As we approach the end of 2024, it's the perfect time to reflect on the year we've had at Sierra Legal.  Here’s a snapshot of our year:

• ‍Continuing our commitment to our clients: We’ve had the privilege of supporting our valued clients across a wide range of corporate and commercial legal matters. This year, our clients included Bingo Industries, Clark Rubber, Control Bionics, CreativeCubes.Co, Cybe, Edison Partners, Energy Power Systems Australia, Epivets, Homart Pharmaceuticals, Medibank, Melbourne Archdiocese Catholic Schools, National Lotteries and Newsagents Association, Scanspek, Simoco Wireless Solutions, Simonds Homes, TMX Transform, Uniting Church, and many more.

• M&A highlights: We were proud to play a key role in several successful M&A transactions, including acting for the sellers in the acquisition of Orbitz Elevators in Australia and New Zealand by KONE, acting for the seller in the sale of Axima (a 3PL and international freight forwarding business) to the Natrio group, acting for Homart Pharmaceuticals in the acquisition of the Thompsons vitamin business and the Thursday Plantation skincare business, and acting for the sellers in the sale of RCR International to EHI.

• Expanding our Sierra Monthly Plans: More businesses joined our fixed-fee plans this year, benefiting from consistent, cost-effective support for their everyday legal needs.

• Innovating with technology: Using our Arreis Automation platform, we continued to deliver tailored web applications for our clients, helping them streamline their document generation and legal processes, saving both time and resources.

• Launching our Sierra Legal Training Program: This year, we introduced an internal training initiative where our senior lawyers shared their expertise with the next generation. Fortnightly one-hour sessions covered a range of practical topics, enriching the depth of our team’s knowledge.

• Establishing the Sierra Social Club: We launched the Sierra Social Club, a monthly gathering for our lawyers across Melbourne, Sydney, Newcastle, Brisbane, Far North Queensland, and Adelaide. These informal catch-ups over drinks have strengthened connections across our geographically diverse team.

• Welcoming new talent: We were excited to expand the Sierra Legal family, welcoming Special Counsel Katie Johnston, who joined us in February, and Luke Pigram, who came on board as a Senior Associate in April.

Thank you

As 2024 draws to a close, we want to extend our sincere thanks to our clients, partners, and team for their trust, collaboration, and support. Here’s to an exciting 2025 ahead - stay tuned for what’s to come!

Our clients frequently undertake M&A deals and enter commercial contracting arrangements with international counterparties.  The presence of cross-border parties can add further complexities to transactions and additional consideration points for commercial contracts.  Not only does attention need to be elevated to critical matters such as the relevant regulatory landscape, including whether the transaction may lessen competition in the market and require merger clearance from the Australian Competition and Consumer Commission (ACCC), or whether approval from the Foreign Investment Review Board (FIRB) may be necessary, but attention also needs to be paid to the practical points.  

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These practical points, if missed or not adequately addressed pre-agreement, can percolate and lead to significant issues.  In our experience, key aspects that frequently need to be considered and navigated appropriately as part of the deal or contract arrangements, include:

·       Hosting arrangements: For commercial tech deals involving hosting solutions, consideration needs to be given to the requirements of the hosting solution and its location.  For example, will it be a cloud hosted solution that must be hosted in Australia or abroad?  If abroad, where and what are the security standards of that jurisdiction?  Further, standard provisions should require that the hosting arrangements are not changed without prior written approval and must take into consideration the requirements and constraints of the deliverables and target market/audience.

·       Data security: Where commercially sensitive data in commercial deals is to be shared or stored, the level of data security required or expected needs to be addressed.  This may include imposing a minimum requirement to comply with a nominated standard such as ISO27001 for information security either with or without the need to be certified against ISO27001.  If this level is not necessary in the context of the deal, it would usually be appropriate to empower the ability for regular independent audits of the relevant information management system, maintenance of an information security policy including regular review, communication and training of staff and breach notifications. Flow-on powers to terminate and be indemnified for relevant breaches should also be strongly considered.

·       Currency: This would seem like a straightforward point, but the conversion calculation between currencies, and the timing of that conversion, can have a significant impact on the consideration payable. Far too frequently, however, this impact is overlooked.  It is important to understand the currency risk, which party will bear it and ensure the transaction document clearly articulates the nominated currency and conversion process (if applicable).

·       Tax and GST: Whilst it is generally accepted that tax and accounting advice should be obtained upfront prior to negotiating critical terms of the deal or the formal documentation, it is often the case that key transaction terms are agreed prior to obtaining tax advice. The timing of tax advice can significantly impact the costs of each party given its fundamental impact on such critical matters as deal structure and timing.  

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Further, considerations such as whether the transaction will create a taxing or duty event and whether the amounts payable under the deal are inclusive or exclusive of GST (or other international tax) should be known in advance of confirming the consideration payable. Sierra Legal has a great network of tax and accounting specialists to suit client needs and deal sizes and can connect clients with appropriate specialists as required.

·       Foreign laws:  Cross border counterparties may seek to oblige their Australian counterparties to comply with foreign laws, which may not be acceptable.  A potential middle ground may be to require compliance with relevant international standards, recognition of similar thresholds in each party’s local laws, material compliance with each party’s local laws and notification of any breaches.

·       Understanding local nuisance and customs: It is important to understand the cultural norms and values of the counterparty at the outset.  Unfamiliarity with these can lead to a lack of cooperation, protracted negotiations and disputes following completion or binding agreement.  Subject to the type of deal being contemplated, it may be appropriate to include investigation of cultural norms and values as part of the due diligence investigations.

·       Governing law: We often get asked which jurisdiction should be imposed as the governing law, and what the consequences are if it is not Australia.  There is no standard approach.  The answer is often based on a number of considerations, such as the location of the parties (and assets if applicable such as for mining entities), jurisdiction reputation and similarities to Australia, costs and time zones.  

·       Who drafts the document: A common misconception is that the party drafting the document will incur higher legal costs.  This isn’t necessarily the case, particularly if the cross-border party is not using local lawyers or specialists familiar with the nuances of M&A deals and commercial contracts.  Further, not all countries adopt the simple, plain English approach.  For this reason, we always recommend using documents drafted by Australian lawyers.  

·       Business day / time zone: Consideration and care needs to be had when dealing with multiple jurisdictions and time zones.  It may not be practical (or sensible) to incorporate all jurisdictions in the definition of business day for example.  Or if you do, that may require other clauses that require action within a specified number of business days to be increased or a simpler approach adopted, such as using calendar days (rather than business days).

·       Language / translations: An obvious, but frequently overlooked matter, is the need to include provisions in the documentation with cross-border parties, requiring that all communications must be in English.

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At Sierra Legal we work with our clients not only on the key issues like ACCC and FIRB approvals, but also on the practical components, to help our clients navigate the complexities of cross-border deals and ensure a smooth transaction process.

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With the recent introduction of the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 (the Bill), significant changes are on the horizon for Australian competition law. The Bill proposes a mandatory, suspensory merger control system, set to replace the current voluntary regime. Here’s a breakdown of what this means for businesses.

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Key Changes and Timeline

Introduction of the Bill

The Bill introduces a mandatory notification and approval process for mergers, replacing the voluntary “informal clearance” regime. This new system will be effective from 1 January 2026, with transitional changes starting from 1 July 2025.

Notification Requirement

Under the new regime, transactions must be notified to the Australian Competition and Consumer Commission (ACCC) and cannot be completed without ACCC approval. This applies to both direct and indirect acquisitions of shares or assets, subject to specific monetary thresholds.

Thresholds and Exemptions

While the monetary notification thresholds will be formally set out in subordinate legislation, the Treasury has announced changes to the initial thresholds following consultation. The new proposed notification thresholds are as follows:

• Economy-wide threshold

This threshold targets large mergers where the combined merger parties (including the acquirer group) have a combined Australian turnover exceeding $200 million. Additionally, the businesses or assets being acquired must either have an Australian turnover above $50 million or a global transaction value above $250 million.

• Lower thresholds for very large businesses

For very large businesses with an Australian turnover above $500 million, lower thresholds apply. These businesses must notify acquisitions of smaller businesses or assets with an Australian turnover above $10 million.

• Serial acquisitions

To address serial acquisitions, businesses with a combined Australian turnover above $200 million will be subject to a 3-year cumulative threshold. This threshold captures acquisitions totalling $50 million in turnover (or $10 million for very large businesses) within the same or substitutable goods or services.

In addition to these thresholds, the Minister has the authority to mandate notification for certain mergers regardless of the monetary thresholds. For example, the Government has announced its intention to require every merger in the supermarket sector to be notified to the ACCC. The Government is also considering targeted notification requirements for sectors such as fuel, liquor, and oncology and radiology.

This flexibility allows for the capture of specific transactions that may pose competition concerns. Furthermore, a targeted screening tool is being considered to identify acquisitions below the notification thresholds in concentrated regions and sectors.

Specific Exemptions:

Specific exemptions from the new mandatory notification regime are as follows:

• Residential Property Development

Acquisitions involving residential property development are exempt from notification.

• Certain Commercial Property Acquisitions

Some commercial property acquisitions are also exempt. This includes acquisitions by businesses primarily engaged in buying, selling, or leasing property, provided they do not intend to operate a commercial business (other than leasing) on the land.

• Publicly Listed Entities and Widely Held Companies

Acquisitions resulting in up to 20% voting power in these entities are exempt from mandatory notification.

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ACCC’s Role and Review Process

Primary Decision-Maker

The ACCC will be the primary decision-maker for all mergers, with no right for merger parties to have mergers determined by the Federal Court. However, a merits review can be sought through the Australian Competition Tribunal.

Substantial Lessening of Competition

The ACCC must be satisfied that an acquisition would substantially lessen competition. The Bill also includes provisions for considering the cumulative effects of serial acquisitions.

Remedy Proposals

Conditions can be imposed on transactions to address competition concerns, with specific timelines for proposing remedies during the review process.

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Transparency and Timelines

Public Register and Detailed Decisions
The ACCC will maintain a public register of notified mergers, enhancing transparency in the merger review process. This register will list all notified mergers, except for hostile takeovers, which can be reviewed confidentially and listed after 17 business days if the ACCC makes a determination. The ACCC will also publish detailed reasons for its decisions, including material facts and the rationale behind each decision. This ensures that businesses and the public have access to comprehensive information about merger assessments.

Defined Review Timelines
The Bill outlines specific timelines for the review process:

• Phase 1 (Initial Review): 30 business days.
• Fast Track Determination: 15 business days if no concerns are identified.
• Phase 2 (In-Depth Review): 90 business days.
• Applications for review by the Australian Competition Tribunal must be lodged within 14 calendar days for a 90 calendar day review.

Fees

Filing fees will be introduced for all notifiable transactions, with some exceptions for small businesses. These fees are expected to range between $50,000 and $100,000, aligning with comparable jurisdictions overseas. Additional fees will apply for seeking a review by the Competition Tribunal.

Transitional Provisions - Voluntary Notification

Starting from 1 July 2025, businesses can voluntarily notify and opt into the new merger authorisation regime. This allows merger parties to begin using the new system ahead of its mandatory implementation on 1 January 2026. This transitional period is designed to help parties adjust to the new requirements and integrate them into their transaction processes and completion timelines. The ACCC will then undertake initial assessments and make timely determinations once its powers commence on 1 January 2026.

Transactions cleared under the current informal merger regime between 1 July 2025 and 31 December 2025 will be exempt from the new notification requirements, provided the relevant transactions are completed within 12 months of receiving clearance. It is important to note that applications for merger authorisation under the current regime can only be made until 30 June 2025.

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Final Thoughts

Navigating these significant changes in merger control can be complex, but having the right mix of professionals on your team is crucial for your success.

If you are considering a merger or acquisition and would like to discuss how these reforms might impact your plans, please contact us. We would be happy to help you prepare and ensure a smooth transaction under the new regime.

We recently sat down with Jocelyn Neumueller – Paralympian (Rio 2016), 6-time world champion across paracanoe and adaptive surfing, and lawyer at Sierra Legal. Earlier this month, she added to her accolades by winning the ISA Para Surfing World Championships in California.

Read the Q&A below to learn more about Jocelyn, her passions, and her journey.

1. ‍When did you start working at Sierra Legal, and what was your initial role?

I was fortunate to do a university placement with Sierra Legal in 2022, which had a focus on the firm’s digital automation services. After completing my placement, I was offered a role as a Law Clerk, allowing me to continue working in this area while completing my studies.

2. How did you first become interested in coding, and what do you enjoy most about your work at Sierra Legal?

In 2021, I was introduced to coding through a 'Law in a Digital Age' course. The subject covered basic coding and document automation, and we were partnered with a local not-for-profit to develop a practical solution over six weeks. This experience sparked my interest in coding and digital automation, which has since become one of my favourite aspects of my job at Sierra Legal. I love the challenge and variety coding offers, learning new languages, and seeing the real-world benefits of digital automation in the legal sector.

3. Can you tell us a little about your background in sports – when did you start your journey as an athlete?

Growing up, I was heavily involved in a lot of sports, but my life changed when I contracted a rare autoimmune disease that led to paralysis. At that time, I was competing in sailing at a national level. About a year later, I was introduced to para-sailing, which opened up many opportunities to try new sports and return to competitive sport.

4. After competing in paracanoe at the Rio Paralympics, you transitioned to adaptive surfing.  What inspired this change, and what challenges or surprises did you experience along the way?

In early 2018, I sustained a significant brachial plexus injury during a training session, which ended my paracanoe career. While it was deeply disappointing at the time, as I felt I was just beginning to reach my peak in the sport, it opened doors to explore new sports, including table tennis, swimming, and surfing. I quickly realised that I had enjoyed the physical and mental challenges of paracanoe and wanted to find a sport that offered similar challenges.

During COVID in 2020, after major surgery, I couldn’t return to the water for swim training due to infections. Instead, I tried surfing with friends and quickly became addicted to the challenge and the sense of freedom and independence it provided. From there, I was hooked. I’ve been competing on the World Tour for the past three years, pushing boundaries and redefining what’s possible in prone surfing.

5. Congratulations on your recent ISA Para World Championship win! Could you share a bit about your experience winning that title in California?

Thank you! I was stoked that we were able to take out the ISA World Championship title in the Prone 2 category in such challenging conditions. It was the perfect way to cap off an incredible year - winning the AASP World Championship Tour title with victories at every event stop and scoring two perfect 10s across the season. This success is a testament to the dedication and hard work from my entire team.

Leading the Australian team as co-captain at the ISA World Championships and securing a team bronze medal (our first since 2017) took the experience to a whole new level! I couldn’t be prouder of the team and all that we have achieved together.

6. Who’s the coolest person you’ve met on your journey - someone who left you starstruck or who you’ve admired for a long time?

It’s hard to pinpoint a single person who has been the "coolest" or the most impactful on my journey. One of the best parts of the para sporting community is the sheer number of incredible, inspiring individuals, each with their own story of overcoming significant, life-changing events to get to where they are today. Every athlete continues to live life to the fullest, constantly pushing the boundaries of what’s possible in sport and in life more broadly.

7. What do you find most fulfilling about competing at such a high level?

I love the mental and physical challenges that come with competing at this level. It’s incredibly fulfilling to push myself and see the progress that results from dedication and hard work.

Equally motivating is the impact on the next generation of athletes in this sport. I’ve had the privilege of introducing and mentoring emerging athletes like Annie Goldsmith and witnessing the transformative power of sport - how it fosters purpose, builds community, and truly changes lives. This impact motivates me more than any title could.

8. If you could describe yourself in three words, what would they be?

This is a tough one! I’d say determined, impactful, and resilient. Where there’s a will, there’s a way.

9. Outside of work and training, how do you like to unwind?

I love spending time outdoors, whether it’s e-foiling, bike riding, taking my dog, Coco, on adventures. I also like cooking and planning new activities. I’m always excited about booking new adventures around the world, including sit skiing, skydiving and surfing.

10. Finally, what’s next for you in your sporting journey? Any big goals on the horizon?

While I’m keen to focus a bit more on establishing my career in law, I still have some big goals in surfing. I’d love to be the first female para-prone surfer to land a proper aerial and surf a wave over 12 feet.

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What if a misstep in handling customer communications cost your business millions?  In a recent landmark decision, the Federal Court of Australia ordered Qantas Airways Limited (Qantas) to pay $100 million in penalties for several missteps that constituted conduct that breached the Australian Consumer Law (ACL). Additionally, Qantas undertook to pay $20 million as part of a remediation program for affected consumers.  

Pursued by the Australian Competition and Consumer Commission (ACCC), this case underscores just how high the stakes are when transparency, accuracy, and timely communication with consumers is not done properly.  In this blog, we explore the court’s decision, its implications for businesses, and the critical lessons every company should consider to preserve their reputation and avoid costly penalties.

Background

The Federal Court found that Qantas engaged in misleading or deceptive conduct, made false or misleading representations, and engaged in conduct liable to mislead the public in relation to more than 82,000 flights scheduled to depart between May 2022 and May 2024.  This conduct was found to contravene sections 18(1), 29(1)(b), 29(1)(g) and 34 of the ACL (being Schedule 2 to the Competition and Consumer Act 2010 (Cth)).

The court specifically found that Qantas had contravened the ACL by:

1. Advertising and selling tickets for flights that were already cancelled; and
2. Failing to notify consumers who had already purchased tickets promptly about the cancellations.

This conduct affected approximately 970,000 consumers, resulting in those consumers experiencing significant inconvenience and notable financial loss.

Penalties and Undertakings

Qantas admitted to these breaches and jointly submitted with the ACCC a proposal for a $100 million penalty, which the court accepted.  This penalty reflects the court’s recognition of the need for a strong deterrent to prevent similar misconduct by other businesses, well above the “acceptable cost of doing business”.

In addition to the penalty, Qantas has undertaken to pay approximately $20 million to affected consumers, intending to compensate those who had purchased tickets for already cancelled flights or to consumers who were rebooked on other flights after their original bookings were cancelled and notice of such cancellation not promptly given.  If at the conclusion of the remediation program (6 May 2025) the amount paid does not reach $20 million, the residual balance will be donated to a charitable organisation approved by the ACCC.

Implications for Businesses and Lessons Learned

As noted by the Federal Court in this case, the ACL provides a framework intended to protect consumers engaging in everyday transactions, operating in good faith with the expectation that they will receive the goods or services they have purchased.

This case serves as a powerful reminder for all businesses of the importance of upholding consumer protection standards and avoiding any conduct that could breach the ACL.  Failure to do so can lead to severe penalties and long-term reputational damage.

Some of the key takeaways of this case include:

• ‍Prioritise Transparency: Businesses must ensure that all information provided to consumers is accurate and up-to-date.  Misleading consumers can lead to substantial legal and financial repercussions.‍
• Timely Consumer Communication: Timely communication with consumers is essential, particularly so when delayed communication could lead to economic loss by consumers.  Such delays can amplify the negative impact on consumers, increasing consumer dissatisfaction and legal risk.‍
• Adhere to Consumer Laws: Compliance with the ACL is non-negotiable.  Businesses must proactively ensure compliance to avoid penalties, reputational damage and to maintain consumer trust.‍
• Systems and Processes: Businesses should have adequate systems and processes in place to promote ACL compliance and avoid breaches.  These should be customised to your business having regard to such considerations as business size and resources.

How We Can Help

If you run a business in Australia, you’ll be affected by the ACL. Whether you work with customers, businesses, provide services or sell goods, you must know how the ACL affects your business.  At Sierra Legal, we understand the complexities and challenges of navigating the ACL.  Our team of experienced lawyers can help ensure that you understand your obligations and options when providing goods and services, while protecting your business interests.

Conclusion

The Federal Court’s decision in the Qantas case reinforces the importance of consumer protection and corporate accountability.  For businesses, this decision highlights the need for transparency, prompt communication, and strict compliance with consumer laws.  Learning from Qantas' experience can help businesses better navigate consumer relations and avoid similar pitfalls.

For more information on how we can assist your business, please contact the team at Sierra Legal.

Looking to sell your business but not sure where to start?  

We have prepared a useful guide to walk you through the critical steps, from strategy to completion, ensuring you're prepared for a smooth and successful sale.  

1. Develop Your Exit Strategy

It’s never too early to plan your exit. Define your goals, decide on the best sale structure and seek tax advice to optimise your position. Identify potential buyers and get a business valuation to set realistic expectations. Understanding the transaction process and assembling a support team (including lawyers, accountants, corporate advisers, etc.) will ensure you’re prepared.

2. Get Your House in Order

Buyers will conduct due diligence on your business, including financial, legal and operational checks. Organise key documents such as financial records, contracts and licences, so you can quickly locate and provide them to a buyer during due diligence. A thorough preliminary audit will help to identify and address any gaps before the buyer conducts its due diligence investigations.  This will assist to reduce time and costs during due diligence, while boosting the buyer’s confidence and minimising post-sale risks.

3. Understand the Transaction Process

The sale process typically starts with an in-principle agreement, followed by a non-binding term sheet outlining key terms. In addition to being prepared for the buyer’s due diligence, we recommend that you undertake your own due diligence on the buyer, including to verify their financial capacity to complete the transaction.  

The next stage involves negotiating the sale agreement, including conditions, warranties, limitations of liability and restraints.

Once the sale agreement is executed, the deal moves to completion, which can take several weeks. This involves finalising and signing ancillary documents, paying the balance of the purchase price, and handling post-sale tasks like regulatory filings and purchase price adjustments.

Download your free copy of our guide now to kickstart your business sale!

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M&A deals come and go. Some successfully complete, while others fall over at varying stages. Failure to complete a deal, particularly once it has progressed to the final stages, can leave one or both deal sides feeling frustrated by the time and money lost.

This doesn’t have to be the case, and we often work with our clients around implementing mitigation strategies to limit the fallout of premature deal detonation.  These strategies include:

• ‍Running a competitive process: It’s always good to have options as a seller.  Not only does running a competitive process improve the chance of improved deal terms for a seller (including consideration), but it can also give a seller options, including potentially a Plan B buyer to step in and run with if negotiations with Plan A go awry.  Seirra Legal has collaborative relationships with a number of corporate advisory firms who are experienced in running these competitive processes, and we are happy to connect parties as appropriate to facilitate the best outcomes for our clients.‍
• Due diligence: This isn’t just for the buyer to do!  If you are the seller, you should seek assurances that the buyer has financial capacity to complete (assuming a cash deal).  For both sides, you should also understand early who the key decision makers of your counterparty are; what the approval process looks like for your counterparty; and what time and action hurdles need to be overcome for the deal to complete: the more time or actions required, the greater risk of failure to complete.
•  Identify the leverage: Understanding the key drivers for each party to undertake the deal and the landscape backdrop in which they operate, may also help you strategically navigate the deal to your timing and requirements, and avoid deal detonation.  For example, if one party has continuous disclosure obligations and the circumstances are such that the failure of an M&A deal would need to be disclosed to the relevant financial market, then this may apply reputational pressure on the disclosing entity to get the deal done.  As another example, if a counterparty has specific reporting obligations and deadlines, this could give you more certainty on the deal timeline and importance placed on deal completion by that counterparty.‍
• Term sheet, non-binding indicative offer (NBIO) or other similar document: This is the road map for the deal and having one agreed by the parties as an initial upfront step is often a quick way to identify deal makers and breakers.  It can help both sides work out relatively quickly (and usually cheaply) if there is a deal to be had or lost and the key terms important to each party.  While term sheets, NBIOs and other similar documents are often expressed to be non-binding from a legal perspective (except in relation to matters such as confidentiality and exclusivity), they can be a good way to get all parties on the same page and therefore reduce risk of a deal falling over at a later stage.  ‍
• Termination fee: While not very common in private M&A deals, it may be possible for a seller and buyer to agree on the payment of a non-refundable termination or break free as a binding provision in a term sheet or other relevant transaction document.  To improve the chance of agreement on this and reduce the risks of claims it is not enforceable, this termination or break fee should be a true and reasonable reflection of anticipated sunk costs.  Asking for a termination or break fee to be paid in certain circumstances where a deal falls over can also be a good gauge of the other party’s deal intentions and authenticity. ‍
• Escrow funds: For some deals, it may be appropriate to require any termination fee and/or part of the purchase price to be held in an escrow account for greater certainty of financial capacity and payment, including in the event of deal detonation.  Escrow arrangements do not need to be expensive or complicated.  Sierra Legal is happy to assist as escrow agent in appropriate transactions for its clients and including an escrow arrangement can be a seamless component of the deal.
• ‍Exclusivity period: Imposing standard ‘no shop, no talk’ provisions and the requirement to let the other side know of competitive approaches during the exclusivity period, help keep both sides committed and on task.  Similar to asking for a termination or break fee, the willingness of parties to agree to an exclusivity period and the length of that period can be good gauges of deal intentions (and vulnerability) and authenticity.‍
• Payment structure: While more common in smaller M&A deals, a seller could request that an upfront deposit be paid by the buyer, and which is only refundable in very limited circumstances.  This can obviously help motivate the buyer to complete the deal.  Similarly, staged payments of the purchase price (including earnouts) can be used to incentivise the seller to equally stay committed to the process and see it through to the end.    

Conclusion

Deal detonation and the sunk costs of lost time and money can often be avoided if some of these strategies are implemented early in the deal timeline. The team at Sierra Legal has extensive M&A experience with a variety of clients from differing industries and differing deal sizes.  Contact the team at Sierra Legal today to explore how we can support you with your M&A activity.

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With the recent tabling of the Privacy and Other Legislation Amendment Bill 2024 (the Bill), privacy and data security matters continue to be front of mind for company executives.

The Bill introduces a raft of new OAIC investigation and monitoring powers and broader penalties (including penalties of up to $3.3 million for doing an act or engaging in a practice that is an interference with the privacy of an individual).

From an M&A perspective, it’s likely that the proposed changes to the Privacy Act 1988 (Cth) will drive prospective purchasers to further scrutinise the privacy and data handling practices of potential targets.

Prospective sellers and their advisors should be prepared for more in-depth questioning during the due diligence phase and purchasers taking a ‘belts and braces’ approach when it comes to data privacy warranties and indemnities used in sale agreements.

To help sellers prepare and ensure their organisation’s information handling practices are up to scratch, we have summarised in this article some simple steps sellers can take before the sale process kicks off.

1.           Know your information

When it comes to getting a handle on your organisation’s information handling practices and understanding your privacy compliance obligations, the first step for most businesses is to have a good understanding of the information that flows in and out of the business.

It is crucial that you know what information your organisation collects, why it is collected, how it is collected and where it is stored. Without this level of understanding, it is very difficult to effectively manage and protect the personal information that your business handles.

The first port of call should be your organisation’s privacy policy as this document should set out how your business manages the personal information it collects.

Before preparing your business for sale, take the time to review your privacy policy and ensure it aligns with how your business actually handles the personal information it collects. This is also the opportune time to conduct a legal review of your privacy policy to ensure it is up to date with current laws and regulations.

If you have a lot of information that flows in and out of your business or if your business handles sensitive information such as health information or children’s information, you may find it helpful to conduct a data audit or mapping exercise to help you identify the various data touchpoints in your business.

There are software tools available that can help with the data mapping process, but this can also be done manually. It can be a complex and time-consuming process so itis often best to engage a professional to help you.

2.           Identify compliance gaps

Once you have a better idea of the information that you hold and how you handle it, it’s time to identify whether there are any compliance gaps in your businesses processes and procedures.

Ideally, these issues would be identified and remediated before any potential buyers start digging around during the due diligence phase.

Using the outputs of your data audit/mapping exercise, you can conduct an assessment of how you are tracking from a privacy and data security compliance perspective, using the Australian Privacy Principles (APPs) as your benchmark.

Depending on the complexity of your business, and the amount of information you handle, it may be worth having professional assist you with this assessment.

A thorough assessment shouldn’t just identify any compliance gaps but should also provide targeted recommendations and remediation steps to help you plug any gaps before a potential buyer has the chance to raise any issues.

3.           Start addressing compliance gaps now – the sooner you start the better.

Like most things, prevention is better than a cure.

This is true in the context of preparing to go to market with the sale of your business.

Rather than scrambling at the last minute to plug any compliance gaps and being reactive to any issues raised by prospective purchasers, it’s best to be proactive and sort these issues out before there is a chance of them being flagged.

There are some quick wins to be had when it comes to plugging privacy and data security compliance gaps, such as:

• ensuring your staff have completed privacy and data security training;
• making sure any privacy related policies you have in place are accurate and up to date;
• implementing appropriate security safeguards and controls;
• putting in place robust information access controls (e.g. multi-factor authentication);
• establishing incident responses plans;
• ensuring you have appropriate data back-up protocols and procedures in place; and
• keeping a register of any privacy related incidents, breaches or engagement with regulators.

An experienced privacy professional can help identify any low hanging fruit and suggest ways to address these issues quickly and efficiently.

4.           Be cautious when it comes to uploading personal information to virtual data rooms

In the frenzy that is the due diligence stage of a transaction, sellers don’t often stop to think about their privacy obligations when it comes to uploading personal information into virtual data rooms.

The due diligence phase is often completed on a truncated timetable, so it’s usually a case of uploading any information that has been requested by a potential purchaser as soon as possible.

One key risk area is the disclosure of employee data.

Employee data can be quite varied and often includes ‘sensitive’ personal information relating to the employees of the business. The disclosure of this information will generally require the consent of the individual to which the information relates.

While there are exemptions under the Privacy Act when it comes to the handling of ‘employee records’, the test of what constitutes an ‘employee record’ is typically interpreted quite narrowly by regulators.

In circumstances where express consent has not been (or cannot be) obtained from the individual concerned, a cautious approach to uploading employee information into a virtual data room should be taken. Ideally, any employee information should be ‘de-identified’ before it is uploaded so that individual employees cannot reasonably be identified by reference to the information provided in the data room.

In most cases the identity of the specific individual employees is not particularly relevant in the context of a transaction. Information such as any accrued entitlements, key terms of the template employment agreement, and the number of employees in any given location of the business is usually what buyers want to know. For this reason, providing anonymised information relating to employees is usually not a deal-breaker for most buyers.

5.           Transaction documents – a belts and braces approach

Within creased enforcement powers for regulators, and greater penalties for breaches of Australia’s privacy laws on the horizon, it’s a sure bet that purchasers will be focusing heavily on the warranties and indemnities provided by the seller in the sale documentation that relate to privacy and data security matters.

For example, purchasers are likely to seek warranties from the seller that the target:

• has complied with all applicable privacy and data security laws and regulations;
• is not currently involved in, or aware of, any pending or threatened privacy or data security related claims or proceedings; and
• has not been involved in, or is not aware of, any pending or threatened regulatory investigations or action against it in relation to its compliance with applicable privacy and data security laws.

Sellers need to be prepared for tougher negotiations on these points, but where sellers can show buyers that these key risks have been mitigated, the negotiation process should be a much smoother one.

Final thoughts

While preparing your business for sale might seem like a daunting prospect, having the right mix of professionals on your team is crucial for your success.

If you are thinking of selling your business and would like to have a chat with our team about how you can best prepare, please contact us.

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In today’s fast-evolving professional world, remote work has transformed from a temporary solution into a core aspect of modern workplace strategy. As businesses adapt to more flexible and innovative approaches, the benefits of remote work are being widely embraced by organisations and employees, reshaping how we think about productivity, work-life balance, and adaptability.

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Sierra Legal's Remote Work Model: Pioneering for 14 Years

At Sierra Legal, we have embraced remote working for over 14 years, ensuring that our team and clients benefit from its numerous advantages. These include:

1. Flexibility and Enhanced Work-Life Balance

Remote work allows our team greater autonomy over their schedules, helping to balance professional and personal commitments. With no daily commute, our staff have more time for family, hobbies, and personal responsibilities while maintaining high levels of productivity. This approach has significantly contributed to increased job satisfaction and overall well-being across the firm.

2. Enhanced Productivity

At Sierra Legal, we have seen that remote work often leads to higher productivity. Our team benefits from fewer office distractions, the ability to create their ideal work environment, and seamless connectivity through advanced technology platforms. Tools like video conferencing and project management systems ensure that we stay connected and aligned, allowing us to continue delivering high-quality legal services.

3. Reduced Operational Costs

Remote work has enabled Sierra Legal to reduce overhead expenses, such as office space and utilities. By allowing our team to work from home, we are able to invest more resources into technology and client service. It also opens up the opportunity to hire top-tier talent from across the country, ensuring we maintain the highest standards of legal expertise without location-based limitations.

4. Promoting Inclusivity

Sierra Legal’s remote model enhances inclusivity by empowering employees with various personal responsibilities to excel. For individuals balancing raising children, caregiving or pursuing elite athletic careers, remote work offers the flexibility needed to navigate their unique circumstances. This adaptability ensures that all team members can fully engage and contribute their talents, enriching our workplace with diverse perspectives and skills.

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Staff Member Spotlight: Ellie Sanford

Sierra Legal’s flexible and innovative working model provided the perfect opportunity for Ellie Sanford to join the team over a year ago.  

As a full-time professional 800m track and field athlete for Puma, Ellie has been able to successfully balance her dual careers in both law and athletics.  

Although Ellie was a talented athlete during her teenage years, she took a break from competitive sports to focus on her studies. After completing her Law and Commerce degrees at Monash University, she returned to full-time athletics training. Her dedication yielded results—she steadily improved her personal bests, becoming one of Australia’s top middle-distance runners. Since then, her athletic career has taken her to competitions all around the world, including representing Australia at the 2023 World Championships in Budapest.

Ellie credits Sierra Legal's remote working model with enabling her to successfully pursue both of her passions. "Balancing a professional sports career with law is challenging, but Sierra Legal's innovative approach to remote work has made it achievable. Their support has allowed me to perform at my best in both worlds," Ellie states.  

Ellie's story is a testament to the power of flexibility and work-life balance - values that Sierra Legal has embraced for over 14 years.

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Contact the team at Sierra Legal today to explore how we can support you.

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As Australia’s legal landscape continues to shift, we believe it is crucial to stay aligned with the needs of our clients and the evolving challenges they face.  That is why we have taken the opportunity to refresh Sierra Legal’s mission, vision and values.  This update reflects who we are today—a dynamic and innovative legal firm, committed to delivering excellence while at all times maintaining the highest levels of integrity and client-focused service.

Mission

Our mission is now more focused than ever:  to deliver outstanding commercial solutions for our clients, by using our top-level experience and innovative approach.

Vision

Our refreshed vision is forward-thinking and ambitious:  to continually create new and better ways of delivering legal services and utilise the best technology for the benefit of our clients and our staff.

Values

Our updated values reflect what we stand for and how we operate, both within the firm and in our relationships with clients:

• Smarter Working.  We are always looking for better, smarter, more flexible and innovative ways to meet our clients’ needs.

• ‍Integrity.  Clients can depend on our promises, and trust that we will go above and beyond, always acting in their best interests.

• ‍Expertise.  Our team will draw on their extensive legal expertise and up-to-date legal knowledge to strive for the best possible outcomes for our clients.  We aim to overcome challenges faced by our clients and deliver outstanding commercial solutions.  

• Relationships.  We believe in collaboration and open communication.  We work in partnership with our clients and their other advisers towards a common purpose and goal.  

• Reliability.  When it comes to the law there is no room for mistakes.  We will give you the right answers and we will deliver our services on time.

• Approachable and Fun.  Our team love what they do and work with a positive mindset.  We are all approachable, friendly, and a joy to work with.

As we move forward with this renewed focus, our mission, vision, and values are not just words — they are our commitment to continue to deliver outstanding commercial solutions for our clients, using an innovative and friendly approach.

Please reach out if you would like to hear more about how our updated mission, vision and values translate into the quality of our legal services.

You may know that if your business supplies goods to a customer under a contract or terms and conditions which include a retention of title provision (ROT), you need to have a valid registration on the Commonwealth personal property securities register (PPSR) to ensure the ROT will be enforceable against the customer if it becomes insolvent.  However, from a credit risk management perspective, it needs to be recognised that even a valid PPSR registration of a supplier’s ROT has its limitations.

Types of ROTs

A classic ROT stipulates that ownership of goods sold by the supplier to its customer does not pass to the customer until the customer has paid for the goods.  Many ROTs are drafted as ‘all moneys’ ROTs.  That is, they provide that the customer does not acquire ownership of goods from the supplier until the customer pays all amounts owing by the customer to the supplier (whether it be for the price payable for those goods, or any other goods bought by the customer from the supplier at any time).  ROTs typically give the supplier the right to re-take goods supplied to the customer if the customer fails to pay the supplier on time.

Benefits of registering an ROT as a purchase money security interest on the PPSR

The inclusion of an ROT in a supply contract or terms and conditions will usually give rise to a security interest which is registrable on the PPSR as a purchase money security interest (or PMSI).  A PMSI includes a security interest taken in goods supplied to a customer, to the extent that it secures all or part of the purchase price of those goods.  An ROT which is properly registered as a PMSI confers a ‘super priority’ on the supplier in respect of the goods supplied to the customer, as well as the ‘proceeds’ of those goods (such as money received by the customer when it sells the goods to its own customers, and receivables owing to the customer arising from such sales).  For example, a properly registered ROT PMSI will give the supplier a priority over security taken by a bank over ‘all present and after-acquired property’ (All PAP) of the customer under a general security agreement, even if the bank registered its All PAP security on the PPSR before the supplier registered its ROT PMSI.

To ensure a valid registration of an ROT as a PMSI, certain requirements need to be met, including (where the goods form part of the inventory of the supplier’s customer) registering on the PPSR before the customer takes possession of the goods.

Limitations of registered ROTs

Despite the above benefits of a valid ROT PMSI registration, there are some limitations which suppliers of goods should be aware of, including the following:

• An ‘all moneys’ ROT may not always have priority as a PMSI over a competing security interest (such as an All PAP registration held by the customer’s bank).  For instance, if the supplier has sold goods to the customer under multiple orders, and the customer has paid for the goods the subject of some of those orders but not for others, the supplier may not have a PMSI super priority in respect of the goods which have been paid for (or their proceeds).  This is because, as mentioned above, a PMSI subsists in goods only to the extent that it secures all or part of the purchase price of those goods.  If the goods have been paid for in full, the supplier may be unable to assert a PMSI super priority over those goods in respect of outstanding price payable by the customer for other goods which the supplier has supplied. In that case, a prior-registered All PAP security interest (e.g., one held by a bank) may defeat the supplier’s registered ROT in respect of the goods which have been fully paid for (or their ‘proceeds’, if the customer has on-sold them).

• Although a PMSI is thought to confer a super priority, the reality is that a bank’s security interest over the customer’s accounts held with the bank give the bank an even better priority.  This means that if the customer has sold goods which are the subject of a ROT PMSI registered by the supplier, and the proceeds of sale have been paid into the customer’s bank account, the bank’s security interest over the account will trump the supplier’s PMSI in a competing claim between the bank and the supplier in relation to those proceeds.

Alternative credit risk management strategies for suppliers

Therefore, a supplier may not wish to rely on ROT PMSI registrations alone to protect itself against customers that default or become insolvent.  Other credit risk management strategies which a supplier may wish to consider include:

• requiring customers to pay for goods on or before delivery; and/or

• taking out debtor or trade credit insurance.

It is important to note that there is no ‘one size fits all’ approach to managing credit risk.  For instance, a supplier with many customers with low value transactions may manage credit risk differently from a supplier which engages in high value transactions with a small number of customers.

Conclusion

While it’s important that you properly register an ROT on the PPSR against your customer if you wish to ensure that it will be enforceable on the customer becoming insolvent (and that the ROT will have the appropriate priority against competing registered security interests), registration will not give you complete protection.  You should be aware of the limitations of registering on the PPSR and, if necessary, adopt appropriate additional risk management strategies.  

If you need advice on registering your ROT on the PPSR, or the benefits and limitations of registration, please contact Sierra Legal.

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Navigating commercial law can be complex, and misunderstandings are all too common. These misconceptions often lead to costly mistakes or missed opportunities. In this blog, we’ll debunk some of the most widespread myths to help you avoid potential pitfalls and make more informed decisions.

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1. "My company is a separate legal entity, so I can't be held personally liable."

This is one of the most frequently misunderstood aspects of commercial law. While it’s true that a company is considered a separate legal entity, directors and officers can still be held personally liable under certain circumstances. For example, this can occur if directors breach their duties, trade while insolvent, or engage in fraudulent or negligent activities. Directors owe a duty of care to the company and must act in its best interest. If these duties are breached, personal liability can arise despite the company’s separate legal status.

Sierra Legal’s tip: Directors need to be particularly cautious during financially challenging periods for the company to avoid insolvent trading, which could result in personal liability for the directors.

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2. "A handshake deal is just as enforceable as a written contract."

While Australian contract law recognises verbal agreements in some cases, relying on a handshake deal can be risky. Without a written contract, it can be difficult to prove the terms of the agreement if a dispute arises. Written contracts provide clarity and reduce the chances of misunderstanding. Additionally, certain transactions, like those involving the sale of land, are legally required to be in writing. In commercial dealings, a well-drafted written contract is always preferable to avoid costly legal disputes.

Sierra Legal’s tip: Always seek a written contract for key business transactions, even if there’s trust between the parties. It’s about protection, not distrust.

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3. "If it's in the contract, it must be enforceable."

Not necessarily. Just because a term is written into a contract, that doesn’t automatically make it legally binding. Some terms may be deemed unfair or unenforceable, especially in the context of consumer and small business contracts. Under the Australian Consumer Law (ACL), unfair contract terms can be voided, particularly in standard form contracts. These include terms that create an imbalance of power, allow one party to terminate without good reason, or impose harsh penalties on one side.

Sierra Legal’s tip: Ensure contracts are balanced and compliant with all applicable laws. Don’t assume every term will hold up in court, especially if it unfairly favours one party.

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4. "As a shareholder, I have the right to manage the company."

Shareholders often believe they can control or manage the company’s day-to-day operations. However, this is not usually the case. Typically, the board of directors is responsible for managing the company. Shareholders are generally entitled to vote on significant matters, such as appointing directors or approving major transactions, but they do not get involved in daily management. Shareholders are the owners, but the directors are the decision-makers.

Sierra Legal’s tip: As a shareholder, it’s essential to understand the limits of your rights. Shareholder agreements and the company’s constitution often outline these boundaries, so it’s important to be familiar with them.

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5. "You don’t need legal advice for small transactions.”

Many individuals and small business owners believe that legal advice is unnecessary for small transactions, assuming the risks and complexities are minimal. They often think that they can handle these transactions on their own without incurring legal fees. However, even small transactions can carry significant legal implications.  

Sierra Legal’s tip: Always consult a legal professional, regardless of the transaction size. Doing so will allow you to make better-informed decisions and ultimately contribute to the success of the transaction.

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Conclusion

Legal issues can be complex, and misunderstandings can lead to costly errors or missed opportunities. By seeking legal advice when entering contracts, managing corporate governance, or addressing liability matters, you can protect your interests and ensure compliance with the law.  

Contact the team at Sierra Legal today to explore how we can support you.

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Navigating the Australian Foreign Direct Investment (FDI) landscape can be complex, especially with the regulatory oversight of the Foreign Investment Review Board (FIRB).  In this blog post, we'll delve into the FIRB approval process and highlight the key considerations for foreign investors looking to invest in Australia.

Understanding Australian FDI and FIRB

Australian FDI refers to the investment made by foreign entities into Australian businesses and assets.  The Australian government regulates FDI through FIRB, which evaluates foreign investment proposals to ensure they align with national interests.  Understanding FIRB's guidelines, thresholds and approval processes is essential for foreign investors.  Significant criminal and civil penalties can apply for non-compliance.

Key Steps in the FIRB Approval Process

The process of gaining FIRB approval is summarised below.

1. Application Submission: Foreign investors must submit a comprehensive application to FIRB detailing the nature of the investment, the parties involved, and the expected benefits to Australia.  Fees are imposed for application consideration.
2. Review and Consultation: FIRB assesses each application on a case-by-case basis, considering factors such as the investor's background, the economic benefits of the investment and any potential national security implications.  Consultation with government departments, agencies, and industry stakeholders may occur during the review process.
3. Decision and Conditions: Once the review is complete, FIRB will make a decision on whether to approve, conditionally approve, or reject the investment proposal.  In some cases, FIRB may impose conditions on approved investments to mitigate risks or ensure compliance with regulatory requirements.
4. Post-Approval Obligations: After receiving FIRB approval, investors must continue to comply with reporting obligations, including providing updates on the progress of the investment and any material changes to the original proposal.  

Key Considerations for Foreign Investors

Before diving into the Australian market, foreign investors must familiarise themselves with the following key considerations:

1. Monetary Thresholds: Understanding the monetary thresholds applicable to different types of investments is crucial for determining whether FIRB approval is required.  A list of different investment types and monetary thresholds is available on the 'Foreign investment in Australia' website here.
2. Sectoral Regulations: Certain sectors, such as critical infrastructure, healthcare, and sensitive land, are subject to stricter regulations and scrutiny by FIRB.  Foreign investors must assess sector-specific regulations and compliance obligations before making investment decisions.
3. Due Diligence: Conducting thorough due diligence is paramount to mitigate risks and ensure the success of investment ventures.  From legal, tax and financial analysis to market research and risk assessment, comprehensive due diligence enables foreign investors to make informed investment decisions.

Conclusion

Navigating the complexities of Australian FDI and FIRB requires strategic guidance and legal expertise. Sierra Legal can provide foreign investors with comprehensive legal support throughout the investment lifecycle, including assistance with the establishment of appropriate investment vehicles, drafting and negotiating agreements in relation to the investment, and advising on and obtaining any necessary FIRB approvals.  Get in touch with one of our team members today.

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The Federal Government is poised to revamp the ‘sophisticated investor’ regime.  This blog will explore the existing sophisticated investor test, analyse the proposed changes, and assess the potential implications of these alterations on the investment landscape for both investors and corporations.

Understanding the current regime

In Australia, the term ‘sophisticated investor’ is defined under the Corporations Act 2001 (Cth) and carries specific financial and regulatory implications.   Individuals or entities meeting specific financial criteria, such as a certified net asset value of at least $2.5 million (including the family home) or a gross income of $250,000 per annum for the last two years, gain access to a broader spectrum of financial products and investment opportunities that may not be available to retail investors.

While this status opens doors to potentially lucrative investments like private equity, venture capital, early-stage startups and unlisted real estate, it also entails forgoing certain consumer protections.  Sophisticated investors are deemed capable of navigating higher-risk activities, such as buying shares without a prospectus, and are subject to different regulatory considerations compared to their retail counterparts.

What are the proposed changes?

The proposed adjustments to the sophisticated investor regime are geared towards refining the criteria for determining eligibility.  These proposed changes include:

1. Increased financial thresholds:  the modifications may involve raising the financial thresholds that individuals or entities must meet to qualify as sophisticated investors. This would necessitate a higher level of income or assets, ensuring that access to certain investment opportunities is reserved for those with substantial financial capacity. While a definitive threshold is yet to be determined, industry experts, drawing on inflation data, suggest that a suitable benchmark for the revised sophisticated investor criterion could fall within the range of $4.5 million to $5 million (for the net asset test).
2. Periodic reassessment: another notable change may involve the introduction of a periodic reassessment requirement. Investors would be obligated to consistently meet the sophistication criteria over time, adapting to evolving market conditions and individual circumstances.

Why the changes?

The drive behind these changes stems from the aim to enhance investor protection and adapt to the ever-changing financial landscape.  Concerns within the Federal Government have emerged due to the static nature of the test thresholds, which were established in 2001.  The lack of adjustment has resulted in a significant surge in the percentage of Australians meeting the criteria for sophisticated investors, escalating from a mere 1.9% in 2002 to over 16% in 2021.  This notable increase is primarily attributed to the rapid appreciation of family home prices, facilitating the qualification of smaller investors who may be averse to substantial losses as sophisticated investors.

Potential implications for investors

The suggested alterations to the sophisticated investor regime may carry substantial consequences and potential impacts for investors, such as:

1. Reduced access to investments: increased financial thresholds may limit the number of individuals and entities qualifying as sophisticated investors, leading to reduced access to certain investment opportunities.
2. Adaptation of investment strategies: investors may need to adapt their investment strategies in response to changes in eligibility criteria.  This may involve reassessing risk tolerance, exploring new investment avenues, or seeking alternative financial products.

Potential implications for corporations

A more stringent sophisticated investor test may result in a decline in the number of individuals and entities meeting the criteria, carrying significant implications for corporations, including:

1. Altered investor landscape: this may bring about a shift in the investor landscape, potentially impacting funding strategies and investor relations.  A reduced pool of sophisticated investors could reshape the composition of corporations' investor bases.
2. Impact on capital raising: corporations might encounter challenges in attracting funds if financial thresholds are heightened, affecting the ease with which they can raise capital from a narrowed pool of eligible investors.

In response to these potential changes, corporate entities are advised to proactively adjust their strategies.  Staying informed about regulatory developments, seeking advice from legal and financial experts, and reevaluating investor outreach strategies are essential for navigating the evolving landscape.  As regulations evolve, diversifying investment strategies and considering a broader range of potential investors, both sophisticated and retail, may help mitigate the effects of any alterations to the sophisticated investor test.

Conclusion

Stay tuned for further updates on the sophisticated investor regime.  If you have any questions or would like to discuss these developments further, please don't hesitate to reach out to the Sierra Legal team.

The Personal Property Securities Act 2009 (Cth) (‘PPSA’) is set to undergo a significant transformation.  This blog delves into the PPSA, the proposed changes, and why businesses should pay attention and prepare for the impending changes.

What is the PPSA?

The PPSA is a comprehensive legal framework that governs the registration and management of security interests in personal property. It was introduced to simplify and standardise the process of securing assets, reducing disputes and enhancing transparency in transactions.

What is the PPSR?

The Personal Property Securities Register (‘PPSR’) is the online platform where these security interests are registered and searched. It acts as a centralised database, allowing businesses and individuals to record their security interests and conduct searches to determine if another person or entity has existing security interests registered against it.

Statutory review of the PPSA

On 22 September 2023, the Australian Government invited public consultation on its response to the 2015 statutory review of the PPSA (‘Whittaker Review’).  The Whittaker Review made 394 recommendations to reduce complexity and allow the PPSA to better meet its objectives.  Of the 394 recommendations, the Government has proposed to accept (in whole or in part) 345 recommendations.

What’s changing?

The proposed reforms are designed to assist small business, financiers and consumers by simplifying processes, reducing risks and costs, and increasing usability of the PPSR.  The exposure draft of the amending legislation and regulations, and other consultation materials, are available here.

Some of the proposed changes to the PPSA include:

• Chattel paper: removing the concept of ‘chattel paper’ from the PPSA.
• PPS lease: amending the concept of a ‘PPS lease’ to remove all references to ‘bailment’.
• Negotiable instrument: deleting the definition of ‘negotiable instrument’, allowing the term to have the same meaning as at general law.
• Motor vehicle: modifying the definition of ‘motor vehicle’ to mean that a vehicle is a motor vehicle if it has a vehicle identification number.  
• Intermediated securities and investment instruments: amending the definitions of ‘intermediated securities’ and ‘investment instruments’ and the rules relating to how security interests over such personal property can be perfected by control.
• PSMI: providing that a sale and lease-back can give rise to a PMSI if (and to the extent that) the PMSI secured party paid the purchase price for the collateral directly to the supplier.
• Chapter 4: replacing the enforcement rules set out in Chapter 4 with a clearer security interest enforcement regime.
• Accounts financer: allowing an accounts financier to be able to use the process in section 64 of the PPSA to take priority over both a PMSI held by an inventory financier in the proceeds of inventory, and over a non-PMSI security interest held by the same inventory financier in those proceeds.
• PPS Registrar: expanding the Registrar’s power to conduct investigations to investigations that are conducted for purposes that may include pursuing the enforcement of civil penalties.

Some of the key changes to the PPSR registration process include:

• Number of collateral classes: simplifying the collateral classes to 6 classes: serial-numbered property (with appropriate sub-classes for the different types of serial-numbered property), other goods, accounts, other intangible property, all present and after-acquired property, and all present and after-acquired property except.
• Registrations over trust assets: changing the registration of security interests over trust assets so that registration can be made against the relevant details for the trustee, rather than trust ABN or other identifying details for the trust.  
• Consumer and commercial property: removing the requirement to indicate whether the collateral is consumer property or commercial property.
• Single registration for multiple collateral classes: allowing a single registration to be made against a number of collateral classes (subject to certain exceptions).
• PMSI: providing a uniform timeframe of 15 business days for a registration that perfects a PMSI for all types of collateral, including inventory.
• Registration terms: all registrations against individuals, or against serial-numbered property that may not identify the grantor because the grantor is an individual, will have a maximum term of 7 years.
• Registrations against individuals: introducing an obligation on secured parties to remove registrations made against individuals within 5 business days after the secured party becomes aware, or should reasonably have become aware, that it no longer has any security interest over any collateral.

What’s next?

The Government is seeking input on the proposed reforms to assess whether they will meet the needs of lenders, consumers and businesses. The submission period opened on 22 September 2023 and is scheduled to close on 17 November 2023.

These suggested reforms might require adjustments to contracts, documents, IT systems, and business practices. Secured parties should carefully evaluate the potential impact on their current registrations, security interests, and overall business operations as they move forward.

Stay tuned for further updates on the PPSA.  Contact the Sierra Legal team today to discuss how the reforms will affect your business.

Australia’s unfair contract terms (UCT) regime is designed to protect consumers and small businesses from unfair contract terms in certain 'standard form’ contracts.  

On 9 November 2023 significant changes to the UCT regime will take effect and, among other things, the range of contracts that fall within the operation of the regime under the Australian Consumer Law and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) will be expanded.

Notably, the changes include broadening what constitutes a small business contract.  Under the Australian Consumer Law, the UCT regime may apply to standard form business contracts where one party to the contract:

• employs fewer than 100 persons; and/or
• has a turnover of less than $10 million for the last income year that ended before or at the time the contract is made.

Similar changes will apply under the ASIC Act, although there is an additional requirement for the upfront price payable under the relevant contract to be $5million or less (excluding interest).

Further, Courts will have additional powers in relation to contracts that contain unfair terms under the UCT regime, including the ability to impose significant financial penalties.  For example, companies that breach the UCT regime under the Australian Consumer Law could incur a maximum financial penalty that is the greater of:

• $50 million;
• three times the value of the benefit obtained from the breach; and
• if the value of the benefit cannot be determined, 30% of the company’s (adjusted) turnover during the period the breach occurred (with a minimum of 12 months).

If your business uses standard form consumer contracts or small business contracts, now is the time to act.

If you need assistance to ensure your business complies with the UCT regime, please call Sierra Legal.

Whether it's due to internal restructuring or meeting commercial requirements like a business sale, many companies encounter the need to transfer contracts from one entity to another. However, it's important to note that this process is not as simple as replacing one party's name with another. In most cases, contracts can be legally transferred through one of two methods: assignment or novation.

Assignment:

An assignment of a contract involves transferring the rights (but not the obligations) of the outgoing party to the incoming party. Typically, an assignment doesn't require the consent or agreement of the other party involved in the contract (the continuing party), unless specifically stated in the terms of the relevant contract.

To effect an assignment, a deed is often executed by both the outgoing party and the incoming party. If the consent of the continuing party is necessary, it is usually convenient to include this consent in the deed and have the continuing party execute it as well.

An assignment does not relieve the outgoing party of its ongoing obligations to the continuing party under the contract. In order to protect the outgoing party against future breaches of contract by the incoming party, it is common for the assignment deed to include provisions where the incoming party:

• promises to the outgoing party that it will fulfil the outgoing party's contractual obligations after the assignment date; and
• provides indemnification to the outgoing party against any claims made by the continuing party for any failures by the incoming party to fulfil those obligations after the assignment.

Even if the consent of the continuing party is not required, for the assignment to have legal effect written notice of the assignment must be given to the continuing party. This written notice ensures that all parties involved are informed about the transfer.

Novation:

Another method to transfer contracts is through novation. In legal terms, novation refers to the substitution of a new contract for an existing one, maintaining the same terms as the original contract, but between the continuing party and the incoming party instead of between the continuing party and the outgoing party. Unlike assignment, a novation transfers both the rights and obligations under the relevant contract from the outgoing party to the incoming party.

In practice, novation is commonly achieved by substituting the outgoing party with the incoming party. This means that, from the effective date of the novation, the incoming party assumes all the rights and obligations previously held by the outgoing party, and the continuing party releases the outgoing party from any further obligations under the contract.

It is important to note that the agreement of the continuing party is always required for a novation to be legally effective. While novation offers certain advantages over an assignment, such as a better legal liability position for the outgoing party, it can be more challenging to accomplish due to the necessity of securing the continuing party's agreement.

Similar to assignment, novation typically involves executing a deed of novation, which states the agreement of all parties to substitute the outgoing party with the incoming party.

Other methods:

In addition to novation and assignment, there are indirect methods available for transferring rights and obligations under a contract. For example, where a party to a contract is a company, it may be possible to transfer the company's rights and obligations under a contract by the shareholders of that company transferring their shares in the company to a third party. By doing so, the company remains a party to the contract, eliminating the need for assignment or novation. Instead, a new shareholder obtains control of the company and indirectly obtains the benefit of the rights, and the burden of the obligations, of the company under the contract.

Choosing the right transfer method

When faced with the need to transfer a contract, whether through assignment, novation, or an indirect method, it is important to consider several factors to determine the best option for your specific situation, including:

• The terms of the contract itself – examine the terms to identify any provisions that prohibit, allow, or impose conditions on the transfer of the contract. Understanding these contractual provisions will help determine the available options and any limitations associated with each method.
• Consider your ultimate goal in transferring the contract - evaluate which party should bear the responsibility for liability arising under the contract, both before and after the transfer. This assessment will help clarify which method of transfer aligns better with your desired outcomes.
• The commercial position of the parties - consider the commercial positions of the outgoing party, the continuing party, and the incoming party. Assess factors such as the willingness of the continuing party to provide consent for the transfer. Understanding the potential challenges or cooperation you may encounter from the relevant parties will assist in selecting the most viable transfer method.

By carefully evaluating these factors, you can make an informed decision on the most suitable transfer method for your specific circumstances.

For more information and to navigate the transfer process smoothly, please contact any member of the Sierra Legal team, whose contact details can be found here (Link).

When entering into a contract, it is essential to be well-informed about the identity of the other party. Both you and the counterparty will have responsibilities and obligations under the contract, such as providing goods or services, or making payments, or both. Ensuring that you are contracting with a legal entity or “legal person” will mean that you can sue them if they breach the contract. Likewise, it is important to be aware of those who have the ability to take legal action against you.

Here, we provide some tips to help you navigate the complexities of contracting with various types of legal entities.

Tip 1: Always contract with a legal entity

You should only enter into a contract with a legal entity (or ‘legal person’), being one that can, under the law, sue and be sued. For example:

• Individuals and companies - both are legally recognised entities capable of entering into contracts. When contracting with an individual or a company, it is essential to clearly identify the party’s legal name and their capacity to act.
• Trusts - although not legal entities themselves, trusts will have trustees that are. Therefore, when dealing with a trust, the contracting party should be the trustee, whether it is an individual or a company. In the contract, the trustee can be identified as “ABC Pty Ltd as trustee of the XYZ Trust” or simply as “ABC Pty Ltd”.  A company quoting an ABN where the last 9 digits of the ABN are different from its ACN may indicate that it is acting as the trustee of a trust (the ABN may be that of a trust).
• Partnerships - unlike individuals and companies, a partnership is not a legal entity separate from its partners. Therefore, all the partners would be parties to the contract. However, in the case of a large partnership, it may not be practical to name each partner as a party to the contract. Instead, because each partner is treated under the law as an agent of the partnership and the other partners for partnership business purposes, any partner, acting as an agent, can enter into the contract on behalf of the partnership. In some instances, a partnership may have a “nominee company” that is owned or controlled by the partners. This separate legal entity serves as a vehicle for entering into contracts on behalf of the partnership. The nominee company can sign the contract as an agent, nominee, or on behalf of the partnership.

Tip 2: Contract with the right party

Apart from ensuring that the other party is a legal entity, it is vital to confirm that you are contracting with the intended party. Mistakenly entering into a contract with the wrong party can lead to complications and difficulties, particularly in cases involving businesses operated through different entities. For instance, if an individual operates a business through a company, and you are a customer or supplier of the business, any contract with the business should be entered into by the company (as the supplier of goods or services, or your customer, as applicable), and not the associated individual (who may be a director or shareholder of the company). Contracting with the individual in this example could give rise to complications, such as if you needed to make a claim for defective goods or services supplied, or a claim for money owed to you, under the contract.  

To safeguard your rights, it is good practice to:

• gather Information - before finalising the contract, enquire about the structure of the business of the other party. This will help you correctly identify the appropriate party with whom to enter into the contract. Questions to ask would include whether the counterparty’s business is operated through a company, trust, or another type of entity; and
• conduct research - utilise online resources to identify and verify the legal entity you are dealing with. This could include conducting searches of ASIC’s database for company and business name information, using the Australian Business Register for ABN searches, running searches of the applicable domain name registry, and checking registered trademarks through IP Australia. These searches can provide valuable insights into the legal entity with whom you are dealing.

Tip 3: Confirm authority to contract

While verifying a party’s authority to enter into a contract may not be necessary where they are an individual or a company, it becomes crucial when dealing with trusts or partnerships, particularly in high-value or high-risk contracts. Consider taking the following steps:

• Trusts: If an individual or a company is contracting with you as the trustee of a trust, you can request a copy of the trust deed to verify their power or authority to contract in that capacity. This verification is essential to ensure that the trust’s assets will be available to fulfil the party’s contractual obligations and any future claims you may have against them.
• Partnerships: When entering into a contract with a person on behalf of a partnership, it may be necessary to obtain evidence of their partnership status. This can be achieved by requesting a copy of the partnership deed or a document appointing them as a partner. Alternatively, you can ask for a power of attorney, or a similar document signed by all partners, authorising the person (or nominee company, if applicable) to enter into contracts on behalf of the partnership.

By verifying that the counterparty is a duly recognised legal entity, possesses the necessary authority to act and meets your satisfaction as the intended contracting party, you can mitigate risks, protect your interests, and establish a solid foundation for successful contractual relationships. For more information or to seek specific advice tailored to your unique circumstances, please contact any member of the Sierra Legal team, whose contact details can be found here (LINK).

Changes to the unfair contracting provisions of the Competition and Consumer Act 2010 (Cth) (CCA) and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) are due to take effect from 9 November 2023. The changes:

• expand the type of contracts that may be subject to the CCA and ASIC Act; and
• apply significant penalties for noncompliance.

Ahead of the changes taking effect, Australian businesses, including those that were previously unaffected by the unfair contracts regime, should review their standard form contracts to ensure they do not contain any unfair contract terms.

What is an unfair contract term?

A term of a standard form consumer or small business contract may be unfair if it:

• would cause a significant imbalance in the parties’ rights and obligations arising under the contract;
• is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
• would cause detriment (financial or otherwise) to a party if it were to be applied or relied on.

Whether a contract term is ‘unfair’ depends on the particular circumstances of that contract and ultimately can only be determined by a Court.  However, guidance can be obtained from examples given by the ACCC and applicable case law. Terms which could be ‘unfair’ include:

• automatic renewals of contracts without notice or where the automatic renewal period is excessively long
• where indemnities only apply to one party and not to the other party
• where a party has a right to update terms (including varying the fees) without providing prior notice to the other party
• unilateral rights to suspend performance of a contract without notice
• requirements for pre-payment with no ability to get a refund for unused services/products
• a term that permits one party (but not the other) to terminate the contract for convenience
• excessive early termination charges or other ‘exit fees’
• low liability caps (e.g. limiting liability to fees paid where minimal fees are paid upfront)
• a term that penalises one party (but not the other) for a breach or termination of the contract.

What are the changes to the unfair contract terms regime?

The changes to the unfair contracts regime offer increased protections for consumers and small businesses, and include:

1. Prohibition on unfair contract terms

Previously, if a Court found a relevant contract term ‘unfair’ the Court could deem that term void and unenforceable. Under the new regime:

• The proposal, use or application of, or reliance on, unfair contract terms is prohibited.  
• A Court may impose pecuniary penalties for breaches, noting that each unfair term contained in a contract could be considered a separate breach.

2. Small business contracts

The new regime will apply to a contract if one party to the contract is a ‘small business’.  The definition of ‘small business’ has been expanded to be one that:

• employs less than 100 people (increased from the previous threshold of 20 people); or
• had an annual turnover of less than $10 million in the preceding income year (new).

In circumstances where the ASIC Act applies (i.e. in relation to financial products and services) there is an additional requirement that the upfront price payable under the contract does not exceed $5 million (increased from $1 million) .

3. Standard form contracts

A contract may be determined to be a ‘standard form contract’ despite there being an opportunity for a party to negotiate minor changes to the contract or to select a term from a range of options provided.  

4. Court powers

Increased penalties were introduced in November 2022 for breaches of the CCA and those penalties will apply to the new unfair contract terms regime.  For individuals, the maximum penalty that may be imposed by a Court is $2.5 million and for companies, the maximum penalty is the greater of:

• $50 million;
• three times the value of the benefit obtained and reasonably attributable to the breach, if that can be determined; and
• if the value of the benefit cannot be determined, 30% of the company’s adjusted turnover during the breach turnover period (i.e. over the period the breach occurred, with a minimum of 12 months).

In addition to these penalties, the Court will have additional powers, including to:

• make orders it considers appropriate to redress loss or damage that has been caused or to prevent or reduce loss or damage that is likely to be caused by an unfair contract term;
• make orders with respect to the whole contract and not just the void term if necessary to prevent loss or damage; and
• prevent a person from applying or relying on an unfair contract term in an existing contract, or making future contracts that rely on an unfair term.

The expanded unfair contracts regime will apply to standard form consumer contracts and small business contracts: (i) entered into from 9 November 2023; or (ii) renewed or varied from 9 November 2023.

What does your business need to do?

The changes broaden the scope of contracts that will fall within the revised unfair contract terms regime and can result in significant financial penalties for businesses.  It is likely that the Australian Competition and Consumer Commission (ACCC) will be prioritising enforcement of the new regime and will be active in commencing proceedings against businesses who have not complied with their obligations.

Your business should carefully review its standard form contracts with small businesses and consumers for terms that are potentially unfair.  As part of this review your business should identify, and ensure it has systems in place to continue to identify, all commercial partners who may fall within the new definition of ‘small business’.  

If you need assistance reviewing your contracts and ensuring compliance with the updated unfair contracts regime, please call Sierra Legal.

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Selling a business can be a significant undertaking, requiring careful planning and execution. To improve the chances of a successful sale it is essential to present your business to potential buyers in the best possible light. Over the next few weeks, we will share some of the key factors you should consider if you are thinking of selling your business. Addressing these considerations can maximize the sale potential of your business.

Contracts and Agreements

It is important to evaluate contracts and agreements associated with your business. Identify key contracts, such as customer agreements, supplier contracts, leases, and employment agreements.  Evaluate the ability to transfer or assign these agreements, including whether consent will be required from the other parties to the agreement.  Ensure that key contracts have been properly dated, executed, and have not expired.  Be sure to address any issues with respect to the contracts proactively to avoid complications during the sale process.

Organise Your Financial Records

Before initiating the sale process, it is imperative to review and organise your financial records. Buyers will closely scrutinize your financial statements to evaluate the profitability and sustainability of your business. Ensure financial records, including income statements, balance sheets, tax returns, and cash flow statements, are accurate, up-to-date, and well-documented. Consider engaging an accountant or financial advisor to assist you in preparing these records to demonstrate the full potential of your business.

Intellectual Property Protection

Protecting your intellectual property rights is crucial when selling a business. Conduct an audit of your IP assets, including trademarks, copyrights, patents, trade secrets, and proprietary technologies. Verify that all necessary registrations are in place and up to date. Ensure that your IP is adequately protected through confidentiality agreements, non-disclosure agreements, and non-compete clauses. Review existing IP assignments and licences to verify their transferability and identify any restrictions or obligations. Demonstrating a strong and protected IP portfolio will enhance the perceived value of your business to potential buyers.

Compliance with Laws and Regulations

Before selling your business, ensure that your operations are fully compliant with relevant laws and regulations. Conduct a thorough review of your business practices, licenses, permits, and regulatory obligations to identify any non-compliance issues. Rectify any deficiencies and ensure that any relevant licences and permits can be transferred to the new owner. Demonstrating a commitment to legal compliance will instil confidence in potential buyers and minimize potential legal risks associated with the acquisition.

Employee Matters and Employment Contracts

Evaluate your employee matters to ensure compliance with employment laws and regulations. Review employee contracts, confidentiality agreements, non-compete clauses, and any agreements that may impact the transferability of employees. Assess any potential labour disputes, outstanding employee claims, or pending litigation that may affect a sale of the business.  Ensure that key employees are satisfied and engaged, as their departure during the sales process could adversely affect the value of your business.  Open communication and preparation will promote a smoother transition and maintain employee trust and morale.

Lease and Real Estate Matters

If your business operates from a leased property, review your lease agreement to determine its transferability. Identify any restrictions or conditions related to lease assignment and prepare to obtain the necessary consents from the landlord. If you own the property, a property lawyer should be engaged to ensure the smooth transfer of ownership and address any potential encumbrances or title issues. Resolving lease or real estate matters upfront will mitigate complications during the sale process.

Data Privacy and Protection

In an increasingly digital world, data privacy and protection have become critical concerns. Evaluate your business's data protection practices and ensure compliance with relevant privacy laws, such as the Australian Privacy Principles (APPs). Identify and address any potential data breaches or vulnerabilities to protect the privacy rights of your customers, suppliers and employees. Demonstrating a robust data protection framework will enhance the reputation of, and trust in, your business.

Due Diligence and Disclosures

Prepare for the due diligence process by compiling essential documents and information that buyers may request. Be transparent and forthcoming with disclosures to potential buyers, providing them with accurate and complete information about the business. Conduct your own due diligence on the buyer to ensure their credibility and ability to complete the transaction. Engage legal professionals to guide you through the due diligence process and assist in identifying and addressing any legal or financial issues that may arise. By conducting thorough due diligence and making proper disclosures, you can build trust with potential buyers and minimize the risk of post-sale disputes or liabilities.

Conclusion

Selling a business requires careful preparation and attention to detail. By considering the key factors mentioned above, you can position your business in the best possible light for potential buyers. Seeking advice from professionals experienced in business sales will further increase your chances of a successful and profitable transaction.  

Please contact the Sierra Legal Team if you require further information about this topic or assistance with the sale of your business.

In the realm of business, a shareholders agreement serves as a crucial compass regulating the relationship between a company and its shareholders and the management of the company and its affairs.  Yet, the misconception lingers that this agreement is a mere formality, a quick-fill template. In truth, the creation of a valuable shareholders agreement demands meticulous deliberation and purposeful tailoring. While certain issues and themes may be ubiquitous, no two agreements are likely to address them all in the same way.

The nature of the issues to be dealt with in a shareholders agreement (and how they are addressed) will depend on factors such as:

• the purpose, size, and nature of the company and its business;
• the extent to which shareholders are to have the right to be represented on the board of the company, and to control or influence decisions with respect to its business; and
• whether particular shareholders (either personally, or while they hold a specified percentage of shares) have reserved or special rights, such as the right to veto particular decisions or to drive a sale of all of the shares or the business of the company.

As an example, in the case of a company which has 2 or 3 equal shareholders who work in the business, the following are likely to be paramount considerations in the drafting of a shareholders agreement:•

• the need to ensure that all shareholders have an equal say in the running of the company (eg, by each shareholder having the right to appoint their nominee as a director of the company);
• how any deadlocks in decision-making will be resolved;
• what is to happen when a shareholder wishes to sell their shares in the company; and
• how the death and/or total and permanent disablement of a shareholder (or their associated person) is to be handled.

By contrast, the key issues to be addressed in a shareholders’ agreement for a company that has a broader and more varied shareholder base will be different and potentially more complex.  Such a company may, for instance, have a founding shareholder or shareholders, shareholders who are professional investors (such as private equity and institutional investors), and/or employee shareholders, with different shareholdings.  The key issues for a shareholders agreement for this kind of company may include:

• shareholders’ rights to appoint nominees to the board of the company, which may be contingent on a shareholder holding a minimum percentage of shares;
• whether material decisions will require the approval of a specified majority of directors or shareholders;
• whether ‘tag along’ rights are to be conferred on shareholders.  Generally speaking, a ‘tag along’ right is triggered where a majority shareholder (or group of shareholders holding a specified majority of shares) receives a third party offer to buy their shares which they wish to accept.  The inclusion of ‘tag along’ rights in the shareholders agreement mean that the majority shareholder will only be able sell their shares to the third party if they arrange for the third party to make a similar offer to buy the shares held by all of the other shareholders;
• if ‘drag along’ obligations should be imposed on shareholders - where a majority shareholder wishes to accept a third party offer to buy their shares, drag along obligations can force other shareholders to also sell their shares to the third party, at the same price and on the same terms; and
• what type of exit mechanisms should be included – exit mechanisms typically allow a majority shareholder (or group of shareholders holding a specified majority) to require the company (and, where applicable, all shareholders) to undertake a sale of the company’s business or shares, or an initial public offering and listing of the shares on ASX or another securities exchange.

To prepare a relevant and workable shareholders agreement, it is necessary to consider the particular circumstances of the relevant company, its shareholders, and their needs.  For a company with a small shareholder base, the shareholders agreement may focus on fundamental rights and protections that apply to all shareholders equally. With a complex or large business, and/or shareholders with different holdings of shares and different interests, it becomes critical to identify and address the objectives of particular shareholders, their needs in terms of the degree of control they wish to have over the company, and the nature of any special or reserved rights they may require.  

In the course of drafting a shareholders agreement, there are likely to be negotiations between shareholders (particularly where there are majority and minority shareholders), so that a balance (or compromise) is reached. A lawyer who is experienced in drafting and negotiating shareholders agreements will be able to identify key issues relevant to the company in question, and should be able to propose options for addressing those issues in the agreement.

The specific provisions and issues to be addressed in a shareholders agreement will always depend on the unique circumstances and objectives of the company and its shareholders. All of this goes to show that the oft-repeated line that ‘a shareholders agreement is just a standard document’ is really just a myth.

If you need a shareholders agreement prepared for your company, or advice on one, please contact the Sierra Legal team.

Earn-out arrangements are commonly used in mergers and acquisitions to bridge gaps between buyer and seller valuations of a target business. Under an earn-out arrangement, a portion of the purchase price (usually calculated as a percentage of future earnings) is deferred and contingent on the business meeting certain predetermined performance targets.

The use of earn-out arrangements can benefit both buyers and sellers. The seller can potentially receive a higher purchase price if the business performs well in the future, while the buyer is provided with some protection against overpaying for a business that may not perform as expected. Earn-outs can, however, be complex and require careful negotiation and drafting to ensure the terms are clear and enforceable.

In this article, we look at the basics of earn-out arrangements,  their advantages and disadvantages, and our top tips for negotiating and documenting earn-out arrangements.

What are earn-out arrangements?

An earn-out is a contractual arrangement under which the buyer agrees to pay a portion of the purchase price for a business to the seller at a later date, if certain agreed-upon targets are met. Earn-outs typically take place over a period of one to three years and can be based on financial metrics (such as revenue, EBITDA, or net income) or other performance indicators (such as customer growth or product development).

Why use earn-out arrangements?

There are several reasons why buyers and sellers might choose to use earn-out arrangements in an M&A transaction:

Addressing valuation disagreements

In an uncertain economic environment, earn-out arrangements can help bridge the ‘valuation gap’ between the buyer and the seller regarding the value of the business. If the buyer and the seller have different expectations about the future growth potential of a business, the buyer may be hesitant to pay the full asking price upfront. By agreeing on future performance targets, the parties can set a baseline for what they expect the business to be worth and negotiate payment terms based on that expectation.

Mitigating risk

When a buyer acquires a business, their valuation of it will be based on certain assumptions about future earnings potential and growth prospects. These assumptions are derived from the information available at the time of the acquisition. There is inherent uncertainty associated with these projections, so the actual performance of the business may differ from what was originally expected.

Utilising an earn-out arrangement, the buyer can mitigate some of this risk by linking a portion of the purchase price to the future performance of the business.  If the business performs well after the acquisition, the buyer will be required to pay the earn-out to the seller.  However, if the business does not perform as expected, the buyer may not have to pay the earn-out or may only be required to pay a reduced amount. In this way, earn-outs enable the buyer and seller to share some of the risk associated with the acquisition.

Aligning incentives

Earn-out arrangements can also help align the incentives of the buyer and seller, as both parties have a shared interest in ensuring that the business performs well after completion of the acquisition. This can be particularly useful if the seller is to remain involved in the business post-acquisition, as they are incentivised to ensure the business continues to perform well.

Preserving cash flow

An earn-out arrangement can allow the buyer to preserve cash flow in the short term, as they need not pay the full purchase price upfront. This can be particularly useful if the buyer needs to invest in the business post-acquisition to drive growth or if they are already carrying a significant amount of debt.

What are the drawbacks of earn-out arrangements?

While earn-out arrangements can be a useful tool for structuring M&A transactions, there are also drawbacks to consider:

Complexity

Earn-out arrangements can be complex and time-consuming to negotiate, as they require detailed financial projections and agreement on metrics that will be used to measure performance. Issues may arise around the calculation of earn-out amounts, the timing of payment, and the parties’ obligations during the earn-out period. Additionally, tracking and verifying performance over the earn-out period can be challenging, which can lead to disputes between buyer and seller.

Uncertainty

The future performance of a business is inherently uncertain, which can make it difficult to agree on the financial targets for an earn-out arrangement. Additionally, external factors such as changes in the economy, industry, or regulatory environment can impact business performance. This can make it challenging to accurately predict future earnings.

Integration challenges

Earn-outs have the potential to create integration challenges for the buyer, especially if the seller remains involved in the business. This can lead to conflicts over decision-making. They can also cause misaligned incentives between the buyer and the seller. For example, the seller may prioritise short-term financial results at the expense of long-term growth to maximize their earn-out payment.

Risk of non-payment

Even if the business performs well, there is always a risk that the buyer will not make the earn-out payment. To mitigate this risk, sellers commonly seek a form of security in respect of the buyer’s obligation to pay a deferred earn-out payment.

Top tips for negotiating and documenting earn-out arrangements

Negotiating and documenting earn-out arrangements can be complex, and it’s important to approach the process carefully to ensure that the arrangement is fair, clear and legally enforceable. Here are some of our top tips for negotiating successful earn-out arrangements that benefit both parties:

1. Clearly define the metrics that will be used to measure performance, the timeframe for achieving the performance targets, and any other details relevant to the calculation of the earn-out payment. Determine whether payments will be based on revenue, profit, or other performance measures, and how will the payments be structured (i.e. payable in cash or equity, by lump sum or installments). Clearly define the circumstances under which the earn-out payment will be made.
2. Understand the risks associated with earn-out arrangements including potential changes to the market, industry, and regulatory environment. It may be necessary to account for these risks by, for example, setting floors or caps on payments.
3. Address integration issues including whether the seller will be involved in the business post-acquisition, and if so, how their continued involvement will impact the earn-out arrangement. Both parties should have a common understanding of how decision-making will be handled and the extent of the seller’s involvement in the business during the earn-out period. Any restrictions on the seller’s role that could impact the earn-out payment should be outlined.
4. Consider each party’s motivations and incentives for entering into the earn-out arrangement. This can assist in structuring the arrangement in a way that aligns with the priorities of both the buyer and the seller.
5. Prepare for contingencies – determine how the earn-out will be handled if, for example, the business is sold, or the seller leaves the business before the earn-out period is complete.
6. Outline a process for resolving any disputes that arise over the earn-out payment. This may include expert valuation, mediation, arbitration, or other dispute resolution mechanisms.
7. Be prepared to walk away if a suitable arrangement cannot be agreed – it may be better to avoid a transaction if the terms are not in your interests.
8. Finally, it’s important to seek professional advice from lawyers, accountants and other experts when negotiating and documenting an earn-out arrangement.  This can help ensure that the agreement is legally enforceable and takes into account all relevant legal and tax considerations.

Negotiating and documenting earn-out arrangements requires careful attention to detail and a thorough understanding of the legal and financial implications. By following these tips, both buyers and sellers can ensure their earn-out arrangements are comprehensive, transparent, and designed to achieve their objectives.

As of 1 July 2023, the Australian Government will introduce a new Register of Foreign Ownership of Australian Assets (Register).  

The Register will be administered by the Australian Tax Office (ATO) and will record foreign interests in a broad range of Australian land, entities, businesses, and assets. The primary purpose of the Register is to consolidate the existing reporting framework for foreign ownership of Australian assets into a single, comprehensive database. It will replace existing registers covering residential land, agricultural land, and water rights, and incorporate reporting obligations covering a wider range of transactions. Importantly, reporting requirements in relation to the Register may apply irrespective of whether Foreign Investment Review Board (FIRB) approval is required for a transaction.

Significant penalties may be imposed for failure to comply with reporting requirements.

When will notification be required?

From 1 July 2023, “foreign persons” (as defined in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA)) must make a notification via the ATO’s online portal within 30 days of a trigger for notification occurring.

What constitutes a trigger for notification differs depending on the type of asset(s) involved.

Businesses

Numerous notification triggers apply to the acquisition of interests in Australian businesses or entities by foreign persons, including where a foreign person takes an action that is:

1. a ‘significant action’ under section 40 or 41 of the FATA;
2. a ‘notifiable action’ under section 47 of the FATA involving the acquisition of a direct interest in an agribusiness or substantial interest in an Australian entity;
3. a ‘notifiable national security action’ under section 55B of the FATA; and
4. a ‘reviewable national security action’ under section 55D or 55E of the FATA.

If a foreign person acquires an interest in an Australian entity or business which was previously notified to the Register, it must also report any subsequent increase in its interest of 5% or more.

The notification requirements also apply to an Australian entity that becomes a foreign person, for example via acquisition. If this occurs, the Australian entity will need to report interests that would have required approval under the FATA if they had been acquired immediately after the Australian entity became a foreign person.

Land

Where Australian land is concerned, a foreign person must generally notify the ATO where they acquire (for example):

1. a freehold interest in any Australian land;
2. an interest as lessee in a lease giving rights to occupy Australian land if the term of the lease (including any extension or renewal) likely to exceed five years; or
3. an interest in a mining or production tenement, such as a mining lease.

The ATO must also be notified if:

1. a person holding any of the above interests in land becomes a foreign person; or  
2. the nature of the land changes, for example, from commercial to residential, and the foreign person ought reasonably to have been aware of the change.

Other

Reporting requirements also apply in respect of interests in exploration tenements and registrable water interests.

Key changes

The introduction of the Register will increase compliance obligations for foreign persons as it captures a broader set of transactions than those currently required to be reported. For instance, the Register will cover not only acquisitions and disposals, but changes occurring while an interest in the asset is held, such as changes in the nature of Australia land and changes to the quantum of the foreign person’s interest in a business or entity.

Currently, the acquisition of freehold or leasehold interests exceeding five years in commercial land does not require reporting unless FIRB approval is required and the relevant approval contains a reporting condition. Going forward, all acquisitions of interests of this type will need to be notified to the ATO for inclusion in the Register.

Australian entities will be required to report ownership of certain assets if they become foreign persons. An Australian entity can become a foreign person for the purposes of the FATA due to changes in its direct or indirect ownership. Tracing rules apply which mean companies incorporated in Australia can be classified as foreign persons under the FATA due to upstream interests.

More detail on reporting requirements is provided in amendments to the Foreign Acquisitions and Takeovers Regulation 2015 (Cth).

Conclusion

The introduction of the Register marks a significant change in the reporting and compliance landscape for foreign investors in Australia. With increased obligations and potential penalties for non-compliance, foreign persons should familiarise themselves with the new requirements and seek appropriate advice to ensure they remain compliant in an evolving regulatory environment.

The law regulating foreign investment in Australia is complex, and the information provided here is intended for general informational purposes only. This article should not be relied upon as a substitute for obtaining specific advice tailored to your circumstances. If you are considering foreign investment in Australia, we recommend you seek professional advice that takes account of your specific situation.

Two years ago, Clark Rubber started harnessing the power of Arreis, our document automation software, to help them streamline and automate the preparation of their legal franchise documentation for new and renewing franchisees.

Today, their staff (even without legal training) can complete an online survey to generate an entire suite of franchise contracts in less than 15 minutes.  

Read CEO Anthony Grice’s article in the FCA Franchise Review about how automating the process has helped the Clark Rubber team reduce errors, ensure up-to-date documents, and save valuable time and resources (READ HERE).

The ability to do all this without the need for full time lawyers has been a real game-changer for Clark Rubber.

The risk to your business

There are multiple risks to your business, should a BEC attack occur, including:

• Financial loss – often BEC attacks trick people into making unauthorised financial transfers which can result in significant financial losses for the business.
• Reputational damage – a BEC attack can damage your business reputation, as customers and other stakeholders may question your information security.
• Legal liability – heavy penalties now apply for data breaches under the Privacy Act 1988 (Cth).
• Disruption to operations – personnel are forced to devote time and resources to resolving the issue and recovering from an attack.
• Loss of sensitive information – BEC attacks often involve the theft of sensitive information, such as confidential business data or personal information of employees and customers. The theft can severely affect the privacy and security of individuals and businesses.

Reducing the risk of a BEC attack

It is important that every business understands cyber risk and takes steps to mitigate it. This means being prepared, knowing how to respond, and understanding both your regulatory requirements (ie. notification requirements under privacy legislation) and your contractual requirements (ie. a notification requirement of a breach under your contracts with third parties).

Preventing BEC attacks requires a multi-layered approach that includes a combination of technical and non-technical measures.  Some key steps that organisations can take to reduce the risk of BEC include:

• Take a top-down approach – your company directors need to be aware of the risks of BEC and actively guide the business’ strategy around privacy and data security.
• Raise employee awareness – educate your employees on how to recognise, report and respond to, a BEC attack. Employees are the first line of defence against BEC scams so providing regular training on cybersecurity and phishing awareness, including how to spot phishing links, how to avoid clicking on unknown links or attachments and how to check for a domain and email mismatch and other red flags through ‘phish’ simulations is critical.
• Create a culture of compliance – ensure that privacy and data protection policies are in place (and updated regularly) and that employees are aware of and trained in such policies.  Make it easy for employees to report suspicious emails.
• Vendor management – verify the authenticity of all vendors and suppliers before making payments or providing sensitive information. It is important to establish alternative channels of communication to confirm requests (ie. phone call or in-person conversation), especially for large or unusual transactions.
• Payment verification - companies should establish clear policies and procedures for financial transactions, such as requiring multiple levels of approval and verification for EFTs or other financial transaction.
• Improve your email security – there are many options available such as multi-factor authentication, email filtering, email encryption and anti-phishing software.  Work with your IT team or engage a cyber security consultant to conduct a security audit to identify potential vulnerabilities and ensure that security measures work as intended. Ensure all software is kept up to date, including anti-virus software.
• Back up data regularly – ensure regular backups of critical data and store it in a secure location, such as an off-site server to minimise the impact of a BEC attack.
• Prepare an incident report plan - this assists security teams to quickly detect and analyse the breach, assess the impact and effectively remediate the threat.

By taking these steps, you can reduce the risk of falling victim to a BEC attack and minimise the impact of an attack once it occurs. It is important to remain vigilant and stay informed about the latest threats and trends in cybersecurity. Being proactive about information security is essential.  

If you would like to discuss BECs in greater detail, how to respond to an attack, compliance requirements or have your privacy and data protection policies reviewed or updated, get in touch with a member of our Sierra Legal team today.