Dispute Resolution

Can you just put a caveat on someone’s house?

If you are owed a substantial sum of money by someone, whether because you have loaned them funds or if you have a bill that hasn’t been paid, you would generally like to secure those funds. This way, if the borrower or debtor ends up being a bankrupt or insolvent, you may be in a better position as a secured creditor to those that are unsecured and hopefully you can get paid.

So how does security work? Security is effectively giving notice to the world that you have a claim on that person’s estate or assets so that subsequent people or businesses dealing with the same person are aware that you are to be paid in property, ie before them.

Security can be given in several ways, including:

  • handing over physical possession of certain assets;
  • the granting of  a Security Interest over assets registered on the Personal Property Securities Register (or “PPSR”); or
  • perhaps granting a Mortgage over real property owned by the person owing the money.

The registration of securities grants priority in order of registration, so it is important not to delay in registering any securities granted.

Ordinarily, you would have put in place a Loan Agreement or had Terms of Trade in place to govern your business relationship so that you have the express written consent to do such things to secure the debt, but if these documents are not in place before the financial obligation arises, people often take the step of lodging a caveat on title to property owned by the debtor.

A Caveat registered on title to a property has the effect (subject to the specific wording of the caveat of course) of preventing the owner or registered proprietor of that land from dealing with that land without the consent of the person who lodged the Caveat (the “caveator”). Dealings that can be prevented include lodging other Mortgages, lodging Transfers and the like.

Can you just put a caveat on someone’s house? If only things were that simple!

Many people have taken the step of lodging a Caveat on title to a debtor’s property only to have been unsuccessful in protecting their debt. Why? Well, in order to lodge a caveat (or even a Mortgage or PPSR Security Interest for that matter), you need to have the relevant asset “charged” in your favour with payment of the relevant debt. Creating a “charge” over an asset creates an interest in that asset that allows you to lodge a Caveat to notify and protect that interest.

A Caveat is not a document that gives you priority over previously registered interests, but it does give you some control over the asset such that you can prevent refinancing or a sale of an asset unless satisfactory arrangements for you to be paid have been made as part of that process  Properly drafted documents in relation to the lending of funds or business agreements where credit is extended should include things such as Mortgages, General Security Deeds or other things that create an interest in the asset sufficient to lodge a Mortgage, on title (to land), a Security Interest (on the PPSR in relation to assets etc) or at a minimum a Caveat over land.

Without such an interest being created, the caveator runs the risk that the owner can’t sell or refinance and suffers financially, then pursues the caveator for damages flowing from the caveator’s wrongful act, putting the caveator in an even worse position than they were before!

These things should not be done without proper advice, so take the time to review your current situation and documents now before a problem arises and have the documents updated to best protect you or your business.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to debt recovery, loan agreements, estate planning, any business-related matter or if you have a Caveat lodged on your property without your consent, 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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New Consumer Laws for services apply from 9 June 2019

In our April 2018 blogpost, we provided a brief summary of some of the key requirements under the Australian Consumer Law (ACL) that apply to goods and services and the requirements of any warranties as to defects over and above the consumer guarantees created by the ACL. New consumer laws for services apply from 9 June 2019… 

A “warranty as to defects” is a statement made to a consumer made at or around the time of supply to rectify defects or to compensate the consumer, with a “consumer” being a person or business acquiring goods or services either:
 
  • costing less than $40,000; or
  • costing more than that amount but being ordinarily acquired for domestic, household or personal use or consumption; or
  • if the goods are a vehicle or trailer.

The mandatory text for any warranties as to defects in relation to the supply of goods only remains unchanged:

“Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.”

From 9 June 2019 however, there are new mandatory text requirements for warranties against defects when supplying services or when supplying goods with services.

Businesses that do not comply risk fines of up to $50,000 for companies and $10,000 for individuals per breach.

Any document evidencing any warranty against defects in relation to the supply of services only must state:

“Our services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled:
  • to cancel your service contract with us; and
  • to a refund for the unused portion, or to compensation for its reduced value.

You are also entitled to be compensated for any other reasonably foreseeable loss or damage.

If the failure does not amount to a major failure, you are entitled to have problems with the service rectified in a reasonable time and, if this is not done, to cancel your contract and obtain a refund for the unused portion of the contract.”

and the mandatory text for the supply of goods and services is:

“Our goods and services come with guarantees that cannot be excluded under the Australian Consumer Law. For major failures with the service, you are entitled
  • to cancel your service contract with us; and
  • to a refund for the unused portion, or to compensation for its reduced value
You are also entitled to choose a refund or replacement for major failures with goods. If a failure with the goods or a service does not amount to a major failure, you are entitled to have the failure rectified in a reasonable time. If this is not done you are entitled to a refund for the goods and to cancel the contract for the service and obtain a refund of any unused portion. You are also entitled to be compensated for any other reasonably foreseeable loss or damage from a failure in the goods or service.”

If your business supplies services or goods and services, then it is likely that you need to update the mandatory text into your Terms and Conditions or your Contracts with your customers.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal.

For further information in relation to these new consumer laws, consumer rights or any business or 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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Are you hiring an Employee or a Contractor?

Are you hiring an employee or a contractor? This is an important question often overlooked by business owners.

What is the difference between an employee and a contractor?

The difference between an employee and an independent contractor is based on many different factors. No single factor determines whether someone is an employee or a contractor. Instead, the Courts will look at each case and make a decision based on the totality of the relationship between the parties when determining the status of an engagement.

There are some common factors that may contribute to determining whether a person is an ‘employee’ or an ‘independent contractor’ (or ‘contractor’ or ‘sub-contractor‘):

Employees

Employees generally:

  • do not operate independently of the business engaging them
  • are directed in how and when to perform their work
  • cannot delegate their work to someone else or pay someone else to do it
  • are paid per hour, project or a commission
  • are provided with all tools and equipment required to perform their work or gets an allowance to provide these things
  • take no commercial risks – the business is responsible for the work performed or fixing any issues with it
  • have an expectation of continuing work (except casuals)
  • are generally not employed by other businesses at the same time (at least for most full time employees)

Contractors

Contractors on the other hand:

  • do operate independently of the business engaging them
  • have freedom as to how and when to perform work, subject to the terms of the arrangement
  • may delegate or further subcontract out their work, subject to the terms of the agreement (Services Agreement or Contractor Agreement etc)
  • are paid for a result or outcome, even if this is on an hourly rate basis, a commission arrangement or per project
  • supply most of their own tools and equipment
  • are liable for the work performed and are liable to remedy or pay the costs of fixing any defects
  • are responsible for their own employees and sub-contractors
  • are usually engaged for a specific task or purpose
  • may accept or seek work from other businesses

Other differences in their rights and the obligations or the employer or principal include:

  • Independent contractors issue invoices (or tax invoices if registered for GST) whereas employees are paid regularly (weekly, fortnightly or monthly).
  • Employees are entitled to the benefit of the rights under the Fair Work Act 2009 (Cth) (FW Act) and any relevant Award or industrial agreement (including for things such as leave, overtime etc) as well as having the compulsory superannuation contribution paid to their superannuation fund.
  • Employees have tax withheld and paid on their behalf to the Australian Taxation Office where as an independent contractor will pay their own tax to the ATO (and GST if registered for GST).

What if you get it wrong?

If you pay someone as a contractor when they are really an employee, the employee may miss out on important benefits such as leave entitlements and superannuation. Although you may have paid the agreed rates or price and any applicable GST, the employee may be able to pursue the business that engaged them for those unpaid entitlements and the employer may be prosecuted. Also, if the “contractor” doesn’t pay tax, the employer may be liable for the tax that ought to have been withheld.

Many businesses that deliberately arrange in “sham contracting” (where a person ought to be an employee but they are engaged and remunerated as a contractor) are penalized by the Fair Work Ombudsman under the FW Act.

Another unexpected consequence can be that where those engaged as independent contractors are not actually independent at all (for example where they do not provide services to any other businesses) or are really employees can be the issue of payroll tax payable to Revenue NSW under Payroll Tax Act 2007 (NSW). Contractors can be deemed employees for the purpose of payroll tax if they don’t offer their services to the general public, working only for one business.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any employment related issue or any business/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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Power of appointment

You may have a family trust or a discretionary trust that your accountant prepared for you.

Perhaps you are the trustee or that trust, or one of several trustees such as your spouse or partner or perhaps you are a director of a company that is the trustee.

There are a number of terms used in trust deeds that are not commonly understood, such as the “settlor”,vesting date” or the “excluded class”.

One of the things that is often:

  • not properly considered at the time of establishing the trust; and /or
  • overlooked at the time estate planning documents are being drafted

is the “power of appointment”.

The power of appointment is a power granted to the “appointor” named in the trust deed to decide who should be the trustee of the trust.

This power of appointment is the most important power in a trust deed as it generally affords the appointor the power to remove and replace the trustee as the appointor thinks fit (subject of course to any provisions of the trust deed).

Often the trust deed will provide for how that power is to be transferred, such as on the death of the appointor, and allows the appointor to give that power in their Will.

If you have a trust deed and you either:

  • don’t know who holds the power of appointment;
  • want to amend the trust deed to change who holds that power of appointment or
  • want to ensure that the power is appropriately transferred on your death

then speak to your lawyer about this without delay.

FURTHER INFORMATION

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

Contract to Make Mutual Wills

A Contract to make Mutual Wills is an agreement between 2 parties (usually a husband and wife, but can be a same sex couple or a de facto couple) to make Wills in an agreed form.

Usually, they provide that the parties may not act such that those Wills don’t get given effect to, such as:

  • revoking or destroying the Will;
  • making a new Will; or
  • disposing of assets so that they do not pass to the agreed beneficiaries

without the consent of the other party (or the executors/administrators of their estate  if they have died).

Often they are put in place when the parties have had a prior marriage or marriages and there are children of the prior relationship/s and the current relationship.

The benefit of such contracts (or deeds as they often are) is that the parties can take some comfort in providing for the other during their lifetimes (for example by gifting their entire estates to each other in their Wills), but with the overall distribution of their combined estates (on the death of the last of them) passing as agreed in the Wills made pursuant to the document.

Where a party breaches the agreement (such as by changing their Will), that party (or their estate) may be sued by the other party (or their executors/administrators if they have died) for breach of contract.

Whilst mutual Wills can be an effective estate planning tool, they are not for everyone and they can cause unintended complications due to their inflexibility, particularly around subsequent marriages, children and unexpected events following the death of a party.

As with most things, there are also other options or alternatives to consider to get a similar result, including creating life interests in real estate or establishing trusts.

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.

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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Employment Contracts

Are the Employment Contracts used by your business up to date?

Employees are arguably the most important asset of your business. They are also potentially one of the most risky.

Employees have contact with customers, form relationships with them, suppliers and referrers, have access to all of your other business assets such as databases, intellectual property and trade secrets.

When an employee leaves your organisation, there is potential for them to take more then their personal belongings with them when they go.

Employees are arguably the most important asset of your business. They are also potentially one of the most risky

For these reasons having a robust, yet commercial and flexible, employment agreement is essential.

What should your employment contract include?

At the very least, a contract of employment should include:

  • Position, duties and responsibilities (including whether full time, part time or casual)
  • Hours
  • Probation (for new employees or roles)
  • Remuneration and other benefits (including superannuation)
  • Leave entitlements (as well as obligations such as notice, reporting etc)
  • Confidentiality
  • Intellectual property ownership
  • Consenting to reasonable surveillance in the workplace
  • Obligation to comply with Workplace Policies including those relating to anti-discrimination and bullying, email and internet use and the like
  • Termination (including notice provisions that comply with the National Employment Standards)
  • Obligations on termination (such as returning property) and those that continue after termination (including appropriate and enforceable Restraints of Trade)
  • A copy of the Fair Work Information Statement

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any employment related issue or any business/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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Forcing the sale of land in NSW

Where land is owned by multiple people (whether as joint tenants or tenants in common), any one of the owners can approach the Supreme Court to seek an order for the appointment of a trustee for sale and for the property to be sold.

Ordinarily, the owners can come to agreement on the need for a sale and the basis on which it is to be conducted. For example, following some negotiations or a mediation, the co-owners may agree to:

  • sale by auction with an agreed reserve price;
  • sale by public treaty with an agreed price; or
  • sale by one owner to another, with agreement on how the price is determined (such as agreeing on a valuer or methodology).

When co-owners are in a dispute however as to whether a property should be sold, when and on what terms, the provisions of section 66G of the Conveyancing Act 1919 (NSW) can be utilized to force the sale of the property, even where the other owner (or owners) do not want to sell it.

Once appointed, the trustee has the legal power to sell the property on the best terms available and to engage real estate agents, valuers and lawyers/conveyancers as may be required. So as to help ensure that the property sells for fair market value and to avoid any breach of trust allegations from any of the owners for not obtaining the best price possible, it is sensible for a trustee to sell at public auction

A usual order made is that the unsuccessful party (usually the defendant/respondent) pays the plaintiff /applicant’s legal costs. The costs risk arising from litigation (which can be substantial in amount) is usually a key factor in out of court settlements being made.

Applications for the appointment of a statutory trustee for sale are generally only refused in special circumstances, such as where the is a prior agreement not to sell, around the terms of any sale or to sell only when certain conditions are met (which is why any co-ownership agreements ought to be in writing as verbal evidence can be less persuasive).

Usually, after a successful application is made and the property is sold, the proceeds of sale after payment of:

  • any encumbrances (such as mortgages and unregistered mortgages secured by caveats);
  • the costs of sale (real estate agent and auctioneer fees and marketing costs etc); and
  • the trustee’s costs

are held on trust by the appointed trustee and then distributed proportionally according to ownership.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to family disagreements in relation to land or estates or any business or 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 needs.

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ASIC to remove trading names from ABN Lookup

Business owners please note that from November 2018, trading names will be removed from the ABN Lookup facility.

The ABN Lookup contains a list of all Australian Business Numbers (ABN) and any associated business names.

If you want to continue to trade under a specific name, if you haven’t already done so, you must register it as a business name with the Australian Securities and Investments Commission (ASIC) as is required by the Business Names Registration Act 2001 (Cth).

You don’t need to register a business name if you trade under your own name (eg ‘John Smith’) or a company name (eg ‘John Smith Pty Ltd’), but you do need to have a business name if it’s anything else (eg ‘John Smith Plumbing’, ‘John Smith & Co’, ‘John Smith & Partners’, ‘John Smith & Sons’  or ‘John Smith & Associates’ then it must be registered).

Don’t rely on a business name registration thinking that it gives you any protection – as it doesn’t give you any protection at all – only a trade mark under the Trade Marks Act 1995 (Cth) can provide that kind of protection.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to intellectual property, commercial law or business related matters, 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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Director duties

There are numerous and important legal responsibilities imposed on directors of companies under the Corporations Act 2001 and other laws, including the general law.

Of these director duties, some of the most significant are contained in Chapter 2D of the Corporations Act:

  • to exercise the degree of care and diligence that a reasonable person might be expected to show in the role – the business judgment rule (s.180).
  • to act in good faith in the best interests of the company and for a proper purpose (s.181)
  • to not improperly use their position to gain an advantage for themselves or someone else, or to the detriment to the company (s.182)
  • to not improperly use the information they gain in the course of their director duties to gain an advantage for themselves or someone else, or to the detriment to the company (s.183)
  • to lodge information with ASIC (s.188)

but there are others, including to:

  • to avoid conflicts of interest between the interests of the company and theirpersonal interests and to reveal and manage conflicts if they arise (s.191)
  • to take reasonable steps to ensure that a company complies with its obligations in the Corporations Act related to the keeping of financial records and financial reporting (s.344)
  • to ensure that a company does not trade whilst insolvent or where they suspect it might be insolvent (eg, if it is unable to pay its debts as and when they fall due) (s.588G)
  • if the company is being wound up, to assist the liquidator and provide accurate details of the company’s affairs.

Directors can also be liable for unpaid taxation obligations and unpaid superannuation monies – for which the ATO can issue Director Penalty Notices.

Failing to comply with director duties can result in criminal sanctions, fines, disqualification from acting as a director and other consequences, such as breach of contract such as obligations under a Directors & Shareholders Agreement.

People can be responsible as directors even if not formally appointed

What many people don’t know is that the term “director” is defined in section 9 of the Corporations Act to include a person:

  • who is appointed as a director (or alternate director), regardless of the name given to their position; and
  • even though not validly appointed and recorded at ASIC as a director:
    • who acts in the position of a director (also known as a ‘de facto director‘); or
    • whose instructions or wishes the appointed directors are accustomed to act in accordance with (also known as a ‘shadow director’)

Commonly used terms for the titles of ‘director’ include ‘non-executive director‘, ‘executive director‘, ‘managing director‘, ‘independent director‘ and ‘nominee director‘.

Often, businesses give titles to employees rather than pay rises. Similar considerations apply to partnerships, where some partners are ‘salaried partners‘, not ‘equity partners‘ so they take home a salary rather then enjoy the fruits of the business. What these ‘salaried partners‘ (in the same vein as ‘non-executive directors‘) often fail to understand or appreciate is that they are holding themselves out as directors or partners of the business and will have full responsibility as such if something goes wrong, such as an insolvency.

How to meet the responsibilities

Those with key roles in any business, regardless of its legal form, you should:

  • understand your legal obligations and make compliance with them part of your business
  • keep informed about your business’ financial position and performance, ensuring that it can pay its debts on time and keeps proper financial records
  • give the interests of the business, its stakeholders/owners and its creditors top priority, which includes acting in the business’ best interests (even if this may not be in your own interests)
  • use information you get through your position properly and in the best interests of the business
  • get professional advice or more information if you are in doubt.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to Corporations Act or corporate governance issues or any business or 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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What is a Granny Flat Right?

WHAT IS A GRANNY FLAT RIGHT?

You can have a granny flat interest in any kind of dwelling, not just those typically referred to as a “granny flat” (a separate, self-contained building or living area attached to a home or property). It must be a private residence and your principal home.

You cannot however, have a granny flat interest in a property in which you have legal ownership (or your partner or a company or trust that you control).

A “granny flat right” or a “granny flat interest” is where you pay for the right to live in a specific home for life.

Granny flat interests are usually family arrangements providing company and support for older people, but they don’t have to be for social security purposes. They are created when you exchange assets, money or both for a right to live in someone else’s property for life. For example, you could:

  • transfer ownership of your home but keep a lifelong right to live there or in another private property; or
  • transfer assets, including money, in return for a lifelong right to live in a home.

The granny flat right only lasts for your lifetime. It’s not part of your estate when you die, so you can’t give it in your will as part of your estate plan.

DOCUMENTATION

A granny flat right does not have to be in writing however, given that amounts that can be paid for a granny flat right can be significant and they are usually funded by significant events like the sale of a family home, it can be a very good idea to get a lawyer to draw up a legal document so you have proof of what you and the owner have agreed to in relation to the granny flat arrangement.

A Granny Flat Right Agreement can include many things in addition to the amount paid, such as what happens if the property is sold, whether the right can be transferred to another property or what you may get back if you give up your granny flat right, as well as what regular contributions for rent, maintenance or outgoings (insurance, rates, phone etc) may have been agreed.

GIFTING RULES & THE REASONABLENESS TEST

In Centrelink/Department of Human Services terms, a “deprived asset”, also known as “gifting”, is where you give away an asset without getting something of at least equal value in return.

The value of a granny flat right is the amount paid, or the value of the assets transferred, in return for a life interest or life estate in a property.

Centrelink may apply the “reasonableness test” in determining the amount that should be paid for a granny flat right. This test is based on a formula based on a conversation factor relating to your age next birthday and the couple age pension rate.

If the amount paid is equal to or below the value determined by the reasonableness test, then there is no deprivation. However, if the amount you paid for the granny flat right is more than the cost or value of the granny flat right, the excess amount paid is considered to be a “deprived asset”.

This could affect the amount of pension you are paid.

Depending on the value of the granny flat right, you may be considered as a home owner for Centrelink (assets test) assessment purposes, even though you don’t own the home you have the granny flat right in.

WANT MORE INFORMATION?

Speak to us about how we can assist you to draft a Granny Flat Right Agreement to document your arrangements regarding the use and occupation of part of your home. We will liaise with your financial planner to cover off the financial and social security aspects as there may be other things you can do like contribute proceeds of sale to super.

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to documenting co-habitation and property use agreements and estate planning matters 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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