ByLawyers News and Updates

Priority notice

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Land Titles Office will introduce the Priority Notice in December 2016

As part of the shift from paper-based conveyancing to electronic conveyancing the Land Titles Office will introduce Priority Notices in December 2016. This facility is viewed by the LTO as an important tool in the prevention of fraud in the electronic environment and is supported by s 91C Transfer of Land Act.

Traditionally the paper title has been a bulwark against fraud, with a person dealing with the title having an expectation that the paper duplicate would be produced at settlement. However, removal of the paper title in the electronic environment, hastened by the bulk conversion of over 2 million titles held by the Big Four banks on the weekend of 22 October 2016, means that the ‘protection’ provided by a paper title is diminishing. Priority Notices are intended by the Registrar to constitute a ‘unique baton’ to provide protection during the settlement period.

It is intended that a person dealing with the registered proprietor of land will lodge a Priority Notice to foreshadow that a dealing will be lodged at a future time and will thereby ‘protect’ that dealing. The Priority Notice can only be lodged electronically (presently using PEXA) whether the foreshadowed transaction will be conducted in paper or electronically.

Priority Notices resemble the familiar caveat in many ways. Indeed, there is little difference between the two and practitioners may be hard pressed to decide which of the two to lodge.

Virtues of the Priority Notice are:

  • will appear on any search of the relevant title;
  •  gives notification to the world of an intended dealing;
  •  may be lodged in respect of any intended dealing;
  •  temporarily prevents the registration of any other dealing; and
  • gives priority for 60 days from recording of the Priority Notice on the Register to the instrument foreshadowed in the Priority Notice;

A person lodging an instrument, such as a Transfer of Land, within 60 days of lodging a Priority Notice foreshadowing that Transfer is therefore entitled to expect that the Transfer will be registered in priority to any other dealing lodged during that 60 day period.

Disadvantages of a Priority Notice are:

  • cannot be amended;
  • consent cannot be given to registration of a dealing not protected by the Notice;
  • can be withdrawn and re-lodged, but priority will be lost to any dealing awaiting registration;
  • lapses after 60 days; and
  • a subsequent competing dealing lodged in the 60 day period will be registered immediately the Priority Notice expires.

From the Registrar’s point of view, the Priority Notice regime is an improvement on Caveats as the Registrar is NOT obliged to give notice to the registered proprietor of lodgement of a Priority Notice. There is no doubt that the obligation to give notice (often to an old address) imposes a considerable administrative burden on the Registrar, as does the need to play a role in the removal of caveats by disgruntled registered proprietors. The Priority Notice regime involves much less participation by the Registrar and refers all disputes immediately to the court, with the potential to make orders for removal and compensation. Presumably, as the Priority Notice has a limited life span of 60 days, disputes may be resolved by the effluxion of time, although there will no doubt be circumstances where a registered proprietor may need to seek the assistance of the court.

Caveats appear to provide all of the benefits of Priority Notices and few of the disadvantages in that caveats:

  • may be amended;
  • consent can be given to registration of a dealing: and
  • do NOT automatically expire.

It is this latter point that will have practitioners thinking. 60 day settlements are common, as are 90 day settlements. Both can unexpectedly blow out and so lodging a Priority Notice when entering into a 60 or 90 day contract may find the Priority Notice expiring shortly, or even well, before final settlement leaving the Transfer unprotected. A protocol of lodging 30 days prior to the anticipated settlement date may overcome this problem, but leaves the prior contractual period unprotected.

The small price differential between lodging a Caveat or a Priority Notice will not affect this decision.

Like many of the changes flowing from electronic conveyancing, we will just have to see how they work out at the coalface.

Tip Box

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Priority Notices are intended to provide protection against fraud.
  • The limited lifespan of Priority Notices may cause concern.

Practical warning signs of insolvency for small business

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By O’Brien Palmer

INSOLVENCY AND BUSINESS ADVISORY

First published on the website, www.obp.com.au

Introduction

This article, which is designed to be used as a resource by business owners, directors, accountants and financial advisors, sets out some of the warning signs of insolvency that can be observed by ordinary business people on a day to day basis, as well as outlining the serious consequences for business owners who fail to recognise and act on those warning signs.

The current economic climate is causing many businesses to experience cash flow pressures, whether it be from reduced revenue or debtors failing to pay within trade terms. In these times, monitoring cash flow is of paramount importance to the survival of a business. Failure to ensure adequate working capital may ultimately result in liquidation or bankruptcy.

The warning signs of insolvency, as set out in this newsletter, need to be recognised and addressed in a timely manner. By obtaining professional and competent advice from solicitors, accountants and advisors, more positive outcomes can be generated for all stakeholders than might otherwise be available should business owners and directors remain in denial of the issues facing their businesses. It is important that early action is taken in order to prevent the negative consequences of business failure impacting on directors and their families.

Defining insolvency

Section 95A of the Corporations Act 2001 states that;

  • ‘A person is solvent if, and only if, the person is able to pay all the persons’ debts, as and when they become due and payable.’ AND
  • ‘A person who is not solvent, is insolvent.’

The same definition is set out in subsection 5(2) and 5(3) of the Bankruptcy Act 1966.

The solvency test imposed by law is a cash flow test, rather than a balance sheet test. Assessing solvency is not as simple as the above definition implies. At the simplest level, solvency is assessed by comparing the available current assets to the extent of liabilities that are due and payable. This is the first step when considering a ‘cash-flow test’ of solvency. Only those assets that can be readily converted into cash, such as debtors or stock, are taken into account as an available resource. Similarly, only amounts that are currently due and payable are to be considered.

However, it is necessary to look at the entirety of a company’s circumstances, rather than focusing on any one factor. Many other factors need to be taken into account, such as the ability of the business to realise assets, utilise credit resources or refinance existing debt.

Warning signs of insolvency

Being aware of the warning signs of insolvency allows directors and business owners to address those issues which may be impacting on the viability of their businesses, and to seek appropriate advice in a timely manner. In our experience, the earlier that action is taken, the better the outcome. As the solvency of a business deteriorates, three distinct phases of warning signs can be readily identified;

  • Early Warning Signs which, if recognised and acted upon, allow for the best chances of a business being able to resolve those issues threatening its ongoing viability.
  • Substantive Warning Signs indicate that a business has serious cash flow issues which need to be addressed immediately.
  • Critical Warnings Signs indicate that the winding up of the business is imminent and formal insolvency solutions need to be considered.

Set out below are the warning signs referred to above.

Early warning signs

These signs are commonly displayed by businesses as they begin experiencing financial difficulties. These early warning signs include:

  • An occasional inability to meet suppliers’ debts within trade terms resulting in increased dialogue with suppliers.
  • Using cash reserves, such as funds set aside for GST, PAYG or superannuation, to cover temporary cash shortages.
  • Reduction in discretionary spending such as stationery, maintenance or staff amenities in order to maintain profitability.
  • Increased use of personal credit cards to pay business expenses.
  • Deteriorating relationship with the bank as it starts to monitor a business more closely.
  • Inability to obtain mainstream finance as the banks have identified an increased risk of insolvency.
  • Increased level of worry about a business’ financial circumstances.
  • Accumulated trading losses eroding a business’ working capital.
  • Non-collection of debtors leading to temporary cash flow shortages.

It is worth noting that there may be no cause for alarm if it is considered that the problems are temporary in nature, and if steps are being taken to address issues if needed.

Substantive warning signs

As the financial circumstances of a business further deteriorate, the indicia of insolvency become more obvious, and begin to have an increasingly detrimental impact on the business. These substantive warning signs are:

  • An inability to obtain finance from alternate/bridging financiers.
  • Suppliers placing customers on stop supply or COD terms and/or seek to reduce the credit limit on trade accounts.
  • An inability to avoid making payments outside of trade terms, having dishonoured payments, issuing post-dated cheques or making round dollar payments in response to specific demands for payment from a supplier.
  • Requirement to negotiate formal payment plans in order to secure ongoing supply or to prevent legal enforcement commencing.
  • The inability to pay superannuation on time.
  • Reduction in staff numbers to save costs as the business cannot fund itself.
  • Choosing to ignore communications with creditors generally.
  • Staff members or internal financial controllers expressing concerns about a business.
  • Inability to prepare timely and accurate financial information, and a lack of records generally.
  • Increased level of worry about a business resulting in family or marital issues.
  • Denial of, or avoidance of dealing with, the financial difficulties of the business.

If a number of these signs are identified, then it is likely that immediate action is warranted to ensure the survival of the business.

Critical warning signs

When the financial position of a business becomes sufficiently impaired, creditors will look to enforce the amounts due by that business. Critical signs of insolvency indicate that creditors will no longer wait for the circumstances of a business to improve and will generally initiate formal recovery action in order to obtain payment. These critical warning signs include:

  • Legal demands for payment from creditor’s solicitors.
  • Commencement of court action to recover amounts owed by a business.
  • Writ’s for possession of property or garnishee notices being issued against a business.
  • Creditor’s Statutory Demands or Bankruptcy Notices being issued against a business.
  • Director Penalty Notices being issued by the Australian Taxation Office (‘ATO’) or the Office of State Revenue (‘OSR’).
  • Repossession of business assets by secured creditors.
  • Winding Up proceedings or Creditor’s Petitions being filed against the business.

These actions by creditors usually sound the death knell for a business, due to the severity of the impact they have on the operations of the business.

Consequences of insolvency

Sole traders are personally liable for the debts of their businesses and may be made bankrupt as a result of their failure to satisfy outstanding liabilities. Directors of insolvent companies risk personal liability through a range of exposures such as director penalty notices from the ATO or OSR, or through claims by a liquidator for trading whilst insolvent. Other issues may arise such as the calling up of debit loan accounts, or the triggering of liabilities under personal guarantees provided to third parties. Directors may also be held liable for breaches of their duties, particularly in respect of their conduct at a time when the company was insolvent. Both civil and criminal sanctions can be imposed against directors for breaches of duties.

O’Brien Palmer has previously issued articles which are available on the O’Brien Palmer website in which the consequences of insolvency for directors are explored, particularly in relation to;

The consequences of the foregoing can be quite serious, and as such it is recommended that where warning signs of insolvency have been identified, then directors should seek immediate professional and experienced advice.

Conclusion – the need for timely action

The warning signs set out above are not exhaustive, and not all of them will necessarily be present in an insolvent business. A business may also exhibit multiple warning signs and not necessarily be insolvent. However, a business that transitions from showing preliminary warning signs, to numerous substantive warning signs, is more than likely insolvent, or will be in the very near future. A business that exhibits any critical warning signs is most likely already insolvent, and has in all probability been so for some time.

Business owners and directors should be concerned when a business begins to show early signs of insolvency. However, as noted earlier, there may be no cause for alarm if the issues are considered to be under control. Pre-emptive action usually results in a broader array of options remaining available to the business than in circumstances where the finances of the business have been neglected.

Directors and business owners should remain cognisant of the warning signs of insolvency, and seek appropriate advice as soon as any of the warning signs are identified. A solvency checklist is available here on the O’Brien Palmer website as an additional resource available to be used when undertaking such assessments.

Audio and video recordings as evidence

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By Keleigh Jane Robinson

The use of smart phones has made it easier for parties in family law proceedings to secretly obtain audio and video recordings as evidence to be used in their family law cases. The Chief Justice of the Family Court of Australia recently described such usage as ‘quite common’, ‘widespread’ and said that ‘in the vast majority of cases it is admitted’.

Given the changing nature of technology, it is increasingly likely that family law practitioners will at some point in time be faced with a client who has such recordings and seeks to have the evidence put before the court. As with any evidence in family law proceedings, the client’s perception of the value of the secretly recorded evidence can be vastly different to that of the practitioner and the court. Caution needs to be taken before such evidence is obtained and used.

State legislation

Each of the States have their own legislation in relation to recordings. In some States it is illegal to record a conversation even if the person recording the conversation is a party to that conversation. For example, if the party has obtained a recording of a conversation and all of the parties involved have not consented to the recording, it may be a breach of s 6 of the Surveillance Devices Act (1999) (Vic).

Other relevant legislation includes the Surveillance Devices Act 2007 (NSW) and the Invasion of Privacy Act (Qld) 1971.

Commonwealth legislation

Under section 138 of the Evidence Act 1995, the court has the discretion to exclude improperly or illegally obtained evidence. If the evidence was obtained in breach of the relevant State legislation, it could technically be excluded. Realistically, if there is a breach, the court needs to weigh up whether the evidence should be admitted and will consider:

  • the probative value of the evidence;
    • the importance of the evidence;
    • the nature of the evidence; and
    • the gravity of the impropriety of the contravention and whether it was deliberate or reckless.

The courts also have general discretion to exclude evidence pursuant to s 135 of the Evidence Act 1995, if:

‘the probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to a party, misleading or confusing or… result in an undue waste of time.’

Section 69ZT of the Family Law Act 1975 provides that the rules of evidence do not apply to child related proceedings unless the court decides otherwise. As is evidenced in cases such as Janssen & Janssen [2016] FamCA 345 (1 February 2016), the court is prepared to positively exercise their discretion on this issue when the need arises.

Case law

There are a number of cases where a judicial officer has admitted the evidence however they have subsequently noted their criticisms of the recording party’s actions. Similar to evidence sourced from social media, clients will be inclined to think they have ‘struck gold’ with a piece of evidence, however the reality is that the evidence may prove to be more damaging to them than it is to the other party.

In the case of Badger & Badger & Ors [2013] FMCAfam 124 (14 February 2013), a telephone call was recorded by a litigation guardian (who was also a police officer). The recording was not admitted into evidence.

In the case of Simmons & Simmons [2013] FCCA 304 (24 May 2013), a recording device was planted on the children by their mother before they went to spend time with the father. The evidence was admitted, however both parents were heavily criticised by the Judge who said:

‘On the material before me and, in particular, the tape recordings, I am satisfied on the balance of probabilities that the father did act in this way. This is insightful and selfish behaviour… Similarly, however, the mother’s actions in sending the child for supervised visits with recording equipment secreted on her is similarly appalling behaviour. The actions of both these parents are at best naïve and at worst a form of child abuse. In this sense they are equally culpable.’

In Janssen & Janssen [2016] FamCA 345 (1 February 2016), the wife was successful in having a recording evidencing family violence admitted in family law proceedings.

In Huffman & Gorman (NO.2) [2014] FamCA 1077, the father recorded conversations between himself and the mother, without the mother’s knowledge or consent. The father and the independent children’s lawyer sought the admission of the material. The court found that whilst the evidence was unlawfully obtained and untested at that point in time, the evidence was admitted under s 138 of the Evidence Act.

Procedure for putting recorded evidence before the court

The most appropriate method for having recorded evidence put before the court will depend on the type of evidence, the type of hearing and the attitude of the particular judicial officer overseeing the case.

As a preliminary step, recordings should be transcribed and the transcriptions attached as annexures to the affidavit. The applicant can also depose to the fact the recordings are available for production as required.

The obligations to provide disclosure also apply, therefore it is necessary to ensure that any recordings have been disclosed to the other party before ‘surprising’ them at the hearing. The duty of disclosure is not limited to evidence which is beneficial to the recording party. If their recording is detrimental to the recording party’s case, the obligation to disclose remains the same.

If counsel are appearing on behalf of your client, they will often be able to give specific advice about the preferences of a particular judicial officer. It is best to have a copy of the recordings at court so they can be played if the court requires.

In conclusion, audio and video recorded evidence may be useful, however there is potential for the evidence to backfire. If a client presents recorded evidence to you, ensure that they understand the risks as well as the benefits of using the evidence. If they ask your advice before recording such evidence, ensure they understand their obligations under State legislation and the ramifications for breaches, as well as the obligation to disclose the material, regardless of the benefit or disadvantages that using such evidence may have for their case.

Audio and video recordings as evidence

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record-voice-android-840x420The use of smart phones has made it easier for parties in family law proceedings to secretly obtain audio and video recordings as evidence to be used in their family law cases. The Chief Justice of the Family Court of Australia recently described such usage as ‘quite common’, ‘widespread’ and said that ‘in the vast majority of cases it is admitted’.

Given the changing nature of technology, it is increasingly likely that family law practitioners will at some point in time be faced with a client who has such recordings and seeks to have the evidence put before the court. As with any evidence in family law proceedings, the client’s perception of the value of the secretly recorded evidence can be vastly different to that of the practitioner and the court. Caution needs to be taken before such evidence is obtained and used.

State legislation

Each of the States have their own legislation in relation to recordings. In some States it is illegal to record a conversation even if the person recording the conversation is a party to that conversation. For example, if the party has obtained a recording of a conversation and all of the parties involved have not consented to the recording, it may be a breach of s 6 of the Surveillance Devices Act (1999) (Vic).

Other relevant legislation includes the Surveillance Devices Act 2007 (NSW) and the Invasion of Privacy Act (QLD) 1971.

Commonwealth legislation

Under section 138 of the Evidence Act 1995, the court has the discretion to exclude improperly or illegally obtained evidence. If the evidence was obtained in breach of the relevant State legislation, it could technically be excluded. Realistically, if there is a breach, the court needs to weigh up whether the evidence should be admitted and will consider:

  •  the probative value of the evidence;
  •  the importance of the evidence;
  •  the nature of the evidence; and
  •  the gravity of the impropriety of the contravention and whether it was deliberate or reckless.

The courts also have general discretion to exclude evidence pursuant to s 135 of the Evidence Act 1995, if:

‘the probative value is substantially outweighed by the danger that the evidence might be unfairly prejudicial to a party, misleading or confusing or… result in an undue waste of time.’

Section 69ZT of the Family Law Act 1975 provides that the rules of evidence do not apply to child related proceedings unless the court decides otherwise. As is evidenced in cases such as Janssen & Janssen [2016] FamCA 345 (1 February 2016), the court is prepared to positively exercise their discretion on this issue when the need arises.

Case law

There are a number of cases where a judicial officer has admitted the evidence however they have subsequently noted their criticisms of the recording party’s actions. Similar to evidence sourced from social media, clients will be inclined to think they have ‘struck gold’ with a piece of evidence, however the reality is that the evidence may prove to be more damaging to them than it is to the other party.

In the case of Badger & Badger & Ors [2013] FMCAfam 124 (14 February 2013), a telephone call was recorded by a litigation guardian (who was also a police officer). The recording was not admitted into evidence.

In the case of Simmons & Simmons [2013] FCCA 304 (24 May 2013), a recording device was planted on the children by their mother before they went to spend time with the father. The evidence was admitted, however both parents were heavily criticised by the Judge who said:

‘On the material before me and, in particular, the tape recordings, I am satisfied on the balance of probabilities that the father did act in this way. This is insightful and selfish behaviour… Similarly, however, the mother’s actions in sending the child for supervised visits with recording equipment secreted on her is similarly appalling behaviour. The actions of both these parents are at best naïve and at worst a form of child abuse. In this sense they are equally culpable.’

In Janssen & Janssen [2016] FamCA 345 (1 February 2016), the wife was successful in having a recording evidencing family violence admitted in family law proceedings.

In Huffman & Gorman (NO.2) [2014] FamCA 1077, the father recorded conversations between himself and the mother, without the mother’s knowledge or consent. The father and the independent children’s lawyer sought the admission of the material. The court found that whilst the evidence was unlawfully obtained and untested at that point in time, the evidence was admitted under s 138 of the Evidence Act.

Procedure for putting recorded evidence before the court

The most appropriate method for having recorded evidence put before the court will depend on the type of evidence, the type of hearing and the attitude of the particular judicial officer overseeing the case.

As a preliminary step, recordings should be transcribed and the transcriptions attached as annexures to the affidavit. The applicant can also depose to the fact the recordings are available for production as required.

The obligations to provide disclosure also apply, therefore it is necessary to ensure that any recordings have been disclosed to the other party before ‘surprising’ them at the hearing. The duty of disclosure is not limited to evidence which is beneficial to the recording party. If their recording is detrimental to the recording party’s case, the obligation to disclose remains the same.

If counsel are appearing on behalf of your client, they will often be able to give specific advice about the preferences of a particular judicial officer. It is best to have a copy of the recordings at court so they can be played if the court requires.

In conclusion, audio and video recorded evidence may be useful, however there is potential for the evidence to backfire. If a client presents recorded evidence to you, ensure that they understand the risks as well as the benefits of using the evidence. If they ask your advice before recording such evidence, ensure they understand their obligations under State legislation and the ramifications for breaches, as well as the obligation to disclose the material, regardless of the benefit or disadvantages that using such evidence may have for their case.

New Business & Franchise publication for Western Australia

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CaptureBy Lawyers is pleased to announce a new publication: Business & Franchise for Western Australia.

The guide and precedents include everything that is needed to successfully execute the sale or purchase of a business in Western Australia.

The By Lawyers Uniform Contract for the Sale of Business is also included in this guide. The uniform contract has been designed to take both parties through the transaction and covers everything from warranties by seller shareholders, guarantees by buyer shareholders, the completion deliverables to effectively release PPSR security interests, to the transfer of all of the business assets including copyright works, trade marks and supplier contracts.

The By Lawyers uniform contract also follows the ASIC requirements for the transfer of business names and allows the user to customise the competition restraints to ensure that they are enforceable and suited to their client’s circumstances.

The Commentary compares different business structures, sets out the tax consequences of sale price apportionment, explains the tax treatment of stock and business assets, long service leave and other employee entitlements and discusses many other issues that can arise in business conveyancing such as the role of the premises landlord and franchising.

A subscription to this publication is $89 plus GST per month for a minimum of three months.

To learn more, please visit our website.

Lease – Retail lease cost

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

A lease of land is essentially a contractual relationship between the landlord and tenant. The lease also creates a proprietary interest in the land in favour of the tenant and the tension between contractual and proprietary rights has been reflected in the law relating to termination of the lease for breach by repudiation. See Progressive Mailing House P/L v Tabali P/L [1985] HCA 14.

As a contractual relationship, the law allows the parties to negotiate the terms of their agreement in relative freedom, subject to limited restrictions in relation to illegality and the like. This freedom presumes that the parties are of relatively equal bargaining power, as the freedom to negotiate is of little value if one party has relatively little power within the negotiations. And yet the three fundamental contractual relationships that occur in day-to-day life – buying, borrowing and renting – have rarely involved parties of equal bargaining power.

Vendors have traditionally been protected by the doctrine of caveat emptor, lenders by the requirement that any amount claimed be repaid before a complaint is heard and landlords by the ability to dictate the terms of the agreement. But the world has changed in the last 50 years and the age of the consumer means that vendors have pre-contract disclosure obligations, lenders are subject to consumer credit codes and tenants are provided with statutory protection, such as the Residential Tenancies Act and the Retail Leases Act.

One area where the ability of the landlord to dictate the terms of the lease has been removed is the area of the landlord’s legal costs associated with the lease. Traditionally, the lease prepared by the landlord for signing by the tenant would provide that the tenant is to pay the landlord’s legal costs relating to the lease. Such a contractual provision is now statutorily prohibited in the residential and retail markets and, whilst still prevalent in commercial and industrial leases, is now more often subject to negotiation by a tenant exercising bargaining power in the face of an awareness that such obligations are not ‘set in stone’.

Section 51 Retail Leases Act prohibits the landlord claiming legal costs in respect of the lease and any contractual provision contrary to this prohibition is void pursuant to s 94. The prohibition is wider than simply prohibiting the landlord from claiming costs from the tenant, as the Act prohibits claiming costs ‘from any person’. This prevents the landlord requiring payment from a party associated with the tenant, such as a guarantor. The prohibition also prevents the landlord from recovering any costs associated with the landlord obtaining the consent of a mortgagee of the freehold to the lease, if the lease includes such a requirement. Further, the prohibition is not just in respect of costs on the lease but rather costs associated with ‘the landlord’s compliance with this Act’ and therefore also prohibits a claim for costs in respect of the disclosure statement.

Assignment

Section 51(1) allows the landlord to claim from the tenant the landlord’s reasonable legal costs associated with an assignment of the lease. Presumably this is based on the fact that the assignment is requested by the tenant and therefore the tenant should bear the costs. The landlord may also claim any costs associated with seeking mortgagee’s consent to the assignment.

It is normal that a tenant who sells a business and seeks an assignment of the lease to a new tenant will be required to bear these costs and general condition 7.6(b) of the LIV May 2014 copyright contract of sale of business adopts this view, correcting a reversal in the previous LIV contract.

If, as part of the assignment, the incoming tenant requests a variation to the existing lease, such as by way of the addition of further terms, the landlord is effectively able to recover the landlord’s costs in agreeing to such a variation within the broad scope of the consideration of the application to approve the assignment.

However, a landlord must exercise caution in the situation where the outgoing and incoming tenants agree that the landlord will be asked to enter into a new lease with the incoming tenant. If the landlord agrees, the new lease is a retail lease and the landlord is prohibited from claiming costs and cannot rely on the ‘assignment’ exemption. The prohibition on key-money (s 23) would appear to prohibit the landlord placing a premium on consent and a landlord may therefore find itself agreeing to a new lease at its own cost. However, the landlord is able to negotiate the terms of the lease, including rent, and may therefore be satisfied to enter into the new lease notwithstanding costs are not paid by the tenant.

Renewal

Renewal creates a new lease and the general prohibition against costs applies. If the tenant also seeks a variation in addition to renewal, this is simply part of the negotiations and the landlord is not able to seek costs relating to those negotiations. Just as the landlord must recover its costs within the rent for a new lease, it must also do so if negotiating a variation upon renewal.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Consent Orders in Property Settlement

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adelaide-hills-divorce-lawyers-1024x413As family practitioners we are regularly advising clients that property settlement reached between separated husbands and wives or de facto spouses as the case may be must be documented in the appropriate legal manner. This is usually done via an Application for Consent Orders or, depending on the particular circumstances, via Financial Agreement pursuant to ss 90UC, 90UD, 90C or 90D of the Family Law Act.

It is safe to assume and is certainly the writer’s experience that the majority of property settlements formalised with the assistance of solicitors are effected via an Application for Consent Orders and Minute of Consent Orders filed in the Family Court.

There are the fundamental requirements associated with such an application with which we are all familiar, including:

  • filing the original and two copies of the documents with the court;
  • ensuring the consent orders and application are signed by both parties including completion of the statements of truth, including ticking the relevant boxes, which if not attended to can be the subject of an embarrassing requisition;
  • provision of the relevant sections of the legislation as set out in the statement of truth to the client;
  • according procedural fairness to the superannuation fund and providing a copy of the letter to and from the superannuation fund to the court, as well as the superannuation information form if it is a defined benefit interest; and
  • provision of the correct filing fee, unless the parties are eligible for the exemption or fee reduction.

The regularity with which we prepare and file such documents can result in practitioners taking a somewhat laissez faire attitude to the completion of the application form and the drafting of orders. However, it is vital that practitioners remember that the filing of consent orders is not a ‘rubber stamping’ exercise and the orders will not simply be made by the court because the parties have signed the documents and agreed that the orders ought to be made.

Serious consideration needs to be given to the question of justice and equity of the adjustment of property provided for in the proposed orders. This is important in every case but perhaps even more important in those matters where the other party is self–represented. Sometimes in those cases the party who is receiving the greatest benefit from the settlement is eager to have documents drafted, signed and filed as quickly as possible and the other party does not wish to engage a lawyer for cost related or other reasons.

The recent case of Hale & Harrison [2014] FamCA 165 where consent orders were ostensibly consented to by the parties but were not made by the court is one such example. The facts of the case were:

  • Ms Hale and Mr Harrison cohabited from 1998 to April 2009 and were in a de facto relationship. A separate issue was the date of separation and the jurisdiction of the court, however that is not relevant for the purposes of this article.
  • There were four children of the relationship, aged 10, 10, 13 and 15. The children were living with Ms Hale and spending time with Mr Harrison pursuant to a parenting plan.
  • Ms Hale was 36 years of age and Mr Harrison was in his fifties. Both were in receipt of government pensions and neither of them were engaged in paid employment.
  • Ms Hale received a small sum of child support per month.
  • There was a small asset pool:
    • Property in New South Wales which was expected to sell for $80,000. However its municipal value was $60,000 and it appeared that Justice Cronin took the view the property would sell for between $60,000 and $70,000.
    • Ms Hale’s mother loaned the parties $10,000 towards the purchase of the property, which remained outstanding.
    • There was also a mortgage of $17,000.00 secured against the real property.
  • Mr Harrison received an inheritance at some stage after 2009 which he asserted was in the vicinity of $150,000. However Ms Hale had not seen any evidence of this inheritance. Mr Hale said he had $12,000 remaining from that inheritance.
  • Ms Hale and Mr Harrison filed an Application for Consent Orders on 8 October 2013 which provided:
    • The real property would be sold.
    • After repayment of the mortgage of $17,000, the proceeds of sale would be divided equally between the parties.
    • From the wife’s share of the proceeds of sale, she would repay her mother the $10,000.
    • Mr Harrison would also retain the $12,000 which remained from his alleged inheritance.
  • Based on His Honour’s comments in relation to the possible sale price of the property and depending on the sale price of the property, Ms Hale would be left with somewhere between $11,500 and $24,000, and Mr Harrison with between $33,500– and $46,000.
  • His Honour found that the loan repayment to Ms Hale’s mother in circumstances where Mr Hale had more property and more money was not just and equitable. It is apparent from the judgment that Mr Harrison’s solicitor argued before His Honour that the settlement was just and equitable because the parties had reached agreement. However when asked by His Honour, Ms Hale, who was unrepresented said she did not think the outcome was fair.

His Honour concluded that the parties having reached agreement was not a basis upon which the court should ‘waive away what is in reality its subjective judgement about what is fair’ and ultimately dismissed the Application for Consent Orders.

Justice Cronin’s decision in Hale & Harrison serves as a reminder of the essential and indeed overriding need for practitioners to consider what is just and equitable. Preparing consent orders must be a considered process and practitioners must focus on the justice and equity of the orders before filing them with the court to ensure there are not difficulties with the making of the orders which serve only to increase client costs and can be a professional embarrassment for practitioners.

Saviours or Scavengers – A review of debt advisory in 2015

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By O’Brien Palmer

INSOLVENCY AND BUSINESS ADVISORY

First published on the website, www.obp.com.au

In recent years, an industry has developed around the perceived needs of company directors and individuals to receive commercial advice prior to the appointment of an administrator, liquidator or bankruptcy trustee. Such advice is sought in the expectation that it will increase the likelihood of achieving positive personal outcomes. Commonly referred to as debt advisory, pre-insolvency advisory or business advisory, the development of this industry has encroached upon an area previously the domain of solicitors, accountants and financial advisors.

Insolvency professionals are now unable to provide advice in this area if they want to subsequently act in a formal capacity. This is as a result of the duties imposed upon them pursuant to the provisions of the Corporations Act 2001, the Bankruptcy Act 1966 and the Code of Professional Practice developed by the Australian Restructuring Insolvency & Turnaround Association (‘ARITA’); in particular the independence requirements and the duty to act in the best interests of creditors.

Debt advisors, acting as advocates for their clients, provide advice on restructuring company and personal assets with the aim of protecting them from the insolvency process. Proponents of the industry say that it maximises asset value for creditors, motivates ethical behaviour by directors and bankrupts and assists in maintaining the integrity of the insolvency industry.

Critics are more inclined to believe that the industry legitimises fraudulent phoenix activity, reduces the assets which might otherwise be available for creditors, results in vulnerable people being taken advantage of and generally undermines the objectives of the insolvency profession.

(For a review of what differentiates fraudulent from legitimate phoenix activity, creditors are referred to our previous newsletter entitled “Pre-Packs – Do they have a place in Australian insolvency practice?” available on our website.)

Corporate debt advisory

Regardless of your point of view and taking into account the number of people operating in this area, the industry appears to be thriving. Unlike solicitors, accountants and financial advisors, debt advisors are unregulated and often do not have professional qualifications.

At O’Brien Palmer, we have had mixed experiences working with corporate debt advisors.

A number of operators have been highly professional in their approach and have delivered positive outcomes for their clients. There are many debt advisors who practice in a manner which maximises asset value for the benefit of creditors, potentially retains asset value for their clients, simplifies the insolvency process and reduces costs.

The same cannot be said for a number of other advisors. Some operators have spent time working in the insolvency industry and take advantage of the realities of modern insolvency administration, such as the limited scope of investigations conducted in circumstances where a liquidator is unfunded, the role played by creditors who rarely fund the activities of a liquidator or bankruptcy trustee, and the limited resources of the Australian Securities & Investments Commission (‘ASIC’). Although ASIC reviews all corporate insolvency appointments in order to identify individuals advising directors to act illegally, and although insolvency practitioners have powers and duties to deal with fraudulent phoenix activity within the current legal frame work, some debt advisors lead their customers to believe that getting caught is a numbers game, and that the odds are in their favour.

We have observed circumstances where directors have been;

  • advised to transfer assets for undervalue or otherwise engage in potentially fraudulent phoenix activity.
  • encouraged to destroy company books and records.
  • instructed to create security interests in an attempt to defeat creditors.
  • charged excessive fees for the services provided.
  • advised to generally engage in behaviour designed to frustrate an insolvency practitioner in the completion of his or her duties.

In the event that such actions are identified as a result of a practitioners’ investigation, then the practitioner may be required to report the conduct to ASIC, or to take appropriate steps to recover assets for the benefit of creditors.

Personal debt advisory

Personal debt advisors can help people manage their debt levels and to avoid formal insolvency solutions such as bankruptcy. By negotiating with individual creditors and with access to alternate sources of finance, personal debt advisors can help people manage their debt levels whilst aiming to avoid formal insolvency. Importantly, they are also helping individuals free up personal capital to assist with the funding of their businesses.

Where formal appointments can’t be avoided, debt advisors have assisted debtors to prepare themselves for the effects of the bankruptcy, and have assisted with the subsequent formulation of a proposal to be put to creditors in order to compromise their debts and to have their bankruptcy annulled.

That said, personal debt advisors are not immune from criticism. We recently became aware of a case where a personal debt advisor claimed fees in excess of $7,000 to open a file and form the view that the only option available to his client was to declare himself bankrupt. Others have paid high fees to advisors who have done nothing more than to process hardship applications with their banks, and then received no further assistance in rectifying their personal financial situation. Unless managed carefully, the engagement of personal debt advisors may merely delay the inevitable, and can make the situation worse.

Selecting a debt advisor

Separating the sales pitch from the substance can be difficult for individuals, especially when facing extreme financial stress. In corporate matters, it is common for highly competitive debt advisors with access to the court lists to make contact with directors before they themselves are aware that an application to wind up their company has been filed, and then use high pressure tactics to ensure directors engage their services.

This occurs not withstanding that the debt advisors are usually unqualified to give legal advice in connection with winding up proceedings and in circumstances where engaging a lawyer will come at an additional cost to the company or its director.

Choosing the right advisor is extremely difficult in such a new and unregulated industry, and the consequences of getting it wrong can be calamitous. If you are aware that a client is in contact with a debt advisor, then we recommend that you advise your client to proceed cautiously.

Specifically, in assessing the services offered by debt advisors, potential clients are encouraged, wherever possible, to;

  • seek advice from multiple sources, including accountants and solicitors who are required to act in the best interest of their clients.
  • be cautious of high pressure sales tactics and advisors who claim to be experts.
  • not be pressured into making an immediate engagement or committing on the spot.
  • be wary of promises which seem too good to be true, as they usually are.
  • enquire as to the background and qualifications of the advisor, and to ensure that the advice provided is impartial and not skewed by the benefits accruing to the advisor for work referred.
  • be realistic about the work to be completed by the advisor, as some advisors will structure a financial solution in order to maximise their fee.
  • negotiate payments which are directly related to positive outcomes.
  • avoid open ended engagements, and restrict engagements to specific tasks.
  • check all written agreements closely and carefully, and have them reviewed by a solicitor.

Conclusion

At O’Brien Palmer, we have worked successfully with some highly professional debt advisors. If you feel unable to advise your clients in relation to pre insolvency matters, then we can recommend a number of operators with whom we have had successful dealings, or we can provide you with some general advice on specific insolvency related topics.

We do not accept commissions for referrals, nor do we pay commissions for engagements, so you can be assured of the impartiality of our recommendation. We encourage individuals faced with financial pressure to work collaboratively with their accountants, solicitors and if appropriate, with reputable debt advisors.

We also encourage such individuals to contact us at O’Brien Palmer for an obligation free assessment of your circumstances and the options which remain available.

By O’Brien Palmer

Insolvency and Business Advisory

First published on the website, www.obp.com.au

2015

Leases NSW

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OCTOBER 
  • Costs Agreements
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
    • Included reference to time limit for bringing costs assessment included total estimate of legal costs section with provision for variables and included authority to receive money into trust.
SEPTEMBER 
  • LEASE – Retail – Annexures A and B – Mortgage consent fees have been updated accordingly.

Criminal Magistrates’ Court QLD

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OCTOBER
  • Costs Agreements – Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
SEPTEMBER
  • New commentary added on making an application for a protection order.

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