How do you prove insolvency without a presumption of insolvency arising out of an expired statutory demand? The recent decision of Queensland Phosphate Pty Ltd v Korda [No 2] [2019] VSCA 215 provides some useful guidance

This case involved an appeal of a decision of the Victorian Supreme Court and centers around whether an asset is readily saleable or realisable in the context of determining the solvency (or insolvency) of a company. It provides useful guidance for practitioners, lawyers and the Court when assessing whether a company is solvent in the context of the saleability or realisability of its assets:

• By focusing one’s attention to whether an asset is necessary for the continuation of a business or whether it can be sold in excess;
• Whether an asset can be sold at all or otherwise realised without harm to the rest of the business;
• Whether steps can and were taken to realise the asset; and
• What the time frame for realisation in fact is.

The Facts

Legend was a mining company which transferred its mining tenements to a subsidiary, Paradise, at a time when they had a book value of $2.7 million. Queensland Phosphate entered into transactions for a loan (of $400,000 by way of convertible note) to Legend and Paradise and in turn took security. Eventually, Queensland Phosphate appointed receivers and managers to Paradise (including appointing a receiver over Legend’s shares in Paradise) and sold the shares for $1, effectively giving control over $2.7 million in tenements (per book value) for much less than commercial value.

The Court Process

At first instance, the Court attended to an analysis of solvency of the relevant entities and found that the transaction was a voidable transaction and that Paradise was insolvent. On appeal, despite valiant opposition, the Court, following dispute by Paradise and Queensland Phosphates, found again that Legend was insolvent and the transaction was voidable.

Relevance Today

As we are seeing both supply- and demand-side factors plummet in Australia due to COVID-19, we are seeing the relevance of whether an asset is realisable becoming more and more relevant to restructuring activities and the insolvency industry.

This case is a great read for liquidators, voluntary administrators, accountants, lawyers and anyone in particular, who want to find out more about what makes an asset realisable and how that effects insolvency.

 

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If your company owes the ATO a debt, a Director’s Penalty Notice (DPN) may be issued.

First: What is the debt?

Is the ATO debt a GWL Debt?  A GWL debt incorporate the following, a goods and services tax, wine equalisation tax or luxury car tax.

If it is a GWL debt and the debt has been incurred on or after April 1 2020?

If No: Then it is likely there is no risk of a PDN being incurred. Is the ATO debt superannuation or PAYG? If this isn’t, then it is also likely not a risk that DPN is issued.

However; If the GWL debt was incurred prior to 1 April 2020 or the debt was an ATO debt of superannuation/PAYG, then the following may be considered. Have there been any Business Activity Statements or tax return lodged for a period over 3 months from when they were due?

If: These statements were not lodged for a period greater than a 3 month period, there is a likely chance that the director will be liable for a ‘Lockdown DPN’ from the ATO.

Lockdown DPN: Notification that a director is completely liable for the Company’s ATO debt. With the resolution options being only to pay the debt, discuss resolution methods with the ATO or declare a form of personal bankruptcy.

If: The Statements were lodged for a period of 3 months or more, than they may still be likely for DPN but a non-lockdown DPN.

Non-Lockdown DPN: Means prior to the ATO issuing a written DPN. Options for this include: paying the debt or arranging for an external administrator. This can include a Liquidator or Voluntary administrator. This is required to be done within a period of 21 days from the issuing of the notice, note this is not the date the notice was received.

Claiming tax deductions is being simplified and more accessible for people working from home.

The Australian Taxation Office (ATO) has devised a new method for work-related tax deductions in light of more people working from home due to COVID-19 (coronavirus). This will allow people to claim 80 cents per hour for all running expenses instead of needing to calculate costs for specific running expenses.

Assistant Commissioner Karen Foat explains in ATO’s statement, “If you choose to use this shortcut method, all you need to do is keep a record of the hours you worked from home as evidence of your claim”. (https://www.ato.gov.au/Media-centre/Media-releases/New-working-from-home-shortcut/)

Other factors include:

• Multiple people living in the same house will also be able to individually claim the new rate.
• The new method is optional and taxpayers opting to use the original claiming method will be required to correctly apportion their expenses between private and business use.
• The requirement to have a dedicated work-from-home area has also been removed.
• “Claims for working-from-home expenses prior to March 1, 2020 cannot be calculated using the shortcut method and must use the pre-existing working from home approach and requirements,” – Assistant Commissioner Karen Foat

The simplified process can assist people through this difficult time to make it easier to figure out how much can be claimed.

This change will be actioned from March 1 to June 30, which will then follow the ATO’s analysis of the arrangement for the next financial year. However, if shutdowns persist into the next financial year, this arrangement is likely to be extended.

Karen Foat confirms, “We can’t predict the future … but if people are still being encouraged to work at home by the Government then we would extend it into the new financial year.”

 

The Prime Minister announced yesterday that the states and territories have agreed to implement a mandatory Code of Conduct that deals with commercial leasing. It would be legislated in the ACT by the use of the mechanism stated in our previous article (https://chamberlains.com.au/covid-19-act-commercial-and-retail-leasing-update/).

The purpose of the code is to impose good faith principles for landlords and tenants to come together and negotiate an agreement. It applies to tenants who are a small-medium sized business with annual turnover of up to $50 million, and they must be eligible for the Federal Government’s JobKeeper program.

What are the leasing principles of the code?

In negotiating temporary arrangements under the code, the following principles should be applied on a case-by-case basis:

• Landlords must not terminate leases due to non-payment of rent
• Tenants must remain committed to the terms of their lease, subject to any temporary agreements reached under the code. Material failure to abide by the substantive terms of the lease will forfeit any protections granted to the tenant under the code
• Landlords must offer tenants proportionate reductions in rent payable in the  form of waivers and deferrals, based on a reduction of the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period. In other words, a 40% reduction in revenue would allow for a 40% reduction in rent. No fees, charges or punitive interest may be charged by the landlord on deferrals.
• Rental waivers must constitute no less than 50% of the total reduction in rent payable for the above point. Tenants can waive this requirement by agreement in writing. The landlord’s financial ability to provide such additional waivers must also be taken into account. No fees, charges or punitive interest may be charged by the landlord on deferrals.
• Payment of rental deferrals by the tenant must be amortised over the balance of the lease term and for a period of no less than 24 months, whichever is the greater, unless otherwise agreed by the parties. No fees, charges or punitive interest may be charged by the landlord on deferrals.
• Any reductions in statutory outgoings or insurance to the landlord must be passed to the tenant in the appropriate proportion under the terms of the lease
• A landlord should seek to share any benefit it receives due to a deferral of loan payments with the tenant in a proportionate manner
• Landlords should where appropriate seek to waive recovery of any other expense (or outgoing payable) by a tenant, under lease terms, during the period the tenant is not able to trade. Landlords reserve the right to reduce services as required in such circumstances
• If a negotiated agreement provides for the tenant to make a repayment, this should occur over an extended period and no repayment should commence until the ending of the COVID-19 pandemic or existing lease expiring
• Landlords must not draw on the tenant’s security for non-payment of rent during the COVID-19 pandemic period, or subsequent recovery period
• Landlords agree to freeze rent increases (except for retail leases based on turnover rent) for the duration of the COVID-19 pandemic and a reasonable subsequent recovery period, unless otherwise agreed in writing between the parties
• Landlords may not apply any prohibition or levy any penalties if tenants reduce opening hours or cease to trade due to the COVID-19 pandemic

What exactly are the overarching principles of the code?

The following overarching principles (as quoted from the code) apply in guiding the negotiations:

• Landlords and tenants share a common interest in working together, to ensure business continuity, and to facilitate the resumption of normal trading activities at the end of the COVID-19 pandemic during a reasonable recovery period.
• Landlords and tenants will be required to discuss relevant issues, to negotiate appropriate temporary leasing arrangements, and to work towards achieving mutually satisfactory outcomes.
• Landlords and tenants will negotiate in good faith.
• Landlords and tenants will act in an open, honest and transparent manner, and will each provide sufficient and accurate information within the context of negotiations to achieve outcomes consistent with this Code.
• Any agreed arrangements will take into account the impact of the COVID-19 pandemic on the tenant, with specific regard to its revenue, expenses, and profitability. Such arrangements will be proportionate and appropriate based on the impact of the COVID-19 pandemic plus a reasonable recovery period.
• The Parties will assist each other in their respective dealings with other stakeholders including governments, utility companies, and banks/other financial institutions in order to achieve outcomes consistent with the objectives of this Code.
• All premises are different, as are their commercial arrangements; it is therefore not possible to form a collective industry position. All parties recognise the intended application, legal constraints and spirit of the Competition and Consumer Act 2010.
• The Parties will take into account the fact that the risk of default on commercial leases is ultimately (and already) borne by the landlord. The landlord must not seek to permanently mitigate this risk in negotiating temporary arrangements envisaged under this Code.
• All leases must be dealt with on a case-by-case basis, considering factors such as whether the SME tenant has suffered financial hardship due to the COVID-19 pandemic; whether the tenant’s lease has expired or is soon to expire; and whether the tenant is in administration or receivership.
• Leases have different structures, different periods of tenure, and different mechanisms for determining rent. Leases may already be in arrears. Leases may already have expired and be in “hold-over.” These factors should also be taken into account in formulating any temporary arrangements in line with this Code.
• As the objective of this Code is to mitigate the impact of the COVID-19 pandemic on the tenant, due regard should be given to whether the tenant is in administration or receivership, and the application of the Code modified accordingly.

What about landlords?

The code does not deal with landlords and the Prime Minister has called on banks to provide support.

What can Chamberlains do?

Our experienced Property Team can help landlords and tenants in understanding both their obligations and options under the new mandatory Code of Conduct.

The medical industry is one of the largest markets of our time, and is arguably one of the most beneficial to our society. The global healthcare market is expected to reach just shy of a $12 trillion by 2022. Intellectual Property (IP) law plays an essential role in protecting and encouraging medical devices and pharmaceuticals in the healthcare market. The global vaccine industry alone is expected to produce almost $60 billion in revenue, and these predictions were before the outbreak of the Novel Coronavirus (COVID-19).

What Are Patents?

One of the most common IP tools used to protect an invention is a patent.  A patent is a legally enforceable right for a substance, device, and method or process of manufacturing. The main criteria for a patent is that the invention must be new, useful, and inventive or innovative. There are two types of patent in Australia:

1.     Standard patents which require an inventive step and typically last up to 20 years; and

2.    Innovation patents which require an innovative step and last up to 8 years.

Having a patent gives the owner exclusive rights to commercialise their invention, effectively granting them a monopoly. For businesses whose competitive advantage rests on having unique products and services, having these patents will ensure competitors can’t copy these processes without their permission.

Will There Be a Patent for the COVID-19 Vaccine?

Given our current situation, if a pharmaceutical company were to develop a cure or vaccine to COVID-19 in the coming months, having a patent over that substance would be a great commercial boon to that company. But would the company patent the coronavirus vaccine at this time of crisis?

History has shown that at times of crisis inventors have forgone their rights to a patent. A relevant example of this is the creator of the polio vaccine, Jonas Salk. Polio was one of the most feared diseases of the 20th century, paralysing or killing thousands of children each year. Shortly after the vaccine was declared safe and effective, Salk decided not to patent the vaccine and allow everyone to freely access the formula. It is estimated that if he patented the vaccine, he would have profited by approximately $7 billion.

However, there is a strong argument to suggest that a patent for the COVID-19 vaccine will be filed, but that it may still be provided to all. For example, Elon Musk, industrial engineer and philanthropist announced that Tesla’s patents would become ‘open-source’ and available for anyone to use in good faith. Musk cited his desire to promote the development and creation of electric cars to help address the carbon crisis as the reason for the move. While Tesla still continue to patent their inventions to protect their IP rights and promote innovation, they have irrevocably pledged not to initiate lawsuits against anyone using their patents in relation to electric vehicles as long as they are acting in good faith.

In light of such a pandemic the likes of which many of us have not experienced in our lifetimes, it wouldn’t come as a shock if the inventor of a COVID-19 vaccine filed for patent protection, but essentially granted a free license to the world for their formula.

Chamberlains Law Firm announces the opening of a new Perth office, adding to the current locations in Canberra, Sydney and Newcastle. Newly hired Tihana Nevjestic will head the Perth division situated in AMP Tower. The opening marks one of many expansions by Chamberlains in the last year including multiple acquisitions, new locations and additional practice areas.

The new Perth office is headed by Tihana Nevjestic, an experienced lawyer with roots in Insurance Litigation, Dispute Resolution and Family Law. Tihana has nearly 10 years of experience in her field and joins Chamberlains’ team as a Senior Associate focusing on Insurance Litigation and Dispute Resolution.

Stipe Vuleta, Managing Director comments “We are very excited to welcome Tihana to the team. We have had the benefit of working together in the past and this move represents the beginning of a new journey in Perth which we are excited to support her lead on”.

The office opening is official as of 6 April 2020 and will see the expansion of the firm’s full-service offering in Perth. The expansion is one of many made by Chamberlains within the last year:

1. In 2019, Chamberlains had a major growth in Sydney through the acquisition of Shaw McDonald Lawyers;
2. followed by the incorporation of Yeend & Associates in January 2020 which included the opening of a Newcastle office and a Family Law Practice; and
3. most recently, the launch of an Intellectual Property practice, official as of 24 March 2020.

“Our expansion to Perth represents an exciting and important step for Chamberlains in continuing to service our extremely important institutional clients in the insurance and recoveries space” Stipe continues.

Tihana Nevjestic also expresses her excitement about heading the new Perth office and adds: “The new division allows us to provide our existing clients with a complete suite of legal services in Western Australia with the expertise and know-how that Chamberlains’ clients have become accustomed to. It also allows Chamberlains to step into the unique WA market and provide well-tailored solutions to the demand for legal representation.”

The new office address is: Level 28, AMP Tower, 140 St Georges Terrace. Chamberlains will now offer their full-range, specialist advice to private client, business, and government clients in Western Australia.

Business Crisis Management Packages in light of COVID-19

COVID-19 is having an unprecedented impact on all businesses. Businesses must be pro-active in their response to this crisis, with a view to both short- and long-term implications.

In light of the current circumstances, Quinn M&A together with Chamberlains Law Firm are working together to ensure our clients are supported throughout these challenging times. Our joint approach will assist clients with:

• Preparing a suitable crisis management response plan;
• Executing that plan;
• Ensuring business continuity and survival, and;
• Planning for business operations post-crisis.

In light of the cashflow constraints impacting on most businesses in these times and given our view of the necessity of these services to support businesses we are offering our services to clients at reduced fixed fee rates, with fee financing options available.

Our crisis management advice involves the following steps:

1. Business evaluation and formation of business plan

Our business evaluation process will assess:

• What risks does the crisis pose to the operation of your business?
• What risks are posed to your employees and customer base during this crisis?
• Defining the essential aspects of your business, including which staff are essential to maintaining effective operation.
• How will revenue streams be affected? It is important to consider early how your business cashflow is affected by the crisis. This consideration will help you to assess what components of your business may/will have to be altered to adapt to the new situation.
• What obligations does the business have? These include those to financial institutions such as Banks, and statutory obligations such as Federal Taxes.

Upon conclusion of our business evaluation we will provide an easy to understand report to our clients outlining what they need to know about their current circumstances and our advice on how they should plan for the crisis and beyond

2. Initiate and deploy strategies

We will work with clients to implement strategies recommended by our business evaluation. Our implementation guidance will assist clients with:

• Implementing and promoting new sales initiatives to promote new business strategies and to take on new business where possible.
• Adapting to new working strategies, including ensuring staff safety, managing productivity and efficiency challenges and business continuity issues.

• Cutting costs and managing cashflow, including guidance on employment issues, lease negotiations and revenue security.
• Managing insolvency risks.
• Scaling up post-crisis in order to resume business as usual.

Find Out More

For more information, book a no-cost confidential consultation with Stipe Vuleta, Managing Director at Chamberlains Law Firm and Stephen Groves, Director at Quinn M&A.

 

Yesterday, the NSW Planning and Public Spaces Minister, Rob Stokes, announced new rules to support the construction industry during the COVID-19 pandemic:

• The Environmental Planning and Assessment (COVID-19 Development – Construction Work Days) Order 2020 has been framed to allow more construction industry workers to abide by social distancing requirements, by permitting construction sites to operate on weekends and public holidays in the same fashion as they are allowed to operate during the regular week, in order to spread the work across more days of the week.
• The Minister’s powers to issue orders overriding normal planning regulations was increased on 24 March 2020 by way of amendments to the Environmental Planning and Assessment Act 1979 (NSW). Orders can now be issued by the Minister to ensure the health, safety and welfare of communities.
• The Minister advised the move was made pursuant to current medical advice, and would help minimise any lost productivity in the industry during the pandemic.
• However, strict community impact guidelines are required to be observed on sites operating outside the regular working week, such that work must not involve rock breaking, rock hammering, sheet piling and pile driving, and workers must take all reasonable steps to minimise noise broadly.
• The order is expected to remain in place until the pandemic is over, or until such time that NSW Health revises the current guidelines.

 

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The ACT Legislative Assembly has passed the COVID-19 Emergency Response Bill 2020, which temporarily amends the Leases (Commercial and Retail) Act 2001 (“Leases Act”).

What does this bill change?

The changes allow the Minister to make declarations that deal with the following matters during a public health emergency, caused by the COVID-19 pandemic:

• prohibiting the termination of a lease by the landlord;
• prohibiting the landlord from recovering possession in stated circumstances;
• changing any period under a lease or the Leases Act, where someone must do something;
• changing, limiting or preventing the exercise of enforcement of a landlord’s right in stated circumstances;
• exempting a landlord, or tenant, or classes of landlords or tenants, from a provision of the Leases Act, or a lease.

What we can do

At Chamberlains, our experienced Property Team can help landlords and tenants in understanding their leasing obligations both under a lease, and under changes in law.

The Covid-19 outbreak has impacted many individuals, businesses and industries internationally. The travel and tourism industry have been one of the worst affected industries due to Government imposed restrictions on travel. In this article we look at the restrictions imposed on the Caravan Industry and Caravan Parks, and what this means for you.

Latest Announcements

Scott Morrison, in his media address on Tuesday, 24 March 2020, indicated that State and Territory Governments will have final say on Caravan Parks.

As at the time of writing, the following provisions have come into effect, as noted by the Caravan Industry Association of Australia (CIAA).

NSW: Caravan parks and camping grounds are to remain closed except for permanent residents, their visitors or people who have no other place of permanent residence.

Northern Territory: Caravan Parks remain open. All campgrounds in national parks and reserves remain closed.

Queensland: Caravan Parks are to remain closed except to people who live permanently in caravan parks or are staying in caravan parks as interim abodes where their primary residence is not available. All non-commercial camping grounds are to close.

Tasmania: Caravan Parks are to remain closed except to serve residents and site tenants as well as those who either do not have a permanent place of residence. All interstate and international tourists must leave Tasmania by Sunday, 29 March 2020.

Victoria : Caravan and Camping Parks are to remain closed except for people living there permanently or if providing a home where the primary residence is not available. All non-commercial caravan parks and camping grounds in national parks and state-owned land are to close.

South Australia and Western Australia: Caravan Parks remain open.

 

Casual Occupants

Can I be refunded on my occupancy fees, reservations or bookings?

The CIAA has provided park staff cancellation flow charts based on their parks in each state. The process is very similar in relation to all states. With reference specifically to NSW and ACT, the following processes are in place for when a reservation and accommodation agreement cannot be honoured:

New South Wales – https://www.caravanindustry.com.au/wp-content/uploads/2020/03/COVID-19-flowchart-NSW.pdf:

• If the contract signed includes a term or clause that governs refunds due to Covid-19 or similar pandemics, this will be applied.
• If this clause or term isn’t included, then Park staff will consider the state of disease control measures and whether there were any cases at the park.
• Generally, if the park cannot provide accommodation then the contract is frustrated. The park is instructed by the CIAA to return customer’s deposits. However, if the park has spent the money or suffered loss from this cancellation (which is generally out of the customer’s control) they may be entitled to recover half the amount. This is calculated upon the entitlements of each party.
• Due to the calculation of losses by each party, where it is believed that the mechanisms in place by the parks are inadequate, seeking legal advice is an important avenue to help establish entitlements under the contract.

ACT – https://www.caravanindustry.com.au/wp-content/uploads/2020/03/COVID-19-flowchart-NT-Tas-ACT-WA-and-QLD.pdf

• If the contract signed includes a term or clause that governs refunds due to Covid-19 or similar pandemics, this will be applied.
• If this clause or term isn’t included, then Park staff will consider the state of disease control measures and whether there were any cases at the park.
• If the park cannot accommodate their customer, the park won’t charge. However, if a deposit is already paid it will be refunded, unless the park has already spent the deposit. If it has been spent, the park will inform the customer that the deposit has been spent as a cost resulting from the reservation.

Permanent Occupants

What refund mechanisms are available?

The CIAA and other caravan parks appear to have less material indicating their stance on reducing or altering occupation fees for permanent occupants.

The issue many of these permanent occupants will face is whether the doctrine of frustration becomes an available avenue. As noted earlier, the NSW State Government announced that as of midnight on 26 March 2020:

“Caravan parks and camping grounds in New South Wales are to remain closed except to permanent residents and their visitors and people who have no other place of permanent residence”.

Where a permanent occupant of a caravan park has another place of permanent residence, they are no longer entitled to access the caravan park. However, notwithstanding this restriction and due to the nature of permanent occupation agreements, permanent occupants may have trouble reaching a resolution as simply as casual occupants.

Depending on the nature of the permanent occupation agreement, permanent occupants may not be able to have fees suspended or refunded due to the Covid-19 outbreak. Generally, permanent occupation agreements allow the occupant to remain in the park for a specified number of days over a 12-month period.

Frustration

For an agreement to be frustrated, there must be an intervening event that is not the fault of either party which makes the agreement impossible to perform or transforms the contractual obligation into a fundamentally different obligation.

However, an agreement will not be frustrated where the fault is due to either of the parties; performance has merely become more expensive or impracticable; or the change is only temporary.

As the current state of affairs in light of Covid-19 is an unprecedented situation, there is minimal case law dealing with this situation.

Conclusion

As the situation regarding Covid-19 continues to evolve, the Federal and State Governments continue to implement additional measures to manage the spread of the virus. If any casual or permanent occupants have any queries or concerns regarding their occupation agreements with a caravan park, we encourage them to seek legal advice regarding their rights.

 

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