there has been much focus on insolvency practitioners’ fees, including whether the tasks conducted by those practitioners and the professional (lawyers and barristers) engaged are necessary and appropriate in the circumstances.

In 2017, the NSW Supreme Court in Re Sakr Nominees Pty Limited [2017] NSWSC 668 considered the evidence given by the liquidator, and noted that although such evidence at first instance ‘provided assistance in determining the amounts claimed by [the liquidator] and how they were made up’, however they provided ‘little basis for determining whether they were reasonably incurred, and, in particular, why the liquidation of a relatively small company which held three properties had resulted in claims for remuneration by [the liquidator] in the order of $260,000’. Ultimately, the liquidator adduced further and satisfactory evidence and the Court made the orders sought.

Again, earlier this year, the Federal Court of Australia delivered a judgment in Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) (No 2) [2019] FCA 93 (“Cedenco”) where it clearly stated that although there is no strict rule in respect of the evidence to be adduced in support of the remuneration, sufficient information must be provided so that the Court can discharge its statutory function of determining liquidators’ remuneration.

In Cedenco, the Court held that, although the remuneration reports produced by the insolvency practitioners were based on the form recommended in the ARITA Code of Professional Practice, such reports were deficient in that, amongst other things, the description of the work undertaken was at such a ‘high level of generality that creditors could not make an assessment of whether the remuneration claimed was reasonable’.

In Cedenco, not only was the amount of remuneration claimed by the liquidators challenged, but the nature of the work being conducted was also scrutinised. Indeed, the Court considered expert evidence from a senior insolvency practitioner about whether the work for which remuneration was claimed would have been undertaken by reference to a standard of a “competent and prudent insolvency practitioner’, and eventually held that it wasn’t, and reduced the liquidators’ remuneration accordingly.

The Cedenco judgement arose in circumstances where the practitioners’ remuneration was under direct attack by ASIC. However, even where there is not necessarily a dispute about remuneration, courts have taken a very strict approach when it comes to approving insolvency practitioners’ remuneration.

The courts’ strict approach has recently been confirmed once again by the Federal Court of Australia in Sprowles, in the matter of Triumph N Triumph Pty Ltd (in liq) [2019] FCA 1461 (“Triumph”), where the liquidator has “attempted” to have his remuneration approved in respect of the sale of the real property owned by the insolvent company in its capacity as trustee of a trust.

Given the clear view of the courts as expressed in numerous judgments in the past few years, the fact that Justice Yates in Triumph has not made orders in respect of the liquidator’s remuneration and has in fact requested more details of the work involved in the sale of the property is all but surprising.

In these premises, evidence to be adduced by insolvency practitioners when seeking remuneration’s approval ought to include:

  1. An itemised account showing details of the work done, the person who completed the work, the time taken and the total amount claimed for each item of work, as it is not the court’s role to review schedules of work-in-progress without such details being provided;
  2. An explanation as to why the work was necessary in the circumstances;
  3. An explanation as to why it was appropriate to use several staff members, by reference to their level of seniority;
  4. If a particular issue required substantial investigation, an explanation as to the additional time required and details of the complexity;
  5. Details in relation to the value and nature of the company’s property and the work involved to finalise the sale of such property.

Given the increased tendency of courts to extensively scrutinise insolvency practitioners’ remuneration and the increasingly active role of ASIC in investigating and intervening in proceedings where insolvency practitioners’ remuneration is in issue, we recommend liquidators be prepared and ready to adduce satisfactory supporting evidence when seeking orders in respect of their remuneration.

Our suggestion is always to first attempt to obtain creditors’ approval, as court applications can be costly and time consuming.

If you are an insolvency practitioner seeking advice on your remuneration, or a creditor who is concerned about the remuneration being claimed by an insolvency practitioner, we can assist.

Written by Chiara Becattini 

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Aggregation of duty and estate planning

A recent decision of the Queensland Supreme Court has relevance to duty considerations for estate planning.

In Queensland, the assets of a deceased person are subject to potential family provision application claims.  The result of any such claim is that the Court is able to reallocate and redistribute the assets of a deceased having regard to the needs of those with standing under the Succession Act 1981 (Qld) regardless of the terms of any will of the deceased.

One way to have some certainty in the context of estate planning is to dispose of assets prior to death, know as inter vivos dispositions.

An example of where an inter vivos disposition can be useful would be a father concerned about one child making a family provision application claim following his death in circumstances where he did not intend to make any gift to that child.  To remove the potential for dispute, the father could elect to transfer property to his other children prior to his death.  Once he was to die, the transferred assets would be beyond challenge of any family provision application claim.

In the above example, if the property transferred was land, the transfers would usually be subject to duty.  Assuming that the transfers were effected as gifts and without other consideration, the dutiable value on which duty would be assessed would be the unencumbered value of the land at the time of the transfer based on the usual duty rates.

The two transfers would usually be assessed for duty separately unless they were to become subject to aggregation under s 30 of the Duties Act 2001 (Qld).  Under that provision, transactions which “together form, evidence, give effect to or arise from what is, substantially 1 arrangement” are assessed together, usually at a higher rate of duty.

In 2014, Office of State Revenue, on reassessment of duty on certain transactions, took the view that gifts in circumstances like the example above ought have been aggregated due to:

  • the relationship of the transferee, being family members;
  • the timing of the transactions, having occurred at the same time;
  • the location of the property, being adjoining land.

Office of State Revenue’s position was the polar opposite of the generally accepted position that inter vivos dispositions of that type ought not be aggregated when the transactions were brought to duty for assessment unless there was some “unity of purpose” by the transferees (e.g. the transferees intended to use the land together).

The position has now been clarified by Bowskill J in Wakefield & Ors v Commissioner of State Revenue [2019] QSC 85 (4 April 2019), who has confirmed that the relevant transactions ought not have been aggregated.  His reasoning included:

  • Logic that, “.. if the transfers to the family members had instead been made to … strangers, on the same day, … there would be no question of s 30 applying;
  • An acceptance of Office of State Revenue previously published “long standing principle … that taxpayers in similar circumstances are treated consistently and equitably regardless of how transactions may be structured or documented or the number or type of properties involved”.

That is, whilst the family relationship between the parties was a factor to be considered for aggregation purposes, it was not, of itself, definitive.  The decision is welcomed as it provides a consistent approach for inter vivos disposition for estate planning purposes.

It ought be noted that, in addition to duty, inter vivos dispositions can also result in taxation consequences and can also effect pensions and other government entitlements.  Accordingly, inter vivos dispositions require careful consideration and financial planning.

How we can help you

JHK Legal’s commercial team can provide business and commercial structuring and estate planning advice to ensure that your business, asset holding and testamentary intentions are met.   If you consider this advice relevant to your circumstances, please call us on 07 3859 4500 to discuss how we may be able to assist.

Written by Niall Powell, Special Counsel.

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What is probate and when is it needed in Queensland?

As Benjamin Franklin wrote in 1789, “nothing can be said to be certain except death and taxes”.

We’ve come a long way since then and with some more positive certainties in life; happiness, love and Netflix were just a few that sprung to mind.

Unfortunately Mr Franklin’s famous saying still prevails today and at some point during our lives we all experience the loss of a loved one. It is always a difficult time when we lose someone close to us and if you are a named executor in your loved one’s Will or if your loved one has died without a Will it can also be a confusing time to understand what needs to happen with the deceased’s property and what even is probate?

What is a Grant of Probate?

A grant of probate is the Supreme Court’s recognition that a will is legally valid. If there is no will, or the executors named in the will are unable to act, the Supreme Court can grant letters of administration to personal representatives to deal with the estate of the deceased person.

Probate provides the personal representatives with protection to deal with the deceased’s assets. It also provides protection to third parties so they know they are dealing with the correct personal representative of the estate.

There are 3 types of probate that can be applied for in Queensland:

  1. Grant of probate – this is when a valid Will exists and the executor or executors named in the Will are making the application.
  2. Grant of letters of administration of the Will – this is where a valid Will exists and someone other than the named executors is making the application. For example: when the named executor has died or is incapacitated and otherwise unwilling or unable to act.
  3. Grant of letters of administration without a Will – this is where no valid Will exists. This is known as dying intestate.

The 3 types of probate have specific requirements that must be strictly adhered to before the Court will issue a grant of probate however there is a similar process to follow for all 3.

Does every personal representative need a Grant of Probate?

There is no legal requirement that probate be procured in Queensland.  However, there are some reasons why a personal representative would obtain probate, including:

  1. Personal protection – If it was to eventuate that there was some other Will and the personal representative should not have been dealing with the assets of the estate, probate would protect the personal representative from personal liability from any claim that they “intermeddled” with the deceased’s estate. This can be crucial in some estates where it is likely the estate will be subject to a family provision application.
  2. Dealings with others – Some entities that hold the deceased’s property (e.g. Banks, share registries, superannuation funds and aged care homes) will not release those assets until probate has been granted. This is so the entities can be assured they are handing over the assets to the appropriately authorised person.

Below are some scenarios where it would be unlikely that probate would be required.

  1. Joint assets

If all or majority of the deceased’s assets are owed jointly with someone else as joint tenants.

For example:  Ross and Rachel are married. They own the family home together as joint tenants, hold all bank accounts jointly and have a joint share portfolio.

Ross died leaving a valid Will naming Rachel as his sole executor and beneficiary.

The only assets in Ross’ sole name are his motor vehicle and his personal belongings such as his phone and clothes.

As majority of Ross’ assets were jointly owned with Rachel, upon his death full ownership of these assets automatically transfer to Rachel through the law of survivorship and as a result, fall outside his estate.

Rachel would need to advise the relevant entities and authorities of Ross’ death so that the assets can be recorded as being in Rachel’s name alone.  This could usually be effected by production of Ross’ death certificate.

  1. Low value assets

If a deceased’s assets are of low value.

Financial institutions and share registries have their own thresholds to determine whether a deceased asset is considered to be of ‘low value’ and therefore probate is not required to be produced to them.

As a general rule, banks will usually not require probate if the total funds held in the deceased’s accounts are in the vicinity of $20,000 to $50,000 (this is subject to change at the discretion of the relevant Bank).

Chandler and Monica are married. They are retired and have spent the last 3 years travelling the world together.

They do not own any real property and have no joint assets.

Monica died leaving a valid Will where Chandler is the sole executor and beneficiary.

Monica’s only assets are a bank account with funds of around $15,000 and her personal belongings such as sentimental jewellery and clothing.

Monica’s assets would usually be classified as ‘low value’.

Chandler would need to advise the relevant bank of Monica’s death and provide a certified copy of her death certificate and Will.  The Bank would not require that probate be produced to release Monica’s funds to Chandler.

Can I obtain probate myself?

A personal representative can apply for a grant of probate by themselves however a strict process must be followed to ensure that the Court does not reject the application.

It is strongly recommended that you meet with a solicitor to discuss you options prior to applying for probate.

How we can help you

 JHK Legal can help ease the burden of being a personal representative during the difficult times and ensure that the strict requirements of the probate process have been carried out, if necessary.

If you have any questions or concerns about the following, please give us a call and we would be happy to assist:

  1. Compiling a list of the deceased’s assets and liabilities and determining how the deceased’s property is held;
  2. Reviewing the Will of the deceased;
  3. Determining whether a grant of probate is required and/or recommended in the circumstances;
  4. Making an application to the Court for probate or letters of administration;
  5. Assist in the administration, distribution and finalisation of the estate.

Call JHK Legal on 07 3859 4500 and have a chat about how we can assist you.

Written by Simone Wilson

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Leases – Unfair Contract Terms

Excellent news – you’ve decided to start up your own café (small business) and have found the perfect vacant premises! However, after reviewing the contract yourself, you notice some clauses which seem alarming including auto-renewal clauses, variation of rental prices at the landlord’s discretion and unlimited indemnity clauses. With pressure mounting from the landlord to execute the lease, you’re left with the ultimate dilemma; do you risk losing the property to another potential tenant and sign the lease now or take the time to have the lease reviewed by a solicitor in respect to unfair contract terms?

Since the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act (Cth) came into effect in November 2016 (which made amendments to Schedule 2 of the Competition and Consumer Act 2010 (Cth) (“ACL”)), the team at JHK Legal have been regularly assisting clients, in particular small businesses, in reviewing leases, identifying clauses deemed to be “unfair” and assisting with the negotiating to have these clauses removed and/or amended.

Is my lease regarded as a “small business contract”?

Your business can rely on this legislation where:

  • At least one party is a business that employs less than 20 people – whether that be you or your landlord;
  • Upfront price (including rent, operating costs and/or security deposits) payable does not exceed $300,000, or does not exceed $1,000,000.00 if the duration is more than 12 months; and
  • The contract is a ‘standard form contract’.

All contracts are presumed to be a ‘standard form contract’ unless proven otherwise. A number of factors can be considered to infer that a lease contract is not standard in form, including:

  1. Where both the landlord and tenant were involved in the preparation of the contract;
  2. Both parties have the same bargaining power;
  3. Unpressured choice to accept or reject the lease;
  4. Ample opportunity to negotiate the terms; and
  5. Where the terms of the lease take into consideration specific factors/characteristics of the party/lease.

If you have answered yes to a number of the above factors, your lease may not be subject to the unfair contract terms regime.

Australia Competition and Consumer Commission v Servcorp Pty Ltd [2018] FCA 1044

Since the introduction of the ACL amendments, the Australian Competition and Consumer Commission’s (“ACCC”) powers have expanded to be able to investigate unfair contract terms used for the detriment of small businesses.

2018 saw the ACCC investigate the transactions of Servcorp Pty Ltd (“Servcorp”) and bring proceedings in the Federal Court seeking a declaration that some of the terms contained within Servcorp’s standard contracts were unfair and void. Servcorp specifically provided office spaces for rent.

What clauses should you watch out for?

In reaching the decision in Servcorp, the Court considered, among other things, the significant imbalance the inclusion of the clause would have on one party over the other – and in this circumstance, the imbalance the clause would have to the Tenant over the rights of the Landlord. Declarations were made that the following clauses were unfair and void:

  1. Termination as a result of a breach

A landlord cannot terminate the contract without cause (and with no monetary compensation payable to the Tenant). In particular, this clause will be deemed unfair where the Tenant is not granted the same rights – i.e. to terminate the lease with one month’s notice, without cause.

Example: The Landlord at any time has the right to terminate this Lease, with one month’s written notice to the Tenant, without cause. The Landlord will not be liable for any loss or damage caused to the Tenant as a result of a termination under this clause.

  1. Variations to Costs

Where a Landlord is granted the right to vary the price under a Lease agreement without notice or consultation with the Tenant.

  1. Forfeiture of Security Deposits where there is no obligation from the Landlord to return it

In this scenario, a responsibility was placed on the Tenant to request the refund of the security deposit within 360 days of the termination of the lease, which if not complied with, would result in the forfeiture of the deposit. It didn’t help that the lease itself did not provide the requirement for the security deposit to be refunded at all.

The Court confirmed that if a responsibility is to be placed on one party, the positive obligation of the other should follow. For example, the clause may not have been regarded as unfair had a provision been made in the clause to say, “where notification is provided within 360 days by the Tenant, the Landlord must return the security deposit, less any monies allowed to be withheld under the provisions of this agreement.”

  1. Automatic Renewal of Leases

Commonly seen in commercial contracts, automatic renewal clauses allow for a contract to be renewed where no termination notice has been provided by a certain date. In particular, clauses that lock a party into a higher price upon renewal.

  1. Indemnity and Limitation of Liability

Clauses which limit the liability of the Landlord to no liability for any loss/damage caused are regarded as unfair under the terms.

Example: The Landlord will not be liable for any loss, injury, death, or damage (including consequential damages) to persons, property, or Tenant’s business occasioned by … from any acts or omissions of any other occupant or visitor of the Leased Property, or from any other cause beyond Landlord’s control. A Tenant cannot sue the Landlord for such damages.

  1. Notice of Breach

It is common practice that a party to a contract generally, unless a breach is material, should have the opportunity to rectify the breach. Clauses which grant a broad right to the Landlord to terminate the lease, notwithstanding the type of breach and without any notice to the Tenant, will be deemed unfair and void.

We recommend always having every commercial/retail lease reviewed by one of our solicitors at JHK before executing. Sometimes negotiating clauses can be daunting and we can assist in ensuring that your rights are protected!

What about the Landlords? – Tips and tricks to avoid being investigated by the ACCC

To show the ramifications of what Servcorp meant for the Landlord, the Court ordered:

  1. Servcorp (and its employees and agents) participate in a compliance program with the ACCC; and
  2. Pay the ACCC’s costs of $150,000.00.

As such, this places even greater responsibility on Landlord’s to ensure they are considering all aspects of their lease, including:

  1. Reviewing your Landlord structures;
  2. Reviewing the status of your Tenant; and
  3. Reviewing any Lease/standard form Lease.

If you’re a Landlord who would like assistance in reviewing any of the above, please give the team at JHK a call on 03 9927 3600.

Written by Lawyer, Isabella Matassoni

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How to write your own Will – DON’T!

Life sure is busy, huh?

Between work, kids’ birthday parties, making sure there is food in the fridge, the bills are paid, you keep in touch with your family and friends and are up to date with your favourite Netflix show, there is a lot to do.

So, when someone says, “Hey, do you have a current Will?”, it is no wonder why most people’s response is something along of the lines of…

“No – why would I need to do that.”

“That’s so morbid! I don’t want to think of things like that.”

“I don’t have anything worthwhile leaving to anyone – there is no point.”

“I am young, fit and healthy – there’s plenty of time for that when I am ready to retire.”

“A Will?! What do I care?! I’ll be in a better place – let the kids fight it out!”

Look, we get it. You have plenty of other things to worry about without having to think about what will happen once you have passed away. But look at it this way:

  1.  You will (or already have) spent your whole life working hard to build a legacy – don’t you want to control where that legacy ends up and who benefits from it?
  2. You have a young family, so wouldn’t you want to know that they will be looked after, after you are gone?
  3. You likely spend a good chunk of money on insurances – health insurance, house and contents insurance, car insurance, income protection insurance, pet insurance. Why? To protect your assets and your family, most likely. A Will is another, very important, way to protect your assets and your family.
  4. While you might not care too much about what happens to your assets after you have gone, having a Will means that the people you love and leave behind don’t have to worry about how you would have wanted to divvy up your things at the same time that they are dealing with the loss of you.

These things matter. And while Wills sound scary, our team at JHK Legal are ready to help you put in place the best plan for you and your family.

Some things to think about when making your Will

Now that you know why a Will is so important, let’s talk about a few key things you need to think about when making your Will:

  1. Your executor/s: This is the person or the people who will carry out your wishes under your Will.  They will manage your estate, take care of all necessary arrangements, like paying your debts, and make sure things happen as you intended them to. Your executor should be someone you trust, like a family member or a good friend. It can also be professional person, like an accountant or a lawyer.  You can choose more than one executor and have them work together in this role. We also recommend that you appoint an alternative executor if for some reason your primary executor cannot or is unwilling to act. You might like to choose your spouse, parent, sibling or best friend – and if you are having a hard time picking an executor – we are happy to talk this out with you.
  2. Your beneficiaries: The beneficiaries are the people you want to benefit from your estate. This could be members of your family, your close friends or even a charity. Some people decide to leave their entire estate to their partner first and then to their children equally if their partner has predeceased (dies before them). On the other hand, some people like to leave parts of their estate to various members of their circle. You can leave different assets or shares of assets to different people – it is completely up to you and we are here to help you phrase your Will so that your wishes are clear.
  3. Specific gifts: Your wedding ring, a collector’s item or your household contents – you can make specific gifts to certain people under your Will. BUT, specific gifts can be a little tricky and it is ALWAYS a good idea to talk to us if you want to leave something special to your brother or your best friend.  If you don’t get advice, you risk the gift failing and your most prized possessions being lumped in with the rest of your estate.
  4. Guardians:  A VERY important consideration. If you die leaving minor children (that is, kids under the age of 18) and they have no other surviving parent, who will you appoint as their guardian?  There is plenty of things to think about when deciding who will look after your children – where do they live, do your kids have a good relationship with them, what kind of parent are they/would they be?  We are here to help – and we tend to think of all the practical things so you can focus on who you think will best look after your family for you.
  5. Families:  Everyone’s family is different and that means that sometimes you need to consider how best to structure your Will to take into account these differences. For example:
    • Do any of your children have higher needs which will need to be accounted for in your Will?
    • Are your children very young? Should there be a testamentary trust in place whereby someone will manage your children’s shares in your estate until they are older? What even IS a testamentary trust and do I need one?
    • Has one of your children benefited more during your lifetime and accordingly, you want your other children to benefit more from your Will? Do you think there is a risk that this could cause a dispute?
    • Do you have children from a previous relationship who you would like to provide specifically for in your Will?

We know that these types of considerations can be difficult and, in many ways, very emotional. Our approachable and knowledgeable team are here to help you with making tough decisions and can give you advice about how best to protect your assets and, as far as possible, avoid estate challenges.

Our top tips and tricks for making your Will

Ready to make your Will?  Here’s our top tips and tricks for you:

  1. How to make your own Will – DON’T!  You should always see a Wills and Estates lawyer when thinking about making a Will. Sure, you can buy a cookie cutter, DIY Will kit from the post office, BUT these tend to open you up for all kinds of issues, such as challenges about the proper construction of your Will, the failure of specific gifts and leaving you no room (literally, there are very small spaces to write in) to make your Will specific to YOU and your family.
  2. Like Dr. Google, Google Lawyer can sometimes get it wrong. The internet is amazing, and you can get all kinds of wonderful advice about Wills and your estate planning from tons of awesome websites online (like this one, for example). But a word of caution, while reading this article is a great start, you should make an appointment to chat to a lawyer about you, your life, your assets and your loved ones before you go ahead and make a Will. There could be things you just don’t think about that we will. That is what we are here for!

Make time to make your Will today. Don’t put it off any longer.

Call JHK Legal on 07 3859 4500 and have a chat about what we can do for you to get your affairs in order.

Written by Lawyer, Chloe Blaney

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