More Help for Small Business

COVID-19 is continuing to have an enormous social and business cost in Australia and governments both State and Federal have been doing their best to provide assistance.

Currently many small businesses are relying upon government wage subsidies for ongoing viability. A leading economics research firm has projected that almost 1/4 of a million small businesses are at risk of failure.

The Federal Government recently announced new insolvency laws aimed at assisting small businesses to regain viability. These laws are modelled on legislation that has been in place in the US for many years commonly known as “Chapter 11”. The objective is to provide a process that potentially allows stressed businesses to take action to restructure before it becomes too late to save the business.

The key points of the new laws are –

• They are intended to commence on 1 January 2021 following the lifting of various temporary COVID-19 insolvency relief measures;
• They will be available to “small companies” which is defined as any incorporated business with liabilities of less than $1 million;
• A company wishing to access the provisions will have 20 business days to propose a debt restructuring plan during which the company can continue to trade;
• A new category of insolvency practitioner will be introduced specifically to assist companies with restructuring plans; and most importantly
• Unlike current insolvency procedures, during the initial part of the restructuring process, the company will remain under the control of its directors.

It is hoped that these new processes will be less costly to implement and more tailored to individual circumstances than existing measures.

The full details of the provisions are yet to be announced. The Business Law Team at Everingham Solomons will follow the developments closely because, Helping You is Our Business.

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Pets – the often forgotten members of your Family

I am writing this article overlooked by various family photos including pictures of my dog Charlie. He is very much a member of my family and I’d like to think that he would be well looked after if I was not able to do that personally.

Australia has a very high rate of pet ownership with over 60% of households containing one or more pets. Dogs are the most popular pet followed closely by cats and thereafter by a wide range of birds, horses and other animals.

Household pets often become very important to their owners but relatively few owners make formal provision for their pets in the event of the owner’s death or incapacity. That is usually due to oversight rather than lack of concern. So what can you do?

Most prudent people have Power of Attorney arrangements in place particularly to cover their affairs should they lose the ability to do that for themselves. Unless you make specific provision in your Power of Attorney for expenditure to maintain your pet, your Attorney may not be able to use your money to look after your pet.

Likewise, you need to consider pets in your Will. The issue is nominating the right person to look after your pet and making a financial arrangement to cover care costs after your death. You can’t give money to the pet itself but you can give money to a carer directly or through a trust to be utilised for the welfare of the pet. Your Vet will usually be able to give you some guidance about an appropriate amount to be set aside for future care of your pet.

When making arrangements for a pet either through your Power of Attorney or your Will, it will usually be prudent to also provide the proposed caregiver with “personal” information in relation to the pet. This would usually be done by a separate letter but could detail care instructions, food preferences, veterinary arrangements and likes and dislikes. This information can be invaluable to the carer in making decisions going forward.

At Everingham Solomons we can assist you with all your Estate Planning needs because Helping You is Our Business.

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New responsibilities for Company Directors

The tension between business risk and responsibility dates from ancient times.
Plato said –
“Good people do not need laws to tell them to act responsibly
while bad people will find a way around the laws.”

It’s a bit broad brush to categorise as “bad” people who structure their affairs to avoid personal liability however it’s fair to say that the catalyst for the creation of the Company business structure was to shelter individual controllers from personal responsibility when things didn’t go as planned and sometimes even when they went exactly as planned.

The fundamental concept behind structuring a business through a Company is “limited liability”. That means that the controllers of a company will generally not be responsible for the obligations of the Company. This was traditionally justified on the basis of promoting business activity and innovation which was perceived as being for the overall public good.

Societal changes particularly over the last fifty years have seen the potential liabilities of Company directors increase significantly. Consumer/creditor protection has been a factor in this but protection of public revenue streams from various forms of taxation has also been significant.

For quite some time, company directors have had potential liabilities for income tax debts of their Company. Those same obligations however have not existed in relation to GST liabilities and that has resulted in a very significant loss of public revenue from companies controlled by unscrupulous directors. That is about to change.

Legislation just passed gives ASIC increased powers to combat conduct by directors intended to defeat creditors and also allows the Commissioner of Taxation to make Company directors personally liable for their Company’s GST liabilities in a range of circumstances. The latter provisions take affect from 1 April this year.

At Everingham Solomons we have the expertise and experience to help you with these issues because Helping You is Our Business.

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You attended an auction – or did you?

As many of you would know, there is a 5 business day cooling off period which applies to the sale and purchase of residential real estate.
The intent of the legislation which created the cooling off period was to encourage potential purchasers to exchange quickly to avoid being gazumped whilst retaining the ability to pull out of the sale at minimal cost if anything untoward was discovered.
There are a number of situations in which the cooling off period does not apply. One of those situations is where the property is sold at auction or is sold on the same day after a failed auction.
A recent Supreme Court case demonstrated that it is not always easy to say whether an auction has in fact taken place.
The case involved the sale of valuable Sydney house. On the day of auction, many people attended but there was only one registered bidder. The auctioneer and the vendor’s real estate agent negotiated with that registered bidder without actually proceeding to auction the property. Announcements were made to the crowd thanking them for their patience and indicating that negotiations were taking place with the registered bidder.
The negotiations with the registered bidder were successful and a contract was entered into and a 10% deposit paid on the day of the proposed auction. A few days later however the purchaser pulled out of the deal and relied upon the cooling off period provisions. The vendor said the cooling off period didn’t apply because of the auction.
The Supreme Court held that the cooling off period did apply as the auction never commenced. Merely the advertisement of the proposed sale by auction and the gathering of people to attend did not constitute offering the sale by auction. The auction process required the auctioneer to open the auction and request bids.
At Everingham Solomons we have the experience and expertise to assist you with all your property transactions because Helping You is Our Business.

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Businesses Need to Get Paid

Bad debts can cripple any business.

Some businesses are lucky enough to operate in industries where payment is made before goods or services are supplied but most don’t have that luxury. For most businesses, getting paid after goods or services have been supplied is a daily issue.

Self-evidently, people don’t pay their debts for 2 reasons –

  • They don’t have the money to do so; or
  • They choose not to.

The first category brings the “can’t get blood out of a stone” cliché to mind. Usually after spending quite a bit of money to get there, bankruptcy (if the debtor is a natural person) or liquidation (if the debtor is a company) is the end result. In either case, the prospect of a creditor receiving a significant payment is alarmingly small

  • In 97% of cases, company liquidation does not result in any return to creditors; and
  • The average return to creditors from a bankruptcy is $.02 on the dollar.

The second category, is surprisingly common. In almost 40 years of legal practice, I’ve lost count of the number of times that creditors have suffered from dealing with or continuing to deal with customers who had already exhibited a clear reluctance to pay their debts. Remarkably, but not infrequently, that’s been coupled with an explanation from the creditor to the effect that they knew that a particular customer was a “rogue” but thought that he “wouldn’t do it to them”.

Obviously, no business wants to deal with people who can’t pay them or who are likely to choose not to and relatively simple precautions and internal procedures can dramatically reduce the likelihood of dealing with these types of customers.

Those precautions and procedures revolve around making proper financial and other enquiries about potential customers, having good customer/supply documentation, sensible billing practices and having appropriately trained staff.

At Everingham Solomons we have the expertise to assist all businesses in the design and implementation of customer and debtor control procedures because, Helping You is Our Business.

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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.

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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.

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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.

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Protection of Confidential Information – Ken Sorrenson

KJSbwTechnology has fundamentally changed the way business information is stored and shared. For instance, smart phones have given the capacity to access computer systems and to retain and share information to a much greater extent than would have been possible in the past. Particularly after termination of employment, this has led to many claims by employers against former employees alleging misuse of confidential business information.

The first issue is always to determine whether particular information should be considered to be confidential or not. That involves consideration of a wide range of factors including –

  • The extent to which the information was generally known outside the business;
  • The value of the information to potential competitors;
  • The amount of money or effort expended in developing the information;
  • The ease or difficulty with which the information could be properly acquired or duplicated by others;
  • The measures taken to guard the secrecy of the information;
  • Whether it was clearly made known to the employee that the material was confidential; and
  • The extent to which the information can be readily identified.

There are many grey areas in assessing whether information is in fact confidential or not but good business practice should involve any business controlling its information by –

  • Adopting a “need to know” level of security to access information. Most modern computer systems have the ability to set differing levels of access to information depending upon the job description or seniority of employees seeking to access information;
  • Clearly designating that particular information is confidential and the perceived consequences of that information being disclosed; and
  • Requiring employees to enter into confidentiality undertakings preferably before they are able to access confidential information.

At Everingham Solomons, we have the experience and expertise to assist you with all your business documentation including confidentiality undertakings and if necessary, with legal proceedings to protect confidential business information because Helping You is Our Business.

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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.

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