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The Importance of Due Diligence in the Acquisition of a Business

Due diligence is an integral step in the acquisition of any business, whether the transaction is an asset purchase or a share purchase.  If done correctly, due diligence helps mitigate the various commercial, financial and legal risks that a purchaser may otherwise be exposed to when acquiring a business.  Due diligence is the process undertaken by the purchaser of a business to perform an assessment of risks and compliance to ensure that the target business is, amongst other things, profitable, compliant with its legal, including contractual, tax and other obligations and operating with appropriate licenses and approvals. [...]  READ MORE →

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PREVENTING DATA BREACHES AND ESTABLISHING RESPONSE PLANS | PRIVACY LAWS

By Geeti Chawla, Principal at Matthews Folbigg in the Commercial Law Group

In recent years, the Privacy Laws in Australia have undergone various amendments in an effort to make them more stringent and responsive to ensure that businesses are taking all necessary steps to protect personal information and to respond adequately in the event of a data breach.  The more recent high-profile data breaches have proved to be a turning point for the latest reform to the Privacy Act 1988 (Cth) (Act) in the form of the Privacy Legislation Amendment (Enforcement and Other Measures) Act 2022 (Amended Act), which came into effect on 13 December 2022. [...]  READ MORE →

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New Changes and Penalties to Unfair Contract Terms under the Australian Consumer Law

By Geeti Chawla, Principal at Matthews Folbigg in the Commercial Law Group

Effective 10 November 2023, certain changes to the unfair contract terms (“UCT”) regime pursuant to Schedule 2 of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (“Amendments”) will come into effect. Following these Amendments, a small business or a consumer entering into or renewing a contract, which falls within the meaning of a ‘standard form contract’ under the Australian Consumer Law (“ACL”), are expected to be afforded better protection against unfair contract terms. The Explanatory Memorandum clarifies that the Amendments have been introduced to reduce the prevalence of unfair contract terms and to prohibit the use of and reliance on unfair contract terms in standard form contracts. [...]  READ MORE →

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COVID-19 Contracts and Frustration

Contracts and Frustration by COVID-19- Important decision  

Recently, the New South Wales Supreme Court (NSWSC) in Dyco Hotels Pty Ltd v Laundy Hotels (Quarry) Pty Ltddecided that a contract for sale was not frustrated by pandemic trading restrictions.

Lockdown and trading restrictions imposed by the government in response to COVID-19 has inevitably given rise to parties in sale contracts to claim frustration when a business or commercial venture is impacted. In order for a contract to be frustrated, the frustrating event must give rise to a “fundamental commercial difference” between contemplated and actual performance or to a “fundamentally different situation” arising for which the parties made no provision “so much so that it would not be just in the new situation to hold them bound to its terms” (Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at [64]). [...]  READ MORE →

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Frustrated Leases

Frustrated leases – Important recent case for Landlords and Tenants

Recently, the New South Wales Supreme Court (NSWSC) in Gazcorp Pty Ltd v Woolworths Ltd [2021] NSWSC 308 demonstrated that whether a lease is frustrated by changes in planning laws or approvals should be carefully considered in each case.

Until Gazcorp v Woolworths, the courts had generally only declared in dictum that the doctrine of frustration applies to leases as it does contracts (Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd; Willmott Forests Ltd (rec and mgrs. Apptd) (2012) 91 ASCR 182 at [41]). [...]  READ MORE →

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Impacts for Commercial Leases & Commercial Contracts

COVID-19 – Impacts for Commercial Leases & Commercial Contracts

Commercial Leases

The Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) (the Regulation) commenced on 24 April 2020.  The purpose of this Regulation is to give effect to the National Cabinet Mandatory Code of Conduct for Commercial Leases (the Code) which was announced by the National Cabinet on 7 April 2020.

Key aspects of the Regulation include:

  • the Regulation applies to both retail leases and commercial leases
  • to qualify for relief, the tenant must be an “impacted lessee” – that is, they qualify for the JobKeeper program and have turnover of less than $50 million for the 2018-2019 financial year
  • a landlord cannot take any of the “prescribed actions” against an impacted lessee (such as evicting the tenant, terminating the lease, re-entering the premises, or calling on a security bond or guarantee given by the tenant) due to non-payment of rent or outgoings during the “prescribed period” (ie, 6 months after the commencement date of the Regulation which is 24 April 2020)
  • the rent payable by an impacted lessee must not be increased during the prescribed period (other than rent determined by reference to turnover)
  • a lessee will not be in breach of a lease due to an act or omission which is required under a Commonwealth or State law in response to the COVID-19 pandemic (such as shutting their business due to a COVID-19 order)
  • if requested by an impacted lessee, the landlord must renegotiate the rent payable under the lease in good faith having regard to the economic impacts of the COVID-19 pandemic and the leasing principles set out in the Code
  • the leasing principles in the Code include:
  • in any negotiations landlords must offer proportionate rent reductions (up to 100% of the rent ordinarily payable) through rent deferrals or waivers based on the reduction in the tenant’s trade during the COVID-19 period
  • waivers must be no less than 50% of the total rent reduction, and may constitute a greater proportion in the circumstances – although regard must be had to the financial capacity of the landlord to provide additional waivers above 50%
  • any deferred rent must be repaid over the balance of the lease term or 24 months (whichever is greater)
  • any reduction in outgoings must be passed on to the tenant
  • landlords cannot levy any interest or charges in relation to the rent deferrals or waivers
  • tenants must otherwise comply with the terms of the lease (as amended)
  • the landlord and tenant may agree to waive some or all of the requirements of the Regulation and Code
  • the landlord cannot take any action (such as seeking to recover possession of the premises, terminating the lease or exercising or enforcing its rights under the lease through legal proceedings) unless and until the parties have attempted mediation
  • any court or tribunal hearing a dispute over these matters must have regard to the leasing principles set out in the Code
  • a landlord may still take a “prescribed action” (such as terminating a lease) in circumstances unrelated to the economic impacts of the COVID-19 pandemic (such as where the lessee damages the premises or refuses to vacate the premises upon expiry of the lease)

Key Takeaway

Landlords should consider what financial information it is reasonable to expect a tenant to provide in support of any request for rental reduction or waiver and tenants should compile relevant information urgently if they are entering into negotiations with their landlord. It may be, for example, that a tenant’s turnover is more severely impacted than is required to qualify for the JobKeeper program. In those circumstances it would be expected that a tenant would provide detailed financial information in support. [...]  READ MORE →

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Critical Covid Response Items for EVERY Business and Employer

COVID-19

Critical Covid Response Items for EVERY Business and Employer

Business Contracts and Leases

Key questions to ask yourself in an effort to reduce losses being suffered:

  • can I use contractual and leasing force majeure provisions due to events beyond my reasonable control to cancel, suspend or renegotiate my contracts and leases?
  • what happens if I don’t have a force majeure provision?
  • can I use the “frustrated contracts” regime to my advantage?
  • is Covid a “material adverse event” for contractual purposes?
  • what time limits apply to exercise my rights and are there any mandatory procedural requirements I must follow to do so?

As the interaction between contractual wording, legal considerations, and the outcome sought are inherently fact specific, if you would like to discuss your options we invite you to contact a member of our Commercial Law Team on 9635 7966.

Staff

Does your contingency planning take into account these fundamental matters:

  • can I force staff to take leave?
  • can I stand down staff without pay?
  • can a redundancy in response to Covid still amount to an unfair dismissal?
  • what options do I have to reduce wages?

As this is the tip of the iceberg in terms of workplace considerations, and the answers to same require the application of relevant legislative, award, enterprise agreement, employment agreement and workplace policy provisions, we invite you to speak with our Employment Law Team on 9635 7966 to find a practical, commercially minded and lawful solution to your questions and concerns. [...]  READ MORE →

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Officer or Not? – Australian Security Investments Commission v King

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

This week the High Court in Australian Securities and Investments Commission v King & Anor [2020] HCA 4, decided an appeal from the Supreme Court of Queensland concerning the construction of the word ‘officer’ in section 9 of the Corporations Act 2001 (Cth).

This much anticipated decision has provided clarity as to the construction of the term; a decision which will be well received by ASIC. [...]  READ MORE →

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Warning! Casual Employee Entitled to Annual Leave

In a major decision, the Full Bench of the Federal Court has held that a worker expressly engaged as a casual was entitled to annual leave and other entitlements upon termination.

In our view, in doing so the Court has cast doubt on decades of accepted industrial practices and the decision threatens to undermine casual employment relationships around the country.

The Facts

In WorkPac Pty Ltd v Skene:

  • the employee was employed by a labour-hire company in the mining industry as a dump-truck operator and the employment was governed by the WorkPac Pty Ltd Mining (Coal) Industry Workplace Agreement 2007 (Agreement)
  • although the letter of employment stated he was a casual, he was subject to a continuous 7 day ‘fly-in, fly-out’ pre-set roster arrangement, worked regular and systematic shifts, stayed in accommodation at/near the mine and was expected to attend each shift
  • an ‘all-in flat rate’ of pay was payable for each hour of work although WorkPac did not specify what entitlements this flat rate of pay purported to absorb
  • the annual leave provision in the Agreement stated it only applied to permanent employees
  • although no annual leave was taken during employment and the employee was not paid any annual leave or notice upon termination, a claim seeking payment of same was filed

The Issues

Whilst the Fair Work Act states paid annual leave applies to all national system employees “other than casual employees”, it does not define a “casual employee” thus the issues for the Court were: [...]  READ MORE →

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Record Keeping for a SMSF

Record Keeping for SMSF’s

Introduction (SMSF)
Most SMSF trustees are aware that record keeping is important to ensure their fund remains compliant and eligible for tax concessions, but few trustees understand the actual ramifications of what happens when you don’t keep the right records.

Record Keeping Requirements
The ATO website contains a great deal of helpful information for SMSF trustees including the records a fund must keep. See https://www.ato.gov.au/super/self-managed-super-funds/administering-and-reporting/record-keeping-requirements/

For example, copies of annual returns must be retained for at least 5 years but records of changes of trustees and minutes recording investment decisions must be kept for at least 10 years.

Wrong Turns – Real Life Examples

1. Maintaining the Chain of Deeds
A and B set up the AB Super Fund in 1987.  They are the trustees of the fund in their own capacity.

In 1990 and again in 1998 they updated the provisions of their SMSF trust deed.  Their accountant arranges this for them.

In 2002 A and B move to another city.  They collect their records from their accountant and engage a local accountant to look after their fund.

That same year, A and B decide to change the trustee of the fund to a corporate trustee – AB Investments Pty Ltd.  Their accountant arranges this, but unfortunately A and B fail to hand over the most current trust deed, being the 1998 deed. The change of trustee is effected based on the provisions of the 1990 deed.

In 2013 the trust deed is updated yet again because the fund wants to enter into a limited recourse borrowing arrangement to purchase a property.  A and B find the 1998 deed at home and give it to the accountant.  The 2013 trust deed update is based on the variation provisions contained in the 1998 trust deed and is signed by AB Investments Pty Ltd.

A and B approach their financier in relation to the loan.  The financier reviews the chain of deeds and discovers the anomalies with the deeds which raises the following questions:

  • A and B purport that AB Investments Pty Ltd is the current trustee of the fund and the current governing provisions of the fund are contained in the 2013 trust deed.
  • The bank questions whether AB Investments Pty Ltd is actually the current trustee of the fund since it was appointed pursuant to the 1990 deed instead of the 1998 deed.
  • If AB Investments Pty Ltd is not the current trustee, then the 2013 trust deed is also invalid as it was executed by the company.
  • If this is the case, the current governing provisions of the fund are actually the 1998 deed which does not contain the appropriate provisions for the trustees to enter into a limited recourse borrowing arrangement.

The issues are complicated but are eventually the fund’s affairs are put back in order. In doing so the fund incurred legal and other costs and the property the fund was going to buy was sold to someone else.

2. Lost Deals
L and M are members of the L & M Super Fund and are the original trustees.  In 1993 a newly incorporated company called LM Holdings Pty Ltd was appointed trustee.

In 1997 the fund buys a property.  A title search for the property shows that ‘LM Holdings Pty Ltd’ is the registered owner.

In 2014 L and M divorce and M becomes the sole member of the fund. A new trustee, Life after L Pty Ltd is appointed. 

The appropriate forms are completed to change the name on the title of the property. An application is submitted to the Office of State Revenue (OSR) for concessional stamping. 

OSR requests evidence that LM Holdings Pty Ltd owns the property as trustee of the fund. The records showing that company’s appointment as trustee in 1993 have been lost.  The contract of sale (which showed ‘LM Holdings Pty Ltd as trustee for the L & M Super Fund’ as purchaser) has also been lost. 

Eventually other fund records were produced satisfying OSR that LM Holdings Pty Ltd own the property as trustee for the fund. However it would have been a much simpler and cheaper exercise if the original appointment of trustee and contract of sale records were available.

L and M were under no obligation to retain the above records as they relate to transactions occurring 20 years ago.  However, trustees should keep in mind that other authorities such as OSR and the titles office may require copies of documents to be produced from the very beginning of the establishment of the fund.

Prevention is Better than Cure
Most issues can be solved, however, they can cost the fund substantial time and money.

Problems are usually not identified until certain events occur such as divorce or the purchase of a property where time can be of the essence.

More Information
If you require assistance with your SMSF record keeping or have any other SMSF questions, contact the team at Matthews Folbigg Lawyers. Don’t delay!

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Do you know what PPSR interests affect your business?

Do you know what PPSR interests affect your business?

Selling
Selling your business can be both exciting and stressful at the same time. Once a purchaser is found the parties usually move as quickly as possible to enter into a sale contract and then to completion.

PPSR Considerations
An area often overlooked by a seller is taking the time to consider what security registrations (PPSR Interests) under the Personal Properties Securities Act (PPSA) may exist over the assets being sold including vehicles, stock, plant and equipment.

Standard Sale Condition
If the Contract for Sale of Business 2015 edition is being used:

  • a standard clause requires a seller to provide a release of each security interest that applies to the assets being sold (or such other statements or documents confirming the security interest does not apply to those assets
  • often a seller mistakenly believes that because they have already paid for various assets that they are not subject to any security interest
  • thus it can be quite a surprise to receive a PPSA search showing security registrations do in fact exist

The Sting
Inherent difficulties with obtaining a release of each security interest are:

  • a seller needs to make a request to the entity/person who has the benefit of the PPSR
  • that third party may not necessarily work to the same timeframes as a seller and purchaser
  • delays caused by that third party can affect the time for completion of the sale

Due Diligence Check
A search for a PPSR interest is inexpensive and by obtaining the search at or before the time the sale contract is being prepared it can eliminate future surprises and potentially costly delays.

More Information
If you would like more information about the PPSR, selling your business or any other legal matter, please contact the leading commercial lawyers in Parramatta, the Matthews Folbigg Commercial Law Team on 9635 7966 to speak with one of our commercial lawyers.

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Commercial Law – Tips for Small Business

Commercial Law – Some tips for small business owners

Many people operate small businesses and many people are setting them up. From a commercial law perspective here are a few simple but effective tips:

  • It is well known that you should try and separate assets from business risk. That is why many people operate under a company structure. It follows that you should not use the trading company to acquire any assets, that is, other than the business itself. For example, premises should be purchased in another name and, if possible, any valuable assets such as intellectual property or even expensive equipment should be held in another name and licensed to the trading entity.
  • If a husband and wife operate a business under a company structure there is no need for both to be directors (as opposed to shareholders). The role of director carries considerable personal risk and there is no need to expose all the couple’s personal assets to that risk.
  • A small business owner will inevitably be required to provide personal guarantees to the bank, suppliers or a landlord. It is a good idea to keep a copy of any such personal guarantees in a safe, accessible spot.
  • Similarly and particularly if you shop around for the best insurance deal from time to time you should keep a copy of your policies in one spot. This is very important for workers compensation policies where a claim would be handled by the insurer at the time of the injury and not the insurer at the time of the claim.
  • If you operate from leased premises you should check that the lease term has not expired and that you have diarised the latest date to exercise any option to renew.
  • Keep your company’s share register up to date and make sure all board and shareholder meetings are properly minuted. The minutes do not have to be extensive but they should clearly set out what was decided.
  • Make sure your terms of trade are clear and comprehensive. They should be consistent with your quotes, order forms and invoices. In particular customers should be provided with your terms of trade before you enter into a contract with them.

These aspects are also important if you are thinking of selling your business, either by way of a sale of assets or a sale of shares. Often time is wasted and extra expense is incurred if things are not in order at this time.

Please think about these tips, act accordingly and then get on with running or setting up your business.

Phillip Brophy is a Senior Commercial Lawyer and practices extensively in the commercial law and property law. Phillip can be contacted on 9806 7452 or phillipb@matthewsfolbigg.com.au for a friendly discussion. [...]  READ MORE →