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Failing to Pay Super – ATO’S New Powers & New Penalties

Failing to Pay Super – ATO’S New Powers & New Penalties

An increasing number of Australian companies are failing to pay their employees superannuation. As a result, new legislation was passed in December 2018 giving the Australian Taxation Office (“ATO”) increased powers to direct business owners to pay unpaid superannuation.

ATO’s New Powers

The ATO’s new powers include:

  1. Ordering a business owner to pay an outstanding superannuation guarantee amount; and
  2. Directing business owners to undertake educational courses in respect to their obligations to pay superannuation.

This adds to the ATO’s existing powers to recover outstanding superannuation, including the ability to issue Director Penalty Notices and charge late payment fees.

The ATO will use technology to track business owners who fail to meet superannuation and PAYG tax obligations.  The introduction of single touch payroll will apply to all Australian businesses by 1 July 2019, and means that business owners will be required to report salary as well as superannuation payments to the ATO in real time.

An amnesty to allow business owners to make up any missed payments will end in May 2019.

New Penalties

Under the new legislation, a business owner who fails to comply with the ATO’s direction to pay superannuation can face the following penalties:

  1. A fine of up to $10,500.00; or
  2. 12 months imprisonment.

Further Consequences of New Legislation

With the ATO’s new powers, it is becoming increasingly more aware of each business owner’s compliance with their superannuation obligations.

As a result, we are likely to see the ATO issue an increased number of Director Penalty Notices for unpaid superannuation moving forward.

Due to the changes in legislation we expect to also see a shift in the burden of chasing unpaid superannuation from employees, who have traditionally reported outstanding amounts to the ATO.

Conclusion

If you require further information about the new legislation or are having difficulties paying superannuation and require advice, please contact JHK Legal on the below numbers and emails:

Belinda Melton: [email protected]

JHK Legal Brisbane office
Phone:(07) 3859 4500
            Email: [email protected]

JHK Legal Sydney office
Phone: (02) 8239 9600
            Email: [email protected]

JHK Legal Melbourne office
Phone: (03) 9927 3600
Email: [email protected]

JHK Legal Sunshine Cost office
Phone: (07) 5452 7300
Email: [email protected]

Lawyer, Belinda Melton

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Bankrupt? How to Annul your bankruptcy and clear your name.

Are you seeking to have your bankruptcy removed and clear your name? The annulment of bankruptcy is the term used to cancel your bankruptcy and this article sets out the number of ways as to how this can be done.

In most circumstances, the period of bankruptcy lasts three (3) years and one day from the date the bankrupt submits his or her statement of affairs to their trustee. However, even if a bankrupt is discharged, the bankruptcy is recorded on the National Personal Insolvency Index (NPII) permanently on the bankrupt’s name and record.  The annulment of bankruptcy removes this record , and can occur during the bankruptcy period or after being discharged.

There are three ways that a bankruptcy can be annulled:

  1. A formal Composition or arrangement with Creditors pursuant to section 73 and 74 of the Bankruptcy Act 1966 (“the Act”). This option will not be available to bankrupts who are already discharged.

A section 73 proposal is a proposal made by a bankrupt to his or her creditors for a payment or composition made by the bankrupt in satisfaction of his or her debts or a scheme of arrangement of his or her affairs.

A section 73 proposal or scheme of arrangement is lodged with the trustee of the bankrupt estate for the trustee’s consideration and the trustee will present the proposal to creditors. The creditors will generally review the proposal and will be able to vote to accept or refuse the proposal. Pursuant to section 74 of the Act, if the creditors accept the proposal, the proposal shall be passed as a creditors meeting held in accordance with the Insolvency Practice Rules, by way of a special resolution by the majority of creditors (being at least three- quarters of the creditors based on value of debt) and the proposal is enforceable by the court. If the proposal is accepted by creditors, it is generally intended to be a win -win proposition for all parties involved, as creditors are entitled to a payment, and the bankrupt is entitled to his or her annulment. However, if the terms of the proposal are not abided by the bankrupt, such act will be seen as contempt of the court. Therefore, if the bankrupt puts forward a section 73 proposal, it is crucial that the proposal is realistic and that the terms are adhered to, otherwise there is a risk that the proposal may be terminated, varied or set aside by the creditors or trustee. [1]

  1. Payment of Debts in full in accordance with section 153A of the Act

Under section 153A of the Act, a bankrupt can seek consent from the Trustee to annul his or her bankruptcy provided that the Trustee is satisfied that the bankrupt has paid all of the bankrupt’s debts owed by creditors, the Trustee’s remuneration and any interest relevant to the debts that are interest bearing debts.[2]

The meaning of the “bankrupt’s debts” has been construed to include all debts owed to any creditor of the bankrupt and all interest associated with an interest-bearing debt. An interest-bearing debt is a debt that has accrued generally pursuant to a contract or credit application between the bankrupt and the creditor whereby that contract contains a provision for the creditor to charge that interest ongoing until the original debt has been paid in full.

If you are seeking to annul your bankruptcy pursuant to section 153A of the Act, the first step would be to ascertain the amount of the debt owed to creditors and then ascertain whether any of those debts are “interest bearing debts”. Making contact with your Trustee to ascertain information as to the debt amount and any interest amount, as well as the trustee’s fees incurred to date is crucial to determine whether you have an ability to annul your bankruptcy under section 153A of the Act. However, we recommend obtaining legal advice prior to liaising with your trustee in relation to the total debt owed by creditors and whether any of those debts may be considered interest bearing debts. This will allow a Bankrupt to plan the potential pay out involved when annulling his or her bankruptcy, along with any legalities involved.

  1. Annulment by order of the Court pursuant to section 153B of the Act

The final option a bankrupt has to seek an annulment of bankruptcy is pursuant to a court order under section 153B of the Act. Section 153B of the Act can only be utilised in limited circumstances. Section 153B of the Act provides that:

  • If the court is satisfied that a sequestration order ought not to have been made or, in case of a debtor’s petition that the petition ought not to have been presented, or ought not to have been accepted by the Official Receiver, the court may make an order annulling the bankruptcy. [3]

Under section 153B of the Act, the bankrupt should be able to demonstrate the following considerations in order for the court to exercise its discretion:

  • That the bankrupt has complied and cooperated with the trustee under the Act. If the bankrupt actively cooperated with the Trustee’s requests upon the sequestration order being made, this will appear more favourable for the bankrupt when seeking his or her order by the court pursuant to section 153B of the Act.
  • The solvency of the bankrupt. If the bankrupt can prove that he or she is in fact solvent and can pay his or her debts, it is likely that the court will consider making an order for the bankruptcy to be annulled. However, it is important to note that under Section 153B (2) in circumstances of a debtor’s petition, it is not a requirement to have been solvent or prove solvency at the time the petition was presented. [4]
  • Whether the application to the court under section 153B of the Act has been made to the court in a timely manner since the sequestration order has been made. If the bankrupt is of the view that he or she ought not to have been made bankrupt, then an application should be made as fast as possible to the court, as this will be more favourable, as opposed to having delayed making the application.
  • Whether the bankrupt is able to offer valid explanation as to its activity or inactivity in the petition. If the bankrupt did not attend the petition, the bankrupt should provide reasons as to why they were not active in the petition. If they were in attendance, the court will use its discretion, taking into consideration the circumstances of the case as a whole, as to whether an order for annulment ought to be granted.

While there are a number of ways in which a bankrupt can seek an annulment of bankruptcy, a bankrupt should always obtain legal advice prior to making any application for annulment. JHK Legal has extensive experience in acting for bankrupts and liaising with Trustees of bankrupt estates in order to obtain exceptional outcomes for clients. Should you have a bankruptcy query, please do not hesitate to contact us.

 Lawyer, Hayley Tibbie

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[2] Section 153A of the Bankruptcy Act 1966

[3] Section 153B(1) of the Bankruptcy Act 1966

[4] Section 153B(2) of the Bankruptcy Act 1966

Vacant possession and the residential buyer

We highly recommend a buyer organise a pre-settlement inspection of the property.  A number of issues may come to a buyer’s attention during a pre-settlement inspection including:

  • the property is a mess, has not been cleaned and there is rubbish all over the place;
  • the seller has left personal property in the house, garden or shed;
  • there is a tenant in the property that does not intend to vacate.

When such issues arise buyers commonly believe they are entitled to either terminate the contract or delay settlement until the issues are resolved.  However, it may come as a surprise that most of these issues will not entitle a buyer to terminate or delay settlement.  This is because, even with such issues, technically the seller is still able to give “vacant possession” under the contract.

  1. What is vacant possession

The REIQ Contract for Houses and Residential Land (15th Edition) (REIQ Contract) [at clause 5.5] requires that “On the Settlement Date, in exchange for the Balance Purchase Price, the Seller must give the Buyer vacant possession of the Land and the Improvements except for the Tenancies”.

The term “vacant possession” includes the absence of any impediment, physical or legal, which interferes with the purchaser’s contractual right, whether express or implied, to immediate “unimpeded physical enjoyment” of the property.  The obligation of a seller to give “vacant possession” is not absolute and questions of breach must be judged as a matter of substance[1].  In other words, it depends on the circumstances and facts of each case.

  1. Rubbish Left on the Property

Generally speaking, an obligation to give vacant possession requires a seller to remove any goods (chattels) not included in the sale of property before settlement, including “rubbish” extraneous to the sale (unless the buyer has consented to such items being abandoned or left on the land permanently[2]).

However, in the case of Nelson v Bellamy (2000) NSWSC 182, the seller left the following items on the property: a large wooden pallet, 3 wooden brick pallets, a quantity of concrete bricks, a quantity of boards for flooring, 20-30 pieces of timber off cuts, a large circular pole, broken concrete blocks, loose dried cement, builder’s rubble, 11 shutters for French doors and other items left underneath the property.

Despite the significant number of items left behind, and the fact that the removal of such items would require at least two people, the use of a truck, shovel and wheelbarrow for an entire day, the Supreme Court of NSW decided that the items did not constitute a “substantial impediment” and the buyer was not entitled to terminate the contract for failure to provide vacant possession.  The court[3] accepted the seller’s submission that “such items did not impinge at all on the living areas, including the courtyard, and did not substantially prevent use of the undercroft or the side alleys which did not, in any event, constitute, relevantly, “a substantial part of the property”.

Practical Tip:

If there is significant rubbish on the property at the time of the initial inspection, we highly recommend a special condition be inserted in the contract, before the parties sign the contract, requiring the seller to remove any such rubbish (and if necessary clean the property) before settlement.

  1. Personal Property Left on the Property

The courts have considered that the failure of a seller to remove personal items (in this case “Reserved Items” named under the contract) did not constitute a substantial breach of contract[4].  .Here, the court considered that a term in the contract requiring the seller to remove certain items before settlement was not “essential” to the bargain, and therefore the seller was able to give vacant possession despite the fact that the personal (or in this case the named “Reserved Items”) were not removed from the property prior to settlement.

Practical Tip:

If there are personal items on the property that a buyer wants to ensure are removed prior to settlement (for example, cubby houses, trampolines, wood and other building materials) we again recommend a special condition be inserted in the contract expressly requiring the seller to remove such items prior to settlement, and if not done, allowing the buyer to delay settlement or receive a deduction from the balance purchase price at settlement equivalent to the cost of having the items removed. Nothing spurs on a Seller to do the right thing than to realise they won’t get their money if they don’t comply!  It is important to note that including the items as “Excluded Fixtures” in the contract will not be sufficient as illustrated in the case above.

  1. The Property is Not Clean

A property left in an unclean state at settlement will not generally be considered a “vacant possession” issue.  Rather, it relates to whether the seller has breached a warranty under the contract.  Here, we are referring to the general “state” or “condition” of the property at settlement (a separate issue to rubbish left on the property) and whether a buyer can delay settlement or terminate the contract because of same.

There is no standard condition in the REIQ Contract requiring a seller to hand over a property in a clean and tidy condition. As such, generally a seller will only be required to hand the property over in a similar state/condition (fair wear and tear excepted) as it was at the time the parties signed the contract[5].  Therefore, if the property was unclean or untidy as at the contract date there will be no requirement on a seller to have the property cleaned (professionally or otherwise) unless a special condition is included in the contract requiring same.

Practical Tip:

If a buyer wants to ensure a property is handed over in a clean and tidy state, we recommend a special condition be inserted in the contract to that effect.

  1. Tenants Have Not Vacated

If a tenancy is listed on a contract the property is sold subject to that existing tenancy (and vacant possession will not be provided at settlement). Even if the “ending date of term” of the lease has passed the property will be sold subject to a “periodic tenancy” and vacant possession will not be required at settlement.

However, if a tenancy is not listed on the contract, the property will not be sold subject to that tenancy (and vacant possession will be required at settlement).  In such circumstances, the seller must give the appropriate notice to vacate to the tenant and the tenant should vacate the property before settlement.  If insufficient notice is given to the tenant and the tenant has not vacated the property, or the tenant refuses to vacate the property, by settlement, the Buyer may be able to terminate the contract (as the seller is unable to provide to the buyer vacant possession at settlement).

Practical Tip:

A buyer that requires vacant possession at settlement should proceed with caution if an existing tenancy is noted on a contract (or if the buyer is aware that the property is currently tenanted). In many circumstances termination will not be the best option for a buyer and a buyer will need to consider what arrangements may be suitable to them if settlement is delayed because a tenant has not vacated by the settlement date.

In this instance, a buyer should discuss their concerns with a solicitor before signing the contract and ensure a suitable special condition is included in the contract to adequately protect the buyer’s interests if the tenant has not vacated by the settlement date.

Getting Proper Advice Can Help you avoid these issues

Generally, unless an essential term of a contract, a Buyer’s only remedy for a seller’s failure to provide “vacant possession” at settlement is to seek damages after the fact. Practically speaking, pursuing damages after settlement is often difficult, timely and costly to a buyer.

Carefully drafted contract terms can alleviate many of the above circumstances and ensure that such issues are dealt with efficiently and without contention at settlement. A carefully drafted special condition will allow a buyer to delay settlement (or receive a deduction from the purchase price at settlement) if this is not done.  If a contract does not contain a special condition to this effect a buyer will generally be forced to settle if the seller can otherwise provide vacant possession of the property. While it is then open to a buyer to attempt to claim damages after settlement this often proves difficult and costly to the buyer.

Before signing a contract, a buyer should ensure they first consult a properly qualified solicitor to advise them of their rights under the contract, discuss any potential issues with respect to same and negotiate and draft suitable special conditions to best protect the buyer.

JHK Legal has solicitors who are experts in property law and can assist buyers to ensure that their purchase progresses as smoothly as possible.

Senior Associate, Alison De Marco
Accredited Specialist Business Law (Qld)

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[1] Smilie Pty Ltd v Bruce(1998) 9 BPR [97750]at 16,725  (1999) ANZ Conv R 412 at 414.

[2] Skapinker and Lane, para [13.20], p 436.

[3] at [29]

[4] Davidson and Anor v Bucknell and Ors [2009] QCA 383

[5] See Standard clause 8.3(1) of the REIQ Contract