Litigation

Non-contestable Will

We often get asked “can you draft a non-contestable Will ?”

You can draft a Will to state who you want to be your executor and how to divide and distribute your assets once you pass away. Even with a valid Will stating your wishes and even if it has been admitted to Probate (or even if you die intestate), the distribution of your estate can be altered by the Court order under the Succession Act 2006 (NSW) (Act).

Put simply, there is no way to draft a Will prevent such a claim on your estate (and no, you can’t make a gift dependent on not making a claim), but there are things that can be done to help prevent (or minimise) a claim, including:

  • not having an estate at all
  • carefully drafting your Will and drafting evidence to help oppose a likely claim
  • obtaining a release under the Act

A Will can only deal with assets that you have as at the date of your death. One of the best ways of preventing a claim on your estate is therefore to not have any estate in the first place!  This is easier said than done and often means that benefits such as the principal place of residence exemption for capital gains tax (CGT) may not be available and other benefits cannot be accessed, but with the use of trusts and other structures, you can avoid having any personal assets to be distributed on your death. This is an extreme option that not many opt for given the many downsides and potential benefits that need to be forgone.

Where people have not set up their affairs so as to have no actual estate, but later seek to do so (such as by gifting assets, severing a joint tenancy or selling assets to others for less than full valuable consideration), they need to be aware of the provisions in the Act relating to “notional estate“. Notional estate rules in NSW effectively operate such that any assets disposed of in the period of 3 years prior to your death may be notionally brought back into your estate and available for division by the making of a family provision order in favour of an eligible person under the Act. As with most decisions, there are also potential negative consequences such as stamp duty, CGT and loss of social security entitlements from gifting rules.

Most people do not consider it advantageous to them during their life or their intended beneficiaries to have no estate at all for reasons such as those relating to CGT etc. For those, one way to help prevent or minimise the risk of a claim for a family provision order is to ensure that they have a carefully prepared Will and accompany that Will by a (usually contemporaneous) Statement explaining why a person did not get a benefit in the Will or is to receive less than they may have expected. This is known as a Statement of Wishes or a Statement of Testamentary Intention and is often prepared in for formal form of an Affidavit so it can be use in evidence. Such documents may be updated as required and care must be taken to ensure that they are factually correct as defects can undermine their force, particularly as you won’t be around to give evidence to correct any errors.

One way to prevent a claim for a family provision order is to apply to the Court for an order under s.95 of the Act releasing an estate from claims under the Act. This can be done either before or after your death, such as part of a family settlement of another dispute or claim on an estate and aims at achieving finality regarding family disputes. The Court may only approve such a release and make an order after considering all of the relevant circumstances, so this will involve preparation of appropriate initialing proceedings and affidavit evidence.

As with any estate, each person’s circumstances, assets and relationships with potential beneficiaries and claimants are different and care needs to be taken to consider all information available so as to make the right decisions regarding your estate. This will involve weighing up the pros and the cons of each decision and bearing the consequences and risks of doing so.

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 / Dispute Resolution / Estate Planning / Litigation / Probate  by 01 Nov 2023 0 comments

What is independent legal advice?

If you are:

  • borrowing money from a bank or someone else, like a parent,
  • have some special vulnerability in relation to a borrowing arrangement (such as due to age, inability to speak English well etc),
  • borrowing in relation to a self managed superannuation fund’s limited recourse borrowing arrangement, or
  • perhaps going guarantor on a loan for a company or a family member for their loan,

then chances are you will be asked to get “independent legal advice” from a solicitor in relation to the loan and the security for the borrowing or guarantee.

The document evidencing the loan is usually a:

  • Loan Agreement,
  • Letter of Offer or similar

and may have accompanying terms and conditions etc.

Security for a loan arrangement usually takes the form of a:

  • Mortgage,
  • Caveat or
  • Security Interest registered on the PPSR.

Independent advice us usually required by the lender so that it cannot (easily) be argued later that the borrower or guarantor didn’t understand the gravity of the arrangements being put in place – so although you get the advice, it is really for the lender’s protection.

In order to give independent legal advice, the lawyer will read the loan and security documents provided, advise you as to the meaning and effect of them and discuss any risks.

You will then be required to sign a document called a Declaration under oath confirming that you obtained independent legal advice before you freely and voluntarily signed the loan/guarantee/security documents.

Often the lender will also require the borrower or guarantor to obtain “independent financial advice” from a financial advisor, accountant or other appropriately qualified person. Lawyers, simply by virtue of their profession, possess no special skill to give financial (as distinct from legal) advice.

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 / Dispute Resolution / General / Litigation / Property / Risk management  by 01 Aug 2023 0 comments

Properly executing documents

When it comes to properly executing documents, depending on the type of document and the parties executing it, there are different requirements for it to be valid.

The manner of execution depends on matters such as:

  • Party – whether a party is an individual, a partnership, the Government, an association or a corporation (and whether those signatories are parties in their own right or as a trustee of a trust or a superannuation fund;
  • Document – whether it is a Deed or just a contract or an Agreement; and
  • Physical/Electronic – whether it to be signed online or in person, or a combination of both.

PARTY TYPE

Individuals

An individual may execute a document by simply signing it with their signature witnessed by a person who is not party to it.

Partnerships

For a partnership to be bound by a document or a deed, either all partners to the partnership or an individual authorised by all the partners (whether or not the individual is a partner) should execute the document or deed.

Often, documents will be executed by a partner on behalf of a partnership. This authority may be set out in the partnership deed or a power of attorney. If you cannot obtain a copy of the relevant authority, you should consider obtaining a warranty from the individual in the relevant execution clause that they have authority of the partnership to so execute the document.

Companies

Section 127 of the Corporations Act (Corporations Act) sets out the ways in which a document may be executed by a company. If a company executes a document in this way, anyone will be able to rely on the protection in other sections of the Corporations Act for dealings in relation to that company. A company may execute documents under seal or choose not to have a company seal and even if the company has a seal, it need not apply it.

A company may execute a document with or without a seal if the document is signed by:

  • 2 directors; or
  • a director and a company secretary o; or
  • a sole director (there is no requirement for a private company to have a secretary).

Companies can also sign via an agent under s.126 of the Corporations Act.

For more information on how companies can becomes bound by the actions of its agents and employees, click here.

Associations

Usually an incorporated association signs documents by having 2 committee members sign it but often the Rules of Association need to be examined to confirm this.

An unincorporated association is not a legal entity and so cannot contract in its own right so be careful entering into any contract of value with them.

Trusts

A trust is not a legal entity and as such, it cannot contract in its own right so all acts relating to a trust must be undertaken by its trustee or trustees.

The type execution clause that should be used will depend on what type of entity the trustee is (eg a company  or one or more individuals) execution clause should be used if the trustee is a company).

Although a trust is not a legal entity, it may be a tax entity so may have its own ABN. You should therefore confirm that the ABN being used is the ABN of the trust and not the ABN of the trustee. An ABN is a great identifier.

If you are unable to confirm that the trustee has the power to enter into the arrangement (which can usually be ascertained by examining the trust deed), you should consider obtaining a representation and warranty from the trustee that it has the power to execute the document or deed on behalf of the trust.

DOCUMENT TYPE

There are various reasons for choosing between the different types of document. such as greater (often double the length) limitation periods for enforcing obligations in deeds compared to just agreements. Sometimes legislation requires transactions by deed, but oftentimes deeds are used as they are the most solemn act a person can perform in relation to an item of property or any other right.

Agreement / Contract

Generally, a contract is in place and is valid if the following conditions are met:

  1. Intention to create legal relations
  2. An offer
  3. Consideration (price) being agreed
  4. Acceptance

A written signature is not necessarily required for a valid contract to exist. The terms of the agreement also can be agreed verbally.

Contracts can be signed electronically (even with the click of a mouse) since the Electronic Transactions Act 2000 (NSW) (ET Act) and corresponding legislation in Australia’s other States and Territories.

Deed

Traditionally, to be a valid, as a deed the document had to be “signed, sealed and delivered” and thus it had to be:

  • written (on paper or parchment);
  • signed and the parties’ seal/s applied); and
  • delivered (physically to the other party),

however now, there is no requirement for a seal (where it is described as a deed or expresses that is is ‘sealed’ and it is witnessed appropriately), the parties are presumed to have ‘delivered‘ it on execution and the parchment requirement has also been dispensed with given the ET Act, amendments to the Conveyancing Act 1919 (NSW) and, in relation to companies, the passing of the  Corporations Amendment (Meetings and Documents) Act 2022, which from 01 April 2022 (after the temporary COVID-19 pandemic measures ended on 30 March 2022), amended the Corporations Act to permanently allow things such as:

  • director or member meetings virtually, such as through Zoom or Teams meetings etc (regardless of the requirements under their constitutions); and
  • documents, including deeds, to be executed electronically.

As Deeds do not require consideration like a contract, often it can be sensible to include a nominal item (such as $10) as consideration just in case the document isn’t valid as a deed – as it can still be relied on as a contract, possibly even if not signed by the other party but part performed.

WET INK OR ELECTRONIC?

Documents now can either be signed:

  • in physical form with ‘wet ink‘ signatures;
  • electronically; or
  • a combination of both.

Either way, the method of signing must clearly and reliably identify the part and indicates the party’s intention in respect of the information recorded in the document.

Obviously, special care needs to be taken with parties that are not Australian residents and to consider the governing law and jurisdiction of the arrangement.

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 / Litigation / Online Issues / Property / Risk management  by 01 Aug 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

Limitation periods

There are limitation periods that apply to various legal cause of action.

The effect of a limitation period in relation to a legal cause of action is that claims become time-barred, and therefore unable to proceed, where the relevant period of time has elapsed without a claim being brought through the relevant Court or Tribunal.

There is no “Statute of Limitations” in New South Wales as such but there is the Limitations Act 1969 (NSW) which has a default limitation period regime where there is no specific timeframe set out in the relevant Act (such as the Succession Act 2006 (NSW), Home Building Act 1989 (NSW), Defamation Act 2005 (NSW), Fair Trading Act 1987 (NSW), Fair Work Act 2009 (Cth), Criminal Procedure Act 1986 (NSW) etc).

The Limitation Act (or the relevant specific Act) describe the types of legal actions and the limitation periods that apply to them such as the following civil claims:

Cause of action Limitation period
Contractual claims 6 years from the date on which the cause of action accrued
Negligence 6 years from the date on which the cause of action accrued
Family provision 12 months from date of death
Cause of action founded on a deed 12 years from the date on which the cause of action first accrues
Enforcing a judgment 12 years from the date on which the judgment first becomes enforceable
Defamation 1 year from date of publication
Unfair dismissal 21 days from the date of dismissal of employee

NOTE – this is a general guide only – you should get specific advice as to the limitation periods that apply to your specific circumstances

Different limitation periods apply to causes of action in different jurisdictions, such as the Commonwealth or those of each State and Territory. Limitation periods can also apply to some criminal matters but serious crimes generally do not have such limitation periods.

In some very limited circumstances, the relevant limitation period may be able to be extended.

FURTHER INFORMATION

For further information on litigation and dispute resolution, 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 Debt Recovery / Dispute Resolution / Employment / General / Litigation / Risk management  by 01 Dec 2021 0 comments

Why your SMSF should have a corporate trustee

The Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) has strict rules as to who must act as a trustee of a self-managed superannuation fund (SMSF), but basically this means:

  • if you are individual trustees of a SMSF, all members must be trustees of the SMSF
  • If you have a corporate trustee of a SMSF, then all members must be directors of it.

The SIS Act also provides that those trusteeship rules will continue to be satisfied if a member’s attorney (under an enduring power of attorney) is appointed as trustee/director in place of the member. This can also assist if you will be overseas and unable to tend to the management of the SMSF for a prolonged period.

Where there is no enduring power of attorney, the member may need to be rolled out of the SMSF or an administrator may need to be appointed by the Court. One consequence of breaking these trusteeship rules can be the ATO removing the SMSF’s complying status and triggering tax at the top marginal tax rate.

There are several important reasons as to why your SMSF should have a corporate trustee. So how can having a company as trustee be of benefit?

Individual trustee dies or becomes incapacitated

When a member who is a SMSF trustee becomes incapacitated or dies, the trustee/s will need to change.

On the death or incapacity of a member, typically the deceased/incapacitated trustee will be removed and replaced with their ‘legal personal representative’ (LPR). An example of an LPR is an attorney appointed an enduring power of attorney or executor under a Will.

Another complication is that when a member/individual trustee dies and their death benefit commences to be paid from the SMSF, the trustee/s will need to change again (as the LPR cannot continue to act in place of the deceased member).

Every change of trustee will need to be reflected on all assets of the SMSF (including updating the title to any real property), causing delay and expense to the SMSF and family, at a time when the family would rather be focused on assisting the debilitated member of grieving their death.

Death or incapacity of a director of a corporate trustee

Where there is only one member remaining in the SMSF (due to death or rollout of a member), the remaining member will not have to find a second person to act as co-director of the trustee (single member SMSFs are required to have 2 trustees if the trustees are individuals). Title to the SMSF assets does not need to be changed, although ASIC’s register will.

Reduced ASIC fees

The expense of registering and maintaining a company is the most common deterrent to SMSFs using a corporate trustee however, unlike being a trustee of a family, discretionary or unit trust, where a company only acts as trustee of a SMSF, it is a ‘special purpose company’ (meaning it will receive the benefit of reduced ASIC annual return fees.

Other benefits

Having a company act as trustee can also offer some litigation exposure protection and may assist with borrowing under a Limited Recourse Borrowing Arrangement as some lenders require it

Overall, having a corporate trustee can be a more efficient, cost-effective and administratively simpler option for your SMSF and can be an integral part of your overall estate plan.

FURTHER INFORMATION

For further information on estate planning, corporate, superannuation or succession issues, 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 / Estate Planning / General / Litigation / Probate / Risk management / Superannuation  by 01 Sep 2021 0 comments

Family provision orders

Under the Succession Act 2006 (NSW), eligible persons may apply to the Supreme Court of New South Wales for a family provision order in relation to the estate or notional* estate of a deceased person to provide “for their maintenance, education or advancement in life”.

The first hurdle to overcome is being an “eligible person” and the second is whether the provision (if any) made for the applicant in the deceased’s Will** is adequate, and if not, what “family provision order” could be made to make it adequate. Unfortunately, this process is not as simple as we have explained it.

Limitation period

Claims for provision must be made within 12 months of the date of death of the deceased person (although in limited circumstanced, this time limit can be extended).

Process

After proceedings are commenced and the parties have put on the majority of their evidence, applications for family provision orders are generally referred to either a Court annexed mediation or to private mediation but if no agreement can be reached, the matter will be set down for hearing.

Eligibility

Those who are “eligible” to make a claim for a family provision order out of a deceased person’s estate include:

  • a spouse of the deceased at the time of the deceased’s death;
  • a former spouse of the deceased;
  • a person in a de facto relationship with the deceased at the time of death
  • children (including adopted children) of the deceased;
  • someone with whom the deceased was in a close personal relationship*** with at the time of their death;
  • those who have, at any time, been wholly or partly dependent upon the deceased and who either:
    • are a grandchild of the deceased; or
    • were, at any time, member of a household of which the deceased a member.

How do you know if you are to receive an inheritance?

Click here to read about how to get a copy of a deceased person’s will.

Adequacy

The Court won’t simply rewrite a deceased person’s Will based on claims of justice or unfairness such as unequally dividing an estate between siblings. The Court has a wide discretion in determining these matters and the nature of any order for provision that may be made.

The Court first considers if the gift (if any) was adequate and if not, what provision may be adequate.

The Court exercises is discretion to make an order and if so, on what terms, after considering the following factors:

  1. any family or other relationship between the applicant and the deceased, including the nature and duration of the relationship,
  2. the nature and extent of any obligations or responsibilities owed by the deceased to the applicant, to any other person in respect of whom an application has been made for a family provision order or to any beneficiary of the deceased’s estate,
  3. the nature and extent of the deceased’s estate (including any property that is, or could be, designated as notional estate* of the deceased person) and of any liabilities or charges to which the estate is subject, as in existence when the application is being considered,
  4. the financial resources (including earning capacity) and financial needs, both present and future, of the applicant, of any other person in respect of whom an application has been made for a family provision order or of any beneficiary of the deceased person’s estate (that is the competing needs/claims of others),
  5. if the applicant is cohabiting with another person–the financial circumstances of the other person,
  6. any physical, intellectual or mental disability of the applicant, any other person in respect of whom an application has been made for a family provision order or any beneficiary of the deceased’s estate that is in existence when the application is being considered or that may reasonably be anticipated,
  7. the age of the applicant when the application is being considered,
  8. any contribution (whether financial or otherwise) by the applicant to the acquisition, conservation and improvement of the estate of the deceased person or to the welfare of the deceased or the deceased’s family, whether made before or after the deceased’s death, for which adequate consideration (not including any pension or other benefit) was not received, by the applicant,
  9. any provision made for the applicant by the deceased, either during the deceased’s life or made from the deceased’s estate,
  10. any evidence of the testamentary intentions of the deceased, including evidence of statements made by the deceased,
  11. whether the applicant was being maintained, either wholly or partly, by the deceased before the deceased’s death and, if the Court considers it relevant, the extent to which and the basis on which the deceased did so,
  12. whether any other person is liable to support the applicant,
  13. the character and conduct of the applicant before and after the date of the deceased’s death,
  14. the conduct of any other person before and after the date of the deceased’s death,
  15. any relevant Aboriginal or Torres Strait Islander customary law,
  16. any other matter the Court considers relevant, including matters in existence at the time of the deceased’s death or at the time the application is being considered.

*Where assets that were previously assets of the deceased prior to death (such as assets gifted or transferred by the deceased to another person or entity prior to death to attempt to avoid an application for an order for provision, superannuation, property owned as joint tenants between the deceased and another person), be considered as an asset of the estate for the purposes of an application for a family provision order.

**Note that even in intestacy (where there is no Will), an application can be made for a family provision order.

*** 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 organization.

FURTHER INFORMATION

For further information in relation to Wills, Probate, Intestacy, Estate Planning or even International Wills, 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 Dispute Resolution / Estate Planning / General / Litigation / Probate / Property  by 01 Jul 2021 0 comments

Consumer protection extension

In previous articles we explained the consumer guarantees under the Australian Consumer Law (ACL) in relation to goods and how the ACL applies to services, such as being of acceptable quality, fitness for purpose, matching description etc however, from 01 July 2021, the monetary threshold increases from $40,000 to $100,000 (an increase of 150%).

Presently, the ACL covers ‘consumers’ as being any person or business who acquires goods or services that

  • cost $40,000 or less; or
  • costing more than $40,000 but being ordinarily acquired for domestic, household or personal use or consumption; or
  • if the goods are a vehicle or trailer.

From 01 July 2021, the Treasury Laws Amendment (Acquisition as Consumer—Financial Thresholds) Regulations 2020 expands the ambit of these non-excludable consumer rights to any goods or services acquired for an amount of up to $100,000, regardless of their intended use.

Businesses ought to ensure that their terms and conditions, packaging and advertising covers this expanded definition and ensure that the consumer guarantees are provided for the greater value items and that the mandatory wording is included in relation to the consumer guarantees.

Additionally, staff ought to be made aware of the changes and their effect, arrangements made to identify these expanded ‘consumer’ sales and budgets ought to be adjusted to allow for more claims for refund, replacement or compensation.

FURTHER INFORMATION

For further information in 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 / Dispute Resolution / General / Litigation / Risk management  by 30 Jun 2021 0 comments

Could you be a shadow director?

Shadow directors

The term ‘director’ is defined in s.9 of the Corporations Act 2001 (Cth) (Act) to mean:

(a)          a person who:

(i)            is appointed to the position of a director; or

(ii)           is appointed to the position of an alternate director and is acting in that capacity;

regardless of the name that is given to their position; and

(b)          unless the contrary intention appears, a person who is not validly appointed as a director if:

(i)            they act in the position of a director; or

(ii)           the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes.

That is, (a) refers to directors notified to ASIC and (b) covers those who are de facto directors or shadow directors.

Consequently, a person who has not been validly appointed as a director of a company (and whose details are not therefore recorded in ASIC’s registers) may nonetheless be deemed a director of that company if they have influence to the extent that the directors of the company are accustomed to acting in accordance with the person’s instructions or wishes or if they act as if they are a director.

Indicators of being a shadow director

Examples of being a de facto or shadow director can include:

  • having independent authority to negotiate and manage executive matters on behalf of the company (like negotiation of important contracts or the managing employment)
  • promotion of the person to the public as having power to bind the company.
  • having unfettered control of the company’s bank accounts
  • being involved in setting up the company

Subparagraph (b)(ii) does not generally apply to advice given by the person in the proper performance of functions attaching to the person’s professional capacity (such as an external accountant, lawyer or professional adviser), but can include employees and spouses of directors (who may own assets as part of a risk minimization/asset protection strategy implemented by their director spouse).

Those that sit on so called “advisory boards” should pay particular attention to the way in which they carry out their roles and the way in which the company follows (or questions or considers) their recommendations or suggestions.

Consequences

A shadow director will be required to comply with director duties under the Act and can become liable for things like insolvent trading under section 588G.

If you are determined to be a shadow director, penalties can include:

  • a fine of up to $200,000, imprisonment for up to 5 years, or both;
  • personal liability for any loss or damage incurred; and
  • permanent or temporary orders prohibiting you from taking part in the management of a company.

How to help prevent being a shadow director

Steps that can be taken to help minimize the risk of being deemed a director of a company or the consequences of it include:

  • documenting the authorities of key personnel, including limits on authorities, autonomy and decision making (including in employment contracts, workplace policies etc)
  • putting in place robust internal procedures for decision making and approvals
  • ensuring ASIC registers are accurate and up to date
  • limiting advice provided to that which is within your professional qualifications
  • advisors, key staff and ‘advisory boards’ presenting any advice as a recommendation for a company’s consideration, rather than being a direction or instruction to the company or its board
  • otherwise, properly documenting communications
  • consider appropriate insurances

FURTHER INFORMATION

For further information in relation to any business related or company matters, 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 / Dispute Resolution / Employment / General / Insolvency & Bankruptcy / Litigation / Risk management  by 01 Jun 2021 0 comments
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