Section 461(1)(k) of the Corporations Act gives the Court the power to wind up a company and appoint a liquidator if the Court is of the opinion that it is just and equitable for it to do so.
The situations in which it may be “just and equitable” to wind up a company are not exhaustively listed in case law. In a recent decision from Western Australia the Court found that the failure of the purpose of a single purpose company was sufficient cause for the “just and equitable” decision to wind up the company.
Likewise, the Court deemed it “just and equitable” to wind up a company that had suffered a loss in confidence in its ability to conduct its affairs, and posed a risk to the public interest.
While both these examples are in quite different circumstances, the majority of situations where the Court finds it just and equitable to wind up a company involve an irreconcilable dispute between the people who control the company. Often, these cases involve companies that have started between people who had a good personal relationship of trust and confidence. When disputes arise that sour this relationship, there are “just and equitable” obligations comparable to those present in a partnership company relationship that become important.
In these cases, often called “quasi-partnership cases”, the parties are mostly co-directors. The close or personal relationship between the parties is likely to be fundamental to the smooth running of the company in question. Importantly, a legal partnership relationship does not have had to exist prior to the incorporation for the just and equitable obligations to be relevant.
In Nassar v Innovative Precasters Group Pty Ltd (2009) NSWSC 342, the Court found that “mutual co-operation and a level of trust” was essential for the smooth running of the company’s day to day management. In that case, the Court held that “winding up is the characteristic remedy in circumstances where a working relationship predicted on mutual co-operation, trust and confidence has broken down”.
It is important to consider section 467(4) of the Corporations Act when deciding whether or not to make an application for the winding up of a company. That section obliges the Court to determine whether the applicant seeking the winding up order is doing so reasonably and whether some other remedy is readily available.
In consideration of section 467(4), the Court in Tomanovic v Global Mortgage Equity Corporation Pty Ltd (2011) NSWSC 104, decided that a more reasonable remedy to the dispute was the compulsory acquisition of the applicant’s shares by the other shareholders or company. However, there have been occasions where this option is considered impractical, where the financial situations of co-shareholders would prevent this, and winding up is the only viable option to dissolving a deadlock (see Nassar v Innovative Precasters Group Pty Ltd).
It is important to note that there is no legal principle that prevents the winding up of a successful and profitable business if the Court deems that it is “just and equitable” to do so.
Interested in learning more about Insolvency & Reconstruction?
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Statutory Demands and Insolvency
Chamberlains’ Response to Proposed Exposure Draft of Bankruptcy Regulations 2021
A 2014 decision from the Federal Court is a timely reminder to register security interests on time. In this case, the creditor (the Applicant) advanced $250,000 to the debtor (the Respondent). A security agreement was made that resulted in the Applicant having a security interest over the Respondent’s personal property. However, due to the creditor’s late registration of the interest, their application failed and the interest remained vested in the debtor.
The time-frame under section 588FL of the Corporations Act stipulates that a security interest must be registered on the Personal Property Securities Register (PPSR) within 20 days of the charge that created the interest coming into effect.
The creditor registered the interest more than 4 months after it was created. Shortly after the registration, the debtor went into voluntary administration.
When the creditor tried to put into effect its security interest against the debtor’s property, the debtor claimed that the property interest remained vested with it under s588FL(2) of the Corporations Act.
The Rules
Section 588FL of the Corporations Act provides for the vesting of PPSA security interests if the collateral is not registered within the stipulated time frame. Generally, the security interest vests in the Company that granted it if:
This section refers to a “critical time” which is defined in subsection (7) as (in relation to a Company) the day the winding up of a company has commenced.
The creditor’s claim was that s588FL did not apply as their security interest was perfected not only by registration but also by the enforceability against third parties and attachment to the collateral.
The Decision
Justice Collier rejected the creditor’s argument that attachment and enforceability constitute “other means” of perfection but are in fact necessary requirements for perfection to occur. In summary, enforceability and attachment are required to occur first, and then the interest may be perfected by other means, (i.e. registration, possession, control, etc.). As such the Court found in favour of the debtor and the security interest remained vested in the company that granted it in the first instance.
Pozzebon (Trustee) v Australian Gaming and Entertainment Ltd, in the matter of Australian Gaming and Entertainment Ltd (in liq) [2014] FCA 1034
This case highlights the importance of registering security interests within the stipulated time frame. If you need help registering a security interest that has been granted to you or you need advice regarding a security interest that has been registered late, contact our Dispute Resolution, Insolvency & Reconstruction team on:
It is common for employment contracts to include restraint of trade clauses. These clauses typically attempt to restrain current and former employees from engaging in business which would damage the employer’s business interests. These business interests usually include confidential information, staff relationships, client connections and trade secrets.
The accepted trend of restraint of trade clauses is that they are invalid unless they can be proved to be reasonable. For a restraint of trade clause to be established as reasonable there are several factors that need to be considered.
The first is whether the restrictions are necessary to protect the employer’s legitimate business interests and the obligation to establish this rests on the employer. Restraint of trade clauses are not designed to protect employers from simple competition from past employees. This allows any expertise you have gained in the course of employment with an employer to be used in competition with that business.
Other factors that would be considered in determining a reasonable restraint of trade clause include the duration of the clause, the geographical size of the area covered, the scope of the work being restricted, etc. There are no solid rules of what is considered ‘reasonable’ in restraint of trade clauses as the types of cases that come before the Court vary considerably. The test of what is reasonable depends on the circumstances of the employment and nature of the business.
Breaching a restraint of trade clause is primarily a breach of contract. If the court finds that the clause was unreasonable it will be considered invalid and you will not be bound by the clause.
However, if the clause is deemed to have been reasonable and you are found to be in breach, there may be several possible consequences, one of which is an order to pay damages. In Ross and Anor v ICETV [2010] NSWCA 272, two Defendants were ordered to pay damages to their former employers to compensate them for the loss suffered through the Defendant’s breach of their restraint clause.
Some clauses are written in such a way that they provide multiple options for the duration, geographical area, and nature of the conduct to be restricted. These are usually referred to as cascading restraint clauses. The benefit of these for employers is that the Court may find a reasonable level of restraint within the options to enforce – as opposed to a single option clause which is subsequently found invalid and leaving the employer with no protection. The decision in OAMPS Insurance Brokers Ltd v Hanna [2010] NSWCA 781 confirms that these clauses are valid and enforceable if worded appropriately.
For more information on restraint of trade clauses and how they affect your employment contracts contact us on
P 02 6215 9100 or E chamberlains@chamberlains.com.au
Both buyers and sellers need to be aware of the pitfalls of transactions involving horses. Sayward McKeown, our equine specialist, offers these four tips to avoid disputes.
The horse needs to suit the purchaser’s needs. For buyers it is important to seek advice to make sure it is fit for your purpose instead of relying on just the advertisement from the seller. The buyer should have his or her instructor or coach assist by viewing and riding the horse, and observe the buyer riding the horse in order to determine whether the horse is appropriate. If possible a buyer should view and ride the horse on several occasions or request a trial period as the horse may not display its ‘true colours’ on the first occasion.
Sellers should ensure all riders sign an indemnity and waiver form before riding or handling horses on their property. Sellers should also be wary of selling a horse that is not appropriate for the buyer in order to avoid a dispute later about the horse – a bad sale could lead to a dispute if the buyer later wishes to return the horse, seeks to recover the purchase price back from the seller, or is later injured by the horse. A buyer may seek to claim that the horse was misrepresented by the seller. Sellers should include relevant clauses in the sale contract dealing with warranties, fitness for purpose and return of the horse.
Even if the horse appears appropriate for the rider, the buyer should have his or her veterinarian perform a pre-purchase examination before committing to the purchase. This may change the buyer’s mind about purchasing the horse, or it may allow the buyer to negotiate a better price. In addition this shows that the buyer knew about any soundness issues that are uncovered by the pre-purchase examination, which may assist the seller if a dispute develops.
Often a potential buyer will want to enter into a trial period. This means the buyer wishes to take the horse home to experience what that horse is like being handled by the buyer or other strangers in the buyer’s home environment. Whether this arrangement creates an obligation to buy may form the basis of a dispute between buyer and seller. Establishing the terms of a trial period beforehand means these expectations are addressed.
The seller should protect him or herself with an indemnity and waiver agreement in case an accident occurs during the trial period. The seller will also need contractual clauses dealing with who is responsible in the event of the horse being injured or neglected.
A written agreement ensures potentially contentious issues, such as price and payment arrangements, are clearly defined. Another reason a formal agreement should be entered into is that a horse is an asset and any transaction relating to its sale and purchase must be treated as such.
Since misunderstandings amongst parties are common with verbal agreements, it is essential that a sale agreement be drafted so that each party knows what it is agreeing to do. A written agreement also tends to cover circumstances the parties may not consider as issues when they are not yet in dispute.
If you are given an agreement to sign when selling or purchasing a horse, it is wise to have a lawyer review it to ensure it does not contain any onerous obligations and that it reflects the terms and arrangements you believe you have agreed to with the other party.
Interested in learning more about Equine Legal Services?
Click on our articles below to find out more:
Horse Industry – Waivers in NSW & ACT
Misrepresenting Horses for Sale: The Commonly Asked Questions, Part 1
Two recent decisions in the Full Court of the Federal Court have provided some clarity to the issue of price fixing between selling agents and principals who may be in competition with each other.
The two scenarios considered by the Court were:
Collaboration by these selling agents and their principals on prices or rebates was thought to be a form of price-fixing, and the Australian Competition and Consumer Commission (ACCC) took both of these matters to Court.
The Federal Court in each case has found that price fixing did not occur.
Flight Centre v ACCC [2015] FCAFC 104 (31 July 2015)
ACCC argued:
It was found that Flight Centre acted as agent for, and not in competition with, the airlines. They did not compete in a market for booking and distribution services – rather, Flight Centre was authorised as the airlines’ agent for sell international passenger air travel services for and on the airlines’ behalf. It was therefore found that there was no price fixing as between competitors.
ACCC v ANZ [2015] FCAFC 103 (31 July 2015)
In this case, the primary argument was about whether ANZ and Mortgage Refunds were “competitors” with one another in the same market place – if they are competitors then ANZ cannot be allowed to control the rebate offered by Mortgage Refunds, as this would be price-fixing.
The court found that the services offered by a mortgage broker (in advising consumers on mortgage finance products before selling one) are not the same as those offered by ANZ when the lender supplies mortgage finance products to a consumer. ANZ does not provide loan arrangement services.
Because they are not competitors, no price fixing occurred.
Agents and principals – are they competitors?
It needs to be noted:
Australian Consumer Law price fixing provisions need close consideration if you are selling another party’s products and are price controlled. If you need assistance with this consideration for your business contact us. P 02 6215 9100 or E chamberlains@chamberlains.com.au
A statutory demand is the first actionable step against a company taken by a creditor who has sought to recover a debt and is now looking to establish the insolvency of a debtor. It is not another bluff debt recovery tactic to ignore or play for time. Once a company has been issued with a statutory demand there are strict deadlines within which the company must respond to avoid a winding up application being filed.
The Corporations Act 2001 sets out the obligations of a corporation that has been served with a statutory demand.
Under s459E; the company has 21 days to pay the debt unless the amount or debt itself is disputed. If the Directors of the company wish to dispute the debt, they need to apply to the court to have the statutory demand set aside, under s 459G of the Act.
However, regardless of whether the Directors plan to pay the debt or dispute it, action must be taken within the stipulated 21 day time period. If a company fails to do this, it will be considered insolvent under section 459C. It is this presumption of insolvency and section 459F that gives creditors the power to apply to the court for the winding up of a company that does not comply with a statutory demand.
For this reason, once a company has been issued with a statutory demand, the directors must move quickly to prevent any further legal action that may result in the winding up of their company.
The ATO and Statutory Demands
While the most recent Federal budget included several tax incentives for small businesses, the Government is looking for other ways to increase their income. The ATO is calling in their debts with a considerable increase in winding up applications being filed. As an illustration, 550 applications were made in May and more than 425 applications were made in June. Compared with the fewer than 100 applications made in April – the ATO is clearly serious about rounding up offenders. It is likely that many of these winding up applications are the result of unanswered and expired statutory demands.
If your company receives a statutory demand from the ATO or any other creditor, it is important that you act quickly and are aware of the law and options available to you.
For advice on what to do after your company has received a statutory demand, contact our Dispute Resolution, Insolvency & Reconstruction team on
P 02 6215 9100 or E stipe.vuleta@chamberlains.com.au OR sayward.brest@chamberlains.com.au
Article by Phoebe Morrison
Australia made history in the late 70s as one of the first developed countries to abolish death duties on deceased estates. Since then there has officially been no death duties in Australia. This is at least what the government wants you to think. Unofficially, death duties have continued to exist in Australia, albeit by another name as death benefit taxes levied on our superannuation. Given that superannuation assets now exceed $2.05 trillion, death benefit taxes are likely to have a significant impact on the inheritances of the next generation. Careful planning can, however, minimise or altogether avoid the imposition of death benefit taxes.
Superannuation dependants v tax dependants
A ‘superannuation dependant’ is a person who is a dependant for the purposes of the Superannuation Industry (Supervision) Act 1993 (Cth) (“the SIS Act”). This includes a member’s spouse, children, step-children and a person with whom the member was in an interdependent relationship.
A tax dependant on the other hand is a person who meets the definition of a ‘death benefits dependant’ under Division 302 of the Income Tax Assessment Act 1997 (Cth) and is based on a much narrower definition. A tax dependant under Division 302, includes a spouse and children under the age of 18. It is possible for an adult child (or any other person) to qualify as a tax dependant if they are able to establish dependency under the tax rules.
A tax dependant enjoys the benefit of not being subject to death benefit taxes on any lump sum superannuation benefits that they receive from a deceased member.
Death benefit taxes
The effect of the superannuation dependant and tax dependant rules is that adult non-dependant children can be nominated to receive superannuation under a binding death benefit nomination, but will not meet the definition of a tax dependant and will therefore be subject to death benefit taxes.
The quantum of death benefit taxes will ultimately depend on the tax free and taxable components of the lump sum.
The tax-free component comprises non-concessional contributions made by the member after 1 July 2007 as well as any crystalised segment.[1] No death benefit taxes apply to the tax free component.
The taxable component is comprised of a taxed component and an untaxed component. The taxed component is that part of the fund which has been taxed within the fund. It includes concessional contributions and fund earnings. The untaxed component includes that amount which has not been taxed in the fund, such as a life insurance policy.
Where a non-tax dependant receives a lump sum superannuation benefit, the following death benefit tax rates will apply:[2]
Minimising death benefit taxes
Through careful planning death benefit taxes can be minimised, if not avoided altogether.
Withdrawal Re-Contribution Strategy
A common strategy to minimise death benefit taxes is a withdrawal and re-contribution strategy. It involves a member having met a condition of release, withdrawing a lump sum from their superannuation and re-contributing it back into the fund as a non-concessional contribution in order to convert the taxable component into tax-free benefits which won’t be subject to death benefit taxes.
The current non-concessional contribution would allow a member to contribute $180,000 per year or $540,000 in one year using the bring-forward provisions. It is crucial that advice always be sought to ensure that contribution caps are not exceeded.
Superannuation proceeds will trust
Where a lump sum death benefit is paid to the executor of the deceased, whether death benefit taxes apply will depend on whether a tax dependant has benefitted or is likely to benefit.[3]
The effect of Section 302-10 is that death benefit taxes will apply to the extent that the executor is unable to show that a beneficiary who has benefitted is a tax dependent. Under a will with testamentary trusts, if the primary beneficiary of a testamentary trust is a tax dependent but the other beneficiaries are not, it will be difficult for the executor to show that only the tax dependent benefited.
In order to minimise the risk of this, all members should ensure that they have a sufficient provision in their will which allows the executors to hold any benefits in a superannuation proceeds will trust, as a separate sub-trust which limits the beneficiaries to the member’s tax dependants.
Withdrawing benefits before death
Another potential strategy is for a member, having met a condition of release, to withdraw all of their benefits before death, so that no death benefit taxes will apply on benefits passing to adult children.
All members should ensure that they have an appropriate Enduring Power of Attorney in place such that in the event that they are incapacitated and terminally ill or about to die, their attorney can withdraw all of their benefits.
This strategy should be used with severe caution as, in the event that the member does not die, they may be unable to re-contribute those benefits back into the fund and will therefore be subject to marginal rates of tax on any earnings.
Death benefit taxes don’t appear to be going anywhere any time soon, and with the current amount of wealth inside superannuation and the current budget deficit, it is likely that the ATO will be focusing resources on the enforcement and collection of death benefit taxes. With appropriate planning, you can ensure that beneficiaries receive the maximum benefit of their inheritance.
[1] Section 307-210 of the ITAA 1997.
[2] Section 302-145 of the ITAA 1997.
[3] Section 302-10 of the ITAA 1997.
Article by Vik Sundar – Managing Director and Practice Leader private Wealth
For assistance with your Estate Planning and Superannuation contact our Private Wealth Team on
P 02 6215 9100 or E christie.gardiner@chamberlains.com.au
It is difficult for a director to not be intimidated by the process of a public examination. An examination is initiated by summons from the court, leading to scrutiny by an often fervent examiner under the eyes of a judge. In this article we discuss the process that you can expect to encounter in a public examination as a director of an insolvent company.
Who starts the public examination process?
An eligible applicant under the Corporations Act starts the process by filing an application summons. The eligible applicants include the ASIC or an insolvency practitioner such as a liquidator or an administrator.
The applicant will file an application at the court against an examinable person (including persons subject to discretionary examinations). Upon successful application, the court will grant the summons to require the person to appear at court. The person will be examined on oath about the examinable affairs of the insolvent company.
What if you fail to attend the examination?
If you fail to attend the examination without lawful excuse, it will amount to contempt of court. This may lead to issuing a warrant for your arrest. As a general rule, you must respond to an examination summons and attend the examination as required – unless you have applied with your lawyer to set it aside.
What questions can you expect at the examination?
The examiner is permitted to examine you on the “examinable affairs” of the company. In some cases, the summons issued to you will outline brief details about the general nature of the matter being investigated. However it does not need to and often does not.
“Examinable affairs” is a broad category area which includes:
These broad categories include affairs about the company’s business, transactions, dealings, property, finances, audit of those finances, internal management, ownership, control, creditors and other persons having a financial interest in the company. The courts have interpreted, “examinable affairs” broadly to include affairs that may provide information on the prospects of success of potential litigation, including action for breach of directors’ duties and claim for potential misfeasance of officers.
How will the examination be conducted?
At the public examination, you will be asked to stand at the witness stand and make an oath or affirmation that the statements and testimony you provide to the court will only be the truth and nothing but the truth.
A judge will preside over the examination to monitor and govern the examination, whilst a barrister or solicitor for the applicant (often the insolvency practitioner) will have prepared and ask you a series of questions regarding the “examinable affairs” of the company. If you knowingly provide false information you may be charged with perjury.
At the end of the examination, the court may order that the transcript be provided in writing and require you to sign the record. This written record may be used against you in any legal proceedings, subject to the exception for self-incriminating evidence
Can you refuse to answer certain questions?
Generally speaking, you do not have the right to refuse questions. This includes questions that may lead to self-incrimination and reveal potential offences against you or by you. All answers should be provided truthfully and to the best of your knowledge. However you may claim privilege over your answers, in which case the examiner cannot use answers you provided for prosecution against you. If you are concerned about possible prosecutions you should immediately seek legal advice.
Can a lawyer assist in public examinations?
You have the right to be represented at the court during the public examination. The process is likely to be stressful as it is a formal court process and especially if you do not know what to expect. It is important that you know at times you may be able to claim privilege and you may be able to object to certain types of questioning.
Article by Stipe Vuleta & Steven Lee
There were major changes to director penalty notices in 2012 – limiting somewhat the ability of directors to escape personal liability for corporate tax debts. As readers are likely well aware, company directors are legally responsible to ensure payment of a company’s Pay-As-You-Go withholding (PAYGW) and superannuation guarantee charges (SGC), If they fail to meet those obligations, they may become personally liable to pay such amounts. It is thus vital that all directors understand their legal obligations in this respect.
What is a Director Penalty Notice?
Under Australian Tax Law, a company director must ensure that their company report and pays PAYGW and SGC on time. Should the company fail to do so, the directors may then be subject to a director penalty where they may be made personally liable for the unpaid PAYGW and SGC. This penalty is to be equivalent to the unpaid amount of PAYGW or SGC.
When do I receive a Director Penalty Notice?
You should note that directors are liable to the unpaid amounts when the payments are due. The directors are automatically liable. However the ATO must not commence proceedings against the directors until 21 days after they are given a director penalty notice. At the end of the 21 days, the ATO may commence an action to recover the outstanding tax against the director.
What types of Director Penalty Notice are there?
Broadly speaking, there are two types of notices: often referred to as a ‘lockdown’, and a ‘non-lockdown’ penalty notice.
A ‘lockdown’ director penalty notice is where a company has failed to lodge its business activity statement (BAS) or instalment activity statements within 3 months of their due dates. It is a ‘lockdown’ notice because the company must pay the unpaid PAYGW or SGC to relieve the directors from their personal liability. There is no other recourse to respond to the penalty.
A ‘non-lockdown’ director penalty notice is where the company directors have lodged its BAS or instalment activity statements, but the PAYG and SGC remain unpaid. There are certain actions that the directors can take within 21 days to cancel the penalty notices issued. This includes going into voluntary administration or liquidation.
Is there a defence available for directors?
There are certain circumstances where the director may not be personally liable for the director penalty notices:
There may be other defences available to you depending on your circumstances. It is important to seek legal advice as soon as you receive the penalty notice as you may have the recourse available to recover the penalty notice amount against the company or other company directors.
The defences are strictly limited in scope and it is an unacceptable defence to argue that the company did not have sufficient money to pay the PAYG and SGC, failed to agree on appointing an administrator, or that the penalty notice was sent to the old address.
Article by Stipe Vuleta & Steven Lee
3D printing is touted as the next big revolution in the manufacturing industry. With the cost of 3D printers coming down remarkably low, there has been a huge rise in popularity and availability among the general public in recent times.
But despite the potential socio-economic and technological advantages, a lot of legal issues have cropped up regarding its use. These FAQs may throw some light on the matter:
Why the furore over 3D printing?
First and foremost are the implications it poses to intellectual property rights. Use of 3D printers can violate copyright, trademarks and patent laws, due to the ease of creation of unauthorized versions of patented products or copyright infringement of designs.
Furthermore, an even more serious ramification of 3D printing is that anyone can use it to print illegal and hazardous objects, like guns or parts for weaponry. Obviously this could have serious consequences in the wrong hands.
What is the current legal position?
At present, there isn’t any Australian law that exclusively addresses all the dimensions of this technological advancement. But, some argue that existing legislation such as the Copyright Act, the Intellectual Property Act, Firearms-Control legislation and policy, etc. already have sufficient provisions to address the majority of the concerns legally.
However, the Australian Senate is already giving consideration to this issue and is in the process of coming up with appropriate regulations.
According to the Legal and Constitutional Affairs References Committee’s reports submitted on 25 September 2014, the law enforcement, state and federal governments are looking to regulate 3D printing, especially guns and weaponry, even though many Australian senators feel that existing laws are adequate.
Do we need new laws?
Last year, a bill was introduced by Palmer United Party (PUP) in Queensland under which anyone holding, distributing or making 3D printed weapons would come under a special licensing scheme, and uploading a weapon design online would be deemed illegal.
Demands are being made to stifle the production of 3D printers and place restrictions on manufacturers, and laws are being urged to prevent “illicit” 3D printer use.
While many of the concerns over this new technology deserve consideration, moves to choke 3D printer manufacturers or service providers with new stringent laws isn’t a viable answer either. We must understand that digitized content distribution cannot be fully barred from the public, and anyone with some technical knowledge can now actually make his or her own printer at home.
Furthermore, the public has every right to enjoy the benefits of this amazing new technology as long as the usage is fair in the existing legal context. However, maybe it’s time to make existing laws “clearer” in the new context, or perhaps we may not need any new laws at all – time will tell. Either way, the regulations should hold the end user responsible for any illegal usage of 3D printed products, and manufacturers or commercial service providers should be free from any legal liability for illegal use.