Defensive Debtor Control – Clint Coles

Undertaking work before being paid is a part of business.  If you’ve been in business for a while you’ll know the difficulties that can arise in getting paid after the fact.

This is a situation where prevention is much better than cure.  There are a number of steps that a business can take to greatly reduce the likelihood of payment problems arising.

Although it seems simple, the first is often overlooked.  It is important to properly identify who your business is dealing with and to make an assessment of the creditworthiness of the entity you are contracting with.  People and companies can enter into contracts, but nobody else.  Identification troubles arise particularly when businesses purport to contract with business names, trusts and partnerships.  The identity of companies and the people behind it can be verified by a search with ASIC.

Secondly, a business needs to have enforceable written contracts.  Often these contracts can be generic documents suitable for adaptation to many different jobs, but, it is important that they clearly state the scope of the work and the payment terms.  For the supply of goods, they may include retention of title clauses which provide the supplier with a form of security.  The use and effect of such clauses is controlled by the Personal Property Securities Act.

When dealing with smaller companies particularly, the lines can be blurred as to whether the company owns any assets capable of satisfying its financial obligations or whether the assets are really owned by the people behind the company.  In these situations it is always prudent to have the people behind the company guarantee the company’s performance of the contract.  That is, if the company doesn’t pay, the people that stand behind it must.

In some cases, it may also be appropriate for a business to consider taking some form of security for the money they are to be paid.  The mortgage is a form of security that most people are familiar with – if you don’t pay the bank as you promised, they take your house – but there are a great many other forms of security available to businesses.  It’s possible to take security over assets other than land or to have a third party offer some form of security on behalf of the contracting party.

If you want to improve your business’s financial security, contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles

We are still learning – Ken Sorrenson

The saying “the only constant is change” certainly applies to the law and legal practice generally. Laws and client needs are constantly changing.

To be an expert and effective solicitor, a lifetime of continuing legal education is required.  In that context Everingham Solomons is very pleased to announce that Clint Coles has been awarded a Master of Laws degree by Sydney University.

The Master of Laws course conducted by Sydney University is without doubt one of the most rigorous and prestigious in Australia.  Clint’s studies centered particularly upon commercial law subjects such as –

  • advanced rules for the drafting and interpretation of commercial contracts, the ability for terms to be implied into contract and the availability of juristic remedies in the case of ambiguity;
  • personal and corporate insolvency including the roles of directors, proprietors, creditors and secured parties in insolvency;
  • Australian business taxes particularly the major transaction taxes of capital gains tax, stamp duty, GST and the various carve outs and concessions;
  • advanced study of the establishment and use of the commercial trust as a vehicle for business and investment, the regulation of managed investment schemes and the potential liability of trustees and beneficiaries,
  • the rationale behind and implementation of the recently developed Personal Property Securities regime in Australia, its impact on borrowers and secured parties and its role in the leasing environment; and
  • structuring strategies for asset protection in the estate and business planning context.

The knowledge gained by Clint through this course coupled with his earlier achievements of Bachelor of Laws and Master of Commercial litigation and his continuing taxation studies through the Taxation Institute of Australia equip Clint to expertly deal with a wide range of matters of behalf of his clients.

Everingham Solomons has an absolute commitment to providing the best possible advice to its clients now and into the future. To do that, everyone at Everingham Solomons will continue to learn because Helping You is Our Business.

Click here for more information on Ken Sorrenson

 

Air Conditioning in Rented Premises

In our climate, effective air conditioning is usually very important to any lease of retail or office space. A recent Victorian Civil & Administrative Tribunal case highlighted the legal importance of properly documenting and then complying with air conditioning arrangements.

In this case the tenant operated a Pilates studio from a retail premises in Melbourne. When the lease commenced the parties agreed to insert a special condition to the effect that –

  • the landlord would install new air conditioning;
  • thereafter it would be the tenant’s responsibility to maintain the air conditioning; but
  • the landlord remained responsible for any capital repair costs.

Rather than install new air conditioning however the parties subsequently agreed that the landlord would refurbish an existing air conditioning unit installed in the premises. The landlord did that but the unit did not function properly. The tenant advised the landlord of the problems and requested the air conditioner to be replaced. The landlord counted that it was the tenant’s responsibility to maintain the air conditioning unit per the special condition in the lease.

Ten weeks after the tenant notified the landlord of the air conditioning problems, the tenant vacated the premises and argued that the landlord’s failure to repair or replace the air conditioning unit amounted to a repudiation of the lease by the landlord.

The Tribunal agreed with the tenant. In doing so it made various findings of fact including that the landlord’s failure to make the air conditioning system function properly was a fundamental breach of the lease.

At Everingham Solomons we can help both landlords and tenants in properly documenting agreed arrangements in relation to air conditioning and all other lease issues because Helping You is Our Business.

Click here for more information on Ken Sorrenson

Landlord and Tenant – What’s the best form of security? – Ken Sorrenson

KJSbwI’m often asked by Landlords what’s the best form of security to take from a tenant?

The usual forms of security are one or more of the following: –

  • Personal guarantee from directors or shareholders of a corporate tenant,
  • Cash bond; or
  • Bank guarantee

I generally recommend a bank guarantee.

A personal guarantee requires either a voluntary payment by the guarantors or for a landlord to sue the guarantors. Frequently, a personal guarantee proves to be ineffective because if the tenant can’t pay the rent there’s a good chance that the guarantor’s financial position may not be much better.

A cash bond involves the tenant actually paying an agreed amount of money as security for payment of the rent. If the premises are retail premises, the cash bond needs to be lodged with the New South Wales government. In the event of a breach of lease by the tenant, the landlord needs to apply to the government for the bond. As there are usually two sides to every story, commonly the tenant objects to the bond being paid to the landlord so the process for the landlord to get the benefit of the bond is neither quick nor easy.

In contrast, a landlord can require payment under a bank guarantee usually without prior notice to the tenant and the bank will simply pay the amount of the guarantee without question. That is the essence of a bank guarantee. It is an unconditional agreement by the bank to pay the landlord up to a certain amount of money on demand.

Regardless of what form of security a landlord may take, it may or may not be sufficient to fully compensate the landlord if there is a breach of the lease. The starting point for any landlord’s decision whether to lease to a potential tenant or not is to satisfy itself as best it can that the tenant has the capacity to pay the rent. This will ordinarily involve the landlord requiring financial disclosure from a tenant before entering into the lease.

At Everingham Solomons we have the experience and expertise to assist both landlords and tenants with all tenancy issues because Helping You is Our Business.

Click here for more information on Ken Sorrenson

 

Debtor Control – A Key to Business Survival

MJEvery business relies on cash flow to survive. It matters not whether you have the best prices, products and/or customer service: if you don’t learn how to properly maintain cash flow, your business will eventually fail. By taking a proactive approach to debtor control you can improve your business’s cash flow and enhance its profitability.

Preventing Bad Debts

Ensure you manage the risk of bad debts by implementing a clear payment and credit policy. Consider:

  1. Performing a credit check on potential debtors:-
    1. Consider having them sign a credit application form or credit agreement
    2. Conduct a pre-credit data check or/and ask for trade references
  2. Setting clear payment terms:-
    1. e.g. payment within 7 or 14 days from the invoice date.
      1. Try to set payment terms shorter than your supplier’s terms as this will also assist with cash flow.
    2. Ask for payment on delivery initially until your business relationship is stronger
  3. Making it easy for people to pay you:-
    1. Offer credit card or EFTPOS and train staff to accept payment

Maintaining Your Payment and Credit Policy

It is important to be CONSISTENT in applying your payment and credit policy. This will help you to recover your outstanding debt whilst maintaining a good relationship with your customers.

  1. Train staff as to the when and how’s of following up on outstanding debts
  2. Ensure you act promptly and consistently to follow-up on any outstanding or owing payments by:
    1. contacting your debtors quickly with regard to any overdue invoices e.g. when payment is 7 days overdue
    2. Chasing overdue payments by sending clearly marked statements, reminders or final notices
    3. phoning the debtor and asking them if there is an issue
      1. If there is an issue try to arrange a payment plan that would suit you both
  3. In the event payment is still outstanding consider reviewing your credit terms for that customer e.g. payment on delivery

Recovering Outstanding Debts

If payment remains outstanding you might consider using mediation to help resolve your issue. This can save time and your matter might be settled in a way that suits both you and your client/customer. A magistrate can always make the final decision if no agreement is reached.

The dispute resolution team at Everingham Solomons can assist you at every stage of the debt recovery process. They will work with you to find the appropriate course of action and help devise strategies suited to your circumstances to ensure outstanding debts are recovered as quickly and cost-effectively as possible.

Can your business afford to wait?

At Everingham Solomons, we have the expertise and experience to assist you because Helping You is Our Business.

Do Directors Duties Continue After Retirement? – Ken Sorrenson

KJSbwBusiness relationships are like marriages. Some stand the test of time, others do not.

A company in which two or more unrelated parties are directors and shareholders is a very common structure. The parties involved usually know each other well and learn to accommodate each other’s idiosyncrasies for the good of the ongoing business.  That frequently changes when business operators age or die bringing new people into the business.

The recent case of Advanced Fuels Technology v Blythe arose in that factual situation.

The company Advanced Fuel Technology (AFT) had operated for many years under the equal control and management of Mr Blythe and Mr Thompson. Mr Thompson died unexpectedly and disputes arose between his widow and Mr Blythe which ultimately resulted in Mr Blythe resigning from the company and becoming involved in a business that was competitive with AFT.

Mr Blythe was not under any contractual restraint of trade following his resignation but AFT nevertheless alleged that –

  • His fiduciary duties as a director of AFT survived his resignation; and
  • He had breached those duties by seeking to take up business opportunities with AFT customers or proposed customers to the detriment of AFT.

The Supreme Court of Victoria decided that –

  • Statutory & fiduciary duties of directors do not simply end upon resignation;
  • Whether there is any breach of duty will depend upon the circumstances of each case; and
  • Calculated and surreptitious activity by a director with the view to involvement in a competitive business after resignation will likely breach both statutory and fiduciary duties even when there is no misuse of confidential information.

Each case will be decided upon its own merits but the clear principle is that a former director of the company will not be free to do as he or she may please to the detriment of the company following resignation.

At Everingham Solomons, we have the experience and expertise to assist in all corporate law matters because Helping You is Our Business.

Click here for more information on Ken Sorrenson

Do directors need an indemnity from the corporation they represent? – Terry Robinson

TLRbwWhilst a company structure generally protects directors from being personally liable to pay the company’s debts, this is not always the case. Further Directors may be fined personally by ASIC, or may have to pay the companies taxation liabilities such as PAYG or employee superannuation payments.

So, yes it is a good idea to have what is called a Deed of Access and Indemnity.

The deed is a contract between each director and the Company.

It gives the Directors access to the company’s records, payment of legal costs, and requires the company to affect directors and officers insurance, both during the director’s appointment and for a period of years thereafter.

The deed also provides a broad indemnity which means that the Company promises to pay a director for any liabilities and legal costs which arise from being a director of the company. It covers all claims arising from the acts or omissions to the maximum extent permitted by law.

Importantly the indemnity also covers a period of years (normally 6 years) after the director’s appointment has been terminated.

The Corporations Act however limits the indemnity that is provided. Firstly, you cannot be indemnified if you breach your director’s duties as specified in the Corporations Act. For example, if you incur debts when there is no reasonable prospects of the company being able to pay those debts, then you will be personally liable.

The key director’s duties include acting in good faith, acting in the best interests of the company and ensuring the company does not incur debts whilst it is insolvent.

Directors are also responsible to ensure that the company meets its financial obligations to employees, such as paying PAYG tax and paying employee superannuation.

The Deed of Access and Indemnity helps manage your risks as a director, particularly where you have acted in good faith.

At Everingham Solomons, we have the commercial experience to assist you with all of your business needs because Helping You is Our Business.

Click here for more information on Terry Robinson

TO AIRBNB OR NOT TO AIRBNB – Ken Sorrenson

KJSbwAirbnb and other similar types of short-term accommodation are now very widely used in NSW.

This has been controversial particularly in strata title developments. The perception of “permanent” strata residents has been that short term occupancies are disruptive and sometimes actually damaging to strata property. This has led many strata developments to pass bylaws intended to prohibit short-term lettings which in many cases have been ignored by owners seeking to maximise rental returns from their properties. The issue has become whether strata developments can legally restrict short-term letting?

The NSW Department of Fair Trading view is/was that-

“Strata laws prevent an owner’s corporation restricting an owner from letting their lot, including short-term letting. The only way short-term letting can be restricted is by council planning regulations.”

This view was endorsed by a 2017 NCAT Tribunal decision which held that a bylaw restricting letting to a minimum of 30 days was unenforceable. However, a more recent Privy Council decision has taken entirely the opposite view.

Whilst decisions of the Privy Council are not directly binding upon NSW Courts and Tribunals, the view of most experts is that the decision will be followed when the issue next comes before a NSW court or tribunal. The decision dealt with legislation that was materially identical to the NSW legislation and it also referenced with approval a 2017 Western Australian Court of Appeal decision to similar effect.

A sensible balance needs to be struck between the interests of permanent residents and those seeking to utilise Airbnb arrangements. The NSW Government commissioned a parliamentary enquiry into the adequacy of regulation of short-term holiday lettings. The government response to the report of that enquiry is available on the NSW Government website- www.parliament.nsw.gov.au .

At Everingham Solomons we have the experience and expertise to assist you with all leasing and property matters because Helping You is Our Business.

Click here for more information on Ken Sorrenson

The Christmas Break – George Hoddle

GRHThe heat has arrived in the North West and the countdown to Christmas is here. This is an opportunity for employers to review how their business deals with one of the biggest liabilities that sits on their books. It is of course annual leave.

The January period in the region for many industries and sectors is often the quietest month which in turn may or may not require a fully staffed workplace.

Under the National Employment Standards (NES) workers in full time employment are guaranteed a minimum four weeks annual leave per year or for some shift workers 5 weeks. If those minimum weeks of annual leave are not taken during the calendar year the residual leave not taken accumulates. If this is multiplied over a number of years a significant liability owed to employees can leave a business exposed.

A practical way to reduce this liability is to direct or require employees to take their annual leave over the Christmas/New Year shutdown. Approximately 28% of Australian workers are ‘forced’ to take annual leave each year.

Whether or not an employer can require an employee to take annual leave depends on the terms of applicable modern award (noting that there are 83 modern awards) and or the terms of their employment contract.

An employee should be given eight weeks written notice but no more than 12 months’ notice of forced leave. In circumstances where leave is required the leave must be at least one week. Employees cannot use personal leave as annual leave as these are two separate entitlements and under the NES cannot be traded off.

Another option to reduce liabilities is for employees to “cash out” their annual leave. An employer can’t pressure employees to do so and if agreed the agreement must be in writing. Any payment must be made at the same rate as if the employee was taking leave.

The potential exposure of accumulated annual leave highlights the need for correctly drafted employment contracts. At Everingham Solomons we have the expertise to advise you on the terms of modern awards and the drafting of employment contracts.

The team at Everingham Solomons wishes everyone a safe and Merry Christmas and we look forward to helping you in 2018 because, Helping You is Our Business.

Click here for more information on George Hoddle.

A historical look at the Company – Clint Coles

CCUp to the late middle ages, business was pretty steady. One family owned a cow, another owned a goat, there was mutual jealousy and so they were swapped. In time, money was used to facilitate more complex exchanges.  All in all, relatively few people were involved and there wasn’t a huge need for capital.

Around the 1600s though, people started exploring the world. Trade followed exploration and trade was very profitable so naturally the great families of the era liked to keep it to themselves.

However, there were two essential problems:

  1. firstly, intercontinental explorers were thin on the ground and trade required the wealthy to give some bold upstart a great deal of money and send him to some remote corner of the world; and
  2. secondly, trade exploration required a lot of capital and given the risks, often more than one family was willing to contribute on their own, so there was a need for joint investment from unrelated parties.

A system was needed to record who was trustworthy and who held whose money, so the monarch assumed the right to allow these early joint stock companies to operate. One of the earlier companies to receive a Royal Charter was the British East India Company which developed a reputation for oppressing India over a few centuries, so they changed their name to the Honourable East India Company to clear things up.

Through the colonial period, trade increased nations’ GDP which even the royal families saw as a good thing so slowly the regulation of companies was lowered and stock certificates came to be traded amongst progressively more common people.

The industrial revolution increased business size and technicality to unprecedented levels and the essential problems were heightened:

  1. investors didn’t have the foggiest understanding of Carnegie’s Steel or Rockefeller’s oil, and while they didn’t like these risks, they didn’t want to forgo their profits either; and
  2. companies had become so big, that they required the continual diversified funding of a large number of investors to continue expansion and operation.

Thus emerged the concept of limited liability. To get people to invest it was seen as necessary to create a law that:

  1. separated the shareholders from the company itself; and
  2. provided that shareholders could only be liable for the company’s risks up to the amount of share capital they had initially purchased.

That remains the essence of a limited liability company today, and explains why a right to sue a company does not include a right to sue its directors or shareholders. Without the rule, which sometimes seems harsh, our economy could not have developed as it has.

If you have any commercial law enquiries, contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles