A recent decision of the Western Australian Supreme Court was a timely reminder of the need to be specific when making a Will.
The deceased was a wealthy grazier who died leaving a number of farms and a significant number of Murray Grey cattle.
In his Will he made a provision gifting a farm to a particular person. The Will went on to say that the gift of land included all farming plant and machinery on that land.
The issue before the Court was whether the cattle that were normally grazed on that land were included in the gift or putting it in another way, whether cattle came within the accepted meaning of “plant and machinery”.
Perhaps not surprisingly, the Court held that the cattle did not come within the gift.
The Court did not find a definition for the phrase “plant and machinery” but found that extending the words to cover livestock would be beyond the natural meaning of the term particularly when, in the particular case, there was no evidence that the deceased intended to provide the beneficiary with a “working farm”.
The lesson is that in providing instructions to your solicitor to prepare your Wills, you need to be very specific about what you require. For instance, in a farming context, if the intention is to give a beneficiary a working farm you need to consider everything that is required for the operation of the farm. This will generally include machinery, stock and perhaps particular water entitlements. You also need to factor in that quite often these “operating” type assets of a farm may actually be held through a different structure such as a partnership or company. Failure to be specific could easily result in your intentions not being carried into effect.
At Everingham Solomons, we have the expertise and experience to assist you with all your estate planning matters whether involving farms or any other type of business because Helping You is Our Business.
Airbnb 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.
Company directors may be personally liable for a debt incurred by the company if –
They are directors at the time the company incurs the debt;
The company is insolvent at the time or becomes insolvent by incurring that debt; and
At that time, there are reasonable grounds for suspecting that the company is insolvent or would become insolvent.
Essentially, these are creditor protection provisions which actually don’t work all that well in practical terms. From the creditor’s perspective, successful action against directors is very rare and from the company’s perspective the provisions are a disincentive to “trade on” with a view to business recovery due to the potential risks to directors of doing that.
From September this year new legislation introduced so-called “safe harbour” provisions for company directors.
Directors will not be liable for certain debts incurred whilst the company is insolvent, if after suspecting insolvency, directors start taking a course of action “reasonably likely to lead to a better outcome for both the company and its creditors as a whole” than would be the case if the company immediately appointed an administrator or liquidator.
For the purposes of working out whether a particular course of action is reasonably likely to have a better outcome for the company, factors including whether directors-
are properly informing themselves of the company’s financial position;
have taken steps to prevent misconduct by officers and employees of the company;
have taken steps to ensure the company is keeping appropriate records;
are obtaining advice from an appropriate qualified person; and
are developing a plan for a restructure which is designed to improve the company’s financial position.
Directors seeking to rely upon these provisions should note –
The onus of proving that the safe harbour should apply rests upon the directors;
It only covers debts that are incurred in connection with the course of action during the period commencing when the course of action is first taken. It does not apply to debts incurred earlier;
The safe harbour can’t be relied upon if the company is failing to pay employee entitlements (including superannuation) or failing to comply with taxation law requirements.
Company laws are complex. At Everingham Solomons we have the expertise to assist you with all company law matters because Helping You is Our Business.
Last year, the New South Wales Government introduced surcharge land tax and stamp duty upon land purchases and land holdings by foreign persons. The surcharges are payable in addition to land tax and stamp duty normally payable and they are significant –
The land tax surcharge is 0.75% for the 2017 year increasing to 2% for 2018 onwards; and
The stamp duty surcharge from 1 July 2017 is a massive 8%.
Both surcharges relate to residential land only and were intended to put a brake on the level of foreign investment which was seen as driving escalating home prices particularly in the Sydney market.
The legislation to implement these changes coupled with the interpretation adopted by Revenue NSW (the new name for the former Office of State Revenue) has had some unexpected consequences resulting in potential liabilities for taxpayers who certainly wouldn’t consider themselves to be foreign persons.
It is particularly important that anyone who holds land in or proposes to purchase land in a discretionary trust, check to see whether they are potentially caught by these surcharges and take remedial action where appropriate.
Most discretionary trusts give the trustee a very wide power to distribute income or capital to potential beneficiaries and the beneficiary class is usually quite expansive. The interpretation adopted by Revenue NSW is to the effect that a discretionary trust will be liable for the surcharges even though none of the beneficiaries who actually receive or are likely to receive distributions of income or capital are foreign persons. Essentially, if there is a theoretical possibility that a foreign person could be a beneficiary, then the surcharges will apply.
Depending upon the trust deed concerned, it may be a relatively simple matter to amend the trust to remove the prospect of surcharges applying.
As land tax is assessed on the basis of landholdings as at 31 December each year, it is important that trust deeds be reviewed prior to that time.
At Everingham Solomons we have the experience and expertise to assist you with this issue because Helping You is Our Business.
In its simplest terms Crowdfunding involves using a social media platform to request relatively small amounts of money for a particular purpose. Most of us would have had some contact with crowdfunding usually in the context of a funding request for a charitable or benevolent purpose.
Overseas, crowdfunding is used for wider purposes including raising business finance. Essentially the request for finance is made by way of a “kick-start” request with the promise that those who contribute will be given the 1st opportunity to invest if the proposal comes to fruition.
Laws in Australia are beginning to catch up. In March this year legislation was approved to allow unlisted public companies with less than particular revenue and asset thresholds to raise capital via what is referred to as “crowd-sourced equity funding” (CSF).
There are quite a few conditions and restrictions that will apply to any company seeking to raise capital through CSF but the main ones are –
All CSF offers will need to be made through a financial services licensee whose licence authorises the licensee to provide a crowdfunding service;
There are caps both on how much can be raised (normally $5 million within a 12 month period) and how much can be invested (normally $10,000 for a retail investor);
Funds can’t be raised for the purpose of investing in other companies or investment schemes; and
The CSF regime does not apply to private companies.
For most of us, the last point is the most important. Overwhelmingly, new businesses start out as private companies. There is already some scope under corporations’ law for private companies to raise start-up or business expansion finance but the present provisions are complex, restrictive and can be expensive to implement.
It could be strongly argued that the CSF regime is most needed in the private company space. The government has stated that work is already underway to extend the CSF provisions to private companies. Whilst that may take some time, we will be watching those developments with keen interest.
At Everingham Solomons we have the expertise to assist businesses with questions about fundraising and business finance generally because Helping You is Our Business.
Business operators need to review their business structures on a regular basis.
What you set up years ago may well have been correct at the time but it may not be optimal for your current situation, particularly if your business has expanded.
In past times there were usually stamp duty and capital gains tax costs that needed to be built into any restructure decision and often those costs made restructure not viable.
From 1 July 2016 stamp duty and capital gains tax laws changed markedly –
Stamp duty on business assets other than land was abolished in NSW; and
New tax legislation usually referred to as “small business restructure rollover” (“SBR”) took effect. These provisions enable businesses whose aggregate annual turnover is less than $2 million to restructure their business asset holdings without income tax or capital gains tax liabilities.
The tax law change is particularly significant. Unlike other “rollover” provisions that existed before that time the SBR rollover allows transfer of assets between different types of business structure. Under pre-existing CGT rollover rules, individuals and trusts could transfer to companies but under SBR assets can be transferred from the existing structure into any other form of structure. For instance trust to trust, company to trust and trust to company transfers are all possible. The main exclusion is that transfers to self-managed superannuation funds are not allowed.
The SBR rollover is also wider than the previous provisions in that it allows not only CGT assets to be transferred but also depreciating assets and trading stock.
Whilst stamp remains an issue for restructures involving land, there are concessions available particularly for farming land which can be very helpful in reducing or avoiding stamp duty cost.
Restructuring a business is complicated and expert advice needs to be obtained.
At Everingham Solomons we have the expertise to work with business operators and their accountants to optimise business structures Because Helping You is Our Business.
Electronic signature processes are increasingly being used by businesses and financial institutions. They offer convenience and potential cost savings particularly where documents might need to be signed by people in various different locations.
There are a number of digital platforms available but most involve –
The documents to be signed being uploaded to the cloud;
The intended signatory being notified by a link to access the document; and
The intended signatory opening the link and following on line instructions with the end result being that a signature is inserted into the document.
The generally accepted legal view is that legally binding documents can be created and executed in this manner however a recent New South Wales Court of Appeal case highlighted the problems that can arise.
The case concerned a guarantee purportedly signed by a company director via a particular e-signature platform. The guarantee was in favour of a supplier of goods to the company. Ultimately the company defaulted and the supplier sued the director under the guarantee.
The director successfully resisted the claim. He claimed that he had not used the platform to sign the guarantee and had no knowledge of the guarantee. Effectively, he argued that the platform had been used to forge his signature by someone who accessed the platform using his password.
The supplier had no reason to suspect that there was any irregularity with the guarantor’s signature. It argued that a decision against it would throw doubt upon the ability of creditors to rely upon electronic signatures at all but the Court said that was a matter for the legislature to address if it considered there was a sufficient public interest in doing so.
The moral of the tale is that businesses need to be careful in using electronic signature platforms and look for platforms with inbuilt security features that enable signature verification in the event of a dispute about authenticity.
At Everingham Solomons we have the experience to help you with your questions about proper execution of documents because Helping You is Our Business.
Whilst businesses always plan to succeed, statistics show that about 1 in 2 new businesses fail in the short to medium term. For this reason, it is always relevant when choosing a business structure to consider the personal liabilities for the business owners should things not go as planned.
Traditionally, trading through a structure like a company offered a significant degree of insulation from personal liabilities. With some fairly narrow exceptions, the worst-case result for the business owners was the loss of the money they put into the business. Business failure did not spill over to the separate assets of the business owners.
In more recent times, things have changed significantly. It is now much more difficult for business owners to avoid personal responsibility even when the business is run by a company.
An example of this is the recent Federal Circuit Court decision in FWO v Step Ahead.
In that case, the Fair Work Ombudsman successfully argued that particular sections of the Fair Work Act operated to make “accessories” such as company directors, personally liable to pay unpaid employee entitlements.
The case involved the failure of a private security business operating through a company structure with a Mr Jennings as it sole director, which had underpaid its staff in numerous respects.
Mr Jennings was found to be jointly and severally liable for wages and entitlements underpaid of some $23,000. On any view, Mr Jennings was not an innocent bystander:-
He was in sole control of the company,
two previous associated entities had failed, in one case leaving employee entitlements unpaid, and
a new company had been formed to take over the operations previously conducted by Step Ahead, cosmetically controlled by Mr Jennings’ son but with Mr Jennings in de-facto control.
The case is not however limited to the “rogue operator” situation. It has significant implications for all people involved in the management and ownership of businesses..
At Everingham Solomons, we have the experience and expertise to provide advice to businesses at all stages from formation to closure.
In 2007 superannuation laws were relaxed to allow superannuation funds (“Super Funds”) to borrow money to acquire assets.
At about the same time, a Global Financial Crisis happened. This resulted in there being very little use of these new laws by Super Funds for a few years but with the return of business confidence that changed . It is now very common for Super Funds to borrow, particularly to purchase real estate.
The rules for borrowing by Super Funds are complex but became well understood by financiers and advisors such as financial planners, accountants and solicitors who practiced in the superannuation area.
Advisors soon realized that –
The rules did not require that the lender to the superannuation fund be an external bank ; and
In many cases, it was more cost effective and convenient to bypass external lenders and use internal arrangements with members or associates of the Super Fund who had money available to them to lend.
These internal arrangements were often “win-win” in that they often delivered to the lender a better return than would otherwise be obtained from leaving the money in its bank account and from the borrower’s perspective, avoided some of the costs and frequent delays associated with external arrangements.
In September last year the ATO issued two interpretive decisions that signaled the possibility of assessing the income received by Super Funds from the assets acquired under these sorts of arrangements with penalty tax rates if the ATO considered that the internal loan was not on ‘arm’s length terms’.
The most recent ATO announcement was earlier this month with the issue of what is called a practical compliance guideline (“PSG”). In this document, the ATO sets out its view as to what would be accepted by it as an arm’s length arrangement with regard to loan conditions, including:
Interest rate
Term of the loan
The loan to valuation ratio
The security taken for the loan
Repayments
Documentation
The PSG is a surprising document. It would have been expected that the ATO measuring stick would have been the normal requirements of external lenders however in a number of significant respects it is more restrictive than that. One could be forgiven for thinking that the ATO policy was to actively discourage internal funding arrangements rather to provide “practical guidance” in any meaningful respect.
The PSG is not legally binding. It is simply an ATO policy document however it would be prudent to review any existing Super Fund internal loan arrangements and make specific decisions whether to restructure or not.
At Everingham Solomons, we have the legal expertise to work with your financial advisors to review these types of arrangements because Helping You is Our Business.
Once there were 3 brothers who ran a very successful business via a company in which they all held shares and they all worked on a full-time (and a bit more) basis.
Like most brothers there were niggles between them from time to time but they got on and they certainly didn’t consider they needed to document their understandings of what should happen if one of them wanted to leave the business or if one of them died.
One of the brothers died unexpectedly leaving behind his wife and young family who depended upon the income from the company. His shares in the company passed to his wife under his will.
From the wife’s viewpoint she had no continuing right to income from the business nor any clear right to sell the shares.
From the viewpoint of the surviving brothers and the company, they lost the value of their brother’s personal input on a day-to-day basis, felt pressured by the needs of the family of the deceased but did not have any right to buy the deceased’s shares in the company.
In summary, a very unsatisfactory situation from both perspectives that could easily have been avoided with an appropriate Shareholders Agreement.
A simple Shareholders Agreement could have made provision for what should happen in the event of one of the shareholders dying and how the interest of that deceased person would be valued. That agreement should have been negotiated at a time when the issues from all parties perspectives would have been exactly the same whereas negotiations ultimately took place when interests were in conflict and when emotions were quite raw.
The end result was quite a hostile negotiation which left both the surviving brothers and the wife of the deceased dissatisfied with the result from a business perspective and ruined the once close relationships between the families.
At Everingham Solomons we help businesses and families to avoid these types of problems on a daily basis because Helping You is Our Business.
A recent decision of the Western Australian Supreme Court was a timely reminder of the need to be specific when making a Will.