In the recent decision of Semantic Software Asia Pacific [2021] NSWSC 785, the Supreme Court of New South Wales considered an application made by ASIC to freeze the assets of a particular company. The decision highlights the Court’s power to make immediate orders about the operation of companies.
ASIC put evidence before the Court showing the company had significant debts and minimal funds.
The company’s sole source of money was that it attracted shareholders by offering price guarantees to incoming shareholders – incoming shareholders would have their shares repurchased if they did not reach a specific price. Noting the company’s parlous financial position, it did not have the cash to make good on the buyback guarantees if they were called upon.
The company owned a patent portfolio and software, whose value not be realised without listing on the US stock market or being bought by a US entity.
Noting this, and despite the company’s existing assets being minimal, the Court agreed with ASIC and considered immediate freezing orders were needed to avoid the company’s assets being further eroded. The Court took this approach even though making the orders would prevent the company from conducting further fundraising activities, severing its source of funds and rendering it insolvent.
The company’s conduct in fundraising without disclosing (i) its inadequate assets to fund guarantees or (ii) the need for a US buyer to realise its assets were false and misleading. The Court was not persuaded that it should restrain itself from making a freezing order when that would allow the company to continue to mislead, even if the outcome of that misleading conduct was the only source of income for the company.
The freezing orders ASIC was after, were granted.
This is a sobering lesson on the importance of solvency when operating a company and the power of the Courts to intervene in a company’s affairs.
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
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The High Court has heard the application for special leave to appeal the decision of HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296. In a win for policyholders, the High Court has refused insurers’ application for special leave to appeal. In effect this means that the Court of Appeal’s decision, that the exclusion clauses in business interruption insurance policies do not apply to business interruption caused by COVID-19, remains undisturbed.
The appellant submitted to the Court that special leave ought to be granted to appeal the Court of Appeal’s decision on the basis that insurers did not know that the Quarantine Act had been repealed and replaced in 2016 by the Biosecurity Act, and that “subsequent amendments” of the Quarantine Act ought to be interpreted as including the repeal and replacement of the Act. Insurers submitted that, although the Biosecurity Act introduced a new regulatory framework, the purpose and nature of the mechanisms of the legislations are not dissimilar. They made the submission that the authorities do not support a strict dichotomy between amendment, and repeal and replacement.
The High Court challenged these submissions on the basis that the Biosecurity Act was not merely an amendment of the Quarantine Act, but that it substituted a different regime entirely. Reference was made to the second reading speech of the Biosecurity Act, in which it was described as a “new regulatory framework”. It was also considered that the insurance policies are annual, and so the intention that the exclusion clause is to be enforced throughout the life of the policy cannot be taken as being so broad that it would include any new legislative regime introduced in time.
The High Court’s judgment on the matter appears severe, with the application for special leave being dismissed after a single sentence pronounced by Keane J, being:
“The decision of the Court of Appeal of the Supreme Court of New South Wales is not attended by sufficient doubt to warrant the grant of special leave to appeal.”
The effect of the High Court’s decision is that the Court of Appeal’s decision to disallow insurers to rely upon the erroneous reference to the Quarantine Act in business interruption exclusion clauses with respect to claims made in relation to business losses suffered as a result of the COVID-19 pandemic stands, and any such policies should be subject to strenuous review and consideration as to whether they respond.
Although this decision is good news for policyholders, there is still a second test case ongoing which was commenced by insurers to determine the meaning of certain policy wordings relating to the pandemic and business interruption. This case was commenced in the Federal Court of Australia in February 2021 and is expected to be heard in August 2021, with any appeal to be dealt with in November 2021.
If you hold an insurance policy which may respond to losses suffered as a result of the COVID-19 pandemic, or your claim with respect to COVID-19 business interruption has been denied, please contact Chamberlains and talk to one of our insurance law experts today.
In a recent article [The Abolition of the Peak Indebtedness Rule in Preference Claims] we discussed the case of Badenoch Integrated Logging Pty Ltd v Bryant, in the matter of Gunns Limited (in liq) (receivers and managers appointed) [2021] FCAFC 64 (First Badenoch Decision) which effectively abolished the “peak indebtedness rule” in unfair preference claims.
Under section 588FA(3) of the Corporations Act 2001 (the Act), where preference payments are claimed against a creditor that had a running account with a company, all debits and creditors between the debtor company and creditor are required to be taken into account; only the net amount at the conclusion of the running account could be claimed as a preference.
A long line of previous cases applied the peak indebtedness rule. That rule allowed a liquidator to choose the date on which the debt owing to the creditor was at its peak as the start of the running account, thereby maximising the amount of the preference claim.
In the First Badenoch Decision, the Full Court of the Federal Court effectively abolished that peak indebtedness rule. However, the Court did not say when the running account should start for the purposing of calculating the preference .
The parties in the case sought the Court’s clarification on this point. The liquidator’s position was that the running account started on 26 March 2012 (being the start of the relation-back period), while Badenoch said it started on 30 March 2012 (being the date of the company’s insolvency).
The Court refused to decide the question on the basis that in either case there would not be a preference. This is because the closing balance at the end of the continuing business relationship was greater than balance on 26 March 2012 and 30 March 2012. In either case, there would not be a preference.
The Court then somewhat unhelpfully hinted, without deciding, that the start of the running account be before the relation-back period and in fact when the creditor first supplied the company:
20 On the facts found by the primary judge, the relevant continuing business relationship (evidenced by the keeping of running account) commenced in fact long before 26 March 2012 and long before the date of Gunns’ insolvency. Neither party has addressed the Court on the consequence that should follow if the commencement date of the continuing business relationship were to be fixed as at the date of the commencement of the running account in fact, the date of commencement of the six month statutory period, or any other date.
…
22 It may be also observed that if the continuing business relationship commenced at the beginning of the running account (some years prior to 2012), questions may arise as to whether Badenoch “received” anything in relation to an unsecured debt at all. Expressed another way, if the single transaction is that evidenced by the whole of the running account, Badenoch appears to have supplied more than it has received, such that there could be no unfair preference. Whether that is the intended operation of the Act is a question that may be deferred to a case where the outcome depends upon it.
If the law is that the start of the running account is when a creditor first supplied a company, there could never be a preference in a running account case. This is because the starting balance of the account will always be nil, and the closing balance will always either be nil or an amount owing to the creditor. In either case, the creditor will not have received a positive net amount.
As it stands, the Federal Court has unfortunately created significant uncertainty for liquidators and creditors. However, we expect that a decision clarifying the law in this area will make its way through the courts soon.
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
Employers take note – Changes to the minimum Superannuation Guarantee Contribution effective 1 July 2021
Currently, the minimum superannuation guarantee contribution (SGC) required to be paid to all employees (and certain contractors) is 9.5% of an employee’s ordinary time earnings. However, in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth) the minimum SGC is legislated to increase by 0.5% increments each year from 2021 to 2025.
As such, on 1 July 2021, the minimum SGC will be increased to 10%.
Employers need to be aware of this change and consider the effect it will have on their employee’s remuneration agreements. Ultimately, the impact that the increase in the minimum SGC will have on an employee’s remuneration is largely dependent on the remuneration terms set out in the employee’s contract of employment.
The Remuneration Agreement
Ordinarily, there are two forms of remuneration agreements made between employers and employees. Either the employer will pay to the employee:
Can SGC increases be offset against wages?
Whether an employer is permitted to offset the cost of the SGC increase against an employee’s salary will be dependent on the terms surrounding remuneration and superannuation expressed in the employee’s employment contract. Some employment contracts will provide that the employee’s remuneration package may be adjusted so that it is commensurate with SGC increases.
However, often employment contracts are silent on this issue and simply provide that an employee’s “total remuneration package is $amount inclusive of superannuation“. In such circumstances, employers may have sufficient authority to offset the increased SGC against the employee’s base salary so that the increased SGC is absorbed within the employee’s remuneration package. Whilst doing so would have no direct financial impact on an employer, employers should consider the impact that offsetting the increases in SGC will have on employee morale.
In circumstances where a remuneration agreement provides that the SGC is separate from the salary component, employers are not authorised to reduce the employee’s salary. Any attempts by an employer to unilaterally reduce an employee’s salary would give rise to two claims:
If your business prepared for the changes?
The changes to the minimum SGC highlights for employers the importance of ensuring that employment contracts are properly drafted to anticipate changes to superannuation laws. Additionally, the changes act as a reminder for employers to regularly review their contracts of employment to ensure they comply with legislative changes.
Before taking steps to reduce an employee’s pay commensurate with the increases to the minimum SGC, employers should seek legal advice to confirm such steps are lawful and would not constitute any breaches of the employment contract or national workplace law. Contact Chamberlains Law Firm for any questions and concerns regarding Workplace Law.
In the recent case of Jane v Secatore (Liquidator), in the matter of Last Lap Pty Ltd (in liq) [2021] FCAFC 108, the Court heard an appeal of a decision that dismissed an application to discharge summonses issued concerning public examinations by the liquidator of Last Lap Pty Ltd (in liquidation) (Last Lap).
The fact of the Case
The applicant applied to the Court to discharge summonses issued to himself and various entities.
The application was on two main bases:
The Court at first instance dismissed the application on the basis that, in summary:
The Court’s Findings
The grounds of appeal by the applicant, in summary, raised three issues:
The Court rejected these grounds, in summary, on the basis that it is not the function of the Court to determine the scope of the examinable affairs; this takes place in the examinations. The liquidator only needs to show a relationship with the examinable affairs on the known facts, on which examinable affairs the examinee may be able to provide information, to enliven the power. The evidence before the Court in the liquidator’s affidavit was sufficient to warrant the summonses being issued.
Results
The applicant’s appeal failed, and he was ordered to pay the liquidator’s costs of the application.
Takeaway
The meaning of examinable affairs is very broad. The Court only needs to be satisfied that someone may be able to give such information, and it is sufficient if the known facts show a relationship between the examinable affairs and the proposed examinee or the documents sought.
Potential examinees should consider this when contemplating applying to have a summons set aside, and the risk of the costs should be kept in mind. If a potential examinee has been issued with a summons, there will be time restrictions. The examinee should contact a solicitor urgently for advice, especially if intending to make an application to have the summons set aside.
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
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Trustee discretion when paying death benefits may be beneficial where the trustee can make a decision with a fuller understanding of the circumstances of the potential beneficiaries at the death of the testator; circumstances that the testator may not have considered when implementing their estate plan.
The fiduciary nature of the trustee relationship, however, means that a trustee is held to a considerably high standard when deciding who is to receive death benefits.
The decision in Marsella v Wareham (No 2) [2019][1] and the subsequent appeal; Wareham v Marsella [2020][2], which confirmed the decision, advises a trustee, in exercising their discretion, must do so ‘in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred.’ [at paragraph 35].
The Facts
The deceased was the sole member of a self-managed superannuation fund (SMSF). She had two children from a prior relationship and a second husband whom she had been married to for some three decades.
Prior to death, the deceased was the trustee of the SMSF in her individual capacity alongside her daughter. The terms of the deceased’s Will appointed her husband as executor of the estate.
The deceased had made a binding death benefit nomination directing that upon her death, the proceeds of her SMSF were to be paid directly to her grandchildren.
This nomination was not valid as her grandchildren did not fall into a category of superannuation dependents in accordance with the Superannuation Industry (Supervision) Act 1993 (Cth)[3]. The payment of proceeds from the fund, therefore, fell to the discretion of the trustee.
The daughter of the deceased, as surviving trustee, appointed her husband as the second trustee of the fund. The trustees decided to pay the fund’s proceeds in full to the daughter of the deceased – the remaining potential beneficiaries did not receive a portion of the fund.
What is a trustee required to do in order to correctly pay death benefits from an SMSF?
The Court set aside the trustee’s decision to pay the proceeds in full to herself. They also removed her as trustee of the fund. In making their determination, the Court noted the trustee must act ‘in good faith, upon real and genuine consideration and in accordance with the purposes for which the discretion was conferred’. [at paragraph 35].
The Court held, this includes:
Obtaining specialist legal advice was found to be particularly important, as there are considerable complexities in superannuation law that do not exist in other legal and accounting spaces.
Conclusions
If you are the trustee of an SMSF and are required to exercise your discretion to determine the payment of death benefits, ensure that you obtain legal advice from a lawyer who specialises in superannuation and trust law. The advice you receive needs to be clear and transparent to ensure that you understand your obligations and fulfil your duties as trustee of an SMSF.
The Wills & Estates team at Chamberlains Law Firm can assist you with such advice.
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Cryptocurrency has seen increasingly unpredictable and strong growth since 2016, turning previously unsophisticated investors into millionaires and sometimes billionaires. Yet many inexperienced investors do not realise that the profits they have made on crypto is likely subject to capital gains tax (CGT).
CGT can usually only arise when you have both a CGT asset and a CGT event. The ATO view is that cryptocurrency is a CGT asset in Taxation Determination TD 2014/26, and there are very few assets of value that are not CGT assets. The most common CGT event is CGT event A1, which is a disposal of a CGT asset. A disposal includes any type of transfer and in the context of cryptocurrency, includes both coin-to-coin transactions and coin-to-fiat transactions. Other CGT events can arise, such as on changing tax residency or transferring the CGT asset to a trust or company.
The next step is to calculate the cost base, which is what was paid for that particular coin or token, and subtract it from the capital proceeds, what you receive from the transaction. This is often easy to identity with cryptocurrency transactions due to the nature of blockchain technology and websites like etherscan.io.
The result is your capital gain for that transaction. You can then apply any capital losses that you have carried forward from previous years or incurred in the current year.
Individuals and trusts may be eligible to reduce the remaining capital gain by 50% if they have held the asset for more than 12 months. An SMSF can reduce their can by 33 1/3% if the asset was held for more than 12 months. Companies do not get a discount; however, they have a flat tax rate of either 30% of 25% for some small businesses from 1 July 2021.
Importantly, the CGT discount is applied after considering capital losses. You can choose which gains are offset against which losses, such as capital gains that would not get the discount can be used to soak up capital losses.
Contrary to popular opinion, CGT is not a tax – the CGT rules simply deem that an amount calculated is income and subject to regular marginal tax rates. This is important for investors on low income who have significant crypto gains.
There are a number of ways to reduce your CGT. Offsetting capital gains with capital losses, obtaining the CGT discount by holding the crypto for more than 12 months and consider holding cryptocurrency in a company or discretionary trust can help to reduce your CGT cost. The 12-month rule is useful for all longer-term investors, as it gives asset holders a 50% discount on capital gains when they dispose of an asset, provided they have held the asset for at least 12 months.
Some investors will benefit from using structures for both long and short-term investing in cryptocurrency. There are particular legal issues with trusts and companies controlling wallets and a lawyer familiar with cryptocurrency issues is needed. The ATO has cryptocurrency in their sights this year, and in particular, the ATO announced a data matching program for cryptocurrency exchanges. Australian crypto exchanges will be required to provide data to the ATO to assist the ATO to identify taxpayers who may be underreporting or not reporting their cryptocurrency gains properly.
If you have concerns or questions about Cryptocurrency Law or/and Tax Planning, contact Chamberlains Law Firm today.
Chamberlains Law Firm is pleased to announce that, as of 16 June 2021, the firm is accepting cryptocurrency payments. This enables clients to pay for their legal services through the main digital currencies.
Chamberlains is a full-service law firm with niche expertise in the cryptocurrency sector, drawing on knowledge from its commercial, tax and litigation teams. The firm has been helping clients in the sector for some time but is now accepting payments in most major cryptocurrencies such as Bitcoin, Ethereum, USD Coin, Tether and Diem.
The acceptance of crypto payments comes as a response to the firm furthering its modernised approach and to meet the needs of its cryptocurrency clients in this growing sector.
Chamberlains Managing Director, Stipe Vuleta, commented on the firm’s exciting advances:
“We continue to listen to our clients’ needs and seek innovative solutions to their problems. The fact that Chamberlains is now accepting cryptocurrencies as payment for our services is another significant step in this direction. I am proud to be part of a firm which is embracing the new economy.”
Chamberlains is one of a few law firms in Australia specialising in this field with Tax Specialist and Senior Associate Harrison Dell heading the practice. It is highlighted by the various cryptocurrency specific areas in which Mr. Dell and his team advise on, which includes:
The specialised practice area, and the acceptance of crypto payments, presents Chamberlains with the opportunity to further its reach of new clients and to continue broadening its scope of expertise.
More information about Chamberlains’ Cryptocurrency services can be found here.
Prior to entering into a consumer insurance contract with an insurer, an insured has a present duty pursuant to section 21 of the Insurance Contracts Act 1984 (Cth). This provision stipulates that an insured has a duty to disclose every relevant matter that is known to the insured, or that a reasonable person in the circumstances could expect to be a relevant matter. Although this duty presently stands, changes will be made on 5 October 2021.
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has made a number of recommendations, including the abolishment of an insured’s duty to disclosure.
If a contract of general insurance is not a consumer insurance contract, an insured party will still owe a duty of disclosure. For the purposes of the new duty, it is noted that it specifically relates to consumer insurance contracts that are ‘obtained wholly or predominantly for the personal, domestic or household purposes of the insured’, unless a policy is nominated to be a consumer insurance contract.
After 5 October 2021, an insured entering into a consumer insurance contract will be obliged to ‘take reasonable care not to make a misrepresentation’. Although this duty is subjective and largely depends on the circumstances of the case on its merits, considerations may be given to the following matters in determining whether the duty has been fulfilled by an insured:
The new duty places a more stringent requirement on insurers to ensure that they are taking all steps necessary to ensure that the correct questions are being asked, and noting the consequences of failing to answer those questions. This places a higher threshold on insurance companies to ensure that all questions asked of the insured are not ambiguous or unclear.
Impact of changes
The Government has noted that the new duty is substantially less complex than the current duty in place, and will place the burden on the insurer to ask the correct questions in providing a policy of insurance to an insured as opposed to the current duty which requires an insured to assume what information may or may not be of importance to an insurer in entering into a consumer insurance contract.
These new changes, although placing a higher standard on insurers, is a great opportunity for insurers to amend their policies and ensure clarity on the issues of disclosure. This will largely ensure that the expectations of both an insured and insurer in the claim’s assessment process are clear and unambiguous.
If you have any questions or concerns please contact Chamberlains and talk to one of our insurance law experts today.
Swimming Australia is holding crisis meetings and forming an independent panel to investigate the experiences of young swimmers following reports of toxic coaching and abuse in the sport. The panel will convene to determine whether there are institutional problems within swimming in Australia. In addition, Swimming Australia’s ethics and integrity committee will be conducting their own investigation into claims.
This comes after reports of misogyny and abuse by coaches when young swimmers are told they are under-performing. Unfortunately, following the announcement more stories of verbal abuse including ‘fat-shaming’ and disproportionate punishments for athletes who have not met their coaches’ expectations have come to light.
Elite level sports come with intense pressure and as we have seen with the recent Australian Human Rights Commission’s report on Gymnastics in Australia, the power imbalance between athletes and coaches can create a toxic and abusive environment which can have lasting effects on the athletes.
We are currently working with our clients on these claims. If you would like to discuss a claim or have been a witness to these matters please contact Alison McNamara alison.mcnamara@chamberlains.com.au or Jon May jon.may@chamberlains.com.au from Chamberlains injury compensation team to see how we can help.