Do Work. Get Paid. – Clint Coles

CCUndertaking 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.

 

Division 7A – Clint Coles

CCThere is something inherently intriguing about placing numbers after words in a punchy turn of phrase where, in the absence of any context, they mean absolutely nothing.

The bemused reader can only wonder what marvels exist beyond the meaningless collaboration of symbols. It’s a government’s way of sparking interest in things that are, in reality, fairly mundane.

Mi6, Area 51 and Double-0-7 are great examples. They conjure images of deeply held national secrets, extraterrestrial technologies and sculpted men in dinner suits silently dispatching ultra-villains. All very snazzy stuff.  Realistically, those types of institutions revolve around cubicle offices, stale drip coffee and endless data entry.

Division 7A of Income Tax Assessment Act 1936 is perhaps the Australian Government’s pièce de résistance.  Interesting as it may sound, it’s the legislature’s way of restricting you from taking stuff out of your own company in a way that would allow you to shimmy past the tax man.

Broadly speaking, any time that a private company makes a payment, provides an asset, grants a loan or forgives a debt to a shareholder, the starting point is to say that the transaction is a Division 7A deemed dividend.

The effect of classifying the transaction as a dividend is that, instead of being a non-taxable gift or loan, the transaction becomes a taxable dividend.  In essence, Division 7A stops your company giving you things, tax free.

There are however at least ten legislated exceptions to the general rule. Loans between a company and its shareholders can be excluded from the deemed dividends regime where the loans are documented, include a minimum interest rate and are repayable within certain timeframes.

Exceptions also exist where loans can be said to be made in the ordinary course of business and where loans are made between companies. The exceptions regime is complex and individual cases require specific analysis.  Getting the documentation wrong can affect how much tax you pay.

Everingham Solomons has legal expertise in complex business matters. If you have a complex commercial problem, contact us because, Helping You is Our Business.

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Developments in Shareholder Litigation -the matter of HIH Insurance Ltd- Clint Coles

CCOn 20 April 2016 the Supreme Court of New South Wales gave its judgement in the matter of HIH Insurance Ltd.

The plaintiffs in the case were shareholders (‘the shareholders’) who acquired shares in HIH Insurance (‘the company’) between October 1998 and March 2001.

The shareholders contended and the company admitted that it published misleading financial statements in 1999 and 2000. The financial statements overstated HIH’s profits by $100m and HIH’s net assets by almost $200m (‘the misrepresentations’).

What was interesting about this case was that the shareholders never looked at the financial statements and never contended that the misrepresentations caused them to buy the shares. They agreed that they would have bought the shares anyway.

What the shareholders said was that the misrepresentations caused the shares’ market price to be higher at the time the shareholders bought them than it would have been but for the misrepresentations. The shareholders said that they should be compensated for the difference between the high price at which they bought the shares and the lower price that they would have been able to buy them if the market was not falsely inflated by the misrepresentations.

The company argued that the shareholders’ argument had no legal basis. The company submitted that it was necessary for the shareholders to prove that they relied on the misrepresentations in purchasing the shares, or, that the shareholders would have acted differently if it were not for the misrepresentations.  The company said that there was no ‘causative bridge’ between the misrepresentations and the shareholders’ loss.

The judge sided with the shareholders. Expert evidence proved that between June 1999 and June 2000, the company’s shares traded between 6% and 13% higher than they would have done if it were not for the misrepresentations.  The judge ordered the company to pay the plaintiffs damages to that extent.

The judge’s decision was a novel one and the company has appealed to the High Court.

If you need advice on any type of complex corporate or commercial matters, contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles.

Nowhere to Hide – CGU Insurance v Blakeley

CCIn February the High Court gave its decision in CGU Insurance v Blakely.

The plaintiffs were liquidators. In winding up a company they suspected the directors had caused the company to trade while insolvent.  The liquidators sued the directors for the insolvent trading.  The directors were insured for this type of claim by CGU, but when the directors passed the claim onto CGU, CGU denied liability.

The directors would normally start their own proceedings against CGU so they aren’t left out of pocket. However, in this case they didn’t because they were staring down the barrel of bankruptcy themselves and had no interest in the outcome of any proceedings.

The liquidators applied to the court to have CGU joined to the proceedings. This was an unusual move because the liquidators didn’t have any contract with CGU.  The contract was between CGU and the directors only and as a general rule, only people that are parties to a contract have the right to sue on it.

The court sided with the liquidators and added CGU as a defendant to the proceedings. If the liquidators won against the directors, the court would then examine the insurance contract to see if, in turn, the insurer was liable to the directors, and ultimately, to the liquidators.

Not surprisingly, CGU appealed, claiming that it was a stranger to the liquidators and that it should not be added to the proceedings.

CGU’s appeals in both the Court of Appeal and then the High Court were dismissed. The Court of Appeal said that in circumstances where an insured becomes insolvent and leaves behind an unpaid claimant to whom an insurer can respond, the situation becomes different from an ordinary private contract.

If you are involved in a dispute, particularly one involving complex commercial issues, contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles.

Battle of Wills

CCMr Yee passed away on 28 May 2013 and left two Wills.

The earlier Will was prepared by a solicitor and was dated 21 February 2013. (‘the earlier Will’). Under the earlier Will some property was left to the Mr Yee’s wife if ‘the marriage has not broken down’.

There was a later Will prepared by Mr Yee without professional assistance. That Will was dated 1 May 2013 (‘the later Will’).

The later Will commenced ‘I hereby revoke all former Wills previously made by me and declare this to be my last Will and testament’. It then went on to make a number of gifts largely consistent with the earlier Will, but, at issue in the proceedings, went on to say:

‘My wife Darunee Jarat is not a wife, even though we legally married, she was here to take all my money and assets…She cheated and lied about herself and why she stayed in Thailand… We found evidence of her still communicating with Vinnie.’

However, not being professionally drafted, the later Will did not deal with all of the estate’s assets. If the later Will was admitted to probate, parts of the estate would be dealt with in intestacy (which is the law that applies where estate property is not dealt with under a Will).  The effect of the intestacy would have been to give some of the estate’s property to Mr Yee’s wife.

As this appeared to be what Mr Yee was trying to avoid in drafting the later Will, the Court was left in a quandary to choose between what it thought Mr Yee intended and what the later Will actually said.

Ultimately, the court said that the revocation clause used in the later Will was a ‘formal expression of a layman intended to make a testamentary instrument to prevail over the earlier Will to the extent of any inconsistency.’ The Court said that Mr Yee did not intend to revoke the earlier Will.  The later Will was, in effect, an addition to it.

Accordingly, the court admitted to Probate a version of the earlier Will subject to the modifications made by the later Will. The wife did not receive any immediate gift under the estate.

If you require assistance with drafting, interpreting Wills and dealing with estate issues, contact Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles.

Look every horse in the mouth

CCIn September 2015, the Supreme Court of NSW delivered its judgment in Capogreco v Rogerson.  It’s an interesting case and perhaps a timely deterrence for would-be horsemen, tempted to act hastily in the shadow of the Melbourne Cup.

The proceedings centered around a race horse called Arlington. Arlington was originally purchased by Gerry Harvey as a yearling for $1.55 million and then syndicated. One of the syndicate owners, a Mr Rogerson, sold a 25% share to Mr & Mrs Capogreco for almost $500,000.

Apparently, it came as some surprise to Mr & Mrs Capogreco when the great expectations that they held for Arlington were not realised. Arlington raced in both Australia and New Zealand and did not achieve much success in any Group 1 races, save for a modest third in the Randwick Guineas.

At some point the owners’ syndicate took the reins and made the decision to sell Arlington. There was a separate issue in the proceedings as to whether or not the Capogrecos consented to the sale, but in any event, Arlington sold for $60,000. The Capogrecos, in a deal they’d rather forget, therefore retained $15,000 of their $500,000 investment.

Clearly disgruntled, the Capogrecos were chomping at the bit to get into court.  Never better than an each way bet, the Capogrecos boldly claimed that they purchased Arlington on the basis of a misleading representation made by Mr Rogerson, that, ‘it was a safe investment’. Mr Capogreco said that Mr Rogerson led him to believe that he was ‘100% guaranteed’ to make money out of Arlington.

The court found that the Capogrecos were experienced business people and had some experience in horseracing. Not surprisingly then, the Supreme Court viewed the evidence and claims of the Capogrecos with much doubt.  Mr Rogerson passed the post first by a long margin and the claims made by the Capogrecos for misleading and deceptive conduct were dismissed.

At Everingham Solomons Solicitors, we have the expertise and experience in all types of commercial litigation.  If you’re involved in a commercial dispute, contact us because Helping You is Our Business.

Click here for more information on Clint Coles.

Time Running Out for First Home Owners Grants

Time Running Out for First Home Owners Grants

CCOn 1 January 2016 the current First Home Owners Grant (New Homes) Scheme (‘the grant’) of $15,000 will reduce to $10,000. The reduction in the grant is one further step in a general pattern of diminishing government incentives for first home buyers.

Applicants will likely be eligible for the grant if:

  1. they are a natural person over 18 years of age;
  2. they have not previously owned a residential property jointly, separately or with some other person in any state or territory of Australia, and occupied that property for a continuous period of six months;
  3. the property being purchased is:
    1. a home that has not previously been occupied or sold as a residence;
    2. a vacant block of land on which the applicant builds a new home; or
    3. a home that has been unoccupied since it has been substantially renovated.
  4. the value of the property does not exceed $750,000;
  5. neither the applicant nor their partner have previously received the grant;
  6. they agree to live in the property for a continuous period of six months, commencing, for new homes, within 12 months from the date they are registered on the title, or, if building a home, the construction completion date;
  7. one applicant is an Australian citizen.

In order to be eligible for the full grant of $15,000 a first home buyer must exchange contracts for the purchase of the property on or before 31 December 2015.

In addition to the grant payment of $15,000, a purchaser of a new home or vacant land on which it is declared a new home will be built may also be eligible for stamp duty exemptions under the  First Home _(New Homes) Scheme (‘the exemption’).

The joint effect of the grant and the exemption can be substantial. Subject to the eligibility requirements, a first home buyer that purchases a new home for, say, $300,000 could receive the grant of $15,000 and avoid the prescribed stamp duty of about $9,000 on the purchase price, equating to total benefits of about $24,000.

In circumstances where a 10 per cent, or $30,000 deposit is usual, the benefit gained from the first home incentives makes up about 80 per cent of the deposit.

So, if you’re a first home buyer and after a new home, it makes sense to get in before 1 January 2016. For more information on buying a home, call Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles.

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.

Click here for more information on Clint Coles.

When the Hammer Falls

CCPurchasing a property at auction can be an exciting and profitable experience, but, if attempted without adequate preparation, can also turn into a disaster.

The procedure of purchasing at auction is very different to purchasing through a negotiated sale.

If you are the successful bidder at an auction, you will be required to sign the contract and pay the deposit on the purchase price as soon as the hammer falls.  As soon as the contract is signed, you are bound to complete the purchase.  There is no cooling off period in an auction purchase, so, if you change your mind after signing the contract, there is no easy way out of the purchase.

If you are considering purchasing a property at auction then it is essential that you obtain a copy of the contract from the real estate agent some time before the auction.  If you don’t understand the effect of the contract, take it to a solicitor and have them explain it to you.

The contract will reveal crucial characteristics about the property, like its zoning, any restrictions on its use, the rights of any other people to use or occupy parts of the land and the location of services, like sewer lines.

If the land has a building on it, you will also want to consider obtaining pest and building reports prior to the auction.  Many purchasers have had their initial joy at purchasing at auction quickly subside at the subsequent discovery of termites in the building.  Their rights to be released from the contract, or to seek any compensation for the pest infestation, in the circumstances, are very limited.

If you need to borrow money to purchase the subject property, then this too will need to be organised well before the auction.  It is very unwise to head to an auction without final written approval from your lender, because if the finance falls through prior to settlement, you risk forfeiting your deposit to the vendor.

If you need some help with the purchase of property, contact us at Everingham Solomons because Helping You is Our Business.

Click here for more information on Clint Coles.

Wills and Contests over them

CCA Will, as most people know, is a document prepared to express the wishes of a person upon their death, including most frequently, how the deceased’s estate is to be distributed.

The Will is obviously an important document and for this reason, there are a number of formal requirements mandated to the effective execution of a Will.

The NSW Supreme Court holds the power to grant Probate over a Will.  A grant of Probate means that a Will has been certified by the court as being an effective expression of the deceased’s intention and that the deceased’s assets can be distributed in accordance with the Will.

Wills are however open to challenge on two main bases.

Firstly, the grant of Probate over a Will can be challenged.  This is appropriate where it is asserted that the Will does not reflect the true intention of the deceased.  That situation arises if the Will was said to have been executed under duress, through fraud or whilst the deceased was suffering an incapacity.

Secondly, the effect of a Will can be challenged under what has become known as a Family Provisions Claim (hereafter ‘FPC’)A FPC does not affect the grant of Probate and is often made after Probate is granted.  It is not a claim against the intention of the deceased but rather a recognition by the law that there is an expectation on people to make adequate provision for their relatives when they pass away.

In FPCs, courts are not really concerned with what appears to be a fair or predictable distribution of an estate, but rather what the claimant needs for the maintenance and advancement of their life.  Where a claimant is plagued by illness or disability which increase their need, their claim will be stronger.

For the reasons above, it is important that a Will is well drafted to ensure that it is effective.  If you have concerns about the way a Will was drafted or executed, or the way an estate is to distributed, then contact us at Everingham Solomons because  Helping You is Our Business.

Click here for more information on Clint Coles.