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COVID-19 –What Debt will Scuttle Passage to the New Safe Harbours?

By Ellen Ferris, a Solicitor in Matthews Folbigg’s Insolvency, Restructuring and Debt Recovery Group.

Amendments in March of this year have brought about changes to the Corporations Act 2001 which allow for an additional temporary safe harbour to protect directors from insolvent trading, –  see our blog here.

However, companies do not automatically qualify for the protection. To qualify, the debt must be incurred as follows:

  • In the ordinary course of the company’s business;
  • During the six month period starting from the date the new law commenced (being 24 March 2020); and
  • Before any appointment of an administrator or liquidator.

The evidentiary burden of proof is on the person seeking to rely on the safe harbour relief, which means that it will be up to directors to make sure they obtain and keep evidence that their debt meets the criteria.

According to the explanatory memorandum in respect of the amending legislation, a director will be taken to have incurred a debt in the ordinary course of business if the debt “is necessary to facilitate the continuation of the business during the six month period that begins on commencement of the subparagraph”. This is narrower than the criteria for the existing safe harbour provisions, which focus on debts incurred in the pursuit of a course of action likely to lead to a better outcome for the company than liquidation. The Explanatory Memorandum gives the following examples for debts incurred in the ordinary course of business:
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New – Proposed Changes to Single Touch Payroll including Jail Terms

The Federal Government has recently proposed legislation which formalises new payroll reporting obligations and which imposes greater penalties on employers and other individuals who refuse to remit PAYG withholding tax and superannuation contributions.

By way of recap:

  • in 2016 legislation was passed introducing Single Touch Payroll (STP) reporting
  • STP reporting requires employers to report to the ATO payments such as salaries and wages, PAYG withholding and super information at the same time that wages are paid to employees
  • the legislation requires that all employers with 20 or more employees comply with STP reporting obligations from 1 July 2018
  • for initial purposes, the calculation of the number of employees is to be undertaken on 1 April 2018

However, recent legislation proposed by the Federal Government would require all businesses to comply with STP obligations from 1 July 2019.

The proposed legislation also:

  • grants the Australian Taxation Office (ATO) a suite of enforcement tools, including a strengthened regime of director penalty notices for unpaid superannuation and other tax-related liabilities
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Thinking about purchasing a franchise? Ask a commercial lawyer for advice

If you have ever thought about purchasing a franchise you should firstly obtain the advice of a commercial lawyer. Here are a few tips to consider:

 

  • Does this franchise suit your lifestyle? You should do some research into the time and expertise required to carry on the franchise business.
  • Have a business plan – ensure you obtain advice in order to have a well-rounded appreciation of the risks involved in operating a franchise.
  • Due diligence – is the franchise you are buying a viable business? Can you speak with current franchisees to get further insight into the day-to-day operations of the business?
  • Obtain advice from a commercial lawyer. A franchise agreement may include hidden costs and fees that you may not be aware of. A commercial lawyer can provide advice to ensure you are well informed of your legal responsibilities and liabilities.

Contact our commercial team at Matthews Folbigg Parramatta for comprehensive legal advice on your franchise agreement.
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Terms of Trade – Does my business need them?

Terms of Trade are the terms and conditions that govern how your business deals with its customers in the sale and supply of goods and services. It is important to put these terms in writing (i.e. to form an agreement or contract) to ensure your customers are made aware of both their rights and obligations.

The Terms of Trade will cover such things as how orders are placed and accepted, price, payment terms, delivery, cancellations and returns, risk and insurance of goods, warranties and ownership of any intellectual property in the goods.

Contact our commercial law team for more information.

Phillip Brophy – phillipb@matthewsfolbigg.com.au or 9635 7966