The New South Wales Supreme Court’s findings in D H Flinders Pty Ltd v Australian Financial Complaints Authority Limited [2020] NSWSC 1690
In a recent decision of the New South Wales Supreme Court, the Court determined that the Australian Financial Complaints Authority (AFCA) does not have jurisdiction, power or contractual authority to determine a dispute against an Australian Financial Services Licence Holder (AFSLH), where a complaint arises from the conduct of the AFSLH’s representative acting beyond its authority.
Background
The proceedings arose from complaints made against Equitable Financial Solutions Pty Ltd (in liq) (EFSOL), which was an authorised representative of DH Flinders. EFSOL had been appointed as an investment manager for the wholesale product ‘EFSOL Income Fund’.
EFSOL made several representations to the complainants regarding financial products to which DH Flinders had no connection, being the ‘EFSOL Ameen Investment Program’ (Ameen Program), which was beyond EFSOL’s scope of authority.
DH Flinders had suspended and subsequently terminated EFSOL’s representative authority as it had identified that EFSOL had conducted business in addition, and unrelated, to its limited authority and sole role to act as the investment manager of the EFSOL Income Fund. It was accepted that EFSOL did not have actual authority to offer a product beyond the EFSOL Income Fund.
The complainants lodged complaints with AFCA regarding EFSOL in respect of the Ameen Program, as EFSOL had failed to complete requests by the complainants to withdraw their investments. At this point, AFCA made suggestions to the complainants that they ‘could join DH Flinders‘ to the complaint, by reason of EFSOL being a corporate authorised representative of DH Flinders.
Questions to be determined
The first question to be determined was whether AFCA had the jurisdiction to determine a dispute against DH Flinders, where the complaints arose from the conduct of EFSOL acting without authority.
There is no dispute that an AFSLH has responsibility for the conduct of its representative whether within or outside the terms of its authority, pursuant to section 917B of the Corporations Act 2000 (Cth). The loophole lies in the drafting of the AFCA Complaint Resolution Scheme Rules (AFCA Rules), in that the AFCA Rules provide that AFCA only has jurisdiction to hear complaints against an AFSLH in respect of the conduct of a representative acting within its authority. As such, in the complainants’ circumstances, the Court found that AFCA had no jurisdiction to hear a complaint against DH Flinders as the alleged conduct of EFSOL was outside the given authority.
The second question to be determined was whether AFCA had acted in contravention of its obligations to be impartial and to provide procedural fairness in hearing and investigating complaints pursuant to the AFCA Rules. In light of the finding that AFCA did not have jurisdiction to hear the complaint, it was not ultimately necessary for the Court to determine whether AFCA had breached its obligations of impartiality and fairness. Had the Court been required to examine in this respect, the Court would likely have found that AFCA had breached its obligations of objectivity and fairness, as the conduct of AFCA in suggesting to the complainants to join DH Flinders to the complaint was ultimately acting in an advisory relationship with the complainants and was “hardly behaving in a manner procedurally fair to DH Flinders nor in a manner that was impartial”.
What does this mean for complainants?
Where a complainant is seeking to recover from an AFSLH for wrongful conduct according to section 917B of the Corporations Act, the complainant may need to litigate in the Courts as opposed to lodging a complaint through AFCA.
What does this mean for AFCA?
AFCA must ensure that it provides its services impartially and independently and that it acts independently and provides procedural fairness to all parties involved in a complaint.
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Forget being a day late and a dollar short, what happens when you are almost two decades late with filing a Statement of Affairs (Statement) in bankruptcy?
The Federal Court case of Talent v Official Receiver [2020] FCA 1294 provides hope for those who fail to file the Statement within 14 days of being notified of the bankruptcy as required by section 54 of the Bankruptcy Act 1966 (Cth) (Act). Timing is important given that once the Statement is filed, the period of bankruptcy ends three years and 1 day from the date of filing.
In this case, the Applicant was notified of their bankruptcy in May 2000 but filed the Statement in 2020. The Applicant initially attempted to file the Statement by providing it to a representative of the Australian Financial Security Authority (AFSA) in 2000 however the Statement was not accepted at this time. The Applicant refused to provide a new SOA upon AFSA’s subsequent requests due to concern that this would reset the duration of their bankruptcy and frustration that the initial SOA had not been accepted.
Over 19 years later, the Applicant made use of section 33A of the Act which states that the Court may order that a Statement is to be treated as filed prior to the actual date of filing if satisfied that the person reasonably believed that the Statement had already been filed. The Applicant sought orders for the Statement to be treated as filed two years and nine months prior to the actual date of filing in order to bring the administration of their bankrupt estate to an end.
This case tested the limits of the Court’s discretion to make an order under section 33A. Numerous factors weighed against the Applicant, including the public interest in promptly filing the Statement so that crucial information is disclosed, the overall purpose of the Act which aims to facilitate the expeditious administration of a bankrupt’s estate, the significant amount of time that passed between notification of bankruptcy and the filing of the Statement, and the Applicant’s knowledge of AFSA’s requests for the Statement to be filed after the initial attempt.
On balance, however, the Court exercised its discretion under section 33A in favour of the Applicant, noting that there was no creditor opposing the relief, no utility in continuing the bankrupt status of the Applicant and no opposition from the Official Receiver. The Court had ‘some misgivings’ but was ultimately satisfied that the requirements of section 33A were met.1
1 Talent v Official Receiver [2020] FCA 1294, 19.
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
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Broad Powers and Blurred Lines: The Court’s Power to Approve Invalidly Appointed Liquidators
Bankruptcy 101: Voidable Transactions
The Victorian Supreme Court case of In the Matter of Polat Enterprises Pty Ltd (in liq)1 demonstrates the full breadth of the Court’s powers under section 90-15 of the Insolvency Practice Schedule to re-appoint liquidators despite circumstances of invalid, and perhaps fraudulent, company resolutions to wind up and appoint liquidators.
The Facts
Although the proceedings commenced as an unfair preference claim initiated by the liquidators of Polat Enterprises Pty Ltd (Company), the case mainly focused on the validity of two company resolutions which placed the Company into liquidation and appointed the plaintiffs as liquidators.
The plaintiff challenged the company resolutions on the basis that as sole director and shareholder of the Company, she was allegedly unaware of and did not consent to her resignation from the position of director two weeks before the resolutions, the transfer of her majority shareholding or the two resolutions regarding liquidation.
The parties did not proceed to a full hearing regarding the unfair preference claim. Instead, Associate Justice Heytey approved proposed consent orders which declared the company resolutions invalid but granted leave for the plaintiffs to be re-appointed as liquidators. The plaintiff also entered a deed to pay $90,000.00 in exchange for being released from all further claims.
What does this mean for future cases?
Significantly, the case highlights the Court’s willingness to approve liquidation even if there is ‘attendant doubt’ and ‘irregularity’ regarding the company resolutions to enter liquidation and appointment of liquidators.2 Although the liquidators were appointed in questionable circumstances, the Court acknowledged that this does not necessarily mean that they acted unreasonably in their capacity as liquidators.
The case offers a potential source of protection for invalidly appointed liquidators. Section 90-15 of the Insolvency Practice Schedule grants the Court broad powers to make such orders as it thinks fit in relation to the external administration of a company. The outcome in this instance highlights the extent to which the Court may exercise its broad powers in favour of invalidly appointed liquidators. The liquidators were ultimately granted leave for re-appointment and obtained standing as creditors to seek remuneration for their unpaid fees. Whether or not this raises a conflict between their dual position as liquidators and creditors of the Company is a matter to be resolved in future cases.
1 [2020] VSC 485 (‘Polat Enterprises’).
2 Ibid.
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
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Contrary to popular belief, you do have the choice to pay more or less tax. The only catch is that you need a tax lawyer to give you that choice.
In recent years we have seen a considerable increase in Australia’s tax law complexity which can cause anyone to want to bury their head in the sand. However, tax is an essential instrument that, if understood and used strategically, can become one of the most effective ways of sustaining or even growing your business.
Whether you are fundraising, looking into venture capital, doing corporate restructures, need personal or business tax advisory, or have found yourself in a tax dispute you might need to consult with a tax lawyer that knows the ins and outs of tax law.
When should you work with a tax accountant vs a tax lawyer?
There is a difference between a tax accountant and a tax lawyer.
A tax accountant can help you with personal or business tax planning and preparation. They work to reduce your payable tax as much as possible whilst still being compliant with the ATO such as maximising your deductions. Many individuals and businesses use a tax accountant and see them at least once a year for general tax planning.
On the other hand, tax lawyers have specialised expertise in complex tax issues and often step in when you have a significant tax risk to deal with. This could be dealing with a tax risk early such as ensuring your business is set up correctly, preparing for a sale, property development, and resolving or preventing tax disputes.
Are you starting a business?
In the heady first days of driving any start-up business, things move quickly, and no-one wants to get bogged down by heavy procedures like tax planning when there are more exciting and enjoyable choices to be made.
Yet putting your taxation planning front and centre can help sustain your business now and throughout its evolution. An early consultation with a tax lawyer can help keep your tax bill low during the critical start-up phase and get massive tax savings on selling the business later.
Running a business will mean paying taxes of some kind. Exactly which taxes you pay and at what stage will largely be governed by how your business is legally structured from the start. This choice may also influence expansion and investment down the track, your intellectual property, and tax issues upon exiting the business.
Are you planning a corporate restructure?
A corporate restructure can be a valuable exercise that helps your business become more competitive, more robust in an adverse economic climate, or set you up to pursue an entirely new direction. It can also reduce your tax by allowing you to use the corporate tax rate and deal with expected capital gains.
Whatever your goal, a tax lawyer is essential to planning and executing a corporate restructure. There is a complex system of tax rollovers and exemptions to consider, which becomes more complicated when your group operates internationally.
Chamberlains’ lawyers have extensive experience planning and implementing restructures using tax rollovers, using the corporate consolidation rules and solving international tax issues.
Have you found yourself in a tax dispute?
There is no need to go it alone when confronted with what may initially seem like a daunting tax dispute.
In most cases, you will need a tax lawyer with in-depth procedural knowledge of the tax system. Chamberlains specialist lawyers are positioned to give realistic advice on disputes with the Australian Taxation Office relating to income tax, corporate tax, capital gains tax, GST and state taxes.
We can also assist with all types of private ruling applications, commercial deals, and other ATO engagements to get certainty.
We always work to negotiate and resolve your tax disputes quickly, efficiently, and cost-effectively. This is not always possible, and we can expertly represent you in tax-related litigation that brings the matter to a fast and positive conclusion.
What tax implications do you need to consider when raising capital or entering into venture capital?
Businesses looking for outside money to grow their operations often turn to fundraising or venture capital for viable financial backing.
Such transactions have unique due diligence considerations. Chamberlains’ tax lawyers focus on successfully negotiating barriers and allowing you to obtain financing deals that meet your business objectives in a timely manner.
Whether it is advising on the final corporate structures, developing offer documents and prospectuses or obtaining concessional tax treatment, our sophisticated understanding of capital raising issues coupled with our sensitivity to strategic business matters can give you the foundation to go further and faster.
How can Chamberlains help you?
At Chamberlains, we are specialised and experienced in translating technical matters and providing practical advice to help you overcome tax hurdles and add considerable value to whatever kind of transaction you may be planning. Contact our tax planning lawyers today!
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When a bankruptcy trustee investigates transactions made prior to bankruptcy and identifies that assets have been improperly transferred, these assets may be recoverable under the Bankruptcy Act 1966 (Cth) (Act). Voidable transactions were introduced to the Act to create a more equitable distribution of rights between debtors and creditors.1 Voiding these transactions enables trustees to recover assets that would otherwise have been available to creditors, and to ensure that these assets are equitably distributed for the benefit of all creditors.
When Will Transactions Be Void?
There are 4 main circumstances in which transactions may be void, all of which involve the transfer of property from a person who later becomes bankrupt (Transferor) to another person (Transferee).
1. Section 120: Is the Transaction Undervalued?
The two key factors here are timing and consideration. The transfer must have occurred 5 years before the period of bankruptcy. Section 120(1) of the Act also identifies that a transaction is undervalued if the person who buys the property did not give any consideration or if the consideration was less than market value. Consideration may come in various forms but typically involves the payment of money.
Potential Defences
Section 120(2) highlights circumstances where undervalued transactions may not be voidable such as if the transfer occurred under certain types of agreements. It is also important to look at the transferee’s solvency at the time of the transfer and whether the transfer was to a related entity as this could affect which time limits apply under section 120(3).
2. Section 121: Did the Transferor Intend to Defeat Creditors?
Under section 121 of the Act, a transfer of property is void if the transferor’s main purpose was to prevent, hinder or delay property being available to creditors. The trustee must also demonstrate that if the transfer had not occurred, the property would probably have become part of the transferor’s estate or have been available to creditors. The easiest way to demonstrate this intention to defeat creditors is to prove that the transferor was, or was about to become, insolvent at the time of transfer.2
Potential Defences
Section 121(4) provides protection for innocent parties who receive the property. For example, a transfer of property is not void if the consideration given was at market value of the property, the transferee didn’t know and couldn’t have inferred the transferor’s main purpose, or that they were about to become insolvent.
3. Section 121A: Has Consideration Been Transferred to a Third Party?
Section 121A enables a trustee to recover property from third parties where consideration should have been paid to the bankrupt. The section applies if the transferee gives some or all of the consideration for a transfer to a third party other than the transferor.
4. Section 122: Has the Debtor Transferred Property in Preference Over Other Creditors?
Section 122(1) arises in situations where the bankrupt transfers property to a creditor with the effect of giving the creditor priority, preference or an advantage over other creditors. Once again, timing is crucial. To be voidable, the transaction must have occurred in a specific time period depending on when the petition leading to bankruptcy was presented.
Potential Defences
Similar to previous provisions, section 122(2) of the Act protects the rights of purchasers that acted in good faith and gave consideration that was at least equal to the market value of the property.
Pros and Cons of Voidable Transactions
Although voidable transactions provide an important mechanism for trustees to recover assets for the benefit of creditors, the advantages of voidable transactions claims in bankruptcy must be balanced against the costs of these actions. For example, the trustee must factor in that if consideration was paid for undervalued transactions or transfers to defeat creditors, then the trustee must pay the transferee an amount equal to this consideration, which may reduce the overall recovery.
1 Explanatory Memorandum, Bankruptcy Amendment Bill 1979, cl 6.
2 Bankruptcy Act 1966 (Cth), s 121(2).
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
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The decision in Cooper v The Owners – Strata Plan No 58058 [2020] NSWCA 250
In the latest decision in a long line of cases, the NSW Court of Appeal has determined that no strata scheme in New South Wales will be allowed to have By-Laws imposing a ‘blanket ban’ on keeping an animal on any lot or the common property. The decision is an important development which creates some clarification of the rights of lot owners in relation to the keeping of pets in strata schemes.
In a fight to challenge the validity of a ‘blanket ban’ By-Law, which restricted Jo Cooper from having Angus (her 14 year old miniature schnauzer) reside in her home in the Horizon Apartment Complex in Darlinghurst, the Court determined that the ‘blanket ban’ By-Law extends so far as to prevent lot owners from using their lots in a lawful way which could not, an any rational view, have an adverse effect on other lot owners’ enjoyment of their lots or the common property.
The breadth of the ‘blanket ban’ restriction was such that it is oppressive, in contravention of section 139(1) of the Strata Schemes Management Act 2015 (NSW), as it;
“prohibits the keeping of animals across the board, without qualification or exception for animals that would create no hazard, nuisance, or material annoyance to others. By-law 14.1 thus interferes with lot holders’ use of their real property in a respect and to an extent that is unjustified by any legitimate concern of others in the building”.
By reason of its oppressive nature, the Court determined that the ‘blanket ban’ By-Law is subject to invalidation.
The decision is an important development which creates some clarification of the rights of lot owners in relation to the keeping of pets in strata schemes. It is essential to note that the Court’s decision does not impact on the right of the lot owner to refuse pets during a tenancy, regardless of the strata scheme’s By-Laws. In other words, a landlord still has the right to approve or refuse a tenant’s pet during a tenancy.
The history of the Coopers’ fight has not been uncontentious and there is every chance that the matter will be appealed to the High Court. For now, the decision is a binding precedent in New South Wales that a ‘blanket ban’ By-Law will be invalid due to its oppressive nature.
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‘Limited Waiver’ – In the matter of Northern Energy Corporation Limited [2020] NSWSC 1073.
A question often arises in proceedings when documents are produced as to what constitutes Legal Privilege.
Legal privilege is the privilege attached to communications made for the dominant purpose of providing legal advice and/or for the purpose of legal proceedings (or anticipated litigation). The privilege is for the benefit of the person receiving that advice, as it promotes the candid disclosure of information.
Where privileged documents are treated inconsistently (that is, the documents are disclosed and/or published), the privilege over those documents may be waived.
In the matter of Northern Energy Corporation Limited [2020] NSWSC 1073. Rees J, discussed what constitutes a ‘limited waiver’ of documents. The decision involved assessing whether the documents produced by the auditor of a group of companies owned by New Hope Corporation Limited (New Hope) were subject to client legal privilege and whether access to those documents was to be restricted accordingly.
In summary, New Hope’s group auditor (Deloitte Touche Tohmatsu) produced a number of documents pursuant to an order for production by the liquidators of Northern Energy Corporation Limited (in liquidation) and Colton Coal Pty Limited (in liquidation), both of which were wholly owned subsidiaries (among others) of New Hope. New Hope sought to restrict the liquidators’ access to the produced documents on the basis that the documents produced contained legal advice obtained by New Hope from Baker & McKenzie.
The liquidators’ position was that the documents had been produced to New Hope’s group auditor and that privilege over these documents had been waived.
In order to make a determination as to whether access ought be granted to the communications, it was necessary for Rees J to determine two issuesr:
In respect of (1), Rees J assessed each of the subject documents and came to the view that the communications attracted client legal privilege, as the dominant purpose of communications was for New Hope to obtain legal advice from Baker & McKenzie.
In respect of (2), Rees J assessed whether each of the disclosures made by New Hope to the group auditor enclosing or referring to the communications was consistent to maintain the privilege. It was held that, New Hope had waived the privilege of the communications in a limited way, being waiver to the group auditor and solely for the purpose of conducting the group audit. Rees J noted that the communications were provided only in so far as New Hope was required to do so to satisfy its statutory obligations (as a publicly listed company New Hope was required to have its accounts audited according to Division 3, Part 2M of the Corporations Act 2001 (Cth)) and under the express note that the communications were strictly confidential.
By reason of these matters, Rees J held that the waiver of privilege in this instance was provided only to the group auditor, and that it did not extend to the either of the subsidiary companies and/or the world at large.
As a result, the Court restricted access to the subject documents.
While each case is ultimately to be determined on its facts, Rees J made a number of interesting findings that are worth keeping in mind when providing privileged communications for a limited purpose (in the context of group audits):
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As we look back upon the past year, which has been quite memorable to say the least, we want to acknowledge our clients and friends who have helped to shape our organisation in 2020.
The Chamberlains Law Firm team wishes you nothing but peace, joy, and prosperity throughout the upcoming year. Thank you for your continued support and partnership, we look forward to working with you in the years to come.
Merry Christmas and have a happy new year!
(Here are some pictures from our recent Christmas party)
The sometimes complex area of corporate oppression is easily misunderstood. Occasionally a shareholder will be disappointed with the way a company is being run, or feel “shut out”, but that is not always enough to move the Court to make orders pursuant to s233 of the Corporations Act 2001 (Cth).
The recent decision In the matter of Candy-Vend Pty Ltd [2020] NSWSC 1735 is an example of the problem apparently “shut out” shareholders can face.
___
A company had five shareholders, each of whom were brothers. The company, which had previously been operated by the shareholders’ father, owned 40% of some real property and did little else.
Two brothers, the plaintiffs in the proceedings, said the conduct of the company was oppressive, and that they should have some relief (either their shares in the company should be bought, or they should become owners of a portion of the property). Alternatively, they said the company should be wound up.
The plaintiffs made several allegations in support of their claim.
They said the company was a “quasi-partnership” and they had been excluded. However, the Court found this was not shown by the evidence.
The plaintiffs then said they were oppressed because the company had not paid dividends (when in fact it had – by way of reducing loans owed by the plaintiffs to the company). The Court went on to find that even if dividends had not been paid, then the plaintiffs were not oppressed because all shareholders would have had to deal with an absence of dividends, not just the plaintiffs.
The plaintiffs complained about payments made by their father in the past. The Court found that payments made years ago did not found their oppression claim and – in any case – the plaintiffs acquiesced to those payments being made at the time.
In seeking a share sale, the plaintiffs valued the assets of the company as including all loans owed by shareholders to the company, including loans owed by the plaintiffs (which increased the company’s value). During the proceedings, the company cross-claimed seeking repayment of those loans, and the plaintiffs said that cross-claim was oppressive.
The Court held that the plaintiffs could not use the loans to increase the value of the company on the one hand, and then say it was oppressive of the company seek payment on the other hand.
Not all the shareholders were joined to the proceedings. The Court considered the implications of this in relation to a potential order to wind up the company.
The Court held that while it may have the power to make a wind-up order in the absence of all shareholders, the Court should not as a matter of procedural fairness.
The plaintiffs’ oppression claim failed.
___
To avoid finding yourself “shut out” of a company you own shares in and without a remedy, it is always wise to enter into a shareholders agreement as soon as possible.
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Attorney-General Christian Porter today announced that Australia’s personal bankruptcy threshold will be set at $10,000.
The threshold was temporarily lifted from $5,000 to $20,000 on March 24 of this year in response to the COVID-19 pandemic. The new threshold of $10,000 will be permanent, and comes into effect on January 1, 2021, when the temporary threshold expires.
“The new permanent $10,000 threshold will ensure that Australians in financial difficulty are not made bankrupt over relatively small amounts of debt,” Attorney-General Christian Porter said.
“This also accounts for the changing value of money since the $5000 threshold was last increased in 2010, as well as changes to debt levels since that time.”
The change to the bankruptcy threshold has been informed by consultation with stakeholders, including insolvency practitioner industry and member associations and consumer advocates.
The temporary bankruptcy measures that commenced on 24 March 2020 also increased:
These temporary 6 month periods are also scheduled to cease on 31 December 2020 and will revert back to 21 days from 1 January 2021.
Authorised by Christian Porter, Liberal Party of Australia, Parliament House, Canberra.
Link to the media release can be found here.
If you have any questions or concerns please contact Chamberlains and talk to one of our insolvency lawyers today.
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