Dispute Resolution

The importance of workplace policies

All employers need to maintain, develop and implement appropriate workplace policies in their business.

The need for these policies is not only compliance with relevant legislation, but also to protect the businesses against claims which might arise from inappropriate conduct of employees. Creating and enforcing workplace policies is one way in which employers may be able to effectively prevent or manage such claims.

Putting in place suitable policies can be a time-consuming task and one that is potentially dangerous for those who are not familiar with the legislative and contractual requirements involved.

The purpose of workplace policies is to place both the employer and employees (or prospective employees) on notice of certain things such as prohibited conduct. They often prevent any serious problems arising but if problems do arise, the employer is usually able to prove they upheld their legal duty by showing compliance with an established written policy.

We can tailor policies to meet the requirements of your particular business.

The following is a non-exhaustive list of topics that employers may wish to cover with appropriate policies:

  • Equal employment opportunity
  • Discrimination, harassment, bullying and violence
  • Work health and safety
  • Appropriate email and internet use
  • Workplace surveillance
  • Drug and alcohol use
  • Mobile telephone use
  • Dress codes
  • Annual leave and sick leave
  • Dispute resolution
  • Counselling and disciplinary procedures
  • Privacy
  • Redundancy

The workplace policies should be drafted so that they compliment the employment contracts in place.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to workplace policies, business law or employment related matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

 

What is an indemnity clause?

WHAT IS AN INDEMNITY CLAUSE?

An indemnity clause is a common clause in contracts, whether for the supply of goods, terms and conditions of the provision of services, leasing of assets or the sale of property.

The indemnity is intended to assign responsibility for risks in performing the contract to a particular party – it either confirms or alters the position at common law which would otherwise apply to determine responsibility for such events.

COMMON EXAMPLES

When drafting an indemnity, the nature and types of losses that may arise need to be considered.

Common areas that you may want an indemnity clause or limitation of liability cause to cover may include: negligence; injury to or the death of any person; loss of or damage to property; infringement of third party rights, such as intellectual property rights; duties and taxes; and legal costs and disbursements.

REMOTENESS & REASONABLE FORSEEABILITY

The common law (extending back to the 1854 case of Hadley v Baxendale) basically provides that if a head of damage wasn’t contemplated by the parties at the time of contracting (wasn’t reasonably foreseeable) or didn’t arise naturally arises from the breach according the usual course of thing (is too remote) – it may not be a recoverable loss.

Accordingly, if the damages that you may want the other party to wish the other party to bear on the occurrence of a certain event are considered remote, then they would probably not be recoverable at common law and therefore, you may wish to specifically provide for them in the clause.

The other party may not agree, so the negotiation would then begin and the parties will ultimately have to agree on what is a reasonable compromise in the circumstances.

DRAFTING THE INDEMNITY

Commonly, indemnity clauses are drafted such that where a right to indemnity arises, the liability reduced to the extent that the party benefited by the clause caused or contributed to the loss, that is reduced proportionally.

The extreme in indemnity clauses is where the liable party is liable absolutely (ie, there is no carve out to reduce the liability proportionally). This type of clause, given its strict nature, is usually only agreed to where the event is wholly within the control of the indemnifying party.

INSURANCE COVERAGE

Just as the strength of a personal guarantee is in the financial standing of the guarantor, you also need to be satisfied that the party providing the indemnity has the means to meet any claim if called upon. Often, a party is required to have insurance to support any indemnity but they fail to investigate the extent of their cover and are often not insured at all.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any contract negotiation, agreement drafting issue commercial dispute, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Payment surcharge changes

If your business charges customers a surcharge on transactions, be aware that from 1 September 2017, all businesses that impose payment surcharges on card transactions need to comply with the the Competition and Consumer Amendment (Payment Surcharges) Act 2016 which bans ‘excessive’ payment surcharges.

The new laws cover surcharges on typical card payment methods:

  • EFTPOS (debit and prepaid);
  • MasterCard (credit, debit and prepaid);
  • Visa (credit, debit and prepaid); and
  • American Express companion cards (issued through an Australian financial service provider, rather than directly through American Express*).

*Note that the benchmarks will not apply to foreign-issued cards. American Express proprietary cards (issued by American Express directly) are not covered by the ban, nor are BPAY, PayPal, Diners Club cards, UnionPay, cash or cheques.

The purpose of the legislative ban is to stop excessive surcharges – those charged at a price more than the actual cost of accepting that payment method. The cost to a business of accepting each payment method known as the ‘cost of acceptance’ for that method and is determined according to the Reserve Bank of Australia (RBA)’s standards set by the RBA Payments Systems Board.

A payment surcharge is generally considered excessive if it exceeds the ‘cost of acceptance’.

If your cost of acceptance for Visa credit cards is 1%, then you can only charge a maximum of 1%, not 2% or 3%.

The cost of acceptance can include merchant service fees, fees paid for the rental and maintenance of payment card terminals, any other fees incurred in processing card transactions, fraud prevention services, insurance etc but these must be able to be verified by contracts, statements or invoices.

Businesses cannot include any of their own internal costs when calculating their surcharges (for example, labour or electricity costs).

The Australian Competition & Consumer Commission (ACCC) is responsible for enforcing the ban and can:

  • issue an infringement notice with penalties of up to $2,160 (individuals, partnerships), $10,800 (body corporate) or $108,000 (listed corporation
  • take court action seeking pecuniary penalties of up to $1,164,780, injunctions and other orders.

Receiving such a penalty would be a disastrous hit to small business, so make sure you comply with the payment surcharge changes. Ask your financial institution to let your know what the average cost of accepting cards is and review it annually so you don’t get caught out.

You may also need to update your business’s Terms of Trade.

Westpac notes costs of acceptance here, NAB here and ANZ here

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to business law, litigation and dispute resolution or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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Purchasing a Franchise?

What is a franchise?

A franchise is a business system controlled by the franchisor, using the franchisor’s symbol or trade mark for a fee, subject to rules/restrictions/restrictions as stated in the relevant Franchise Agreement.

Given the bargaining power of the franchisor and franchisee being very different, the relationship of franchisor/franchisee is regulated to help ensure fairness in their dealings.

The Australian Competition & Consumer Commission (ACCC) regulates the Franchising Code of Conduct (Franchising Code), which is a mandatory industry code that applies to the parties to a franchise agreement.

Franchising Code

The Franchising Code is in Schedule 1 to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 made under s. 51AE of the Competition and Consumer Act 2010. The Franchising Code applies from 1 January 2015 and replaces the previous 1998 code.

In short, the Franchising Code:

  • requires parties to act in good faith (for example, reasonably, honestly etc) in their dealings
  • introduces financial penalties and infringement notices for serious breaches
  • requires franchisors to provide prospective franchisees with a short information sheet (Disclosure Document) outlining the risks and rewards of franchising
  • requires franchisors to provide greater transparency in the use of and accounting for money used for marketing and advertising and to set up a separate marketing fund for marketing and advertising fees
  • requires additional disclosure about the ability of the franchisor and a franchisee to sell online
  • prohibits franchisors from imposing significant capital expenditure, except in limited circumstances
  • provides a dispute resolution process

Disclosure Document

An important requirement of the Code is the requirement for the franchisor to provide a prospective franchisee with a “Disclosure Document”.

The purpose of the Disclosure Document is to provide prospective franchisees, and existing franchisees that wish to renew or extend their existing agreement, with information about the business and the franchisor to allow the franchisee to make an informed decision about the franchise and obtain current information regarding the franchised business.

The Disclosure Document must provide information on the business, including:

  • the franchisor, its contact details, its business and its directors and their business experience
  • details of any master franchisor
  • the franchise site or territory
  • details of legal proceedings against the franchisor and its directors
  • contact details of current (and former) franchisees
  • financial details
  • the franchisor’s requirements for supply of goods or services to a franchise
  • whether online saes are permitted and any restrictions
  • details on marketing or other cooperative funds
  • details of payments such as pre-payments, establishment costs and other fees
  • details on any trade marks and patents that are part of the franchised business
  • details of arrangements when the franchise arrangement ends

If you are purchasing a franchise, before entering into an agreement, you should seek legal and accounting advice.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to buying/selling businesses, franchises or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Buy/Sell Deeds explained

WHY HAVE A BUY/SELL DEED?

A Buy/Sell Deed is an agreement between the owners of a company or unit trust that upon the death or permanent disablement of a director or key person associated with a shareholder/unitholder, that shareholder/unitholder must transfer its shares to the remaining shareholders in exchange for payment.

The method of determining the price is agreed and the funding of that payment usually comes from the proceeds of insurance policies to be taken out for those risks by the shareholders/unitholders.

A Buy/Sell Agreement is not a general Shareholders Agreement or Unitholders Agreement so it does not regulate all dealings in relation to the company.

COMMON SCENARIOS A BUY/SELL COULD HELP PREVENT

Consider the following and how it may affect you and your company…

  • A shareholder dies and you as the remaining shareholder inherit an unintended (and potentially non-income producing) business partner such as the deceased shareholder’s spouse (as they receive the deceased’s assets via their Will), with company profits being paid out according to the shareholdings.
  • You have to buy shares from a deceased shareholder’s estate above their value.
  • Your family do not get the best price for your shares in the company.
  • The remaining shareholders don’t have available funds to pay out a deceased shareholder or a shareholder who can no longer contribute to the business due to total and permanent disability.
  • The business either needs to be sold or funds need to be borrowed by the remaining shareholders or the company to make the payments.
  • A key person to the company has died, leaving the company in the position of losing a key source of revenue, client relationships and knowhow, affecting the value of the company and its business and its viability in the future.

CERTAINTY

A Buy/Sell Agreement is designed to bring certainty in relation to the exit from a business as the result of death or permanent disability of a key person – certainty for an ill shareholder, a deceased shareholder’s family, the remaining owners and the company itself. Don’t leave it to chance.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to Buy/Sell Deeds, Shareholders Agreements, any or any commercial dispute or issue, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Selling your business?

So you have an offer to buy your business. How exciting!

Although there may be agreement on the price being paid and the amount of deposit, what else needs to be considered?

  • How is the price apportioned between goodwill and equipment?
  • Have you considered the costs associated with the sale – you may have an agreement with a business broker, but there are lawyers, accountants, financial advisers also.
  • What about tax, capital gains tax (CGT) in particular, and is GST payable?

Who does what?

You need good advice. You are great at what you do, but you cant do everything. You need a great team of advisers – this is their thing.

Your lawyer will be required to prepare the legal documents that give effect to the sale (such as Business Sale Contract, Share Sale Agreement, Deed of Restraint, Deed of Consent to Assignment of Lease, Employment Contracts, Deed of Novation, Consultancy Agreements etc… yes, there may be others).

Your accountant can advise on the price apportionment and taxation implications, whether GST is payable or not, and how to make the most of any CGT concessions, exemptions and rollover relief such as those relating to small business and retirement.

Your financial adviser can give you advice on what to do with your cash to make the most of it now or in retirement.

What are you actually selling?

It would seem obvious, but have you considered what you are actually selling? Are you selling your business or, in the case of a company or unit trust, the entity that owns it?

There is a big difference, particularly given that entitlements to income and liability for expenses incurred prior to completion of the sale will remain with the vendor under a business sale whereas in the case of a share sale, the whole lot will be under the control of the purchaser from completion.

This will also affect how much due diligence a purchaser may undertake – as any prudent purchaser would have concerns about potential claims, tax debts etc

The usual things

Assuming a sale of business, not a share sale, some of the other things to consider is what is included in the sale?

  • Business name
  • Plant and equipment used by the business
  • Stock
  • Customer lists
  • Agreements with suppliers, referrers… to the extent they can be transferred
  • Phone/fax numbers, logos, domain names, email addresses social media etc
  • Intellectual property – do you have any trademarks?
  • Licenses/permits to operate the business
  • Are staff being terminated or transferring to the purchaser? What are employee entitlements are due?
  • Are the business premises leased? Is the agreement subject a an assignment of the existing lease or the granting of a new lease?
  • Personal Property Securities Register issues – for example, is the telephone system under a hire purchase agreement? Is the photocopier leased?
  • Do you need the consent of anyone to the sale proceeding? Eg, a franchisor, a mortgagor, someone you have given a first option to purchase to for example?
  • Are there to be restraints of trade/non-competition provisions that affect you? What about for key staff?

Although an exciting time, there are many issues that need to be considered when you are selling your business. The abovementioned items are certainly not an exhaustive list of things to consider and every business is different, but hopefully it gets you thinking about what you may need to consider when selling your business.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to buying/selling businesses, intellectual property or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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What does a Bankruptcy Notice do?

A Bankruptcy Notice is a document that, once served, requires the person served to either pay a debt (or enter into an arrangement for payment of a debt) within a specified period of time, usually 21 days.

If the Bankruptcy Notice is not complied with within that time, the person has committed an “act of bankruptcy” entitling the person owed the money (creditor) to commence bankruptcy proceedings.

It is usually a good idea not to try to do this yourself but rather to engage a lawyer to assist, including obtaining a National Personal Insolvency Index (NPII) search beforehand.

How is a Bankruptcy Notice issued?

Bankruptcy Notices are issued by the Australian Financial Security Authority (AFSA) (formerly the Insolvency & Trustee Service Australia (ITSA)) at the request of a creditor.

In order to apply for a Bankruptcy Notice, you must hold a final judgment for at least $5,000 that is no more than 6 years old.

Once issued, the Bankruptcy Notice needs to be served on the debtor. There are various ways to achieve this (including by post in some circumstances).

If the debtor does not dispute the validity of the Bankruptcy Notice or pay the judgment debt or come to a satisfactory arrangement for payment of the debt within the 21 day period, then the debtor will have committed an “act of bankruptcy” as defined in the Bankruptcy Act 1966 (Cth) and the law will presume the debtor to be insolvent, entitling the creditor to commence bankruptcy proceedings. The order declaring someone a bankrupt is called a “sequestration order“.

What is the effect of bankrupting someone?

Most people do not wish to be made bankrupt due for various reasons including:

  • the stigma associated with being declared bankrupt (and the effect this can have on obtaining certain employment etc);
  • the fact that all of the bankrupt’s property (subject to some exceptions) vests in the appointed trustee; and
  • because of the adverse effect of bankruptcy on a person’s credit rating (and therefore their ability to get a loan later in life).

This is why issuing a Bankruptcy Notice and, if necessary, commencing bankruptcy proceedings can be an effective way of obtaining payment if you are a creditor.

What does the court look at before bankrupting someone?

Bankruptcy proceedings are commenced by filing a Creditor’s Petition in the Federal Court of Australia or the Federal Circuit Court of Australia.

Before a person is declared bankrupt, the Court must be satisfied that the person has committed an “act of bankruptcy” in the 6 months before the commencement of the bankruptcy proceedings. The most common act of bankruptcy is failing to comply with a Bankruptcy Notice.

Effect of bankruptcy on company directors

For those in business for themselves, one of the effects of being declared bankrupt, in addition to losing control of the majority of your assets, is that s.206B of the Corporations Act 2001 (Cth) provides that undischarged bankrupts or those who have entered into personal insolvency agreements cannot act as a director or take part in the management of a company.

AFSA and ASIC have a Data Matching Protocol such that ASIC will receive notification of a director’s bankruptcy. Although a bankrupt automatically ceases to be a director, the director must notify ASIC by lodging a Form 296 - Notice of Disqualification from Managing a Corporation and further, the Company also has an obligation to notify ASIC of the cessation of an officeholder by lodging a Form 484 - Change to Company Details within 28 days of the change taking effect.

The Court has the power to grant leave to an undischarged bankrupt to take part in management of a company, subject to ASIC being notified of the application. Such leave, which can be granted both with or without conditions, is not available however, where the disqualification was imposed by ASIC (as opposed to an automatic disqualification due to the operation of the Corporations Act).

The court will not easily be convinced that the usual prohibition should not apply and will exercise its discretion with a view to balancing the considerations relevant to the bankrupt and the public policy behind the prohibition. In such an application, the applicant bears the onus of establishing that the Court should make an exception to the legislative policy underlying the prohibition. The policy behind the law is protect the public and among other things, to seek to ensure that investors, shareholders and others dealing with a company are not disadvantaged.

Hardship to the proposed director is not of itself a persuasive ground for the granting of leave although it is one of many factors which may be considered by the court in exercising its discretion. The court will have regard to the reason for the disqualification, the nature of his or her involvement, the general character of the applicant including the applicant’s conduct in the intervening period since being removed from office or prevented from being in office, the structure of the company, its business and the interests of shareholders, creditors and employees.

Although such applications are not commonplace, an undischarged bankrupt may be granted leave to take part in the management of companies generally or, more frequently, in the management of a particular company. The disqualification imposed by the Corporations Act continues despite the Court granting leave and care must be taken to ensure that any conditions on the leave are complied with as failure to do so can result in the leave being revoked and the commission of an offence.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to bankruptcy, insolvency, debt recovery, commercial law or business disputes, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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What is the PPSR?

Although the PPSR has been in place for over 5 years now, we are after asked “What is the PPSR?”
The Personal Property Securities Register (PPSR) is a single national online register where details of security interests in personal property can be registered and searched. The PPSR is administered by the Australian Financial Security Authority (AFSA) and was established under the under the Personal Property Securities Act 2009 (Cth).

The PPSR is an amalgamation of registrations that were recorded in registers including the Australian Security and Investments Commission (ASIC) Register of Company Charges, the Australian Register of Ships, the Fisheries Register, state and territory bills of sale registers, and the state and territory Registers of Encumbered Vehicles (REVS).

All charges and other security interests in personal property (such as cars, boats, intellectual property etc) have been recorded on the PPSR since 30 January 2012. Although the PPSR has been in place for over 5 years now, we are after asked “What is the PPSR?”

It does not include real property (land or buildings) as these are covered by the various land title registers in the States and Territories, such as Land and Property Information in NSW.

On the PPSR:

• you can register a notice to show that you have rights over personal property which secure a debt or obligation that someone owes you

• you can check to see if someone has registered an interest over personal property you want to buy or lease.

If you are buying a business or an asset of significant value, it can pay to have the PPSR properly searched because if you buy property subject to a security interest, it is possible that the person or entity with the security interest will repossess it.

FURTHER INFORMATION

Craig Pryor
is principal solicitor at McKillop Legal. For further information in relation to the PPSR, buying or selling a business, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your estate planning needs.

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Minimizing risk in your business

Running a business is risky and small businesses can be especially so. Minimizing risk in your business is crucial.

Often, SME owners put their own personal assets on the line, whether to borrow funds from a lender to start up or buy stock or equipment or by signing a guarantee in relation to suppliers and others for the debts of the business.

There are several methods of protecting personal assets from creditors, but it is a process that many don’t follow. Some are quite simple and easy to put in place. They include…

Placing assets in a spouses’ name or in a family trust

In most circumstances, creditors will not be able to make a claim upon assets owned by your spouse or held by a discretionary trust, provided that you are not the trustee. If your spouse is the trustee, then he or she is the person who will usually decide how to divide up the income or capital of a trust (or not to).

Of course, stamp duty and capital gains tax issues must also be considered before acquiring or transferring assets as well as the potential operation of claw back provisions. The loss of the principal place of residence CGT exemption or the land tax issues may be a factor weighing against doing this.

In the end, it is weighing up risk vs benefits and making an informed decision regarding any asset protection measures.

Encumbering assets if you cannot transfer them

An asset that is mortgaged to its value is not attractive to a creditor. The mortgagee in such a case is the only entity that will benefit from the subsequent sale of the asset.

A guarantee form a person without assets is effectively valueless. Often businesses don’t check to see what a guarantor actually owns.

If you seek a guarantee from a director of another business, you could make some inquiries about their credit/financial position before creating an account,

Correctly structuring your business

Sometimes it is not feasible to establish an asset-holding entity and a trading entity (as many small business start-ups are strapped for cash) but it can be a great way to protect the business assets from day to day trading risks. Even getting the type of business structure right from the beginning (sole trader, partnership, company, trust or combination etc) can have a massive impact on your business.

It is possible to establish a company with a single director and/or single shareholder. The company dealing with third parties, supplies, customers and the like is the entity that may be liable to them, not the shareholders.

The shareholders are only liable to the company for the unpaid amounts (if any) on any issued share capital. This liability is usually a nominal amount such as a dollar. Shareholders have no liability to third parties unless they agree to it, such as by giving a guarantee.

Company directors may have some liability but only in limited circumstances can the corporate veil be lifted. Courts may be prepared to lift the veil in limited circumstances, such as in the case of insolvent trading, fraud or misrepresentation, inappropriate transactions or where public policy requires it.

Charging assets (and properly recording the charge)

Before lending money to your business, a charge should be created in the correct form and that form recorded as against assets such as real property (by way of mortgage recorded at Land and Property Information or another State’s land titles registry) or against non-real estate assets (by way of a Specific or General Security Deed and making a registration on the Personal Property Securities Register (PPSR)) to secure repayment of that money in preference to other creditors should the business fail.

Having proper terms of trade

Most businesses, if they have them at all, have terribly inadequate terms and conditions of trade. Often they are just copied and pasted from other documents and not tailored, leaving businesses thinking they are adequately protected when they really are not covered at all.

T&Cs should be built to protect your particular business and should be a work in progress, tweaked to solve or prevent problems that have arisen in your business from occurring again,

Avoiding personal guarantees altogether

A guarantee is a contract by which a guarantor promises that another person or entity will comply with his, her or its obligations to a third party and if they don’t, the guarantor will. The most common example involves bank loans where a guarantor such as a parent promises to repay the loan of their child if the child defaults.

Becoming a guarantor can be extremely risky, particularly when large liabilities are involved. Under most guarantees, the guarantor becomes immediately and primarily liable to repay the debt (and the lender does not have to wait for attempt to recover from the borrower before calling on the guarantee).

As a practical matter, many businesses cannot obtain finance unless a personal guarantee is provided. If this is the case however, whenever the loan is actually repaid or if the business can prove it is financial stable and secure, the guarantee should be discharged so that the guarantor cannot continue to rely on it at a later date concerning subsequent transactions.

Managing staff

One of the biggest risks to your business is that of staff leaving, and worse still, taking valuable information and assets with them.

Having appropriately drafted Employment Contracts with restraints of trade in them is a must.

Superannuation contributions

In many circumstances, superannuation entitlements can be protected from bankruptcy trustees. There may be no protection for example where the payments are made for the primary purpose of defeating creditors.

Making contributions to super is getting harder and harder with the Federal Government’s recent changes to the superannuation laws however, this can be an effective long term tool for wealth creation and asset protection. This will also usually involve the assistance of your financial planner.

Business succession planning

If you are in business with another person, what happens to your business if you or your business partner gets seriously injured or dies?

Do you have an appropriate and valid Will, Enduring Power of Attorney and Appointment of Enduring Guardians in place?

Usually having these estate planning documents is not enough. Presumably your business partner would give all of his or her assets to their spouse on their death through their Will. What if you don’t want to me in business with your business partner’s partner?

You should have in place business succession documents to deal with this such as a Buy/Sell Deed with appropriate insurances, a Shareholders Agreement (for companies), Unitholders Agreement (for unit trusts) or a Partnership Agreement (for businesses operating through a partnership structure).

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to starting a new business, commercial law, business disputes or estate planning/business succession issues generally, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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What is a restraint of trade?

Post engagement restrictions

Often, employment contracts and contractor agreements contain restrictive covenants or ‘restraints of trade’ to protect businesses when an employee or service provider / contractor leaves.

So, what is a restraint of trade? A restraint of trade is effectively a restriction on the employee or contractor as to where they may work and who they may work for during, and for an agreed period after the termination of, their engagement. Restraints often restrict an employee’s ability to work for competing businesses and within a certain geographical area for a specified period of time.

How far can they go?

A valid restraint should only restrict activities reasonably necessary to protect the legitimate interests of the business that has the benefit of it. Those legitimate interests may include clients, referral relationships, trade secrets, confidential information and the like.

A restraint clause that is too wide, and therefore too restrictive, is generally unenforceable. A restraint should be tailored to accurately reflect the nature of the business activities being protected and only go so far as to protect them, when looked at reasonably. Where restraints seek to protect more than is reasonably necessary to protect the business, they can be struck down. There are public policy considerations in not preventing competition. Restraints are read strictly against the business that seeks to impose it.

Where there are no restraints in the employment or services agreement, there is no restraint and the business will only be able to rely upon their common law rights, which are often inadequate.

How are they enforced?

To enforce a restraint, the court requires that the party seeking to enforce it show that the restraint is reasonable – this will depend on the nature of the business, the restraint period, the restraint area and the nature of the work undertaken by the person or entity affected by it.

Often, enforcement takes the form of an injunction, seeking damages or an accounting for profits.

Further information

If you would like any more information in relation to employment law, disputes or business issues generally, please contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

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