As stated in our previous article, a statutory demand must be addressed to the proper entity (including the correct ACN number) at the registered office address of the debtor company (which can be searched by an ASIC search of the debtor company) in order for it to be considered valid.
This statutory demand can be left at or posted to the debtor company’s registered office address or delivered personally to a director of the debtor company who resides in Australia: see section 109X(1) of the Corporations Act 2001 (Cth) in this regard.
By virtue of section 160 of the Evidence Act 1995 (Cth), the statutory demand is presumed to be served by way of post (unless there is evidence to the contrary) on the seventh working day after it was posted.
Where the statutory demand is served by prepaid post on the debtor company, section 29 of the Acts Interpretation Act 1901 (Cth) states that:
then the statutory demand was served effectively on the debtor company.
These requirements can be proved to be complied with by way of affidavit evidence in any future proceedings.
There has been some movement recently where the Court has deemed service to be effected by way of “informal service” in circumstances where the Court was satisfied that the statutory demand did in fact come to the attention of the officer of the debtor company who is either expressly or implicitly authorised to deal directly or responsively with the statutory demand: see Kookaburra Educational Resources Pty Limited v MacGear Limited Partnership trading as MacGear Australia [2021] FCA 797 in this regard.
This will however require substantial and clear evidence surrounding service of the statutory demand, including evidence of receipt such as:
The Court will closely scrutinise such evidence. There is great value however in ensuring that service has been effected properly through the standard means.
It is important to remember that if service of a statutory demand is not properly effected in accordance with the proper requirements, there is a risk that:
For instance, if the statutory demand is being served interstate, such service must be conducted in accordance with sections 9 and 15 of the Service and Execution of Process Act 1992 (Cth).
It is also worth noting that a statutory demand must also specify an address for payment that is in the same jurisdiction in which it was served.
Get the legal support you need to resolve any dispute – contact our Litigation and Dispute Resolution team today.
This article was prepared with the assistance of Neil Bookseller.
The most common applications for winding up a company in financial distress is made by creditors on the ground that the debtor company has not paid its debts as and when they fall due and payable, meaning that it is insolvent. A straightforward way to show that a company is presumed to be insolvent is when that company is served with a statutory demand and it fails to comply with this statutory demand.
A statutory demand is a creditor’s formal request which requires a debtor company to make payment of a debt within 21 days. If the company fails to make payment of this debt or commence proceedings to set aside this statutory demand within this timeframe, the company will be presumed to be insolvent pursuant to section 459C of the Corporations Act 2001 (Cth) (Act). This presumption of insolvency can be used as a basis to commence winding up proceedings against that company.
Since the end of the COVID-19 pandemic, the statutory threshold in order to issue a statutory demand is currently $4,000 (which is double of the pre-pandemic statutory limit of $2,000). This statutory demand is required to be in writing in accordance with the prescribed form, and it must specify the debt(s) which comprise the total amount of the debt claimed by the creditor (see section 459E of the Act). This statutory demand is required to be executed by the creditor, and unless this debt arises from a judgment, it must be accompanied by a supporting affidavit which verifies the amount of the debt(s) and that it is due and payable by the debtor company. It is important to note that if the creditor is a corporation, it must be executed by the director, secretary or an executive officer of the corporation or by a person who is duly authorised by the corporation to execute the statutory demand.
In order for the statutory demand to be considered valid, it must be addressed to the proper entity (including the correct ACN number) at the registered office address of the debtor company. These details can be verified by conducting a fresh organisation search via ASIC. Failure to meet these requirements can have significant consequences for the creditor, including having the risk of an adverse costs order against the creditor. In the case of Re Willes Trading Pty Ltd [1978] 1 NSWLR 463, at statutory demand being
issued to ‘Willis Trading Pty Ltd’ instead of ‘Willes Trading Pty Ltd’ was considered to be defective. In the case of Mills Oakley v Asset HQ Australia Pty Ltd [2019] VSC 98, a statutory demand was addressed to ‘1 Pacific Way’ instead of ‘1 Pacific Highway’ on the envelope used to serve the debtor company at its registered office address. In circumstances where there was no way of proving that the debtor company did in fact receive the statutory demand at the correct address, the Court ruled that this minor typographical error meant that the debtor company could not be wound up.
This article was prepared with the assistance of Neil Bookseller.
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A members voluntary winding up (MVWU) is implemented in circumstances where the company’s members no longer wish to retain the company’s structure because its existence is no longer required or useful. It is only available if the company in question is solvent.
A MVWU is the only way to fully wind up the affairs of a solvent company. All outstanding creditors are paid in full, and any surplus assets are distributed to its members. A MVWU also ensures that the interests of the company’s members are protected while the company structure is dismantled.
The strict definition of solvency in a company, being that it is able to pay all of its debts when they fall due, does not apply to MVWU as the appointment lasts for 12 months. The liquidator needs to consider whether creditors will be paid within the 12-month period or, if not, the MVWU must convert to a creditor’s voluntary winding up administration.
The MVWU process starts when directors call a meeting of members to wind up the company. The majority of directors must complete a written declaration of solvency that states the company is solvent and can pay its debts in 12 months, pursuant to section 494(4) of the Corporations Act 2001 (Cth) (Act), which is to be lodged with ASIC before the meeting. The company is then wound up on the special resolution of the members at the meeting, pursuant to section 491(9) of the Act. This resolution must be passed within five weeks of the making of the declaration in order for the declaration to be effectual. If the directors fail to provide a declaration, then the company members may still appoint a voluntary liquidator, but the liquidation will take the form of a creditor’s voluntary liquidation.
Many of the investigations required under a creditor’s voluntary or court liquidation not required under a MVWU, and the liquidator may continue to trade the company if it is in the interests of the creditors. Additionally, as the company is solvent there is no need for recovery actions to be initiated, such as recoveries for preferential payments or insolvent trading.
The process ends when the liquidator calls a final meeting of the company’s members. Any surplus will be redistributed to the members.
Company then deregistered three months after the final meeting by ASIC.
If the liquidator at any time forms the opinion that the company will not be able to pay its debts in full within the requisite period, then, pursuant to s496(1) of the Act, they must do one of the following:
In a MVWU of a proprietary company, the liquidator does not need to be a registered liquidator, and may be an officer or employee of the company, or the company accountant or lawyer pursuant to section 532(4) of the Act.
This article was prepared with the assistance of Matthew Theophile.
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The Australian Government introduced two significant new insolvency solutions following the enactment of the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth), as part of the federal government’s JobMaker Plan in response to the COVID-19 pandemic. The first of these solutions is the Simplified Liquidation Process (SLP) which allows eligible small companies to participate in a faster and more financially commercial liquidation process.
The benefits of the process, compared to traditional liquidation, include:
The SLP does not replace the existing insolvency framework, but rather applies the existing framework and incorporates some slight changes to create a more efficient and pragmatic pathway. These efficiencies are achieved by streamlining the following:
The simplified liquidation process can only be accessed if the following eligibility criteria are met:
The SLP process cannot be adopted if 20 business days since the relevant triggering event which brought the company into liquidation have passed, or if 25% of the value of creditors (not including related entity creditors) direct the liquidator in writing not to do so.
Don’t hesitate, contact our litigation and dispute resolution team today for expert advice.
This article was prepared with the assistance of Matthew Theophile.
Liquidation is the process of winding up a company’s financial affairs. The assets of the company are collected and realised, the resulting funds are applied to discharging the company’s liabilities and debts, and any residual funds are redistributed to the company’s members. Liquidation is the only way to fully wind up the affairs of a company and end the existence of the company.
The chief purposes of liquidation are threefold:
The process of liquidation is one that does not only apply to insolvent companies. A solvent company may apply to enter voluntary liquidation under section 491 of the Corporations Act 2001 (Cth) (Act) and be wound up. Such liquidations are commonly undertaken by groups of companies and subsidiaries where certain companies become superfluous for the requirements of the group and so can be wound up.
An insolvent company can either be wound up by the Court, usually by creditors making an application, or voluntarily by a resolution of the company’s directors/ the company’s members at a relevant meeting. In a Court liquidation, the applicant must demonstrate to the Court that the company is insolvent or can be presumed insolvent.
It is possible for a company to be insolvent even if its total assets outweigh its total liabilities. Given the definition of insolvency in the Act, the test for insolvency accepts that creditors are entitled to be paid at the time that moneys become due for payment. Creditors are not required to accept that a debtor company is asset rich and will pay them at some point in the future when those assets are realised (see Powell v Fryer [2001] SASC 59 at [5]).
This article was prepared with the assistance of Matthew Theophile.
If you need advice on your rights and options for recovery of a debt, our Insolvency and Restructuring Team is here to help.
If you are a creditor who is owed money by a company that has gone into voluntary administration, you will receive reports and notifications of meetings from the voluntary administrators. Chamberlains can advise you on your rights and what to do in this situation. In this case update, we look at one issue that may come up in such a scenario – when more time is needed before the second meeting.
In the recent case of Anderson, In The Matter Of NT Port And Marine Pty Ltd (administrators appointed) [2023] FCA 3 (Anderson), the Court made orders extending the time for the second meeting of creditors. This is the substantial meeting where the voluntary administrators will ask the creditors to decide the company’s fate.
Fact of the Case
The Corporations Act 2001 (Cth) provides a ‘convening period’ per section 439A(5). This section limits the amount of time the voluntary administrators have to hold the second meeting of creditors. They can however apply to the Court to extend this time period.
In Anderson, the company operated a port which was essential for the viability of the area for the traditional owners as well as for the Territory and Australian governments. If the port was not able to operate, it likely would have had significant detrimental effects on the various stakeholders.
The voluntary administrators sought an extension of the convening period in order to seek funding, engage in a sale process or alternatively consider a deed of company arrangement (DOCA). They were not in a position to assess or make recommendations at this point, and the scenario was made more difficult by the Christmas holiday period.
The administrators submitted that if the extension was not granted, they would have no choice but to recommend liquidation because they would not be in a position to properly put forward an alternative.
The Court considered various factors, such as the complexity and amount of tasks required to be performed and the position of the company’s employees.
In another recent case of Ayres, in the matter of Trigon Trading Pty Ltd (administrators appointed) [2023] FCA 28, the Court outlined principles the Court would apply in considering such applications, such as:
Result
The Court granted the extension.
Takeaway
The takeaway for creditors is that if you are a creditor of a company which is placed into voluntary administration, the voluntary administrators may need to extend the convening period however there will generally be a good reason to do so, that they believe will maximise the outcome. If you are concerned about the progress of an administration or need advice on your rights and options for recovery of a debt, our Insolvency and Restructuring Team is here to help.
As detailed in our Property Law Team’s previous article, the NSW Revenue Office announced that citizens of New Zealand, Finland, Germany and South Africa (“Exempt Countries”) are now exempt from Surcharge Stamp Duty and Land Tax payments imposed on foreign nationals.
So, what does this development mean for trusts controlled by citizens of these Exempt Countries?
Surcharge Stamp Duty and Surcharge Land Tax
Surcharge Stamp Duty is imposed on foreign persons who buy property in NSW. The surcharge was as much as an additional 8% of the price of the property.
Surcharge Land Tax is a yearly tax that is imposed on foreign persons who continue to own property in NSW. The current tax rate is 4% of the rateable value of the property.
Until NSW Revenue Office’s announcement, the surcharges were imposed on all ‘foreign persons’ as defined under the Foreign Acquisitions and Takeovers Act 1975 (Cth). This definition excludes Australian citizens, but includes:
Why these exemptions?
Australia is party to a number of international tax treaties, of which a primary object is the avoidance of ‘double taxation’ – that is, tax being imposed upon the same person or entity with respect to the same subject matter by both countries party to the agreement.
A treaty mechanism which allows for double taxation to be avoided is what is known as a “binding non-discrimination” clause. In effect, these clauses mean that foreign nationals must not be treated any less favourably than Australian citizens for tax purposes, and so affords them a level of tax minimisation. In Addy v Commissioner of Taxation [2021] HCA 34, the High Court held that these treaty provisions override the discriminatory parts of domestic tax law.
Many of Australia’s international tax treaties include this kind of clause. However, most only apply to taxes imposed by the Commonwealth Government, not those imposed by the States and Territories. The only treaties which limit taxes at the State level are those with New Zealand, Finland, Germany, South Africa, Japan and Norway.
In reviewing Land Tax and Stamp Duty taxation policy, Revenue NSW has determined that the surcharges are inconsistent with Australia’s international tax agreements with the Exempt Countries. This has not yet been extended to Japan and Norway.
What this means for you – tax minimisation and potential refunds
Following the NSW Revenue Office’s announcement, individuals with citizenship of the Exempt Countries will no longer be required to pay Surcharge Stamp Duty or Land Tax. Accordingly, if you are a citizen of one of these countries and paid Surcharge Stamp Duty or Surcharge Land Tax on property within NSW after 1 July 2021, you may be eligible for a refund.
What this means for your trust
A Trust will no longer be considered foreign for the purposes of Land Tax and Stamp Duty Surcharges if it would be deemed foreign solely because a substantial interest (at least 20%) is held by an individual who is a citizen of one of the Exempt Countries. However, if a foreign person who is not a citizen of one of the Exempt Countries holds a substantial interest in the trust, surcharges will still apply.
If you are a trustee of a trust that has paid Surcharge Stamp Duty or Surcharge Land Tax on property within NSW as a result of your citizenship or citizenship of foreign beneficiaries, and you or they are citizens of one of the Exempt Countries, you may be eligible for a refund. Refunds are currently being offered for surcharges paid after 1 July 2021.
These tax benefits for foreign beneficiaries also extend to trusts created in Wills, namely discretionary testamentary trusts. The tax effectiveness of these types of trusts in Wills is a specialty area of our Wills and Estates lawyers.
If you wish to discuss the tax implications of your trust, or you are from one of these countries and wish to set up a trust during your life time or in your Will, please do not hesitate to get in contact with our Private Wealth Law Team for assistance.
Certain people can make claims on estates including, in some cases, stepchildren. However, this does not always mean a stepchild will be successful in that claim.
What is a will, and is it final?
A will is a legal document which outlines your wishes for when you pass away. It includes information like who you want to receive your assets, arrangements for your funeral, who you would want to be legal guardian for any children under 18, and who you would like to be your executor.
Having a will allows you to outline how you would like your estate to be handled. It also gives the opportunity for you to explain your decisions. A person may leave their assets to whoever they wish, including family, friends and charities. You may think that a Will should not be able to be contested, however, the law recognises that some people, such as those who relied on the deceased person, can be unfairly left out of a Will.
One of the main ways to challenge a Will is by making what is known as a family provision claim. This is done by an eligible person arguing that the Will did not make adequate provision for their proper maintenance, education or advancement in life. (see e.g. Succession Act 2006 (NSW) section 59 and Family Provision Act 1969 (ACT) section 8)
Who can make a family provision claim?
There are certain categories of people who can make a family provision claim over someone’s estate. The list of eligible applicants differs slightly across the States and Territories.
In New South Wales the list includes spouses, de facto partners, children, a former spouse (in some circumstances), and someone dependent on the deceased. This State also considers someone living in a close personal relationship with the deceased at the time of their death, which can include dependent stepchildren and sometimes grandchildren.
In assessing a claim, the Court further considers a range of factors including the nature of the relationship, the value of the estate, and the needs of the applicant.
A recent case: Brown v Brown [2022] NSWSC 1393
In Brown v Brown, the Court considered a claim on a deceased’s Will by an adult stepson. The stepson lived with the deceased during his teenage years between 1973 and 1981, after the deceased married the stepson’s mother. However, the deceased and the mother separated in 1984. In the deceased’s Will, he appointed his only biological child as executor and gave the whole of the estate to him.
For the stepson to make a claim on the estate, he must be considered an eligible person. In Brown v Brown the Court considered his eligibility, as either a ‘child’ or as dependant on the deceased. The Court in considering the definition of ‘child’ provided by the Succession Act 2006 (NSW) found that it could not be interpreted to include stepchildren, particularly where the birth parent is no longer married to the deceased. The Court referred to case law, including Trembath v Trembath [2017] VSC 369 which highlights that the divorce of the birth parent and stepparent ends the step-relationship.
Though the Court in Brown v Brown found the stepson eligible to make a claim for other reasons, namely due to the nature of the relationship with the deceased, the Court ultimately dismissed the case as it did not find that the stepson was not adequately provided for in the deceased’s will, especially in considering the circumstances of the competing claim of the biological son.
The ballot draw for the ACT Government’s newest land release in Jacka is scheduled to take place on Thursday, 13 April 2023. If you are one the successful applicants chosen for a block selection appointment you will have the choice of purchasing one of the 217 blocks available in the release.
The ACT is a leasehold system and purchasing a vacant block directly from the ACT Government (a ‘first grant crown lease’) can be quite different from purchasing in a standard off the plan development. It is important to obtain legal advice so that you understand the key deadlines and your obligations relating to the block.
Our team at Chamberlains Law Firm is highly experienced in assisting with purchases from the ACT Government and would be glad to guide you through the process to ensure that your purchase is smooth and stress-free.
Please do not hesitate to contact our team if you would like to have a chat about your purchase in Jacka.
Sometimes, where decisions or resolutions are required to be made by the shareholders of a company, the shareholders entitled to vote on those decisions may be in disagreement with one another.
Where there is an inability for the shareholders to come to an agreement and the shareholders have reached a stalemate in decision making, then this could pose challenges to the company, as key decisions cannot be made, which may impede upon the company’s ordinary business operations. Generally, this will occur, when there are an equal number of votes for and against a decision.
An impasse in decision making is commonly known as a Deadlock.
A carefully drafted and considered Shareholders Agreement, will contain mechanisms for resolving deadlocks, some examples are:
Alternatively, there are additional mechanisms available such as ‘Russian Roulette’ or ‘Texas Shootout’ provisions (sometimes known as ‘divorce mechanisms’), which will ultimately result in mandatory buyout of shares between the shareholders, severing the cooperative relationship between the shareholders.
In the case of a Deadlock, a Russian Roulette provision allows any shareholder to issue notice to all of the other shareholders that it offers its shares for sale to the other shareholders. Included in that notice is the price in which the offering shareholder is prepared to sell its shares.
A shareholder who receives the notice then has an option either to purchase the shares at the price specified by the offering shareholder, or require the offering shareholder to buyout the shares of the offering shareholder at that same price specified by the offering shareholder.
This process will result in the offering shareholder either selling its shares to the other shareholders, or participating in a mandatory buyout of the shares of the other shareholders.
One advantage of a Russian Roulette provision is that it encourages a fair price to be put forward, noting the result of the process could mean the offering party is either the buyer or the seller.
On the other hand a disadvantage of this clause is that it doesn’t take into account the financial resources of a shareholder and where there is a financial imbalance between the respective shareholders.
The shareholder with the greater financial resources may be able to manipulate the process and offer a lower price, knowing that the other shareholder may not be in a financial position to be able to fund the offer to buy.
A Texas Shoot-Out clause is a variation to the Russian Roulette clause, whereby in order to resolve a Deadlock the shareholders each submit a sealed bid to buyout the other shareholders shares in the company. Once all of the bids are submitted by the shareholders the bids are simultaneously revealed, and the highest bidder will be required to buyout the others shares in the company at the highest bid price.
An advantage of the Texas Shoot-Out provisions is that it is a rapid and definitive mechanism for resolving a Deadlock. A disadvantage of the Texas Shoot-Out is that, given the nature of a bidding process, a premium price may ultimately be achieved for the shares.
It is important to understand that a Deadlock scenario could have a detrimental effect on a company’s business operations where there is an impasse in the ability for the shareholders to make important business decisions relating to the company. Consideration should be had, having specific regard to the circumstances and relationship between the shareholders and the company’s business requirements, as to the appropriate mechanisms for resolving any Deadlocks which may occur between the shareholders.
This should be incorporated into a Shareholders Agreement so that the process for resolution is clear and has been agreed upon by all parties should a Deadlock ever arise.