A reminder to our clients that double demerits apply this Easter long weekend 13-17 April inclusive and again on the ANZAC Day weekend, 21- 25 April inclusive. Drive safely.
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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in Business / Commercial Law / Dispute Resolution / Employment / Estate Planning / General / Insolvency & Bankruptcy / Online Issues / Risk management / Superannuation / Tax Planning / Trusts
by McKillop Legal
03 Apr 2017
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A Justice of the Peace (JP) can perform certain functions like witnessing Statutory Declarations or Affidavits and certifying copies of documents.
The NSW Department of Justice has updated the Justice of the Peace Handbook for JPs in NSW. The handbook contains guidance for JPs, tips to avoid common risks and answers to frequently asked questions.
Witnessing a Stat Dec or Affidavit
When witnessing a NSW Statutory Declaration or Affidavit, the JP must see that person’s face as well as confirm that they have known the person for at least 12 months or sight approved identification documents. The current approved versions of Statutory Declaration and Affidavits contain amended wording in this regard but it should be added if it is not there.
If the person refuses to remove any face covering, the JP must refuse to witness the execution of the document unless there is special justification (which means a legitimate medical reason, but does not include religious beliefs or cultural practices).
Approved identification documents include drivers licences, Medicare card, birth certificate, passport (so long as they have not expired/been cancelled). Expired passports are acceptable so long as they did not expire more than 2 years ago.
Quick JP facts
- JPs may not charge or receive any benefit for providing JP services.
- A JP is not authorized to witness an Enduring Power of Attorney.
- JPs cannot conduct a marriage unless they are also a licensed Marriage Celebrant.
- The Jury Act 1977 does not provide an exemption for JPs from jury duty.
- A JP May not provide legal advice unless they are also a registered Australian Legal Practitioner.
- A JP must not unreasonably refuse to provide JP services.
The Code of Conduct for Justices of the Peace was reviewed in 2014 and updated by the Justices of the Peace Regulation 2014.
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
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your business and employment law needs.
in Business / Commercial Law / Dispute Resolution / Employment / General
by McKillop Legal
16 Mar 2017
0 comments
There are at least 3 documents you should consider as part of your personal estate planning:
- A will;
- A power of attorney; and
- Appointing an enduring guardian.
A WILL
A Will is a legal document that details who will take care of your assets and distribute them on your death in accordance with your stated wishes. Consider:
- Who you would want to control your estate if you died?
- What would happen to your estate if you didn’t have a Will?
- Who would look after your children until they are adults?
- That life insurance proceeds, jointly owned assets and superannuation benefits are likely not to form part of your estate on your death.
- What would happen to your business if you died? Business succession is often overlooked or not adequately dealt with by lawyers in wills.
- Who would control your family trust if you died? Have you even read the trust deed?
- How your family could best receive any inheritance from your estate having regard to such things as:
- their own estate planning; asset protection measures; and
- tax minimisation issues.
If your Will does not consider the above issues adequately or at all, then your intended beneficiaries could be receiving far less from their inheritance than you might hope and paying more tax than is necessary each year after you die.
If you pass away without having a valid Will in place (dying intestate), then your estate will be divided up without regard to your wishes at all.
TESTAMENTARY TRUSTS
Testamentary trusts can save your family thousands in tax each and every year though income splitting opportunities and also provide a level of asset protection to benefit future generations. See our previous article on Wills with Testamentary Trusts.
POWERS OF ATTORNEY
Who would make decisions about your finances or assets if you were unable to (such as if you are in a coma, are unconscious or suffer from mental incapacity such as dementia)?
You can appoint a power of attorney to be able to manage your affairs. If you do not, the NSW Civil & Administrative Tribunal (NCAT) can appoint a person that you do not know to control your assets and make decisions for you.
APPOINTING AN ENDURING GUARDIAN
Who would make decisions regarding your medical and dental treatment and where you live if you are permanently or temporarily incapable of doing so?
If you don’t nominate somebody as your enduring guardian, then NCAT can appoint a person to make those decisions, which can include what medical treatment you get or if life support is not maintained.
FURTHER INFORMATION
Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession or any commercial law issues, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.
TYPES OF TRUSTS
There are many different types of trust including those created by wills (testamentary trusts) or by the operation of law, but for the purpose of this article, we are referring to the usual types of trust structures that accountants and lawyers prepare for their clients to operate businesses, own assets and the like, including:
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unit trusts,
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family/discretionary trusts,
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hybrid trusts.
Trusts are often used to ensure that the person or entity with the legal ownership of assets is different to the persons or entities that enjoy the benefit of those assets.
WHAT IS A TRUST DEED?
The Trust Deed is a document that governs the terms of the Trust and sets out the rights and obligations of the Trustee, the Appointor and the Beneficiaries.
SETTLOR
The Settlor is often a person who has started the Trust (often an accountant or lawyer that obtained or drafted the Trust Deed at the request of a client) by paying a nominal amount such as $10 to the Trustee. This amount is known as the ‘settled sum’. The Trust Fund is then added to over time.
WHAT DOES THE TRUSTEE DO?
The Trustee of a Trust is responsible for administering the Trust and managing its assets for the benefit of the Beneficiaries. The Trust can only operate through its Trustee (one or more people or a company)
There are many duties that affect how Trustees can fulfill their role. Many of them are set out in the Trust Deed but there are also legislative provisions that apply, such as those set out in the Trustee Act.
Some of the duties include keeping accurate records, acting in a prudent manner as regards decisions, not mixing Trust assets with the Trustee’s own assets (which is why a often a company is set up to be the Trustee and do nothing but be the Trustee) and not using trust assets for the trustee’s own benefit. This is often one of the reasons a special purpose trustee company is used.
WHAT IS AN APPOINTOR?
The Appointor is the person with the power under the Trust Deed to remove a Trustee and appoint a new Trustee. They, therefore, ultimately control the trust.
Usually, changing the Trustee can be effected at any time by the Appointor executing a deed to remove and appoint a Trustee. Often the Trust Deed allows for the change to be effected by a person’s Will.
It is common for the Appointor of a discretionary family trust to be a parent or sibling and is often 2 people (or in the alternative, there is a Primary or First Appointor and a Second or Alternate Appointor that can act if something prevents the First Appointor from acting).
WHO ARE THE BENEFICIARIES?
In the types of Trusts we are talking about in this article, the Beneficiaries are those that are ultimately entitled to the benefit of the Trust. For Family/Discretionary Trusts, the Beneficiaries are not stated specifically but rather, for asset protection reasons, they are expressed as a class of potential beneficiaries that the Trustee can choose from (but is not obliged to – the protection arises as there is no specific share they are entitled to – it is in the Trustee’s discretion).
Often, the class of potential beneficiaries is very wide and includes children, grandchildren, grandparents, siblings and other trusts and companies which those people may have an interest in.
In the case of a Unit Trust, the Beneficiaries are the unitholders -the unitholders are entitled to a defined/fixed share of the Trust’s assets and income.
For asset protection and income splitting/tax minimisation reasons, often the units in a Unit Trust are owned by a Discretionary Trust.
FURTHER INFORMATION
Trust law is an extremely complex area and it is important to ensure that you understand your rights and responsibilities in relation to any Trust you are involved with or may have an interest in.
Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to trusts, structuring or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.
in Business / Commercial Law / Dispute Resolution / General / Trusts
by McKillop Legal
01 Mar 2017
0 comments
There has been a lot of news coverage recently in relation to the Fair Work Commissions decision which effectively cuts Sunday and public holiday penalty rates for workers in the retail, fast food, hospitality and pharmacy industries. We explain how and why this occurred below.
Section 156 of the Fair Work Act 2009 (Cth)provides that the Fair Work Commission must conduct a 4 yearly review of Modern Awards.
The Commission’s task in the Review is to decide whether a particular Modern Award achieves the Modern Awards’ objective. If it doesn’t, then it is to be varied such that it only includes terms that are ‘necessary to achieve the Modern Awards’ objective’ (s.138).
As part of the Review, various employer bodies made applications to vary the penalty rates provisions in a number of Modern Awards in the Hospitality and Retail sectors. These applications have been heard together.
On 23 February 2017, a Full Bench of the Commission made a determination in relation to weekend and public holiday penalty rates and some related matters, in Hospitality and Retail awards.
The Modern Awards which are dealt with in this decision are:
- Fast Food Industry Award 2010 (Fast Food Award)
- General Retail Industry Award 2010 (Retail Award)
- Hospitality Industry (General) Award 2010 (Hospitality Award)
- Pharmacy Industry Award 2010 (Pharmacy Award)
- Registered and Licensed Clubs Award 2010 (Clubs Award)
- Restaurant Industry Award 2010 (Restaurant Award
A summary of sum of the changes are set out below.
FURTHER INFORMATION
Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any business or employment related issue, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.
Succession Act claims
We are often called upon to advise clients in relation to claims on estates in relation to such things as challenging the validity of the Will (such as due to lack of mental capacity when the deceased person made the will or duress) or what is known as a Succession Act claim or a family provision claim (where a person says that adequate provision was not made for them in a Will). We discuss the latter here.
The purpose of the Succession Act is to seek to ensure that “adequate” provision is provided from a deceased’s estate to the family members of a deceased person (and others). Claims under the Act are based on needs.
Important facts
- Claims must be made within 12 months of the date of death of the deceased (although in limited circumstanced, this time limit can be extended).
- To make a claim, you must first establish that you are an “eligible person”.
- Assuming you are an “eligible person”, you must demonstrate needs beyond the provision that was made for you in the Will (if any) for your proper maintenance, education or advancement in life.
Who is an eligible person?
Those who are eligible to make a claim for a provision out of deceased estate include:
- A spouse of the deceased at the time of the deceased’s death;
- A person in a de facto relationship with the deceased at the time of death
- Children (including adopted children) of the deceased;
- Former spouses of the deceased;
- Someone with whom the deceased was in a close personal relationship* at the time of their death;
- Those who have, at any time, been wholly or partly dependent upon the deceased:
– were either a grandchild of the deceased; or
– were, at any time, member of a household of which the deceased a member.
* A “close personal relationship” is a relationship other than a marriage or a de facto relationship between two adult persons, whether or not related by family, who are living together, one or each of whom provides the other with domestic support and personal care but not for reward or on behalf of another person or organisation.
What is involved?
To make a claim, the proceedings are usually commenced in the Supreme Court by way of Summons and evidence will be required in an affidavit setting out the nature and history of the relationship, contributions made to the deceased’s property and wellbeing, details of your financial need and any other relevant factors.
Simply having financial needs and showing some level of dependence on the deceased is not the end of it. The Court will have to weigh up many other factors, such as the size of the estate, the deceased’s wishes (such as those stated in a statement of testamentary intention or other similar document), competing claims from others, circumstances and events that may tend to dis-entitle a person from a benefit and so on.
Time and costs involved
Litigation is a lengthy and time-consuming process and it is an emotional one with family relationships being strained by what may be contained in affidavits or said in the witness box at a hearing. That said, often the estate pays the costs (or a large proportion of them) involved in such cases so it may not be a financial burden to enforce your rights.
Most cases settle prior hearing and usually at a mediation that can be arranged by the Court or by private agreement between the parties. Settlement is often advised to avoid the risks, costs (and emotional cost) of litigation and to help preserve any family relationships.
Often we act for the executors of an estate, but we also act for beneficiaries and those that are not mentioned in Wills at all.
Further information
If you would like any more information in relation to Wills, deceased estate litigation or estate planning/business succession issues generally, please contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au
in Dispute Resolution / Estate Planning / General / Litigation / Probate / Trusts
by McKillop Legal
15 Feb 2017
0 comments
WHAT IS A WILL?
A Will is a legal document that outlines how you wish to have your assets distributed on your death. You get to choose who administers your estate for you and who and how your beneficiaries are to receive your assets.
Generally, to make a Will, you must be over 18, have proper mental capacity and sign a document in the presence of 2 independent witnesses.
If you pass away without having a valid will in place (called ‘dying intestate’) then the provisions of the Succession Act 2006 (NSW) will apply and your estate will be divided up without regard to your wishes.
Take control of who controls your estate and who inherits by putting in place a will today.
EXECUTORS
An executor is the person you appoint in your Will to deal with your estate on your death and to ensure that your wishes are carried out. Often, people appoint 2 executors or provide for an alternate executor so that if one person is not willing (for example, due to age or infirmity) or able (for example, if they are dead or incapacitated) to act, then the other/alternate executor can act.
WHAT CAN A WILL INCLUDE?
Any asset that you own can be deal with in your will, whether bank accounts, motor vehicles, boats, jewellery or any other item. Particular items can be left to particular people, the whole of your estate can be left to one person or to several people in various fractions or percentages and conditions of gift can be imposed, such as paying out encumbrances such as mortgages.
Real property (houses and land) that is owned as ‘joint tenants’ (as is often the case for married couples) cannot be left by Will because when one joint owner dies, it automatically passes to the surviving owner. Where land is owned as tenants in common, it can be transmitted by Will. There can be good reasons for holding property in either way.
Life insurance and superannuation benefits are not able to be dealt with by a Will where specific beneficiaries have been nominated by policy owner. If the estate is nominated as beneficiary, a nomination has lapsed (they often lapse after 3 years) or no nomination has been made, the proceeds will usually be paid to the estate and distributed under the Will however, the trustee or the insurer may have discretion as to who to pay the benefit to. Your financial advisor would be able to advise you in relation to any superannuation death benefit nominations.
Often, wishes are expressed in Wills such as those relating to cremation or burial and directions regarding guardianship of infant children.
WHEN IS A NEW WILL REQUIRED?
If you get married or if you get separated or divorced from your spouse or partner or if your family circumstances change (for example, through a birth or a death or if you have a significant change to your finances, like an inheritance, bankruptcy, changes in business structure etc), you should make a new Will.
Your Will should be regularly reviewed (every few years at least) to ensure it still reflects your current wishes.
TESTAMENTARY TRUSTS
Consider whether your beneficiaries would benefit from having Wills with Testamentary Trusts as they can offer significant and ongoing benefits, including:
- asset protection from creditors, and
- taxation advantages such as income splitting.
This is particularly useful where your beneficiaries are in business and have their own asset protection measures in place, if they are ‘at risk’ or where you have income producing assets. Speak to us about how testamentary trusts can benefit your family.
FURTHER INFORMATION
Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to estate planning, business succession or any other commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.
As you would expect, Australian banknotes are legal tender throughout Australia.
Similarly, a payment of coins is a legal tender in Australia however, there are restrictions, such as those in the Currency Act 1965, about how much can be paid in coins.
Coins are not legal tender if they exceed:
- 20c where 1c and/or 2c coins are offered (these coins have been withdrawn from circulation, but are still legal tender);
- $5 if any combination of 5c, 10c, 20c and/or 50c coins are offered; and
- 10 times the face value of the coin if $1 or $2 coins are offered.
For example, if someone wants to pay a merchant with 5c coins, they can only pay up to $5 worth of 5c coins and any more than that will not be considered legal tender.
The above is of course subject to any agreement between parties – a provider of goods or services is at liberty to set the commercial terms upon which payment will take place before an agreement for the supply of the goods or services is entered into.
For example, vending machines may not accept small denomination coins or payment may be agreed to be made in foreign currency such as USD.
If you would like any more information in relation to any commercial law or contractual issue, please contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au
Source: Reserve Bank of Australia
in Business / Commercial Law / Dispute Resolution / General / Online Issues
by McKillop Legal
07 Feb 2017
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