Considerations in Commercial Leasing

CCThe ability to lease land and buildings is important for business.

Leasing property rather than purchasing it allows businesses to retain working capital to fund their primary enterprise.

Because leases are so common, they are frequently the subject of costly disputes.

Prevention is better than cure and one of the best ways to avoid your business coming into a dispute over a lease is ensure that the initial document is drafted by a lawyer who is mindful of the potential for disputes to arise.

Law firms like Everingham Solomons encounter a lot of disputes over lease agreements which have been drafted without the assistance of a lawyer, so we’ve developed a keen eye for spotting the type of risks that should be anticipated at the outset.

People immediately turn their mind to the obvious issues like the length of the lease and the rent payable, but they should consider less obvious issues, like:

  1. who will be responsible for any repairs to the premises during the term of the lease and whether there are to be contributions between the parties for expenses relating to the land;
  2. if it’s not immediately obvious, what legal access the lessee has to premises;
  3. in addition to the lease of land, whether the lessor grants any licences to the lessee, say for the use of vehicles, or to display signage
  4. who will maintain insurances for the building, public liability and any chattels that the lessee is licenced to use;
  5. whether there will be rental increases each year and whether there are to be any non-monetary contributions made between the parties;
  6. how the lessor will secure its rental payments if the lessee defaults, or in the case of a company lessee, if it becomes insolvent;
  7. whether the rights acquired by the lessee can be assigned to someone else, or whether the premises can be sublet.

Whether you are negotiating to enter a lease, or are in difficulty because of one, Everingham Solomons has the expertise & experience to assist you because Helping You is Our Business.

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NKW-booksRecover Your Debts, Enhance Your Cashflow and Improve Your Profitability

A business is operating efficiently, services are provided to customers and accounts are rendered but nevertheless the business begins experiencing cashflow problems. The unfortunate reality is, this is not a fictitious scenario. If your debt recovery procedure is deficient you may be on your way to becoming yet another business that fails due to negative cashflow.

The time to stop letting debtors control the future of your business is now. If you have issued an account in which payment is due and has not been forthcoming, take immediate action to recover the debt.

There are a vast array of cost effective recovery options available depending on the circumstances of the debt owed. It is often not necessary to issue a Statement of Claim and commence expensive court proceedings to recover your outstanding debts.

The dispute resolution team at Everingham Solomons can assist you throughout all stages of the debt recovery process. We will work with you to determine the most appropriate course of action and target strategies to suit your circumstances to ensure that your debts are recovered expediently and cost effectively.

You have little to lose and everything to gain. WHAT ARE YOU WAITING FOR?

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

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Change of Business Structure – Is it Taxable?

TRGenerally if you wish to change your business structure, say from a partnership to a company or trust, you must consider whether such restructure or transfer will involve a payment of capital gains tax, stamp duty and/or GST.

As a result of those taxes, many restructures do not take place and businesses operate with structures which are less than ideal for their circumstances.

A welcome Budget announcement is the proposed relief for small businesses who wish to restructure from the payment of capital gains tax.

The concession recognises that in the initial stages of a business, business owners often do not know whether their business will be successful and do not have the resources to spend on obtaining expert advice as to how their business ought to be best structured now and in the future.

You should be aware however that whilst the Budget proposal permits small businesses to restructure without incurring the cost of capital gains tax, the effects other taxes such as stamp duty and GST still need to be considered.

As always, with Budget announcements, the detail remains to be seen.

In a similar vein, the Budget also contained an announcement that small businesses that do seek professional advice when establishing their small business, will be entitled to claim an immediate deduction for professional expenses such as for legal and accounting advice.

At Everingham Solomons we have the expertise to assist you with all of your business needs including structuring and restructuring of your business because Helping You is Our Business.

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How Is Your Registered Office Functioning?

KXBbwAs is well known, the consequences of allowing a statutory demand served on a company to expire can be severe.  First of all, under the Corporations Act, a presumption of insolvency arises against that company.  Secondly, an application brought by the company after expiry to set aside the statutory demand on the grounds of a genuine dispute as to the relevant debt will be incompetent and is liable to be dismissed.  Thirdly, the creditor is then able to proceed with an application to wind up the company.

Problems relating to the expiry of statutory demands or other important notices, such as Director Penalty Notices issued by the Australian Taxation Office, arise frequently when a company’s external registered office (often its accountant’s office) has inadequate procedures in place to: collect mail received at the address it nominates for its clients’ registered offices; record the date that correspondence and notices are received; and then pass the correspondence and notices to clients in a prompt fashion.

A problem of that kind arose In the Matter of Futre Developments Pty Limited [2014] NSWSC 1712.  In order to be able to proceed with its application to set aside a statutory demand, Futre Developments had to satisfy the Supreme Court that its registered office had been served with the statutory demand on or after 18 September 2014.  In that way, its application filed on 9 October 2014 to set aside the statutory demand would not have expired (being within 21 days after service of the statutory demand).  The creditor asserted that service of the statutory demand occurred on 17 September 2014, which was supported by Australia Post’s records.

If the creditor was correct, the application to set aside would have been out of time.  Futre Development’s accountant, who maintained the registered office for that company, gave evidence of his usual mail delivery, collection and opening processes.  His evidence was that he had opened the envelope containing the statutory demand on 19 September 2014 and that he stamped it as received that day.  His evidence was that the earliest it could have been received at his office’s  letterbox was 18 September 2014.

Under scrutiny during cross examination, however, the accountant’s system for delivering proper registered office services did not hold up.  Some mail came to be delivered to his letterbox and some to his PO Box but it was not clear which occurred in this instance.  The accountant could not be sure that he attended the office on 18 September 2014 at all and his calendar did not clear matters up.  Thus, the mail collected by him on 19 September 2014 could have been there on 17 September 2014, as asserted by the creditor.

The best evidence available to the Court, therefore, was that the statutory demand had been served on Futre Developments’ registered office maintained by its accountant on 17 September 2014.  Futre Developments’ application to set aside the statutory demand was therefore out of time.  Its application was dismissed and it had to pay the creditor’s costs.   To avoid being wound up by the creditor, it would then have had to pay the amount demanded.

The case is a lesson for companies that maintain an external registered office with their accountant, solicitor or some other person.  The procedures in place at the registered office to collect and receipt important correspondence and notices on a daily basis, and then promptly bring those to the attention of clients, must be of the highest order.  Companies should enquire about the procedures in place at their registered offices and be satisfied that correspondence and notices sent there are dealt with appropriately.  For the accountants, solicitors and others whose premises are nominated as their clients’ registered offices, there is a degree of risk involved in that role but also the opportunity to provide an additional quality service to clients, and to be the first informed when issues arise for clients that require additional advice and assistance.

At Everingham Solomons, our Commercial and Dispute Resolution teams are well equipped to advise you on corporate governance issues and to promptly address problems such as that experienced by Futre Developments when they arise because Helping You is Our Business.

Click here for more information on Keiran Breckenridge.

Oppression of Shareholders

KXBbwBusiness people regularly come together as shareholders of a new or existing company to advance a joint venture.  Mostly, things go smoothly and the relationship is mutually beneficial.  There are times, however, when relationships sour (mostly over money) and the company comes to be dominated by one or two individuals.  The less dominant shareholders can find the company’s affairs being run contrary to the interest of the shareholders as a whole or in a manner that is oppressive to, unfairly prejudicial to, or unfairly discriminatory against those shareholders.  What to do?

The Corporations Act 2001 (Cth) contains provisions that allow shareholders who find themselves in this position, and without other options to resolve matters, to seek a range of orders through the relevant Court.  For example, the Court can modify or repeal the company’s constitution.  The Court can make orders regulating the company’s affairs.  It can order one party to buy out another’s shares.  It can restrain a person from engaging in certain conduct and it can require a person to do a certain act.  In the worst cases, the Court can order the company to be wound up and a liquidator appointed.

Of course, seeking orders from the Court comes with stress, inconvenience and significant cost.  At Everingham Solomons, we prefer our clients to take steps at the outset of their joint venture to talk with their joint venture partners about what will happen if a dispute arises and how such a dispute will be resolved.  Dispute resolution mechanisms can be built in to a company’s constitution or a joint venture agreement that take the parties through informal settlement steps, a mediation and/or an arbitration before taking the option of seeking relief from the Court.  With the help of a trained mediator and/or arbitrator, this can often see disputes resolved cheaply and efficiently or, if not, a plan developed for the parties to part ways without loss or future acrimony.

We have the expertise at Everingham Solomons to smooth your entry into business and your exit because Helping You is Our Business.

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Restraint Clauses

KJSbwIt is very common to find restraint on competition clauses in commercial agreements such as employment contracts and business purchase agreements.

There is a very developed body of law in relation to restraint clauses in employment contracts.  Essentially they are very difficult to enforce as they are scrutinised very carefully by Courts with the onus being on the employer to prove that they are reasonable and necessary to protect the employer’s legitimate interests.  For that reason, employee restraints need to be very carefully and conservatively drafted.  Broad probations on the employee trading in competition with the ex-employer are most unlikely to be successful.

In a purchase of business situation however anti-competitive restraints have traditionally been viewed more favourably by the Courts.  If a purchaser has paid a large amount of money for the good will of a business, it is often reasonable that the purchaser be protected from future competition by the vendor which might diminish the value of what the purchaser has paid for.

A recent decision of the NSW Supreme Court in the case of “Then There Were Three Pty Ltd v Douglas” is a reminder that even in a purchase of business situation, restraints will be carefully considered with the onus still being upon the party seeking the protection of the restraint to prove that it is reasonable and necessary.

In that case, the vendor and purchaser to a share sale transaction had agreed to a restraint which even contained an express acknowledgement by the vendor that it was reasonable in all the circumstances.  The purchase price was payable by instalments over a four year period with those instalments being subject to adjustment depending upon the financial performance of the business after completion and also the retention of a key employee.  Ultimately the Court held that these other grounds for adjusting the purchase price made the restraint clause less important to the protection of what the purchaser had paid for and declined to enforce the restraint.

Proper drafting of restraint provisions and enforcement of them when necessary is a matter requiring expert advice.

At Everingham Solomons, we have the expertise to assist you in all issues relating to the drafting and enforcement of commercial contracts because Helping You is Our Business.

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Creditor’s Statutory Demand for Payment of a Debt – An Action Against a Company

GRHThis is an option for enforcement of a judgment when the judgment debtor is a company and the judgment debt exceeds $2,000.00.

A creditor’s statutory demand for payment must be made in the prescribed form and must be accompanied by an affidavit from or on behalf of the creditor stating that the judgment debt is owing. On service of the demand the options for the judgment debtor company are as follows:

  1. Pay the creditor the judgment debt; or
  2. Bring an application in the Supreme Court of New South Wales to have the demand set aside.

If the judgment debtor company does not respond to a statutory demand within 21 days of service, it is deemed to be insolvent under the Corporations Act. After expiry of the 21 days an application can be made for the winding up of that company in the Supreme Court of New South Wales.

When a company is deemed insolvent and an order is made for its winding up, the Court appoints a Liquidator to undertake investigations into the affairs, books and conduct of the company, and potentially its directors. From this the creditors are to be paid depending on other debts of the company.

For a debtor company to set aside a creditor’s statutory demand it must raise that there is a genuine dispute in relation to the debt which is the subject of the statutory demand.  The test for a genuine dispute is not a high one for the debtor company to meet. Because of this it is advised that only uncontroversial debts or judgments be the subject of any creditor’s statutory demand.

This is an efficient and effective way to pursue a debt against a company. Any Company served with a creditor’s statutory demand should take it seriously due to the ramifications of a winding up order.

From experience it is the leverage of a creditor’s statutory demand that can yield results in a creditor receiving monies owed under a judgment by a company.

As with any litigation the enforcement of judgments should be taken with a commercial view.  You may well not receive all or any of the monies owed to you under a judgment.

If you hold a judgment against a company or your company has received a creditor’s statutory demand for payment, you should contact a solicitor for advice.

At Everingham Solomons, our dispute resolution team is committed to providing the most time and cost efficient outcome when pursuing enforcement of judgments because Helping You is Our Business.

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Personal Property what?

KXBbwMany businesses gloss over the Personal Property Securities Act 2009 (Cth) (PPSA). How is it relevant to my business? Doesn’t it have something to do with people’s personal property – their furniture, TVs, iPads, watches and the like?

In fact, the PPSA is more relevant to the property of businesses than it is to the goods used in people’s households for domestic use. Personal property is essentially all property except for land and items affixed to the land. It includes the plant and machinery of a business, and its inventory. It includes the crops and livestock of a farming business. Personal property can include more intangible items like intellectual property, shares and accounts.

Essentially, the PPSA allows the holder of a security interest in personal property that is in the hands of another to register that interest on the Personal Property Securities Register (PPSR) and protect that interest against the world at large.

Take the example of Jane’s Jewellery Store. To get her business started, Jane borrowed from XYZ Bank and, to secure that loan, Jane gave a charge to XYZ over the whole of the business. XYZ promptly registered its charge over the business as a security interest on the PPSR.

Jane’s carpenter friend, Adam, supplied and fitted some new cabinetry in the jewellery store. Jane could not pay, so Adam said that he would proceed with the work but retain title to the cabinetry until Jane paid him. Adam did not register a security interest in the cabinetry on the PPSR against Jane’s business.

Jane’s jewellery designer friend, Mary, supplied items of jewellery on consignment to Jane for sale in the store. John rented a cash register, a computer and a safe to Jane. Neither Mary nor John registered their security interests on the PPSR against Jane’s business.

Months later, Jane’s cash resources dried up, and she was forced to put her business into liquidation. XYZ, the only party with a registered security interest, took possession of all the personal property within the business and sold it to repay the debt owed by Jane. By failing to register their security interests over the personal property they had supplied, each of Adam, Mary and John surrendered their security interests to Jane’s Jewellery Store on its liquidation and the priority security interest of XYZ prevailed. Adam, Mary and John were left only with money claims against an insolvent business.

If you can see yourself in this scenario, contact us at Everingham Solomons for personalised advice because Helping You is Our Business.

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High Court says Employers and Employees can’t Trust one Another

CCCommonwealth Bank of Australia v Barker –

An interesting case arose recently in the High Court of Australia (‘HCA’) when a loyal employee took on his former employer, one of Australia’s largest banks.

Mr Barker had been employed by the Commonwealth Bank of Australia (CBA) for about 18 years in its financial services sector, which was being restructured.

On 2 March 2009, Mr Barker was told by his bosses that the bank had decided to make him redundant.  The bank was going to try and find Mr Barker another suitable position within the bank (‘the redeployment’), but failing that, he would be terminated four weeks later (‘the notice period’).  Mr Barker was told to spend the rest of the day cleaning out his desk, but not to return to work the following day, or for the remainder of the notice period.  At the same time Mr Barker’s access to his work email account and his work voicemail messages was blocked.

On 20 March 2009, members of the bank’s management sent correspondence to Mr Barker’s work email, seeking to assist Mr Barker with the redeployment.  Having no access to his work email, Mr Baker did not receive that correspondence until it was passed onto him later on 26 March 2009.

Having received notice of the possible redeployment initiative only days before his scheduled termination, Mr Barker argued that he had lost the chance to participate in the redeployment process.

Mr Barker was covered by a written employment contract (‘the contract’) and his termination had largely been conducted in accordance with it.  Mr Barker argued however, that although it did not appear in the writing of the contract, the court should imply into the contract a term that the bank would maintain trust and confidence with [Mr Barker] (‘the term of trust’).  Mr Barker further argued that, because of the failure on the bank’s behalf to properly notify him of the redeployment initiatives, the bank had breached the term of trust, which he asserted to be implied.

Mr Barker won his argument in front of a single Judge of the Federal Court of Australia (‘FCA’), but the bank appealed to the full court (seven Judges) of the FCA, where Mr Barker won again.  The bank then appealed again to the High Court of Australia (‘HCA’), which is the last right of appeal in the Australian court system.

Mr Barker lost in the HCA.  The HCA said that the term of trust could not be implied into the contract because it was not necessary for the contract to act effectively.  The fact that such a term may have made the contract more reasonable, was not enough to force its implication.

If you have an employment law question, contact Everingham Solomons because Helping You is Our Business.

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How reasonable must ‘Reasonable Endeavors’ be?

CCMany commercial contracts contain provisions to the effect that one party must use their reasonable endeavors, best efforts or best endeavors to fulfill some promise to another party.

In the recent case of Electricity Generation Corporation v Woodside Energy, the High Court of Australia examined exactly what an obligation to use reasonable endeavors involved.

Woodside Energy (Woodside) and another business called Apache Energy (Apache), were the two main suppliers of natural gas in Western Australia.  Electricity Generation Corporation (EGC) was a statutory body that supplied electricity to Western Australia and relied on natural gas from both Woodside and Apache to power its electricity stations.

EGC had entered a long term contract to buy natural gas from Woodside at a certain price (the initial market price).  There were two relevant clauses in the contract, stated, essentially as follows:

Clause 3.2       Woodside will make available to EGC a guaranteed daily quantity of gas (GDQ);

Clause 3.3       In addition to the GDQ, Woodside will ‘use reasonable endeavors, taking into account all commercial, economic and operational matters’ to make available to EGC a supplemental daily quantity of gas (SDQ), should it be requested by EGC;

In June 2008 an explosion occurred at an Apache gas plant and stopped the plant’s production.  As a result there was an undersupply of gas in the Western Australian market, driving up gas prices.

Shortly after the explosion, Apache and others, entered agreements to buy gas from Woodside above the initial market price.  Woodside, now able to receive a higher price for their gas elsewhere, informed EGC that they would no longer make the SDQ available to EGC at the initial market price.

These facts gave rise to a dispute about whether Woodside had breached their obligations to use reasonable endeavors to supply the SDQ to EGC, by refusing to supply the gas to EGC at the lower price.

By a majority of four judges to one, the High Court sided with Woodside.  Applying commercial considerations and having regard to the wording of clause 3.3, the court said that the contract did not oblige the Woodside to forgo or sacrifice their own business interests when applying their reasonable endeavors to supply the SDQ.

So, as it turns out, when it comes to exercising your reasonable endeavors in business, the above case seems to suggest that you don’t need to be very reasonable at all.

If you are engaged in any type of commercial dispute, contact Everingham Solomons, because Helping You is Our Business.

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