The significance of timely registration of security interests under the Personal Property and Securities Act (PPSA) has been delivered in the recent case of Relux Commercial Pty Ltd (in liq) v Doka Formwork Pty Ltd.

The case required consideration of Section 588FL of the Corporations Act. Section 588FL provides that certain security interests under the PPSA not registered on the Personal Property and Securities Register (PPSR) within a certain period vest in the company that is being wound up.

This case involved the following facts.

• Relux rented formwork equipment from Doka Formwork Pty Ltd (Doka) and operated a formwork construction business.
• Relux Commercial Pty Ltd (In Liquidation) (Relux) appointed administrators on 7 April 2014, and had possession of the formwork equipment. The administrators were appointed liquidators on 16 May 2014 at a creditors meeting.
• From March 2013 Doka leased the formwork equipment to Relux for indefinite periods. But, only on 20 February 2014 did Doka register a PPSR security interest.
• Formwork equipment was provided to Relux in 2013, while some had been leased in February and March 2014.
• The liquidators applied to the court for a decision on who had superior rights and interest in the formwork equipment.

His Honour determined that Doka’s leases were ‘PPS leases’ under Section 13 of the PPSA because they were for indefinite periods, and Doka’s business leased such goods to the public.

His Honour then considered the Corporations Act, Section 588FL, regarding the timing of Doka’s registration.

Section 588FL provides a PPSA security interest vests in a company where, at the time of administration or liquidation:

(a) The security interest is enforceable against third parties.

(b) The security interest is perfected by registration.

(c) The security registration time is after the latest of:

1. six months before the administration or liquidation of the company
2. 20 business days after the security interest was created, or the day of administration, or liquidation (whichever is earliest)

His Honor determined that (a) and (b) applied to this case and that the dates following  applied to Doka’s registration:

• Six months before the critical time of 7 April 2014 (Appointment of Administrators), was 7 October 2013; or

The earlier of:

• 20 business days after the security agreement that gave rise to the security interest came into force was 21 February 2014; or
• The critical time of 7 April 2014.

Given Doka registered its interest on 20 February 2014, the court found that any formwork equipment leased prior to 21 January 2014 (i.e.. 20 business days before registration) and after 7 October 2013 (i.e.. 6 months prior to the administration) would vest in Relux. That is, despite Doka being the lawful owner of the formwork, it lost its formwork equipment to Relux’s liquidator.

The court found that the leases in February and March 2014 was covered by Doka’s security registration, and therefore Section 588FL didn’t apply—as it was registered in time.

This case is the second to prove to be a substantive judicial consideration of the PPSA (for the first, Maiden Civil case, click here). The take-home message is: ensure security interests are registered within 20 days of creation, or risk losing those assets—particularly if the leasee entity is placed into external administration within 6 months of a late registration.

– See more at: http://www.worrells.net.au/eUpdateNewsletters/ViewArticleListing.aspx?ArticleId=5618#sthash.5lq4D0qX.dpuf

A new report outlines the recommendations to enable a different capital raising method.

The key points of proposed crowdfunding  laws are:

• Equity crowdfunding will have legislative sanction under the Corporations Act.
• Existing company structures will be adjusted to raise crowd equity, rather than create a new type of entity.
• Intermediaries, such as website operators, will be regulated and most likely must be licensed.
• Whilst crowdfunding has a natural home in the start-up space, the Federal Government is also considering making it available for mature enterprises.

• Basically, crowdfunding is a company seeking capital funds, particularly early stage capital, offering its equity to a potentially large number of investors (the crowd) in return for cash. Those investors are inevitably sought through a website, the operator of which acts as an intermediary between the crowd investors and the company seeking the capital.

The detail of the government’s legislative framework for crowdfunding has not yet been released but the CAMAC report put forward the following:

• Placing a cap on an issuer’s fundraising – no more than $2 million in any 12 month period.
• Introducing caps on investment levels – $2,500 per issuer, and $10,000 overall, in any 12 month period.
• Capital raising to occur via licensed intermediaries that are prohibited from providing investment advice, soliciting investors or having an interest in any issuing company.

For further information please don’t hesitate to contact us.

Certainty

How hard can it be to get paid after you complete a project for a client or customer? Very hard, if you do not have Terms and Conditions that are clear and enforceable.

We had a tough discussion with a client last week about their trade terms and this was due to a bad debt that they were trying to resolve. Our recommendation was, Court action not be commenced as the terms lacked certainty.

No precise statements of what amounts had to be paid or by when were included. The conditions for providing services were unclear and the person who engaged did not have authority as he was not a Director. A few simple steps and the money could have been recoverable.

Liability and Indemnity Clauses

Liability and indemnity clauses are used in contracts to:

• allocate which of the parties bears the risk and expense if a contract goes wrong
• limit or even exclude responsibility of a party for damage

These issues are mostly not considered when the commercial terms are negotiated and  are often only raised when the formal wording of the contract is negotiated.

Sometimes they are unnecessary – such as where your only obligation under the contract is to pay for services provided by the other party.

It is difficult for a business to limit liability due to the existence of claims such as misleading and deceptive conduct, as they are protected by legislation.

If  one party agrees to “indemnify” the other party against a particular loss, then they agree to pay for all damage and cost to the other party under the Contract. This kind of clause can also negate your insurance cover.

Remedies through contract law, negligence or statutory rights  such as misleading and deceptive conduct, may already apply so these clauses might not be necessary.

A contract may also include a clause for “liquidated” damages, or a set rate or amount. This is an agreed formulae for damage as a result of  a particular breach of the contract such as delay past a due date. If it amounts to  “penalty” it may not be enforceable.

The best solution is to get a substantial contract reviewed to assess what potential liability or risk of damages you might have to pay and negotiated changes.

Welcome to 2015! How lucky we are to have the chance to try, yet again, to create a life that we want to live, with what we have been given.

Perhaps it is a case of finding clarity in the cloud of confusion that is everyday life.

This time of year, we attempt to make strong resolutions about how we will do things differently and yet it can come unstuck so very easily.

I thought I would share a few of my New Year musings:

1. Learn from last years’ mistakes;
2. Be more careful in my decisions;
3. Take the positive approach;
4. Try harder at everything I do;
5. Be kinder and more patient;
6. Drink more tea and less alcohol.

Well I seem to have busted number one already which means I failed in taking a more moderate approach to work and life. This is the human condition, but strive we must.

I wanted to say something more about planning leading to greater success. Prepare a checklist, tick the boxes and TRAIN, TRAIN, TRAIN!

Perhaps it is more like Zen and the Art of Motor Cycle Maintenance, which I have been reading. It is not the endpoint result that counts, it is the way the journey is travelled that is important.

Either way, the best you can do is to give it your best shot.

My other New Year points are:

1. Make sure you get your legal things in order just in case;
2. Review the important contracts in your life such as insurance, super and investments;
3. Make a personal and business plan including a holiday as a reward;
4. Keep your body moving to some fitness program;
5. Consult an independent advisor to keep your finances on track;
6. Make time to think outside the box each week to ensure you are on the right path.

These are not very specific but it is strange how many of the issues that we deal with from a legal perspective come down to a problem not addressed in a timely manner.

Many times during expensive and arduous litigation clients have asked themselves “why didn’t we do something sooner?”

We hope to encourage clients to talk to us at the earliest opportunity so we can do a better job and achieve more valuable outcomes for them.

This year we are inviting our business clients to see us after hours when required and to collaborate with us in preparing a plan for their matter. This means time and money budgets as well as defined outcomes.

If we can save you money we will, but we try to make sure it is not short sighted. If we would not do it ourselves we will not recommend it.

This year we plan to improve our technology and research platforms, add another business to the group and to improve our systems and procedures to deliver more consistently great work. Back to the lists I think!

Thanks to everyone who has been providing feedback by our quick survey and please take the chance to have your say at the link below.

https://www.surveymonkey.com/s/MW68HZW

Have a great year!

Property contracts and agents obligations are about to change dramatically due to the commencement of some key pieces of legislation on 1 December 2014. Take a look at the following points and call me if you need help!

1. Land Sales Act and Body Corporate Community Management Act

The amendments to these acts will commence on 1 December 2014, the Land Sales amendments make significant changes to disclosure requirements to off-the-plan land sales contracts and the Community Titles Scheme that goes with them. It is important to  check that the contract is signed by both parties and the buyer is notified from the commencement date of the new disclosure documents and form of Contract.

It is important to anyone who sells off-the-plan to be aware of the following:-

• The amount of the deposit for off-the-plan lots can be up to 20% of the purchase price (Section 68a of the Property Law Act).
• There are new requirements for Disclosure Plan (Section 213aa BCCMA and Section 11LSA).
• There will be varied requirements for Disclosure Statements.
• Time frames for provision of a further statement varying the Disclosure Statement, changed to 21 days before the Contract is settled (Section 214 BCCMA and Section 13LSA).
• An off-the-plan Contract for a proposed Community Titles Scheme Lot may then allow for a Sunset Date, for settlement up to 5 ½ years after the buyer enters into the contract (Section 217DBCCMA).

These are very significant if you are either buying or selling units and investors should check carefully exactly the requirements before signing a contract. Some of the existing contract prepared prior to these changes will not comply. Failure to comply after commencement can give a buyer termination rights. As an example the seller must provide a cadastral (detailed) survey of the lot prior to signing the contract and if they don’t the buyer can terminate the contract. The key date is the date it was executed as it must be prior to commencement of the act.

2. Property Occupations Act transitioned from Property Agents and Motor Dealers Act

The attorney General in Queensland has announced that the changes will commence on 1 December 2014. In simple terms:-

• PAMDA will apply to all contract for the sale of residential property which exist prior to 1 December 2014; and
• The new POA will apply to all contracts for the sale of property intended to be used for residential purchases entered into on or after 1 December 2014.

There are some transitional provisions. Any rights for termination for contracts entered into prior to 1 December 2014 will continue to be subject to PAMDA requirements. Confused yet?

The changes of legislation mean that the preparation and advice for residential property are different:-

• The new REIQ Contracts must be used as at 1 December 2014;
• Agents and Lawyers do not have to affix the PAMDA Form 30c Warning Statement or the BCCM Form 14 Information Statement (for units) to Contracts and give statements directing the attention to these documents and the Contract;
• All contracts must ensure that they include a statement regarding a cooling off period immediately above the space where the buyer signs the Contract for sale of residential property (POA Section 165).

Every contract has to be checked to make sure the commencement date does not affect a signed Contract regardless of when it was prepared. Given the potential for confusion it is important to check this with a legal advisor BEFORE SIGNING.

3. Environmental Protection Act Changes

There were changes to the EPA passed on 28 October 2014, which affect all contracts for sale existing as at that date.

• Notice given to all buyers pre contract under Section 421 is now in a different section.
• There is a new opportunity to correct pre contract disclosure problems where an owner can give the relevant notice after providing the buyer with 21 days to rescind the contract, following which the buyers right to rescind the contract is waived. If you are a seller it is really important to know the buyer will have the right to rescind the contract within that time frame for failing to disclose and when acting for buyers they must be aware if they don’t exercise their right to rescind within 21 days then there are serious consequences.

Once again it is important in context of any residential contracts to seek advice and make sure these changes are adequately covered.

There is nothing more certain than change and we certainly recommend that you talk to us before committing yourself to what is usually a very significant financial investment.

Regards

Tony Crilly

Recently I was talking to a friend, about how to explain to people the way we deliver our private client and business to business services . Any legal adviser can source information and deliver a black letter statement. By adding a thoughtful process and our individual perspective, I think we can get better outcomes for clients. Here are a few points to consider that I think deliver superior service:-

1. Engagement

Often the key is the way in which we engage with the client. We listen first and try to understand the clients preferred outcomes. We then define the scope of work with a list of deliverable items. Once we shape that engagement, we can then reach agreement on the budget for time and money, appropriate for that project. It gives us certainty as well as the client.

2. The Relationship

We strive to have an ongoing legal relationship with our clients and engage with their other advisors, such as accountant and financiers. If we know the overall context that a transaction represents to the whole business, the advice can be tailored far more quickly and efficiently. We have a simple test, “we only recommend things that we would be prepared to do ourselves “. We like to have a regular thirty minute “check in” with a client and their accountant to see how they are moving through their business plans and where we might help.

3. The Strategy

It is all important from the outset of a matter to identify the strategic outcomes that a client desires, rather than delivering a simple statement of advice. Sometimes it is what is not said rather than what is said or, the way it is said, that is all important. Timing is always critical, particularly in negotiations for commercial contracts. It is always better to understand the overarching business goal of the client and how far to take a point. The manner in which we engage in negotiations with a larger company is often just as important as the departures we are seeking in a contract. The rules are, be organised, make it easy for the larger company, identify your negotiation points early and respect the fact that you are one of many.

4. The Collaboration

Internally, when we deal with matters we like to have free and open discussion about the strategic and technical points on a matter. This ensures that the client gets the best result possible and we think drives some innovation in the way we deliver those services. It is critical to us that we have close and open discussions with the accountants and financial advisers associated with the client so that we get the real context of the transaction and revenue consequences of the deal. More than this, it is a great benefit and more enjoyable to have a good personal relationship and involvement from the client with all advisors in an open way so that we are all working in the same direction. Often this achieves superior outcomes as it identifies goals in a broader business perspective which can be taken into account in the specific transaction.

5. The Technical Side

One of the things that is difficult to deal with, is the sheer volume of legislation and regulation within which a business has to operate and which forms part of the basis of our advice. This platform is under constant change and is as hard for us as it is for the client. We have considerable pressure to follow certain procedures as required by our insurers to deliver key advice in a transaction, but we want to make it as easy to follow and to provide instructions on as possible. We do this by having a system of a technical advice, together with a simplified summary of recommendation. We prefer to use a schedule of negotiations to identify clauses in documents to make it easier for all parties to follow. We always provide a diagram of the core entities involved to ensure that the most important issues are clearly understood between the client and ourselves.

6. Knowledge Sharing

We do our best to share knowledge wherever possible with our client and referral sources, to ensure they are kept up to date in respect of changes in the law. Sometimes this is by providing information sheets about our perspective on that particular area of law. We can also provide case studies to demonstrate where we have collaborated with the accountant, to provide an improved structure that delivers better revenue outcomes. We like to share industry knowledge and simply talk to our clients from time to time to see what is happening in their business.

Please call me and make the time to have a combined discussion with your accountant and financial advisor. It pays great dividends to get the strategy right before transactions arise and helps build the relationship for the future. From my perspective, over almost 20 years of observing business transactions, these points can make a huge difference to the outcomes for our clients. I look forward to my next round of “check in” conversations with you and thanks for the opportunity to collaborate!

Regards

Tony Crilly

Contract Review Happiness

While signing contracts is part of doing business, not everyone understands the full implications of what they are signing, says Adrian Kitchin MAICD, managing director of insurance brokers Insurance Advisernet Australia. He warns that owners of small and medium-sized enterprises (SMEs) could expose themselves to potential financial difficulty by entering into contracts without understanding the full implications or checking with their professional advisers. “The business owner is typically focusing solely on the perceived benefit and not necessarily appreciating the liabilities and other consequences of what is being signed,” he says. More than ever, large organisations are transferring as much risk as possible from their organisation to the other party to the contract.
Kitchin adds: “Even an experienced director who is well versed in commercial dealings, including contract negotiation, can sometimes make mistakes that are not immediately apparent. Best practice would be for a director to seek advice from his or her solicitor, accountant and insurance adviser prior to signing any commercial contract that binds the company. Quite often, seemingly innocuous terms can have far reaching effects that a director may not readily be able to establish from the wording of a contract.”
He believes the business owner or board of directors should ensure there is a policy in place that deals with the signing of contracts. “At best, unwittingly entering into a contract with unintended consequences would be considered unwise. To knowingly do so could be considered reckless,” he says. “Any board-driven policy that is put into place need not be onerous. We would suggest that the policy sets out that commercial contracts require review by the legal, accounting and insurance professionals that are retained by the firm. By doing so, a board in effect transfers its liabilities to its advisers who are charged to provide relevant and accurate advice on the consequences of signing a contract.”
Kitchin says the board should also adopt a sound risk management approach to ensure it does not knowingly or unknowingly enter into risky contracts. “In addition to the policy of referring the contracts to external advisers for review, the board should actively consider the suppliers and business partners with whom it does business regularly. “Where possible, it should have its own ‘standard’ commercial contract for its suppliers and another version for its customers that has been pre-approved by its external advisers rather than relying on another party’s contract which is unlikely to be as favourable. “When the company signs other non-standard contracts, it should have a checklist setting out various matters, in particular, the external sign-off that needs to be followed by the management team which is generally responsible for negotiation for approval by the board. Even where the board and the management team are one and the same, the checklist will still be of great value in avoiding potential mistakes.”

We find that by preparing a checklist of both legal limits and commercial limits, we achieve far better terms for our clients. Very often there are terms that are pushed down from a head contract which must be included as an essential term of a sub-contract, or significant additional liability might be incurred. It pays to spend an hour or two to review terms and have a robust discuss around “where can this project go wrong” or “where can the costs hurt us”, as a test of the acceptable limits.

Advice specific to a project or key service platform is essential as “one size fits all” approach does not work. We constantly review tender documents, Supply Agreements, Service and Works Contracts and Master Agreements for provision of services for our clients. It is especially critical to assess the commercial benefit of a contract and weigh this up against the potential liability it may represent should anything go wrong in the chain of companies providing services between head contracts and sub-contracts.

We are able to reduce or eliminate unnecessary risk by requesting simple departures from the written terms in the context of the service or works being provided for that part of a project.

Call Tony to discuss your needs before signing off any on “standard terms”.

I was fascinated to read an article regarding the failure by law groups to communicate in an effective way to enhance their business and client following. One of the key differences was visual content. Well here goes 🙂

Actually I tried to copy a cartoon but failed to get it across.

I read a series of arguments back and forth on the topic and it came down to :

1 – Attracting a level of inquiry

-v-

2 – Informing the public well.

I think the answer is a little bit of both to balance the effect. Every day we make an effort to inform our clients but also put options out there to ensure they have a choice.

Recently we posted an article regarding a dispute between the divorced parents of a man who left a reasonable amount of superannuation death benefits. It struck a chord with me because we are constantly pushing clients to check the binding nomination is signed and correctly reflects their intentions.

It only takes an hour of careful review and an entire estate plan can have a vastly different outcome. All of us fall into the trap of thinking “it is simple” and not wanting to spend the right amount of time discussing the detail.

The say “begin with the end in mind” so in my view the practical tips of an estate plan must be explored while the client has a chance to think about the consequences. Here are a few tips that might change the estate administration.

1. Check the owner of the insurance policy. If it states the spouse is the owner then the policy proceeds must be paid to them. It is not an estate asset that might form part of the estate trust established in the will;

2. Do an estate cash flow diagram. Don’t forget the liabilities on the estate such as secured bank creditors, tax and business debts.

3. Deal with the super. Make sure you consider not just the amount in the member account but what tax if any is payable depending on who gets it.

4. Trusts – who controls them, what assets does it have and what will happen. Rule number one is “read the Deed”. Make sure you appoint someone to control the trust in the will or the trust deed. Check what unpaid entitlements are in the financials (they must be forgiven or paid) and give the shares in any trustee company to the right person!

5. Business Partnerships and Joint Ventures. Read any agreement made between the people you are in business with or get one done. Do not rely on statute do determine the outcome (a partnership dissolves on death and the estate entitled to the net assets not market valuation)

6. Check ownership of property Do not make the mistake of thinking a property will form part of the estate if in fact it is held as “joint tenants”. The property must go to the survivor and cannot be distributed to the people getting the residue of the estate.

I recommend that an hour of advice from an experienced legal advisor could potentially save hundreds of thousands of dollars in lost assets, taxation and the cost of disputes. Most of us are worth more dead than alive. Be smart and realise that there may be hidden traps unless we carefully check the details and get the right advice.

A duty owed by solicitors to clients is to presume capacity and act on it in making a will even though some doubt may exist