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Make Your Mark

Make Your Mark

If you run a business, you have likely spent a lot of time and money on marketing to publish your unique product or service. Registering a trade mark serves to protect your brand and will set you apart from your competitors. This article provides a brief overview trade mark registration in Australia.

What is a Trade Mark?

A trade mark is sometimes referred to as a ‘brand’ and can be a word, phrase, logo, picture, shape, movement, aspect of packaging, sound or even a scent. A trade mark is something that indicates to the public who you are and for that reason, it is a valuable marketing tool.

Why Registration?

Although you can use a trade mark without registration, you will not have any intellectual property protection until registration. Registering your trade mark will give you the exclusive right to use and license the mark. If you are the registered owner of a particular trade mark, you will be in a better position to take legal action in the event that another person begins using it. Further, if your business is successful then the value of your trade mark will increase and you will have the right to sell the mark if you ultimately choose to do so.

Common Misconception

A common misconception among business owners is that a registered business name, company name or domain name will give you similar protections to a registered trade mark. That is incorrect. Whilst there are some restrictions on the use of names which ASIC will enforce, only a trade mark will prevent other businesses from using the same name.

Goods and Services

When lodging a trade mark application, you must indicate the types of goods and services that you intend to use the trade mark for. There are 45 trade mark classes to choose from and over 60,000 subclass goods and services listed therein. It is important to select the right goods and services the first time, as you will be unable to expand the list once the application is lodged.

In determining what goods or services you use the trade mark for, you should consider the nature of your business, what your clients know you for, what you provide to your clients and from what are you deriving your business income.

 What Happens Next?

Once the application is lodged, IP Australia will assess the application and you can generally expect to receive a response after at least 3 months. If the assessor raises an issue with the trade mark, you will receive an adverse examination report and will be given 15 months to respond. If your trade mark is accepted, the trade mark will be advertised online as accepted and opposers will have 2 months within which they may challenge the registration. If your trade mark is not challenged within that 2-month period, your trade mark will be registered.

Adverse Examination Reports

Sometimes in considering a trade mark application, IP Australia will issue an adverse examination report.  An adverse examination report does not mean that your trade mark cannot be registered, rather the report will outline why your trade mark does not meet legislative requirements and will provide a list of options you may take to overcome the issues raised. The purpose of the report is to advise you of the non-compliance issues IP Australia has found and to afford you with the opportunity to respond to those issues by way of submissions, a declaration or a proposal. The details of the examiner who issued the report will be provided so that they may be contacted to discuss the report and to seek further clarification if necessary.

Although you have 15 months to respond to the report, you should be mindful that this time frame is to include the examiner’s response and therefore you should not leave it to the last minute.

Examples of the types of issues that may be raised include:

  1. Your trade mark does not distinguish your goods or services from the goods or services of others; and
  2. Your trademark is substantially identical with, or deceptively similar to a trade mark registered by another person in respect of similar goods or closely related services.

To respond to the abovementioned issues, you may need to provide evidence of use of the trade mark. The type of evidence you should put forward will largely depend on the issue raised.

How We Can Help You

JHK Legal has experience in dealing with commercial and intellectual property matters. Please do not hesitate to contact our commercial team to discuss any new matter.

 

Written by Claudia Smith, Lawyer

 

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Unfair Preference Claims and the Conceivable Third-Party Shield from the Claws of Liquidators

Receiving a letter of demand from a liquidator demanding repayment of monies received for an unsecured debt owed by a company in liquidation whereby it is alleged that the creditor has been preferred over other creditors can be rather daunting to receive. However, unsecured creditors may now, in certain circumstances, benefit from a successful defence highlighting a loophole which has materialised in the recent decision handed down by the Victorian Court of Appeal in Cant v Mad Brothers Earthmoving Pty Ltd [2020] VSCA 198 (“Cant Case”), whereby the issue of third party payments was put under the microscope.

What is an unfair preference claim?

One of the key duties of a liquidator is to examine the undertakings of the insolvent company he/she has been appointed to and to ascertain whether any voidable transactions that have taken place in the lead up to the appointment, so that the liquidator may recover monies for the benefit of creditors of the company. One such voidable transaction is an unfair preference payment. In most scenarios involving an insolvent company, there are typically numerous unsecured creditors with outstanding debts owed, therefore, the law considers it unfair for one particular unsecured creditor to receive payment in priority to other unsecured creditors who do not receive payment within 6 months of the appointment of the liquidator.  As such, section 588FA of the Corporations Act 2001 (“the Act”) permits a liquidator to claw back unfair preference payments from unsecured creditors received from the insolvent company less than 6 months prior to the liquidator’s appointment.

Defence

Whilst a liquidator can seek to claw back preferential payments from unsecured creditors, in certain scenarios there are defences available to unsecured creditors to oppose that such payments have to be repaid.

The main defences available are summarised as follows:

  1.  The Good faith defence under Section 588FG (2) of the Act, where the unsecured creditor can establish that it could not have reasonably suspected that the company was insolvent;
  2.  The Running Account defence, where payments are made as an integral part of a continuing business relationship between the insolvent company and the unsecured creditor.
  3. The Set Off defence under Section 553C of the Act, where an unsecured creditor may set off a debt/credit owed to the insolvent company against a credit/debt owed by the insolvent company to the same party.
  4. Some creditors argue that they had security in place at the time of the payment and as such they cannot be considered as an unsecured creditor.

One scenario which now gives rise to a defence is the situation where a third party makes payment to the unsecured creditor on behalf of the insolvent company. This defence was recently raised and determined in the Cant Case.

The Third-Party Veil

In the recent Cant Case, the Victorian Court of Appeal deliberated on whether monies paid from a third-party company to a creditor in satisfaction of an unsecured debt owed by the insolvent company could be deemed an unfair preference. It is worthwhile to note, that the sole director of the company in liquidation was also the sole director of the third-party company that made payment to the unsecured creditor.

The Court confirmed that in order for a payment to be considered an unfair preference it must come “from the company” as intended within the provisions of section 588FA or result in a diminution of the company’s assets that are available to creditors. In the Cant Case, the payment came from a third-party’s own money and not from the insolvent company. As the insolvent company’s assets were not diminished by the transaction the Court found there could be no unfair preference. This was held despite the fact that the company in liquidation endorsed, directed and authorised the payment by the third-party to the unsecured creditor, or the fact that both companies were controlled by the same director. In the alternative, the Court acknowledged that in circumstances where company B (the third-party) owes a debt to company A (company in liquidation), and company B is instructed to make payments to an unsecured creditor instead of company A for a debt owed by company A to the unsecured creditor, the transaction in such case would be deemed an unfair preference. This is because the debt owed by the third party to the insolvent company is considered an asset of the insolvent company and therefore as that debt is directed to paying an unsecured creditor of the insolvent company, the insolvent companies’ assets are diminished.

Key Takeaways

The recent decision offers some clarity on the position concerning payments made by third-parties, that being, such payments will not necessarily amount to an unfair preference if there is no obligation or liabilities between the third party and the insolvent company. Although the case was handed down in Victoria, it is plausible to assume that other states will also follow the footsteps of the position laid down in the Cant Case. The complex provisions contained in the Corporations Act are intended to ensure that the assets of a company in liquidation are apportioned fairly. However, this decision invites a potential loophole for insolvent companies who may arrange payment to one or more unsecured creditors ahead of others, by ensuring payments are made from a third party rather than from the company.

How we can help you

JHK Legal has extensive experience in dealing with insolvency and debt recovery matters, and can advise companies, creditors and third-parties on unfair preference transactions and insolvency matters generally. Please do not hesitate to contact us today to discuss your situation.

Written by Rania Kassir

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Tips for First Home Buyers

Buying your first home is a long-term investment and a significant milestone. It is important to ensure that you are prepared and properly supported during your conveyance to assist in creating a smooth process.  The following tips can assist during this time.

Know your entitlements

Before committing to a property offer and finance application terms, it is important to ensure you are aware of the entitlements for first home buyers and whether you are eligible for any of them.

Typically, your bank or broker can perform an assessment of your circumstances and advise if you are eligible for any entitlements when applying for finance. Alternatively, our subsidiary MKP Property Lawyers can discuss your circumstances and potential incentives that may apply.

Current key incentives for Queensland First Home Buyers include:

  1. First Home Buyer Transfer Duty concession, which eliminates duty payable on transfers for first home buyers at values of $500,000.00 or less;
  2. Queensland First Home Owner’s Grant, being $15,000.00 towards buying or building a new home (subject to eligibility criteria); and
  3. First Home Loan Deposit Scheme

Get the contract reviewed

Once the agent gives you a contract, don’t sign it until you have had it reviewed by your solicitors.

Once you sign a contract, you are bound to it unless there is some lawful basis to terminate it (e.g. under the statutory cooling off period, finance or building and pest).  Having it reviewed will ensure you understand it and that it reflects the terms you need.

Be prepared for paperwork

Prior to and during your conveyance you will be required to consider and complete an extensive amount of paperwork both for your lender and your solicitors.

These documents:

  • For your solicitors, conveyancing booklets, questionaries, to do lists, transfer duty concession forms, searches list and more recently a PEXA client authorisation forms.
  • For your financier, loan application forms, loan agreements, mortgage documents and standard terms documents.

You will also be required to complete verification of identity.  Accordingly, ensuring that your identification documents are available and up to date is essential.

Know your key dates

Once the contract is signed, diarise and keep on top of the contractual dates.  These dates are dependent on the special conditions agreed upon between you and the Seller in the Contract of Sale.

The typical key contractual and special condition dates are as follows:

  • Contract Date, being the date that the contract is formed
  • Deposit dates, being the dates on which any initial and balance deposits are due
  • Building and Pest inspection date, being the date by which the buyer is required to effect and make a decision regarding its building and pest inspections
  • Finance Approval date, being the date on which the buyer is required to make a decision regarding its finance approval to proceed with settlement
    Settlement Date, being the date that the parties are required to settle the sale

Each key date will require different actions and accordingly it is imperative to be prepared for each date so as to avoid any unnecessary delays in the Contract of Sale, as the Seller is not usually obliged to grant extensions of time.

Your solicitor should provide you with details of the key dates and an explanation of what is required for each once the contract is formed.

Have additional funds set aside

Purchasing a home is a costly process and there are a number of payments in addition to the purchase price of the property (i.e. Transfer Duty and Registration fees). It is important to ensure that you have allowed for a variation in the estimated costs and/or unexpected costs that may arise during the process.

In doing so, this will help to reduce the risk of having insufficient funds for settlement when your shortfall funds amount is calculated. This amount will be calculated by your conveyancer, taking into account the loan funds available from your lender in order to ascertain the shortfall funds amount – if applicable.

Most importantly, do not hesitate to ask questions

As a First Home Buyer it is a new and complex process to go through. Do not at any stage hesitate to raise any concerns or ask any questions you may have with your conveyancer. They are there to assist you throughout the entire process.

How we can help you

JHK Legal’s subsidiary MKP Property Lawyers pride themselves on their client focus approach to conveyancing and are always available via phone or email to discuss your matter to ensure you are well-informed, confident and prepared at all stages of your conveyance.

Written By Amanda Gildea 

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October 2020 : Update regarding commercial lease negotiations

Queensland Government has amended the Retail Shop Leases and Other Commercial Leases (COVID-19 Emergency Response) Regulation 2020 (Qld) to extend their operation to 31 December 2020.

The extension of the scheme applies to leases to lessees who remain eligible for the Jobkeeper scheme during the period 28 September 2020 and to 4 January 2021.

During the extended operation period, all of the protections previously provided under the regulations continue.  This includes:

  • The obligation on lessors and lessees to “act in good faith”;
  • The prohibition on lessors taking enforcement action;
  • The restriction on lessors from making rental increases otherwise required under leases;
  • The right of the lessee to require that negotiations regarding rent reductions during the period 1 October 202 to 31 December 2020.

The only real noticeable change for the extended period is that there is no mandatory waiver of rent during the extended period.  That is, rent concessions to lessees need now only be provided by way of deferral of payment of rent rather than the previous mandatory waiver of half of the provided rent concession.

The amended regulations are available here: https://www.legislation.qld.gov.au/view/whole/html/inforce/current/sl-2020-0079.

How we can help you

Should you or any of your clients require any assistance regarding the leasing regulations please do not hesitate to contact us.

Written by Niall Powell, Special Counsel

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Modernising Processes of Incorporated Associations

The laws affecting incorporated associations have not been substantially reformed since 2007. Queensland Parliament intends for the Associations Incorporation and Other Legislation Amendment Act 2020 (Qld) (‘Act’) to assist thousands of people involved in community groups by modernising processes. The amendments are aimed to simplify processes, improve internal governance, reduce red tape, and enhance government practice.

Amendments Currently in Force

We draw your attention to the following amendments now in force:

  • Associations can use communications technology to conduct general meetings without provision for technological usage in their rules.
  • An incorporated association has the discretion to adopt or replace the model rules at any time. To effect this change, the association must:
  1. pass a special resolution at a general meeting; and
  2. apply to the Office of Fair Trading (OFT) for registration within 3 months of passing the resolution.
  • Should the incorporated association be experiencing financial difficulty, committee members may voluntarily appoint an administrator to place the association into voluntary administration.
  • An incorporated association may apply to the Office of Fair Trading to cancel the association, thereby avoiding a lengthy winding up process. To be eligible, the association must not:
  1. have any outstanding debts or liabilities;
  2. have any outstanding fees or penalties under the Associations Incorporation Act 1981; and
  3. must not be a party to any legal proceedings.
  • An individual will be eligible to sit on a management committee after 5 years from the later of:
  1. the day the conviction is recorded;
  2. the day the individual is released from prison;
  3. the day any other occur order relating to the conviction or term of imprisonment is satisfied.

Notwithstanding, conviction of any indictable offence or of a summary offence leading to imprisonment may affect that individual’s eligibility.

  • The maximum penalty for breaches of some provisions will be increased to 20 penalty units.
  • Upon an incorporated company being wound up or cancelled, information pertaining to how surplus assets, property or money is vested will be published by gazette notice rather than regulation.
  • Should the Chief Executive determine that property under the Collections Act 1966 is unlikely to reach the intended beneficiaries, they may vest that property to the Public Trustee by gazette notice rather than by regulation.

Expected Amendments: 30 June 2021

Further amendments are expected to take effect by 30 June 2021. It would be prudent for incorporated associations to take note of these amendments now to plan for and accommodate these amendments moving forward.

In the future, using a common seal will be optional and the secretary of an association will have to be 18 years or older. To simplify processes, duplicated reporting requirements for charities on the ACNC register will be removed.

Significantly, management committees and members will be given increased responsibilities and liabilities, notably:

  • Penalties will apply to management committees that fail to carry out their functions in the best interests of the association, with due care and diligence;
  • Members of the management committee will have a duty to prevent the association from trading while insolvent;
  • Penalties will apply to committee members and officers who use their position to gain a benefit or cause detriment to the association; and
  • Management committee members will have to disclose when they have material personal interests in a matter, remuneration or other benefits given to them, to senior staff and to their relatives.

Finally, the powers of Office of Fair Trading inspectors will extend to allow for entry and seizure methods.

Expected Amendments: 30 June 2022

It is expected that by 30 June 2022, incorporated associations will be required to have an internal grievance procedure or dispute resolution process in place. This amendment is aimed at reducing the need to resort to litigation to resolve a matter. The Office of Fair Trading will develop model rules as part of a consultation process with industry bodies that may be used in default. If the association wants to use their own dispute resolution process, they must include it in their rules by passing a special resolution.

If you would like to be part of the consultation process, you can register your interest by emailing [email protected].

How we can help you

If you have any questions or concerns regarding the above amendments, please do not hesitate to contact us. We consider it would be prudent for all incorporated associations to begin discussing the upcoming amendments, particularly those that carry penalties as outlined above.

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Written by Claudia Smith , Lawyer

Discretionary trusts now impacted by NSW duty and land tax surcharges

On 24 June 2020, the State Revenue Legislation Further Amendment Act 2020 (NSW) was enacted (“the Act”). The Act is relevant to trustees of discretionary trusts (including discretionary testamentary trusts) who in their capacity as trustee, own or will purchase property under the trust, and also have trust deed which do not prevent foreign beneficiaries of the trust from receiving a benefit under same.

Pursuant to the amendments made under the Act, a Trustee can now be classified as a ‘foreign person’ for the purpose of making payment of NSW Duty and Land Tax surcharges, on property transactions whereby the existing trust deed does not prevent a foreign person from being a beneficiary.

Background

From 21 June 2016, ‘foreign persons’ became liable to pay:

  • a surcharge purchaser duty (currently 8% of the market value of the property) on the acquisition of residential property in NSW (Chapter 2A of the Duties Act 1997); and
  • a surcharge land tax (currently 2% of the unimproved value of the land) for any residential property in NSW owned as at 31 December each year (section 5A of the Land Tax Act 1956 (NSW).

Under the Revenue Ruling G010, the Chief Commissioner had the discretion to exempt liability for purchaser surcharges incurred in relation to duty and land tax. Since the implementation of Revenue Ruling G010 on 13 September 2017, many trustees have seen to the amendment of their discretionary trusts to ensure that foreign persons are excluded from receiving a benefit in accordance with the Revenue Ruling G010.

The Amendments

The Act has now introduced the retrospective legislation that was referred to in paragraph 9 of the Revenue Ruling G010.

The Act has made the following amendments to existing legislation:

  • The Act inserts section 104JA thereby amending Schedule 1 of the Duties Act 1997 (NSW);
  • The Act inserts section 5D into the Land Tax Act 1956 (NSW); and
  • The Act inserts Schedule 2 into the Land Tax Management Act 1956 (NSW).

What this means

The amendments to the Act come into force as of 1 January 2021. This means that up until 31 December 2020, all trustees of discretionary trusts have the opportunity to make amendments to existing trust deeds to ensure that their respective deeds include a provision outlining that the amendments per the Act do not, and will not apply.

A trustee must meet the following amendments to comply with the requirements of the Act:

  • no potential beneficiary of the trust can be a foreign person (the ‘no foreign beneficiary requirement’); and
  • the terms of the trust must not be capable of amendment in a manner that would result in a foreign person being a potential beneficiary (the ‘no amendment requirement’).

In the event a trust deed is not amended prior to 31 December 2020, the trustee will be considered a foreign trustee and the following implications will take effect:

  • Surcharge purchaser duty will apply to the purchase of residential property within NSW;
  • Land tax surcharge will apply annually on the residential property in NSW;
  • Land tax surcharge will be applicable for the land tax years of 2017, 2018 and 2019; and
  • The trust will have no entitlement to receive a refund for surcharge duty or surcharge land tax already paid in the transactions undertaken in the aforementioned land tax years.

Should Revenue NSW conduct an audit, a copy of the trust deed or amended deed together with a declaration as to same, may be requested. If a foreign beneficiary has not nor will not intend to benefit from a current trust, then making amendments to a current trust deed prior to 31 December 2020 would be ideal.

No power of amendment or variation?

The majority of trust deeds will include rules that bind a trustee as well as containing broad powers to amend and/or vary the trust instrument. There are trust deeds however which may include limited powers for variation and/or amendments and in this circumstance, those particular trusts require diligent review.

We make reference to the Commissioner’s Practice Note CPN 004, version 2, which specifies that that trusts which cannot be amended and are not covered in the practice note will be dealt with on a case by case basis.

Our recommendation

If a foreign person has never benefited and likely will not benefit from the trust, we recommend that amending the trust prior to 31 December 2020 is the best course of action. We emphasise that any trustee and/or beneficiary to a discretionary trust seeking to make an amendment to same in accordance with the Act, must ensure that the no foreign beneficiary requirement and the no amendment requirements are complied with.

In the event a trust does not allow for a variation and/or amendment clause, we note that the trustee and/or beneficiary should make a request to Revenue NSW for a determination as to how the trust could be amended to guarantee compliance with the Act, prior to 31 December 2020.

If you require any assistance in making amendments to your current trust deeds to comply with the Act or if you would like to discuss your current trust deed with us, our solicitors at JHK Legal are happy to assist.

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Written by Elyzia Menounos

FIRB approvals for Business – COVID-19, National Security and Beyond

Australia’s foreign investment rules have recently undergone major temporary changes in response to the economic fallout of the COVID-19 pandemic. The Australian government is considering further permanent changes due to national security concerns. This article considers those changes and the likely impacts on business.

What is FIRB approval?

The Foreign Investment Review Board (“FIRB”) is a body that advises the federal Treasurer on Australia’s foreign investment policy and administration.

Among other functions, FIRB examines proposed investments in Australia pursuant to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (“Act”) and related legislation and provides recommendations as to whether relevant investments should be approved. FIRB is an advisory only and ultimately decisions regarding foreign investment remain with the Treasurer. Nonetheless, the process is usually referred to as seeking “FIRB approval”.

FIRB considers investment by “foreign persons”, which include:

  • individuals not ordinarily resident in Australia;
  • corporations in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government hold “substantial interests”;
  • corporations in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government together hold “substantial interests”; and
  • foreign governments.[1]

A “substantial interest” is an interest of 20% or more.[2] There are also detailed and wide-reaching rules to determine interest held on trust and or through associates of foreign entities.

The Act applies to proposed acquisitions by foreign persons of assets, securities or interests in Australian land (including agricultural land, commercial land, residential land, and mining or production tenement). Generally, an acquisition will be generally be a “notifiable action”, and therefore require FIRB approval, if it involves:[3]

  • a foreign person acquiring either:
    • a substantial interest in an Australian entity;
    • an interest in Australian land; or
    • a “direct interest” in an Australian agribusiness;[4] and
  • it exceeds certain monetary thresholds. These thresholds vary depending on the circumstances and the type of investment.

COVID-19 Response

On 29 March 2020, the Federal Government announced that, as a temporary measure due to COVID-19, all monetary thresholds for the purposes of FIRB consideration were reduced to zero.

Government’s stated concern was that Australian assets and businesses might be subject to acquisition by foreign entities seeking to take advantage of the economic situation created by COVID-19.[5]

The changes were implemented through the Foreign Acquisitions and Takeovers Amendment (Threshold Test) Regulations 2020 (Cth) (“COVID-19 Regulations”). Notably, the COVID-19 Regulations do not have a set end date – the changes will remain until repealed.

The COVID-19 Regulations mean that nearly all transactions involving foreign persons now require FIRB approval. As a result, the timeframe for FIRB processing applications has increased from thirty days to some 6 months.  Notwithstanding this FIRB has indicated that priority will be given to applications relating to “investments that protect and support Australian businesses and jobs”.[6]

Proposed Permanent Changes

On 5 June 2020, the government further announced proposed permanent changes to the Act and related legislation in response to national security concerns. These changes are intended to be made through amendments to the Act this year and to be in force by 1 January 2021.[7] Draft legislation and regulations were released for public consultation on 31 July 2020.[8]

Mandatory FIRB approval will be required for all foreign investments in “national security businesses”, regardless of the value of the investment. The draft regulations define “national security businesses” as including businesses supplying goods or technology to the Australian Defence Force or intelligence agencies, as well as holders of critical infrastructure (such as electricity, ports, gas, and telecommunications).[9]

The Treasurer will also be given a new ‘call-in’ power to review investments that would not otherwise reviewable if he or she believes that the proposed action poses a national security concern. In exceptional circumstances, the Treasurer will also have a ‘last resort’ power to impose conditions, vary existing conditions or force divestment of any realised investment when national security concerns are later identified.[10]

The government’s proposed changes to the Act will also:

  • Provide further powers to enforce conditions imposed on applicants;
  • Create a single Register of Foreign Ownership of Australian Assets. Previously, registers were held only for certain assets such as agricultural land, water and residential land; and
  • Simplify the fee structure for applications.[11]

Conclusion

Due to the COVID-19 pandemic and national security concerns, the Australian government has tightened rules around foreign investment:

  • As a temporary measure due to COVID-19, all monetary thresholds are currently reduced to zero. This means that nearly all transactions involving foreign entities now require FIRB approval.
  • Timeframes for processing have increased from 30 days to 6 months.
  • Further permanent changes are proposed from 1 January 2021, which will require FIRB approval for all foreign investments in sensitive businesses, including those involved in military procurement and infrastructure.
  • The compliance and enforcement regime will be expanded.
  • The Treasurer will be granted new “call in” and “last resort” powers to intervene in transactions on national security grounds.

These changes will impact many businesses proposing to enter into transactions with foreign entities.

How we can help you

JHK is assisting many businesses and individuals affected by COVID-19 and the responses by governments to the crisis. If you are involved in a transaction that may require FIRB approval or if you have any other enquiry, please do not hesitate to contact us.

Written by Matthew Paul, Lawyer

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[1] Section 4 Act.

[2] Section 4 Act.

[3] Section 47 Act.

[4] Generally, this is an interest of at least 10%, or 5% if the person who acquires the interest has entered into a legal arrangement relating to the businesses of the person and the entity – section 16 Foreign Acquisitions and Takeovers Regulation 2015 (Cth)

[5] https://firb.gov.au/qa-temporary-changes-foreign-investment-framework

[6] https://firb.gov.au/qa-temporary-changes-foreign-investment-framework

[7] https://www.abc.net.au/news/2020-06-05/foreign-investment-restrictions-tighten-australian-businesses/12324276

[8] https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/foreign-investment-review-board-consultation-exposure.

[9] Exposure Draft Regulation (Definition of National Security Business) https://treasury.gov.au/consultation/c2020-99761

[10] Foreign Investment Reform (Protecting Australia’s National Security) Bill 2020 (Cth) Draft Explanatory Memorandum, pp. 13-14.

[11] Draft Explanatory Memorandum, Chapters 3-5.

What are the options you have when your Company is in financial distress?

COVID-19 has had a vast impact upon Global economy and our Australian economy at home, with small to medium sized businesses being some of the ones who have been most effected having to be forced to shut for up to three months with very limited income, or without income at all. Whilst the Government has provided various businesses with economic stimulus packages to keep afloat, in many instances it has not been enough.  If your company has been impacted financially due to COVID-19, this article will provide you with information as to some options to consider for your company including the closing, liquidation, or restructuring of your company.

Your company may have various creditors seeking payment from you and you simply no longer have the ability to pay those creditors even in the near future, once the pandemic passes. As such, you may be considering placing the company into liquidation or administration or simply considering to de-register. It is a director’s duty to ensure that, amongst other things, they act in good faith, avoid conflicts of interest, exercise director powers for a proper purpose, and retain discretion and to exercise reasonable care, skill and diligence. Acting in this way includes ensuring the company does not trade whilst insolvent. While the safe harbour provisions under Section 588GA of the Corporations Act 2001 (Cth), provide some protection for directors who incur debt of the company, due to directors taking a course of action that would lead to a better outcome for the company, one of the options foreshadowed below may be viable to you to avoid breaching the directors duties, if the safe harbour protection provisions do not apply to you.  If you are unsure as to whether you have breached your director’s duties or whether the safe harbour provisions apply to you, see our article “Temporary Changes to Safe Habour Provisions” by Kate Witt HERE.

Voluntary Administration

Voluntary administration may be a viable option for your company if there is a prospect to resolve the company’s existing financial distress with a view to continue to trade in the future. The appointment of a voluntary administrator may be affected by either a secured creditor, a liquidator (or provisional liquidator), or most commonly, by a resolution of directors that the company is insolvent, or likely to be insolvent. In these circumstances, the appointment of a voluntary administrator will place the company’s future in the hands of an external professional and qualified person to take carriage of the company’s financial affairs and navigate the period of financial distress.

The main benefits of voluntary administration for the company may be some or all of the following:

  1. Avoiding liquidation and closing the business long term;
  2. Allowing the administrator to assess and put in place a viable plan for the company for the benefit of the company and its creditors, which ultimately relieves the stress of the director having to do this;
  3. Allowing the company to continue to trade and derive an income;
  4. Provide a return to creditors whilst the company continues to trade;
  5. Reduces the possibility of secured creditors enforcing their security against the company while the company is in voluntary administration.
  6. If voluntary administration is approved, there is a possibility that any alleged insolvent trading carried out by the director, may be eliminated;
  7. At the end of the voluntary administration, the creditors can decide as to the future of the company by voting on the following options:
  • Allowing the director to return to take control the company so that the director can continue carrying on the business; or
  • accept a deed of company arrangement which will particularise repayments of debts owed by the company to creditors; or
  • place the company into liquidation.

Upon the appointment of a voluntary administrator, within 8 days the administrator must hold a first meeting of creditors whereby creditors can vote at the meeting to place the administrator and/or create a committee of inspection. The second meeting of creditors is to take place within 25 days of the appointment where the creditors may make a decision as to the future of the company taking into consideration the options referred to in item g. above. Many companies which enter voluntary administration are able to survive and carry on after the period of administration which makes voluntary administration an appealing option for many directors of companies which are suffering from existing financial distress but have an opportunity to continue to trade long term with good assistance and planning.

Director Initiated Liquidation

If voluntary administration is not a viable option for your company as there may not be future prospect for continual trading of the company, appointing a liquidator to your company will mean that you place the company in the hands of a qualified person to take control and attend to the orderly winding up the company in a fair way for the benefit of all creditors to the company. A director-initiated liquidation will generally a require calling a meeting of members (also known as shareholders) to vote on the winding up of the company and the appointment of a liquidator.  Upon the winding up of the company, it is important for the director to understand that upon the winding up, the director no longer has control over the company and that the liquidator has the power to:

  • carry on the business of the company so far as its necessary for the beneficial disposal or winding up of the business;
  • collect, protect, sell / realise assets of the company to pay creditors;
  • investigate and report to creditors as to company’s affairs;
  • make inquiries as to the reasons why the company has failed. This may include making inquiry with the director, or pursuing the director for breach of directors’ duties;
  • distribute any proceeds recoverable in the liquidation.

The liquidator has a number of legal obligations upon being appointed and it is likely the liquidator will require the director’s assistance in being able to fulfil these some of legal obligations. Accordingly, it is important that directors comply with the liquidator’s requests as to the affairs of the company and producing the company’s books and records, otherwise there may be serious penalties, including fines and criminal charges.

Deregistration

An alternative to the above external administration options, if you are in a position where you do not have any creditors, and are simply seeking to close your company you may be considering to voluntarily deregister to your company with Australian Securities Investments Commission (“ASIC”). In order for you to apply to de-register your company with ASIC, the company must meet the following criteria:

  •  all members have agreed to the deregistration;
  • ensure the business is no longer being conducted;
  • have company assets less than $1000;
  • have no pending legal proceedings;
  • declare that there are no creditors to the company (including employees);
  • have no outstanding fees owed by your company to ASIC.

upon confirmation that the company meets the above criteria, you may seek to apply to ASIC for de-registration. ASIC will review the application and process it upon being satisfied that the company fits the above criteria.

The consequences of all types of external administration and/or the deregistration process differ depend upon whether the company is placed into voluntary administration, liquidation or is deregistered, some of which may be consequences imposed upon the directors themselves and can include suspension of directorship, fines or criminal penalty. As such, it is important to obtain independent legal advice and financial advice prior to considering the options foreshadowed above, to ascertain the best option for you, the creditors and the business.

How we can help you

JHK Legal regularly assists various companies in financial distress and with our vast range of expertise having acted for both companies and directors and insolvency practitioners, we can facilitate a legal pathway for you and the future of your company. If you require assistance in relation to determining your company’s future, please reach out to the JHK Legal team.

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Written by Hayley Tibbie, Associate

Another win for Small Businesses: Bendigo Bank’s contract terms are declared “unfair”

The November 2016 amendments to Schedule 2 of the Competition and Consumer Act 2010 (Cth) (“ACL”) to extend the definition of “unfair contract terms” to apply to small businesses has again provided for the necessary protections it had set out to achieve in the recent matter of ASIC v Bendigo and Adelaide Bank Limited [2020] FCA 71.

Previously, we wrote on the applicability of the ACL and small business contracts to leases – which can be found here. As discussed, a small business can rely on this legislation if they have entered into a “small business contract” in circumstances where:

  • At least one party is a business that employs less than 20 people – whether that be you or the other party;
  • Upfront price 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’.

The ACL is specific to ‘standard form contracts’ in the areas such telecommunications, utilities, travel industries or commercial leasing.

More specifically to financial products, the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) applies to the provision of financial services including consumer contracts and contracts for credit facilities. Section 12BG(1) of the ASIC Act, states that that a term of a contract will be deemed as unfair where:

  • it would cause significant imbalance in the parties’ rights and obligations arising under the contract; and
  • it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantages by the term; and
  • it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied upon.

Of note, from October 2021, the unfair contract terms regime under the ASIC Act will also apply to insurance contracts under the Insurance Contracts Act 1984 (Cth).

ASIC v Bendigo and Adelaide Bank Limited [2020] FCA 71

In ASIC v Bendigo and Adelaide Bank Limited [2020] FCA 71, ASIC brought proceedings citing concerns that Bendigo and Adelaide Bank Limited (Bendigo Bank) held as many as 15,529 non-compliant loans with values of under $1 million dollars which included bank guarantees, overdrafts and general commercial loans.  While Bendigo Bank acknowledged that the terms were unfair and that Bendigo Bank had not relied any of the relevant terms in a manner that was unfair or caused any borrowers to suffer loss or damage, ASIC chose to pursue for declaratory relief.

ASIC summarised their concerns for small businesses in a statement on 29 May 2020 – “Small businesses, like consumers, are often offered contracts for financial products and services on a ‘take it or leave it’ basis, commonly entering into contracts where they have limited or no opportunity to negotiate the terms. These are known as ‘standard form’ contracts. Small businesses commonly enter into these ‘standard form’ contracts for financial products and services, including business loans, credit cards, and overdraft arrangements.”

Justice Gleeson held, amongst orders to replace provisions contained within the contacts, that Bendigo Bank provide an undertaking to the Court that they would not use or rely upon the provisions.

There were four contentious types of clauses that were considered by the Federal Court:

Indemnity Clauses

Clauses of this nature is where one party (the Borrower) provides an obligation to another party (the Lender) to compensate for any liability, loss or costs arising out of the contact.

The Court considered in this matter the relevant clauses were unfair:

  • as they could cause detriment to the Borrower if applied or relied on by the Lender;
  • as it created a significant imbalance of parties’ rights and obligations in circumstances where:
    • there were no corresponding rights of indemnity provided to the borrower; and
    • the Borrower had no control over the costs that could be incurred and the Lender could control some (if not all) of the circumstances where costs may be incurred;
  • there was limited to no transparency within the terms – ie “legal expenses on a full indemnity basis” and contained numerous cross-references to other terms; and
  • as there was nothing else in the contract to mitigate the unfairness.

Event of Default clauses

This type of clause set out events or circumstances that would constitute a default by one party (the Borrower) and the acts which the other party (the Lender) can take as a result of the default.

In this matter, the Court considered the event of default clauses to be unfair as the clauses created a significant imbalance of parties’ rights and obligations where:

  • the consequences were disproportionately severe to the default;
  • they did not provide the borrower with an opportunity to remedy any default (where a default can be remedied);
  • the event of default does not create any detrimental credit risk to the lender;
  • there was nothing else in the contract to mitigate the unfairness; and
  • the clauses could cause detriment to the Borrower if applied or relied on by the Lender.

Unilateral variation or termination clauses

Where by one party (the Lender), without the other party’s (the Borrower’s) consent can vary the terms of the contract or terminate without notice.

These clauses were considered unfair as they created a significant imbalance of parties’ rights and obligations in circumstances where:

  • insufficient notice period would be granted to the borrower where the lender seeks to reduce the amount of funds available to them under the facility;
  • the clauses allowed the Lender to vary the terms without consent and no corresponding rights were afforded to the Borrower;
  • the lender was able to terminate the contract if the Borrower did not accept new varied terms, or the Lender would need to pay fees if elected to terminate;
  • there was nothing else in the contract to mitigate the unfairness; and
  • the clause could cause detriment to the Borrower if applied or relied on by the Lender.

Conclusive evidence clauses 

In these clauses one party (the Lender) has the ability to provide a document (usually in the form of a certificate) to the other party (the Borrower) which states the amount outstanding under the contract and that no further evidence is required to substantiate same. It places the evidential burden of disputing the debt on the Borrower.

It was decided these clauses created a significant imbalance of parties’ rights and obligations in circumstances where:

  • the evidential burden is placed on the borrower to provide the primary evidence and, when disputed, there needs to be evidence of a manifest error;
  • the clause could cause detriment if the certificate issued was incorrect and there was no way for the Borrower to disprove it;
  • there were no corresponding rights afforded to the Borrower; and
  • there were additional duties imposed on the lender.

JHK Legal regularly act for both lenders and small businesses in providing advice on unfair contact terms contained in standard form loan agreements. This determination in particular, provides a timely reminder to lenders providing financial accommodation to small businesses to review their contracts in light of the Court’s findings and the possible financial sanctions that could be imposed by ASIC in the event their terms are read to be unfair. Similarly, if you are a small business who have entered into, or looking to obtain finance, please reach out to the JHK Legal team to obtain advice on your rights, interests and obligations and the enforceability of the loans by the lender.

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Written by Isabella Matassoni, Associate

 

 

Instant Asset Write Off Scheme

The current scheme

The instant asset write-off scheme provides immediate tax deductions for eligible businesses for new or second-hand plant and equipment asset purchases such as vehicles, tools or office equipment used for tax-deductible purposes.

On 12 March 2020, as part of the Government’s stimulus package in response to the COVID-19 pandemic, changes were made to the instant asset write off scheme that would remain in effect until 30 June 2020.

The changes from 12 March 2020 include:

  • the instant asset write off threshold being increased from $30,000 to $150,000
  • the eligibility being expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million)

The above changes apply from 12 March until 30 June 2020 for applicable assets first used or installed ready for use in this timeframe. As such, eligible businesses will be able to claim an immediate deduction for depreciating assets that cost less than $150,000. There are, however, limitations that apply, including a car limit that applies to passenger vehicles: the limit is $57,581 for the 2019–20 income tax year. Further, if your asset is for business and private use, you can only claim the business portion.

It is important to note that the scheme cannot be used for assets that are excluded from the simplified depreciation rules, including:

  • assets that are leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease;
  • assets you allocated to a low-value assets (pool) before using the simplified depreciation rules;
  • horticultural plants including grapevines;
  • software allocated to a software development pool (but not other software)
  • capital works deductions – for example new buildings and certain improvements.

Further details on the scheme can be found HERE on the ATO website.


Extension to current scheme

On 9 June 2020, the Government announced that it will be extending the changes to instant asset write-off scheme that was due to end on 30 June 2020 for a further six months until 31 December 2020. The proposed extension is still subject to parliamentary processes and is not currently in force yet.

Without the extension, the $150,000 instant asset write-off threshold would have reverted back to its original level of $1,000 and would only be eligible to businesses with a turnover of less than $10 million from 1 July 2020.

Key considerations

The instant asset write-off scheme can help improve cash flow for your business by bringing forward tax deductions.

  • The threshold applies on a per asset basis, which means that multiple assets can be written off immediately, provided that each asset costs less than the $150,000 threshold – for example the business can purchase 4 trucks each for $150,000 and claim the tax deduction on each truck.
  • The asset must be first used or installed ready for use for tax-deductible purposes during the period 12 March 2020 to 30 June 2020 – to be extended to 31 December 2020.
  • With the extension to 31 December 2020, eligible businesses will have additional time to acquire and install assets so the deduction can be applied in the timeframe with the increased threshold allowance.

Purchasing the Asset

If you have been planning to invest in assets to help grow your business – now is a great time to do it!

If the business does not have the funds readily available, it may be able to borrow to fund the purchase of the assets and still be eligible for the immediate tax deduction.

If the business is utilising a finance facility to buy multiple assets, it will also be able to claim the deduction on each of the assets, provided that each asset costs less than the $150,000.

Please feel free to reach out if you are considering taking advantage of the current scheme and purchasing an asset or multiple assets through finance. We can provide you with advice on the finance documentation and structure of any finance facility to ensure your business’s interests are best protected.

We can also provide assistance and act on your behalf in securing an asset. In particular if second-hand plant and equipment asset purchases are being negotiated and purchased by way of a deed of sale or contract.

Eligibility under the scheme

Determining your eligibility under the instant asset write off scheme and whether the assets you intend to invest in are covered under the scheme is not a straight forward task.  We can provide you with specific advice tailored to your current situation and help navigate through the current scheme under the Tax Laws and the new regimes in place as part of the government’s response to the COVID-19 pandemic.

Should you require assistance as to your eligibility for the instant asset write off scheme or have any general enquiries, please do not hesitate to contact us.

Written by Kristina Ghobar

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