Insolvency & Bankruptcy

What is an Injunction?

An injunction is a Court order directing a person or entity to do a specific thing or not to do a something.

Most injunctions are temporary and are often made pending the outcome of a full hearing (known as an “interlocutory injunction“). An example may be to restrain a former employee from doing work for former clients where they have agreed to post-employment restraints pending a hearing on whether the restraint is lawful or to prohibit the publication of a potentially defamatory article in a newspaper or television program.

A Court will not grant an interlocutory injunction unless:

  • the Plaintiff has made out a “prima facie” case – a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial – or established that there is a serious question to be heard;
  • the balance of convenience favours the granting of the injunction; and
  • the Plaintiff provides “the usual undertaking as to damages” (that they will pay any damages the restrained party suffers if at a final hearing the Court determines that the injunction wasn’t justified).

A Court has discretion as to whether to make such an order and will consider thongs like whether or not you have asked the other party to do/not do the relevant thing, whether damages would be an appropriate remedy, if you have waited too long to seek the order etc.

Where an injunction is sought from a Court without the affected party being notified, this is known as an “ex-parte injunction” as it is made in the absence of a party. They are for that reason only temporary and the Court requires the applicant to disclose all relevant facts to the case, including those that may lead to refusal of the application, not just those in favour of the injunction as there is no respondent in Court to oppose it. Examples can be “freezing orders” that stop the sale of assets or to freeze a bank account to preserve them pending the Court’s further orders.

Mandatory injunctions can be obtained where for example a party to a contract refuses to comply with their lawful obligations under it. An example of this is a party to a Contract for the Sale of Land that unlawfully refuses to sign a Transfer in registrable form. Such an injunction imposes a positive obligation on the affected party to do something, not just stopping them from doing something.

FURTHER INFORMATION

For further information in relation to business succession, estate planning, litigation and dispute resolution or any commercial law matter, contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au

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

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in Business / Commercial Law / Debt Recovery / Dispute Resolution / Employment / General / Insolvency & Bankruptcy / Intellectual Property / Litigation / Property  by 01 Jun 2025 0 comments

Why updating ASIC records is critical

Under the Corporations Act 2001 (Cth), among other methods, any document may be served on a company by:

(a) leaving it at, or posting it to, the company’s registered office; or

(b) delivering a copy of the document personally to a director.

This means that ASIC, the ATO, other government authorities or any other creditor can serve important papers on a company at its former place of business (where that address has not been updated at ASIC) even if they have since moved.

Documents that could be served on a company can include:

  • Court proceedings such as an Originating Process / Statement of Claim / Summons

As these important documents can be served on a company even though they may not actually come to the attention of the company or its directors, demonstrates why updating ASIC records is critical.

Similarly, if the ATO was to serve a Director Penalty Notice (DPN) on a director, note that:

  • DPNs are sent via ordinary mail to the Director’s last recorded residential address on ASIC’s database
  • notice is given on the day the DPN is issued, not when it is or is likely to have been received
  • actual non-receipt of a DPN is not a defence.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@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.

in Business / Commercial Law / Dispute Resolution / General / Insolvency & Bankruptcy / Litigation / Risk management  by 01 May 2025 0 comments

Order for Security for Costs

An Order for security for costs is to help ensure that unsuccessful proceedings commenced by a Plaintiff do not disadvantage the Defendant. Such applications are more usually made in relation to an appeal rather than an original matter.

A security for costs order generally requires a Plaintiff to pay a certain amount of money into Court (or a solicitor’s trust account) before their proceedings can continue – that is the proceedings are in effect stayed pending the security being provided.

The Court has several sources of power to make an order for security for costs, including:

  • the Court’s inherent power to stay proceedings to ensure the proper and effective administration of justice
  • the relevant Court rules (eg, Rule 42.21 of the Uniform Civil Procedure Rules 2005);
  • s.1335 of the Corporations Act 2001 (Cth).

Due to the weight an order for security for costs may carry, Courts must weigh the rights and interests of all parties to the proceedings. The Court has a broad discretion as to whether to grant such an order and will usually look to factors including (in no specific order):

  • the inherent legal right of a Plaintiff to bring legal proceedings;
  • the strengths and bona fides of the Plaintiff’s case
  • where the Plaintiff ordinarily is resident;
  • the financial standing and asset position of the Plaintiff in the jurisdiction in which the claim has been commenced (including where the Plaintiff may have divested itself of assets);
  • whether there is reason to believe that the Plaintiff can satisfy an order for costs not only from its own resources, but from other resources including those who will benefit from the litigation; the public importance of the case;
  • delay of bringing the application for the order;
  • if the Plaintiff hasn’t disclosed an address or has moved and not updated it, particularly if there is reason to believe that it was done to to avoid the consequences of the proceedings;
  • whether such an order will frustrate the litigation;
  • the justice of the case.

It is uncommon for such an order to be made against an individual Plaintiff (as opposed to a company, partnership or trustee) but not impossible, depending in the circumstances of the particular case and Plaintiff.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@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.

in Asset Protection / Business / Commercial Law / Debt Recovery / Dispute Resolution / General / Insolvency & Bankruptcy / Litigation / Risk management  by 01 Apr 2025 0 comments

Advantages of Testamentary Trusts

WHAT IS A TESTAMENTARY TRUST?

A Testamentary Trust in simple terms is a trust that is established by a person’s Will (and Testament), as opposed to a trust created during someone’s lifetime, like a family trust, discretionary trust, units etc.

Unlike with a “basic” Will – pursuant to which where beneficiaries receive the benefit of any gift personally – with a Testamentary Trust, the beneficiaries receive the benefit of the gift, but rather than having it legally owned by them personally, a trustee holds the relevant asset in trust for them.

Wills with Testamentary Trusts are recommended by many lawyers, accountants and financial advisers for various reasons but the advantages of Testamentary Trusts include asset protection and taxation advantages.

ASSET PROTECTION POSSIBILITY

Because of the legal ownership differs from the beneficial interest, Testamentary Trusts can offer beneficiaries significant and important advantages such as asset protection. As the trustee of the Testamentary Trust owns the asset (not the primary beneficiary personally), creditors and trustees in bankruptcy of the relevant beneficiary cannot gain access to the asset, so it can remain for the benefit of the intended beneficiary and their family etc.

Often, beneficiaries that are in business for themselves have implemented asset protection measures so as to keep their assets safe from claims by third parties. The last thing that such a beneficiary may want is to receive an inheritance in their personal name, effectively undoing all of their efforts to safeguard their assets!

Testamentary trusts can offer beneficiaries significant taxation advantages and a level of asset protection.

Testamentary Trusts can be drafted so as to have the beneficiary effectively control the trust and for that control to be relinquished on the occurrence of certain events, such as bankruptcy or divorce/marital separation, with a nominated person or persons to act in the role of trustee whilst such incapacity remains.

POTENTIAL TAXATION BENEFITS

Rather than taking a gift in a personal capacity as would usually be the case with a more “simple” Will, with a Will incorporating Testamentary Trusts, beneficiaries may have the ability to split income earned amongst other people in their family such as spouses, children, grandchildren or any other company or trust in which they have an interest.

Where a deceased estate has income producing assets (such as an investment property or a share portfolio), under a more simplistic will, the beneficiary personally receiving that gift would have the income earned from such asset/s added on top of the income they receive from their employment or their own investments. This could mean that they go into the next marginal tax bracket and pay significantly more tax.

A Testamentary Trust allows the income earned in the trust to be split amongst the various family members, many of whom are likely to either not be working (so the tax-free thresholds become available) or earn lower incomes (and are therefore in lower taxation brackets).

Children under 18 years of age that receive income from a Testamentary Trust are taxed at marginal rates as if they are adults (as opposed to the how income from standard discretionary / family trusts, where can be taxed at unearned income penalty tax rates) so for a family with a non-working spouse and several children, significant income can be received by the family whilst very little or no tax may be payable on the testamentary trust income.

FURTHER INFORMATION

For further information in relation to estate planning, business succession or any other commercial law matter, contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au.

in Asset Protection / Business / Estate Planning / General / Insolvency & Bankruptcy / Probate / Risk management / Tax Planning / Trusts  by 05 Jan 2025 0 comments

General Security Deeds

A General Security Deed (GSD) or a General Security Agreement is effectively a legal document used to secure the repayment of a loan or some other legal obligation.

GSDs are often used by lenders such as banks where there is no real property security available to place a Mortgage or Caveat over, so in addition to signing a Loan Agreement or Letter of Offer, a borrower will likely also be asked to sign a GSD.

Prior to the creation of the Personal Property Securities Register (PPSR), a GSD used to be known as a ‘fixed and floating charge‘ which was registered over companies at ASIC. A GSD however, can be registered on the PPSR against any legal entity including a trustee of a trust, a partnership or sole trader and can cover any form of personal property.

Personal property is basically anything other than land and can include motor vehicles, intellectual property, shares in companies, units in unit trusts, stock and business equipment.

Under the GSD, the borrower is known as the ‘Grantor’ and the lender is called the ‘Secured Party‘ and the terms of the GSD can be complicated but basically provide that the Secured Party can take, hold and sell the secured personal property to repay the debt or until the obligation the GSD is securing has been met – this is known as a ‘Security Interest’.

GSDs have priority in the order in which they are registered so there is often a real benefit to registering them on the PPSR (known as ‘perfection’) as soon as possible.

General Security Deeds are complicated and important documents, so before you sign one, you ought to take appropriate advice as to their meaning and effect.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@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 / General / Insolvency & Bankruptcy / Property  by 01 Dec 2024 0 comments

What is bankruptcy?

Bankruptcy is a legal process where you’re declared unable to pay your debts and released from most debts (but not child support, court imposed fines, HECS and HELP debts etc) so you can make a fresh start financially.

You can either enter into bankruptcy:

  1. voluntarily; or
  2. on petition to Court by a creditor after not complying with a Bankruptcy Notice.

An order declaring someone as a “bankrupt” is known as a sequestration order.

Bankruptcy normally lasts for 3 years (and one day) provided you comply with your obligations. If you don’t, it can be extended several years.

Once a bankrupt, your Trustee has ownership and control over your assets (with exceptions such as some household items, a car up to a certain value, tools to earn an income, superannuation etc).

The trustee can be the Official Trustee (from the Australian Financial Security Agency, AFSA) or a registered (private) trustee. The trustee is either appointed by the Court or in the case of voluntary bankruptcy, by AFSA or you can nominate one of your choice.

When you are bankrupt:

  • you must provide details of your debts, income and assets to your trustee
  • your trustee notifies your creditors that you’re bankrupt – this prevents most creditors from contacting you about your debt
  • your trustee can sell certain assets to help pay your debts
  • it can affect your ability to be a company director
  • you may need to make compulsory payments if your income exceeds a set amount (currently around $64,000)

Bankruptcy may have a serious impact on you. It may affect your ability to get credit, travel overseas or gain some types of employment so you should get some advice before voluntarily bankrupting yourself. The National Debt Helpline provides free support on 1800 007 007.

Bankruptcy is just one formal option available under the Bankruptcy Act to manage your debt. Other formal options include temporary debt protection for 21 days reprieve from creditors enforcing a judgment against you, a debt agreement  or a personal insolvency agreement (both being arrangements to settle debts without becoming bankrupt).

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@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 / Debt Recovery / Insolvency & Bankruptcy  by 01 May 2023 0 comments

Personal Guarantees

A personal guarantee is a written promise by a person (guarantor) that if a third party doesn’t pay its debts to the party entitled to the benefit of the guarantee, then the guarantor will make those payments.

Personal guarantees are regularly given by directors and sometimes shareholders of companies to personally guarantee the payment of money or obligations on behalf of the company, but they are also given on behalf of other individuals such as children.

They can be essential security for small to medium businesses in their contractual dealings with customers as the guarantor is then personally liable to pay the debt, whereas without the guarantee, the company could enter into liquidation and the contracting entity would have to prove the debt in the liquidation and risk not getting any return at all.

Common examples of where personal guarantees are used are in relation to:

  • leases of real property by companies;
  • loans by banks to adult children when purchasing property;
  • company loans from banks; and
  • company applications for credit at other businesses.

Managing risk

Entering info a personal guarantee is risky. You are placing your own assets at risk for the benefit of another person or entity so you should get legal advice before entering into one as well as assessing the commercial or other merits of providing the guarantee at all.

Considerations to help limit the risk include:

  • capping the maximum amount of the guarantee or the term in respect of which the guarantee is valid for;
  • requiring the guarantee to be secondary only (and not create a primarily liability of the guarantor);
  • removing security provisions such as caveats;
  • not allowing any variation to the agreement between the beneficiary and the person/entity whose liabilities are being guaranteed without your notice or consent;
  • seeking to have the guarantee removed  at some point once the borrower can demonstrate their own capacity to repay the debt.

however, often the beneficiary of the guarantee will not agree to these changes.

Aiding enforceability

If you are seeking to rely on a personal guarantee in your business, then you ought to get it drafted by a lawyer however, some basic tips to aid in enforceability include:

  • obtain a copy of the guarantor’s identification documents to properly identify them;
  • conduct some due diligence on the guarantor’s financial standing/capacity to pay;
  • obtain actual security for the guarantee obligation;
  • ensure it is signed and witnessed by an independent adult

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@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 Asset Protection / Business / Commercial Law / Debt Recovery / Dispute Resolution / General / Insolvency & Bankruptcy / Risk management  by 01 Sep 2022 0 comments

Liquidation

Liquidation is the process of winding up a company’s financial affairs and ultimately results in the existence of the company ending and being deregistered at ASIC.

An insolvent company can be wound up by the Court either by voluntary resolutions of the company’s directors and the company’s shareholders or by application by a creditor.

A solvent company can also be wound up through a members voluntary winding up if the company is no longer needed.

A Court will make an order for the winding up of a company if it can be shown that the company is:

(a)    actually insolvent – it cannot pay its debts as and when they fall due (even if the company has surplus assets but cannot convert them to cash them quickly); or

(b)    is deemed to be insolvent (such as through a Creditor’s Statutory Demand having been served but not complied with).

The Court can order winding up for other reasons also.

Unlike during a company’s administration, personal guarantees are unaffected by liquidation – they are personal arrangements.

Secured creditors are also unaffected by the process of liquidation.

In a liquidation, after sale of the company assets etc, the liquidator will distribute as dividends any surplus in accordance with the order of priority set out in s.556 of the Corporations Act 2001 (Cth).

A liquidation lasts for as long as it takes but ends on the company being struck off ASIC’s register or by Court order – either dissolving the company or staying or setting aside the winding up.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@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 / Debt Recovery / Dispute Resolution / Insolvency & Bankruptcy / Litigation / Risk management  by 01 May 2022 0 comments

Deed of Company Arrangement

A Deed of Company Arrangement (DOCA) is a proposal put forward by stakeholders, usually the directors, whilst the company is in administration so as to give a return to creditors better than they may receive in a winding up.

Importantly, a DOCA avoids the need to place the company into liquidation and allows the company to continue to trade with control of the company ultimately going back to the directors.

DOCA arrangements are flexible in that they can provide for may forms of payment from a lump sum or a payment by instalments of a fixed amount of based on net profit.

A Deed of Company Arrangement and must be signed within 15 business days of the 2nd creditors meeting (unless this time is extended by the Court), otherwise the company must be placed into liquidation, with the administrator becoming the liquidator.

Prior to execution, a DOCA must be approved by at least 50% of creditors by number and in value of amounts owed. Once signed, DOCAs are binding agreements between the company and its creditors and the administrator is in control of the company.

If entered into, a DOCA subsists for as long as its terms provide, until the obligations in the DOCA have all been met or until Court order.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@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 / Debt Recovery / Dispute Resolution / Insolvency & Bankruptcy / Litigation  by 01 Apr 2022 0 comments

Voluntary Administration

Voluntary Administration (VA) is a process that enables insolvent companies to satisfy their debts. Once an administrator is appointed, the administrator can assist the company to trade its way into a healthier financial position with a view to either the company:

(a)    being placed back into the director’ control,

(b)    entering into a Deed of Company Arrangement (DOCA) or

(c)     being placed into liquidation.

Administration begins generally when the company directors (not the shareholders) resolve that the company is or is expected to become insolvent (but it can commence when a liquidator believes that that a proposed DOCA may give creditors a better return that liquidator or if a secured creditor has a right under their finance arrangements to appoint an administrator).

During a Voluntary Administration, the directors lose all control of the company and the administrator assumes sole responsibility the assets and affairs of the company.

There are 2 creditors meetings in a Voluntary Administration, the first within 8 business days of the administrator being appointed and the second, within 30 business days of that date. At this second meeting, the creditors determine the company’s fate – choosing either to enter into a DOCA if one is proposed or liquidation.

Secured creditors can exercise their security in a VA but must do so within 13 business days of the administration commencing. Unsecured creditors are unable to enforce their claims during the moratorium period that exists during the administration.

During the administration period, any guarantee of company debts cannot be enforced against a director etc.

VA ends on the entry into of a DOCA, if the creditors so resolve, if the company is placed into liquidation or if the Court orders it to end.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@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 / Debt Recovery / Dispute Resolution / Insolvency & Bankruptcy / Risk management  by 01 Mar 2022 0 comments
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