The recent government webinar – getting your business ready for the 2016/2017 financial year

Just in case you missed the recent webinar held by representatives from the ATO, ACCC, ASIC and Fair Work Ombudsman, here is the list of important links shown as part of the above webinar:

Question

Fair Work Ombudsman:

Australian Competition & Consumer Commission: B2B UCT (Business To Business Unfair Contract Terms)

Excessive card surcharging

Scams

Australian Securities & Investments Commission:

Australian Taxation Office:

Advertisements

Have you entered into an unfair contract?

Have you ever entered into a business contract which you think is unfair? Was it a standard form contract which offered plenty of protection for one party but not the other? Smaller businesses now have protection from unfair contracts under laws which were introduced on 12 November 2015.

Which contracts will the law apply to?

The laws will apply to standard form contracts (that is, where the terms and conditions are set by one party with no negotiation) entered into or renewed on or after 12 November 2016 where:

  • at least one of the businesses employs less than 20 people,
  • the price of the contract is no more than $300 000, or $1 million if the contract is for more than 12 months, and
  • the contract relates to the supply of goods or services (including financial goods or services), or the sale or grant of an interest in land.

It does not matter whether the smaller business is the customer or the supplier – the laws apply equally.

The ACCC, Australian Securities and Investments Commission, and state and territory offices of fair trading will enforce this law.

Which contracts will the law specifically NOT apply to?

The laws will not apply to the following types of contracts:

  • contract of marine salvage or towing
  • charterparty of a ship
  • contract for the carriage of goods by ship
  • constitution of a company, managed investment scheme or other kind of body
  • small business contract that is covered by Commonwealth, state or territory law that is prescribed by the regulations.

 How do I know if a contract is unfair? 

Ask yourself:

  • does the contract allow one business, but not the other, to change or cancel the contract, or to limit or avoid their obligations
  • does the contract penalise one business, but not the other, for breaching the contract?
  • are there terms within the contract that are not reasonably necessary to protect the stronger business?

If so, then it may be considered an unfair contract.

But we have plenty of standard form contracts which we give to all of our customers and suppliers!

We suggest that you:

  • know your customers/suppliers – so you know whether they fall within the definition of smaller business. Ask questions!
  •  review your contracts with smaller businesses as a matter of priority, so that you can ensure that your contracts are fair, and you avoid investigation by ACCC, ASIC and/or Fair Trading. If your contracts do contain terms that may be considered unfair, then consider how important the terms in that contract are to your business and whether the terms protect your legitimate business interests.
  • consider structuring the value of the contract so that you exceed the monetary threshold
  • consider developing a separate set of contracts for smaller business clients, and another set of contracts for other business clients – if you are in the transport industry, develop a separate set of contracts for shipping contracts (being an excluded contract).

The law will only apply to contracts entered into or renewed from 12 November 2016, so there is approximately 12 months for you to review and amend your standard form contracts if required.

What can we do if we believe that our small business has entered into an unfair contract?

Whilst having an unfair term in a contract is not an offence (meaning that no pecuniary penalties apply), the smaller business has the right to commence court proceedings against the other business to apply for orders that part of the contract is set aside (that is, declared void) or varied (that is, changed so that it is fair).

If the other business attempts to enforce the unfair term(s) against the smaller business, then the smaller business could seek compensation from the Court.

Of course, it is always our recommendation that if you believe that you have rights against another party, obtain legal advice first, then attempt to negotiate a resolution to the issue without rushing off to Court.

Alleged misrepresentations and unconscionability in the training industry

The ACCC has commenced proceedings in the Federal Court against a training college which offered VET FEE-HELP Diploma courses,costing from $18,000 to $21,000 per course.ACCC

It is alleged that:

False or misleading representations

  • between January and October 2015, Phoenix Institute of Australia Pty Ltd and Community Training Initiatives Pty Ltd (through the trading name “Mytime Learning“) enrolled more than 9,000 students in 17,000 courses and received in excess of $100 million from the Commonwealth for those enrolments.
  • Phoenix represented to prospective students that:
    • they would receive a free laptop; and
    • the course(s) were free – or free if the student did not earn approximately more than $50,000 per annum.

In fact:

  • the laptop was received on loan; and
  • the course(s) incurred a VET FEE-HELP debt payable to the Commonwealth Government, with repayment commencing once the student earned more than a particular amount ($54,126 in the 2014-2015 income year).

Unconscionable conduct

  • The enrolment process targeted vulnerable groups, such as consumers from low-socioeconomic background and consumers with intellectual disabilities
  • The courses were online, requiring a computer and ability to email, something which was difficult for many of the enrolled students to comply with.

The ACCC is seeking orders cancelling the VET FEE-HELP debts and pecuniary penalties.  The ACCC and the Commonwealth are seeking:

  • declarations,
  • injunctions,
  • orders for the repayment of course fees paid by the Commonwealth to Phoenix
  • corrective notices
  • orders requiring the implementation of a consumer law compliance program
  • costs.

The matter will be first heard in the Federal Court on 15 December 2015.

Should I have a corporate trustee for a family trust?

QuestionMore and more clients are coming to Shire Legal to set up a family trust, usually on the advice of their accountant or financial adviser.  But this begs the questions – what is a trust?  And why is it recommended that you set up a company to run the trust?

What is a trust?

A trust is a relationship where the trustee carries on business and/or holds assets on behalf of the beneficiaries of the trust.

A trust set up for the benefit of family members is typically set up as a discretionary trust, meaning that the distribution of income earned from the assets is distributed each year at the discretion of the trustee.  Otherwise, the trust would be set up as a fixed trust, where each beneficiary has a fixed interest to the distribution of income.

Who are the parties to a trust?

When establishing a trust, there are a number of appointments that you need to decide upon:

  • the Settlor is the person who initially “owns” the assets and property, and effectively “settles” the establishment of the trust, by transferring those assets and property to the ultimate holder of the assets, being the trustee;
  • the Appointer is the person who appoints, changes, removes and replaces the trustee;
  • the Trustee is the person in whose name the assets are held, on behalf of the beneficiaries, pursuant to the terms and rules set out in the Trust Deed;
  • the Beneficiaries are those named persons and/or legal entities, or classes of persons and/or legal entities, who receive income from the trust.  For a family trust, the beneficiaries are typically spouses, children, grandchildren, siblings, any company in which any of these individuals hold any interest, and even charities.

Why have a trust?

One of the main reasons that families establish a trust is because of the flexible options available to distribute income to minimise tax payable.  By way of example, if you are considering the purchase of an investment property, one option is to purchase it in your own name, then any income earned from the investment property would be treated as taxable income in your own name.  Combined with the regular income you earn from your main employment, this may or may not have the effect of essentially pushing you into a higher tax bracket.  On the other hand, if the property is held by a family trust, then the income from the investment property may be distributed to a lower income earner (such as your spouse), thereby minimising the total tax paid by the family for that particular year.

Other advantages of holding assets in the name of a trust are:

  • discounted capital gains tax for beneficiaries;
  • protecting the assets of any “high risk” family members (e.g. trading company directors and professionals, or family members with hostile family situations of their own);

Why should I have a corporate trustee instead of a personal trustee?

The trustee is the legal owner of the property.  The trustee therefore has the ultimate control over the assets of the trust.  The trustee can either a company, or one or more individuals.  With a corporate trustee, the directors of the corporation will have the day-to-day control of the trust (although the shareholders have ultimate control, as they are able to appoint/remove directors as required).  Arguably, the appointer has the highest power, because they are able to appoint/remove the trustee at any time.

Clarity of ownership – because a trust is not a separate legal entity, the assets of the trust need to be held in the name of the trustee.  A person acting as a trustee would thus hold assets both in their own individual capacity (that is, their personal assets), and also in their capacity as trustee (that is, the trust assets).  There is therefore a risk that personal assets will become intermingled with trust assets.  Whereas confusion as to what are the trust assets is minimised when held in the name of the corporate trustee.

Protection of personal assets – Trustees may become liable for any losses incurred as a result of a breach of trust.  So persons acting as trustees place their own personal assets at risk.  Whereas corporate trustees are generally “shell corporations” with no, if any, assets.  If there is any liability attributed to the trustee, then the liability doesn’t go any further than the corporation’s assets.

Indefinite existence – if a personal trustee passes away (or indeed becomes mentally incapacitated and is no longer able to act), then the ownership of any assets held in the person’s name on behalf of the trust would need to be transferred to the new trustee.  This can be a time consuming and expensive exercise.  Whereas with a corporate trustee, where the persons effectively controlling the trust are mere directors and/or shareholders of the corporation, then the ownership would not need to be changed in the event of anyone’s death.  Instead, a new director may need to be appointed, and the shares allocated in accordance with the Will.

Are there any disadvantages to a corporate trustee?

As a corporation, there are additional costs involved in establishing and running the corporation, although the main cost is only incurred at the time of registering the corporation with ASIC, otherwise the annual running costs are limited to the cost of the annual review.

Finally …

  • under the “law of perpetuities”, all trusts have a vesting day of 80 years, which means that 80 years after its creation, a trust will automatically cease to operate, at which point the assets of the trust must be distributed to the beneficiaries.
  • some trusts include a corporation as a potential beneficiary of the trust, which has tax advantages, as corporations typically have a lower tax rate than individuals.
  • if the trustee does not exercise its power to distribute income, then the Trustee Deed may set out who the default beneficiaries are.

Thinking of setting up a family trust?  Contact Shire Legal to ask any questions you may have about the process and/or the costs.

Dealing with debt collectors: your rights and responsibilities

A5_Dealing-with-debtThe ACCC and ASIC have launched a new publication, Dealing with debt collectors: Your rights and responsibilities, a guide which explains:

  • people’s legal rights and responsibilities if they owe a debt;
  • where to seek help to work out a budget, negotiate a repayment plan, apply for hardship or better understand their financial and legal options;
  • what to do if a debt collector contacts them;
  • what sort of behaviour by debt collectors is not acceptable;
  • how to dispute an alleged debt or its amount; and
  • what to do if they are being taken to court.

The guide has been released at a time when the ACCC and ASIC are actively investigating, and successfully prosecuting, corporations (including large debt collection companies) for their unscrupulous debt collection practices.

In 2012, following an application by ASIC to commence proceedings, the Federal Court found a debt collection company, ACM Group Limited, had harrassed and coerced debtors and engaged in “widespread” and “systemic” misleading and deceptive conduct when recovering money.

In 2013, the ACCC prosecuted Excite Mobile Pty Ltd for engaging in false, misleading and unconscionable telemarketing practices, and using undue coercion in relation to debt collection.  For example, the company created a fake complaints handling organisation to deceive debtors into believing their disputes about liability were being assessed by an independent body when neither that body nor those activities existed.  The Federal Court ordered the company to pay a penalty of $455,000 and the company’s two directors were ordered to pay penalties totalling $95,000 between them.

What guidance is there for creditors and collectors?

Debt collection guideline reprint 2010Earlier this year, the ACCC and ASIC released a new version of the industry guide, Debt collection guide for creditors and collectors, which was updated to reflect the introduction of the Australian Consumer Law and changes to privacy laws in Australia.

The guidance includes information about:

  • when it is appropriate to contact a debtor (e.g. what constitutes reasonable contact hours, methods or frequency of contact);
  • the potential pitfalls in using modern technology in the debt recovery process;
  • what to do if a debtor indicates that they cannot afford to repay the debt (e.g. making reasonable enquiries as to their financial position);
  • key considerations when resolving debtor complaints and disputes.

Contact Melissa Lammers if you have any questions about debt, whether as the debtor (that is, the person who owes money to another person) or the creditor (that is, the person who is owed money by another person).

New scheme to prevent subcontractor rip-offs

The NSW Minister for Fair Trading is expected to today announce a new trust fund scheme designed to prevent insolvent builders from keeping money that is owed to subcontractors after the job is completed.

The new retention trust scheme is the first of its kind in Australia, and was developed in response to a 2012 enquiry into the causes of insolvency in the building industry (click here to see the enquiry’s Discussion and Issues paper).

Builders typically hold back party of the payments due to subcontractors until the work is completed, and any defect issues identified and dealt with.  Unfortunately this sometimes means that troubled builders use the funds for their own purposes.

The proposed scheme requires builders to retain funds owed to the subcontractor in a separate trust account – thereby protecting the money rightly owed to subcontractors, irrespective of the builder’s financial position.

The scheme will initially only apply to head contractors and their direct subcontractors on projects valued at more than $20 million.

Non-compliance with the scheme will incur fines of up to $22,000.

It is expected that the NSW Government will also conduct a review of security of payments legislation.

OTPPhoenix building company rising from the ashes

An example of a situation which the new scheme hopes to prevent is the case earlier this year of Walton Construction.  After the global financial crisis, Walton hit financial difficulties in the 2011-2012 financial year, so it recruited a corporate advisory group.  Walton subsequently transferred its assets into 2 new (“phoenix”) companies: Peloton Builders (later called Tantallon) and Lewton Asset Services.  Walton then went into liquidation, leaving plenty of subcontractors as unsecured creditors.  One subcontractor in particular was owed $696,000.

The Queensland Building and Construction Commission is holding a public examination of the case, including investigation into the key people in the matter.

ASIC also started investigating the matter when there were questions raised about the independence of the corporate advisory group (directors of whom were appointed directors in the 2 new companies) and the appointed liquidator.  ASIC sought to have the liquidators removed, but this was rejected by the Federal Court.  It is understood that ASIC is now appealing that decision.

Contact Melissa Lammers if you have any questions about subcontractors and the building industry.