director

Serving documents on companies

Section 109X of the Corporations Act 2001 (Cth) provides that a document may be served on a company by means including:

(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 of the company.

Documents that may need to be served may be a Summons, Statement of Claim or even a Creditor’s Statutory Demand.

Companies are obliged to register a change of registered address within 28 days of at changing. Directors are also required to ensure their address details on the register are maintained.

Where service of a document not properly effected or there is a dispute about its, there is a risk that the Court may determine that service wasn’t effected, set it aside altogether and there could be consequences such as costs orders.

Service by post

Service by post is cheap and easy.

If posted to a company’s registered address, a document is presumed under s.160 of the Evidence Act 1995 (Cth) to have been received at that address on the 7th working day after being posted.

A problem with service by post however, is that the recipient could argue that it was never received or a dispute could arise as to timing of service.

Personal service

Arguably, personal service by a process server of a document on a director of a corporation is the best way to effect service.

These professionals are in the business of doing this and provide an Affidavit of service which can be used in evidence to prove service to a Court and as they are a third party service provider, there is often no dispute raised as to service and when so there is no “he said”/”she said” type argument as there may be if the parties themselves effected service.

Leaving it

An alternative to posting it or serving it on an officer of a company is leaving it at the company’s registered office.

Again, this is best done by a licensed process server who can swear or affirm what they did and when.

Informal service

The Courts are increasingly allowing alternative methods of service where parties are evading service or any of the above methods do not result in effective service such as through third parties, email, text messages, social media accounts etc.

FURTHER INFORMATION

For further information in relation to Corporations Act issue, legal proceedings, serving documents on companies or any business or 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 needs.

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in Business / Commercial Law / Debt Recovery / Dispute Resolution / Litigation  by 03 Jun 2024 0 comments

Companies signing contracts

In prior blogposts, we explained the differences between Deeds and Agreements and what Deed Polls are and we also explained how to properly execute a legal document depending on the type of entity entering into it.

This article relates to execution by or on behalf of an Australian corporation – a Pty Ltd (but not a public company) – that is, what are the requirements for companies signing contracts?

Part 2B of the Corporations Act 2001 (Cth) (Corporations Act) sets out how companies can execute legal document and the assumptions those dealing with companies may make about the execution of documents by or on behalf of a company.

Section 127 describes the ways in which a document may be executed by a company, namely by:

  • 2 directors; or
  • a director and a company secretary; or
  • for a company that has a sole director – that director, if:
    • the director is also the sole company secretary; or
    •  the company does not have a company secretary.

This applies regardless of any other requirements in the company’s constitution.

Companies can also sign via an employee, officer or an agent under s.126 acting with the company’s express or implied authority.

If a company executes a document in accordance with the those sections, then any person dealing with that company is entitled to assume under ss.128 & 129 that:

  • those persons shown as directors/company secretaries on ASIC’s register; and
  • anyone held out by the company as being an officer or agent of the company
  • are:
    • validly appointed;
    • have the authority to exercise the powers of the company; and
    • are properly performing their duties

This assumption applies even if an officer or agent of the company acts fraudulently or forges a document but not if that person knew or suspected that the assumption was incorrect.

Business should be wary of the authority of persons signing and query the person’s authority if they aren’t listed at ASIC formally as a director or company secretary.

Many businesses give higher level employees titles like “Director”, “Sales Director” and the like so, often so as to minimize pay rises or for other reasons, but they run the risk that those persons can bind the company due to the statutory assumptions identified above as they are potentially being held out by their titles as having authority to bind the company.

Separately, those employees also run the risk that they are considered ‘shadow directors‘ if the company runs into financial trouble, particularly where any director duties haven’t been followed.

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 / Dispute Resolution / General  by 01 Mar 2024 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

Director Identification Number (DIN)

From 01 November 2021, all directors of Australian companies must obtain a Director Identification Number (DIN). This includes foreign directors of Australian companies or other Australian registered bodies who do not reside in Australia.

Directors must register for their DIN personally. You cannot ask any other person to register on your behalf, including your accountant or tax agent. It is free to apply.

The Australian Business Registry Services (ABRS) will maintain the DIN register.

A DIN is a 15 digit code unique to you. It will start with 036 (which is the 3-digit country code for Australia under International Standard ISO 3166) and have a further 11 digits plus one further ‘check’ digit for error detection.

Once you have a DIN, you have it for life, even if you are no longer a director, change your name or move.

ASIC will soon require directors to identify themselves by their DIN when registering a company or being added as a director.

DINs cannot be yet searched by the public, but they may become searchable in the future.

Why have DINs?

The key objectives of the DIN regime are to promote good corporate conduct by:

  • enabling tracking of directors and their relationships across companies
  • ensuring the corporate history of directors is easily accessible to regulators and external administrators
  • verifying the identity of directors to help reduce fraud, and
  • limiting opportunities for illegal activities like “phoenixing”

When do you need to get a DIN?

The timing of the need to register yourself for a DIN depends on when you became or intend to become a director:

Date you became a director (under Corporations Act) Deadline for obtaining a DIN
Before 01 November 2021 By 30 November 2022
Between 01 November 2021 and 04 April 2022 Within 28 days of appointment
On or after 5 April 2022 Prior to your appointment

ASIC is responsible for enforcing DIN offences set out in the Corporations Act 2001 (Cth). It is a criminal offence if you do not apply on time, to apply for multiple DINs or misrepresent a DIN.

Who doesn’t need a DIN?

Registration for a DIN is not needed for:

  • a company secretary that is not also a director
  • a person acting as an external administrator of a company
  • a person running their business as a sole trader or partnership (as they don’t have a company structure)
  • an officer of an unincorporated association, cooperative or incorporated association established under State or Territory legislation, unless the organisation also has an Australian Registered Business Number or ARBN.

How do you get a DIN?

To register for a DIN, you will need to gather the necessary details to verify yourself (Tax File Number, passport, drivers license, Medicare card, PAYG payment summary, bank details, superannuation statement etc), register a “myGovID” account (note that this is different to a “myGov” account), and then apply for the DIN on the ABRS website.

Once you get a DIN, you should provide it to the company or companies of which you are currently a director and those you intend to become a director of (to the company secretary, another director or authorised agent of the company)

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to Corporations Act, directors duties or corporate governance issues or any business or commercial law matter, contact us 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 / Risk management  by 01 Nov 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

Can Bankrupts be Company Directors?

The Corporations Act provides that undischarged bankrupts or those who have entered into personal insolvency agreements under Part X of the Bankruptcy Act (whether in Australia or another country) cannot act as a director of, or take part in the management of, a company.

Court can grant leave

The Court can however grant leave to an undischarged bankrupt to take part in management of a company and such leave can be granted either with or without conditions. Australian Securities and Investments Commission must be notified of any such application (so ASIC can intervene if required).

The applicant will bear the onus of establishing that the Court should make an exception to the legislative policy behind the prohibition (to protect the public). The court will not easily be convinced that the usual prohibition should not apply and will exercise its discretion with a view to balancing the considerations relevant to the bankrupt and the underlying public policy.

Leave will not be granted where the disqualification was imposed by ASIC (as opposed to an automatic disqualification due to the operation of the Corporations Act).

What is considered?

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

Although such applications are not commonplace, an undischarged bankrupt may be granted leave to take part in the management of companies generally or, more frequently, in the management of a particular company.

Penalties

The disqualification imposed by the Act continues despite the Court granting leave and care must be taken to ensure that any conditions on the leave are complied with as failure to do so can result in the leave being revoked and an offence then being committed and the penalty can include a significant 50 penalty unit fine and/or imprisonment for 12 months.

Bankruptcies generally last 3 years. You can check if someone is an undischarged bankrupt by checking the Australian Financial Security Authority’s Bankruptcy Register 

FURTHER INFORMATION

For further information in relation to bankruptcy, insolvency 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 Business / Commercial Law / Debt Recovery / General / Insolvency & Bankruptcy  by 01 May 2021 0 comments

New rules for resigning directors

The Treasury Laws Amendment (Combatting Illegal Phoenixing) Act 2020 (Cth), which came into effect from 17 February 2021, changed the process and timing relating to director resignations and the resignation of last remaining directors, as well as granting additional powers to ASIC, the ATO and liquidators.

The Act made changes to the Corporations Act 2000 (Cth) as well as taxation administration and GST legislation in an attempt to help prevent illegal phoenixing activities (when a new company is incorporated with the intention to continue the business of a failed company, using the same controllers and assets) including preventing the disposal of assets for less than market value and would prevents or hinders the property being available for creditors (known as ’creditor defeating dispositions’).

The regulations made seek to prevent backdating of resignations and having companies left with no directors at all.

Late notification of resignations

If ASIC is notified of a director’s resignation more than 28 days after the actual resignation date, ASIC will treat the date ASIC receives the notice as the ‘effective date’ of the resignation. Late lodgment fees will still apply.

Practically, this will mean that even if a company director had resigned, that director will remain responsible for the conduct of the company as a director until the later ‘effective date’.

Administrative oversight will not be an excuse even if a third party such as an accountant was responsible for notification.

Last remaining director

Any notices to ASIC that have the effect that a company is left without at least one director will be rejected (or member resolutions of a company to that effect are void).

Some exceptions to this rule exist, including if the last director passes away, the company is being wound up and if the director never consented to their appointment.

Practical approach to resigning

If you are a resigning director (or are removed as a director by resolution), not only should the company notify ASIC of the change in directorship using the standard form 484, you should also take steps yourself to notify ASIC using the form 370.

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 Business / Commercial Law / Dispute Resolution / General / Insolvency & Bankruptcy / Risk management  by 01 Mar 2021 0 comments

Commercial Leases

A commercial lease, simply put is the agreement between the owner of business premises (the lessor) to the tenant that is to occupy those premises (the lessee).

The terms of each commercial lease can and usually do differ depending on the nature of the property, the location and the use to which the premises are to be put. There are however many terms that are common to all leases, even if they may be drafted differently in each lease document.

Sometimes confusion arises as to whether a lease is of commercial premises as opposed to retail premises. Retail leases are covered by the Retail Leases Act and there are many additional obligations on the Lessor in relation to retail premises such as the provision of a Disclosure Statement, minimum lease term etc

Prior to entering into a lease, it is a good idea to obtain a condition report or at least take photos or video to show the condition of the premises as at the commencement date and to show what fixtures and fittings were in place.

Some key considerations in relation to a business or commercial lease include:

  • Development consent for the intended use of the premises
  • Term
  • Options to renew or buy
  • Rent
  • The process for and timing of rent reviews (CPI, market, fixed increase etc)
  • Outgoings
  • Security bonds
  • Director guarantees
  • Costs
  • Insurances
  • Repair and maintenance obligations
  • Lessee’s make good and refurbishment obligations on termination
  • Any pre-lease works/promises made
  • Assignment and sub-letting/licensing

It is not uncommon for the parties to enter into a Heads of Agreement or similar document whereby some or all of the above matters and more are documented briefly, such that the key terms are signed off as agreed, but it is usually important to ensure that this document itself doesn’t create a lease and is in fact subject to the parties negotiating and signing a formal written Commercial Lease.

Leasing can be complicated so it pays to seek the advice of a lawyer before entering into a Commercial Lease, an Agreement for Lease or a Heads of Agreement.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to the leasing or licensing of business premises, 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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in Business / Commercial Law / General / Property / Risk management  by 02 May 2019 0 comments

Company power of attorney

What would happen to your company if its sole director became incapacitated or died? How would bills and staff get paid? Who would make decisions on behalf of the business?

Companies may only act through its directors so in the case of a sole director company, the company will be unable to operate if something happened to its director.

A personal power of attorney granted by a director is not valid where it seeks to allow someone to act in the role of a director of a company as the position of a director is a personal duty that cannot be delegated. Only the shareholders of a sole director company can appoint a replacement, even if it is only temporary.

A personal held by a shareholder may be able to call a meeting of shareholders so as to seek to appoint a replacement director, but this all takes time.

Each company that has a single director should appoint its own attorney as part of its overall risk management strategy.

The Corporations Act grants to a company all the powers and authority of a ‘natural person’ and as such, a company can appoint an attorney under a company power of attorney to act on its behalf when the company itself is not able to act (such as through the incapacity or ill heath of its sole director) and this attorney can continue to act even if the sole director died.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to corporations, 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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in Business / Commercial Law / General / Risk management  by 01 Feb 2019 0 comments
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