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The legal world is continuously changing. As a business person without legal qualifications, it can be overwhelming. We regularly produce articles and legal news in Australia so you can get an overview of legal matters that are relevant to you.
You'll also find articles about our team, our firm, and our services, so you can get to know us better. Feel free to dig into our current library, and if you have any questions, you know who to contact - the team at Sierra Legal are waiting to help.
Have you ever wondered what a buy/sell agreement is? In this week's blog, we explain what they are all about.
A buy/sell agreement is a contract, usually entered into between the shareholders of a company (and often the company itself) which provides for the sale and transfer of shares of a shareholder (outgoing shareholder) to the other shareholders (continuing shareholders) if a specified event (buy/sell trigger event) occurs in relation to the outgoing shareholder.
The buy/sell trigger events will usually include the death of the outgoing shareholder, but may cover other circumstances, such as the outgoing shareholder becoming totally and permanently disabled, or suffering serious illness or trauma. If the outgoing shareholder is a company instead of a person, the buy/sell trigger events should apply to a specified person associated with the outgoing shareholder. That person will often be someone involved in the management of the company to which the buy/sell agreement relates.
The buy/sell agreement will typically provide for insurance policies to be taken out and maintained, which cover each shareholder (or the shareholder’s associated person) for the relevant buy/sell trigger events, and that the insurance proceeds are used to fund the purchase by the continuing shareholders of all of the outgoing shareholder’s shares in the company on the occurrence of a buy/sell trigger event. Consequently, the outgoing shareholder will cease to be a shareholder in the company, and not have any further involvement in its management or affairs.
The key advantages of a buy/sell agreement are:
In short, not having a buy/sell agreement in place can lead to conflict among shareholders and potentially adversely impact the company and its business, due to lost time, unnecessary distractions, and potential litigation.
The following are some key questions shareholders should ask themselves before deciding on the terms of a buy/sell agreement:
A buy/sell agreement is generally a stand-alone document, but if there is a shareholders’ agreement in place for the relevant company (or the shareholders intend to enter into a shareholders’ agreement), then it may be preferable to include buy/sell clauses in the shareholders’ agreement instead. Otherwise, care will need to be taken to ensure that there is no conflict or inconsistency between the terms of the shareholders’ agreement and the buy/sell agreement.
Buy/sell agreements can also be used for business structures other than companies, such as unit trusts and partnerships. Most of the above points will apply equally to all buy/sell agreements, regardless of the business structure being used.
Buy-sell agreements can be complex, and the requirements of each business are unique. It is therefore important to seek legal advice before deciding on the terms of a buy/sell agreement and entering into one. There are also tax implications for a company and its shareholders associated with buy/sell agreements, and we therefore recommend that parties seek tax advice from their accountants or other tax advisers before implementing a buy/sell agreement. In addition, obtaining advice from an insurance broker or consultant on the type and level of insurance cover available, and related premiums, is recommended.
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here (LINK).
Businesses commonly use standard form contracts to improve efficiencies and protect their legal interests.
Under the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 (Cth) certain terms in standard form contracts may be declared (by a court) to be void and unenforceable if they are ‘unfair’. The Unfair Contract Laws are designed to protect consumers and certain small businesses.
The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 was recently introduced to parliament to significantly amend the Unfair Contract Laws. This article summarises the proposed changes.
Businesses commonly use standard form contracts to improve efficiencies and protect their legal interests.
Under the Australian Consumer Law and the Australian Securities and Investments Commission Act 2001 (Cth) (Unfair Contract Laws) certain terms in standard form contracts may be declared (by a court) to be void and unenforceable if they are ‘unfair’. The Unfair Contract Laws are designed to protect consumers and certain small businesses.
The Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 was recently introduced to parliament to significantly amend the Unfair Contract Laws to:
It is proposed that the amendments will not come into force until 12 months after the Bill receives Royal Assent. This will enable businesses a ‘grace period’ to prepare and implement any changes required to their business practices.
A ‘standard form’ contract is typically prepared by one party and offered on a ‘take it or leave it’ basis.
Broadly, the Unfair Contract Laws apply to standard form ‘consumer’ contracts and ‘small business’ contracts, noting that there are some particular types of contracts that are expressly excluded (e.g. constitutions).
‘Consumer’ contracts are generally contracts for the supply of goods or services or the sale or grant of an interest in land to an individual who acquires it wholly or predominantly for personal, domestic or household use or consumption.
‘Small business’ contracts are generally contracts:
A contract term may be ‘unfair’ if it:
Only a court can decide whether a contract term is unfair. In making its decision, a court must consider how transparent the term is, and will consider the overall rights and obligations of each party under the contract (as a whole).
The Unfair Contract Laws do not apply to contract terms that:
Under proposed amendments (in summary):
The threshold for what is a ‘small business contract’ will be lowered to include contracts where one party to the contract has either fewer than 100 employees or an annual turnover below $10 million. In circumstances where the ASIC Act applies (i.e. in relation to financial products and services) there will be an additional requirement that the upfront price payable under the contract does not exceed $5 million.
Further, a contract may be considered a ‘standard form contract’ despite the opportunity for a party to negotiate minor changes to the contract or select a term from a range of options provided.
Under the existing Unfair Contract Laws, the key risk arising from using unfair contract terms is that a court may declare such terms to be void and unenforceable. Under the proposed amendments, significant civil penalties could apply a contravention. For a company, the maximum penalty for a contravention of the Unfair Contract Laws will be the greater of:
If the Bill is passed, businesses will need to move quickly to:
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here (LINK).
On 1 December 2019, changes were made to the ASX Listing Rules to require the person responsible for a listed company's communication with ASX to have completed an approved listing rule compliance course and attained a satisfactory pass mark in the examination for that course. The listing rule compliance course is now available and is free to access and complete.
On 1 December 2019, changes were made to the ASX Listing Rules to require the person who is appointed to be responsible for communication with ASX in relation to listing rule matters (ASX Contact) to have completed an approved listing rule compliance course and attained a satisfactory pass mark in the examination for that course.
The implementation of these changes had been deferred to enable ASX to replace its learning management system.
This has been completed and the listing rule compliance course is now available and is free to access and complete, vis this LINK.
On 5 April 2022, the ASX announced that the listing rule compliance course changes will come into effect from 1 July 2022.
However, in order to assist listed entities to transition to the new compliance course regime, ASX has allowed a transition period running from 1 July 2022 to 30 September 2022.
The following requirements apply during and after the transition period:
An ASX Contact appointed by an existing listed entity during the transition period must complete and pass the course and email a copy of their completion certificate to the listings adviser for their entity, by no later than 14 October 2022.
ASX Contacts who are appointed by an entity that is listed (or re-listed) during the transition period must complete and pass the course and email a copy of their completion certificate to the listings adviser for their entity, by no later than 14 October 2022.
On and from 1 October 2022:
If the nominated ASX contact has already passed the course on behalf of a different listed entity they are not required to pass it again.
The ASX Contact of an existing listed entity who was appointed before 1 July 2022 does not need to complete and pass the course in order to remain the ASX Contact for that entity. However, if they are to be appointed as the ASX Contact for another listed entity after 1 July 2022, they must first complete and pass the course.
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here (LINK).
From 24 March 2022, Australian businesses have been able to register a new “.au” category of domain name. This means that instead of ending their domain name with .com.au or .net.au, a business can now register their equivalent domain name as a shorter .au name (for example, sierralegal.au).
From 24 March 2022, Australian businesses have been able to register a new “.au” category of domain name. This means that instead of ending their domain name with .com.au or .net.au, a business can now register their equivalent domain name as a shorter .au name (for example, sierralegal.au).
All names in the domain name registry prior to the launch of the new domain name category have been placed on priority hold, reserving them from being registered by the public as .au domain names for a six-month “Priority Application Period”. This period allows Australian businesses with an existing domain name to register their .au equivalents.
However, the Priority Application Period ends at 9.59am AEST on 21 September, which means Australian business need to apply for the exact match of their current domain name in the .au equivalent domain name before that date, otherwise it becomes available to the public on a first come, first served basis. Further information on the Priority Allocation Process can be found at https://www.auda.org.au/au-domain-names/au-direct/priority-allocation-process.
Whilst this is not a legal requirement, the Australian Cyber Security Centre has recommended that all Australian businesses with existing domain names register their .au equivalents before the Priority Application Period ends. This is to prevent cybercriminals from having the opportunity to register your.au domain name in an attempt to cybersquat or impersonate your business and conduct fraudulent cyber activities.
You can reserve your .au domain name by visiting an auDA accredited registrar (https://www.auda.org.au/accredited-registrars). Existing domain names will continue to operate as normal provided the registration details are kept up to date.
If you need assistance registering your new domain name or have any questions regarding the process, you can contact one of the Sierra Legal team who will be happy to assist.
Restraints of trade are complex and restraint clauses need to be worded carefully and appropriately for the circumstances for which they are being used. Check out our blog on restraint of trade (ROT) clauses for more information. Sierra legal are experienced in advising on and drafting ROTs so contact our team if you need advice on your ROT clauses.
A restraint of trade (ROT) clause (otherwise known as a non-compete clause) can be used in a variety of situations and is often found in share sale or business sale agreements, employment agreements and contractor agreements.
While similar principles apply to ROTs regardless of the context, we focus here on ROTs in a business sale or share sale scenario.
What is the purpose of a restraint of trade?
An ROT is often used in a business or share sale agreement to protect the goodwill of the business (or the business of the company) acquired by the buyer. The ROT will generally prevent the business or share seller from opening and operating or having an interest in (whether directly or indirectly), a similar or competing business, and preclude the seller from enticing customers, suppliers or employees away from the business or company, for a specified period of time and within a defined geographical area.
Therefore, from the business or share buyer’s perspective, it is important that the ROT clause is properly drafted and will be legally enforceable.
Is a restraint of trade enforceable?
Whether a restraint of trade clause is enforceable depends on the particular facts and circumstances of each case. A restraint will be invalid if it goes beyond what is reasonably necessary to protect the buyer’s interests. The onus of proving to a court that an ROT is reasonable and valid, is on the buyer trying to enforce the restraint. To do so, the buyer must show that:
Legitimate interest
Protecting legitimate business interests with a ROT clause does not extend to simply preventing future competition. A legitimate interest might include:
Reasonableness of the restraint
A court will consider several factors in deciding on whether a restraint clause is reasonable, including:
Cascading clauses
Typically, a ‘cascading’ or ‘ladder’ approach is taken in drafting restraint clauses, providing for different levels of restraint so that the restricted activity, duration and geographical area is broken down from widest/longest to narrowest/shortest.
Whilst the courts will not rewrite a restraint for the parties, by using ladder clauses that provide alternate restrained activities, time periods and geographical areas on a sliding scale, if a court were to determine that the maximum restraint was invalid, the clause might still be held by the court to be partially valid for a narrower range of activity, period and/or geographical area. The court would essentially “read down” typically by severing one or more limbs of the restraint, so the remaining parts of the restraint (i.e. those judged to be reasonable) can continue to operate and bind the seller.
Summary
Restraints of trade are complex, and restraint clauses need to be worded carefully and appropriately for the circumstances for which they are being used. The general principles to keep in mind when considering a restraint of trade clause is whether there is a legitimate interest to protect and if so, the restraint must do no more that is reasonably necessary to protect that interest. ‘Reasonable’ in this context means reasonable in relation to each party and in relation to public policy and having regard to the extent, duration and geographical restrictions imposed.
Need advice?
We are experienced in advising on and drafting ROT clauses in business and share sale agreements, as well as contractor and employment contracts. Contact our team if you need advice on restraints of trade.
Ever wondered how to transfer a contract between entities. Here are our tips.
Whether it be for internal restructuring purposes or to meet other commercial requirements such as in the context of a sale of business, many businesses face the issue of needing to transfer a contract from one entity to another.
Unfortunately, it’s not as simple as crossing out one party’s name and inserting another! Most contracts may be legally transferred by a party (the outgoing party) to another entity (the incoming party) in one of the following 2 ways:
Assignment
An assignment of contract involves the transfer of the rights (but not the obligations) of the outgoing party under the contract to the incoming party. An assignment does not require the consent or agreement of the other party to the contract (the continuing party), unless the terms of the contract expressly require it.
An assignment is usually effected by a deed signed by the outgoing party and the incoming party. If the continuing party’s consent to the assignment is required, then it is generally convenient to include the consent in the deed, and also have the continuing party sign the deed.
An assignment will not relieve the outgoing party of its ongoing obligations under the contract, at least as between the outgoing party and the continuing party. To give the outgoing party some protection against future breaches of contract by the incoming party, it is common, in an assignment deed, for the incoming party to:
Even if the continuing party’s consent to the assignment of another party’s rights under a contract is not needed, for the assignment to have legal effect, the continuing party must be given written notice of the assignment.
Novation
At law, a novation is actually the substitution of a new contract for an existing one, on the same terms as the existing one, but between the continuing party and the incoming party instead of being between the continuing party and the outgoing party.
In practice, however, a novation is usually effected by substituting the incoming party for the outgoing party, so that on and from the effective date of the novation, the incoming party acquires all of the rights and obligations of the outgoing party under the contract, and the outgoing party is relieved by the continuing party from any further obligations under the contract.
In any case, a novation always requires the agreement of the continuing party.
A novation is generally preferable to an assignment from the outgoing party’s perspective, because it results in a better position in terms of legal liability. However, a novation can be more difficult to achieve because the continuing party’s agreement must be secured.
Other methods
There are also indirect methods of transferring the rights and obligations under a contract. For example, if a party to a contract is a company, it may be possible to effect a transfer of its rights and obligations under the contract by the shareholders in the party transferring their shares in the company. That way, the company remains a party to the
contract (and no assignment or novation is needed), but a new shareholder obtains control of the company and thereby indirectly obtains the benefit of the rights, and the burden of the obligations, of the company under the contract.
Which option is best for me?
To determine whether assignment, novation or an indirect method is best for you, you should consider:
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.
It’s important to be able to identify the other party to a contact you’re entering into. Check out these tips before you sign your next contract.
It’s important to be able to identify the other party to a contact you’re entering into. That party will have obligations under the contract, such as supplying goods or services to you. Also, you will have contractual commitments to the other party (for example, paying them for the goods or services they supply). If there is a breach of contractual obligations, knowing whom to sue (and who can sue you), and being able to sue the right party, are fundamental points.
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.
Aside from ensuring that the other party is a legal entity, you should also be satisfied that it is the party you intend to contract with. Entering into a contract with the wrong party can have unintended and adverse consequences. For instance, if an individual operates a business through a company, and you are a customer of the business, any contract with the business should be entered into by the company (as the supplier of goods or services), and not the associated individual (who may be a director or shareholder of the company). Contracting with the individual in that example could give rise to complications, such as if you needed to make a claim for defective goods or services supplied under the contract.
Checking a party’s authority to enter into a contract will generally not be necessary where they are an individual or a company, but could be important when dealing with a trust or partnership, for example. That is especially so in the case of a high value or high risk contract.
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.
In our first 3 blogs “Proper preparation prevents poor performance”, “Get your backyard in order” and “Transaction documents” we set out our top 10 tips and traps for sellers to consider when they are proposing to sell their business. Our final 2 tips concern completion and post-completion.
In our first 3 blogs “Proper preparation prevents poor performance”, “Get your backyard in order” and “Transaction documents” we set out our top 10 tips and traps for sellers to consider when they are proposing to sell their business. Our final 2 tips concern completion and post-completion.
Tip 11 - Deal isn’t done until completion occurs
Tip 12 - Don’t forget post-completion steps after the champagne is popped
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.
In our first two blog articles in this series (“Proper preparation prevents poor performance”) and (“Get your backyard in order”) we gave 6 initial tips for potential sellers to consider before embarking on the process of selling their business. Our next 4 tips relate to the transaction documents.
In our first two blog articles in this series (“Proper preparation prevents poor performance”) and (“Get your backyard in order”) we gave 6 initial tips for potential sellers to consider before embarking on the process of selling their business. Our next 4 tips relate to the transaction documents:
Tip 7 - Try to get drafting control for transaction documents
Transaction documents typically include sale and purchase agreements, new employment contracts, transitional services agreements, contract assignment or novation agreements, new leases or assignments of existing leases, shareholders agreements, property conveyance agreements, etc. It is worth considering at the start of the transaction all potential documents that may be required.
Sellers often fall into the trap of thinking that they will save costs by getting the buyer to prepare the first draft of all transaction documents. There are 2 main risks with this approach:
In our experience, it is better to be “commercial” when preparing transaction documents (as documents that are too one-sided will often lead to lengthy negotiations).
Tip 8 - Try to avoid earn-outs (and other forms of deferred consideration) as a seller
An earn-out is a deferral of part of the purchase price pending certain events occurring. Typically, this is usually linked to performance of the business after it has been sold. From the seller’s perspective, it is best to avoid earn-outs and other forms of deferred consideration, as they create risk and often lead to disputes.
If you must have an earn-out or other form of deferred consideration, try to reduce the proportion that is deferred compared to the consideration that you will receive upfront at completion. Think about whether you would still do the deal if the deferred amount was never ultimately paid.
Consider appropriate protection mechanisms to reduce the risks associated with the earn-out or other form of deferred consideration. For example, negotiating security over the business or other assets of the buyer, becoming a director of the buyer until all deferred payments have been made, imposing restrictions on the conduct of the business during the earn-out period, accelerated payments if certain events occur (e.g. if the buyer on-sells the business or key assets, or breaches other restrictions).
Tip 9 - Consider warranty protections in sale and purchase agreements
Other than the amount of the purchase price, warranties are probably the biggest part of any negotiations in a business sale transaction.
It is important to consider warranty caps, collars, and other restrictions.
A seller should try and have all documents disclosed as part of due diligence apply as a carve out to any warranty claim. This reinforces the importance of a comprehensive data room.
Be careful with any request by the buyer for security for warranty breaches (e.g. personal guarantees or deferred purchase price).
Depending on the size of the transaction, consider whether either buy-side or sell-side warranty and indemnity insurance is required.
Tip 10 - Minimise conditions precedent
Especially avoid broad conditions precedent that make it easy for buyer to back out of the deal (e.g. conditions that make the overall transaction subject to finance or subject to satisfactory due diligence).
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.
In our last blog article in this series (“Proper preparation prevents poor performance”), we gave 3 initial tips for potential sellers to consider before embarking on the process of selling their business. Our next 3 tips concern due diligence and indicative offers.
In our last blog article in this series (“Proper preparation prevents poor performance”), we gave 3 initial tips for potential sellers to consider before embarking on the process of selling their business. Our next 3 tips concern due diligence and indicative offers:
Tip 4 - Get your backyard in order
Consider and collate the documents/information that a potential buyer will want to see when conducting due diligence on your business. It is important to get everything in order before entering into discussions with a potential buyer to determine whether there are any gaps or errors in the information (or documentation which can be corrected before due diligence commences).
If you are able to give a potential buyer correct and up-to-date due diligence documents, this is likely to help give the potential buyer comfort, enhance value and lessen the severity of warranties and indemnities that may need to be agreed with the ultimate buyer. Missing documents (or gaps in information) can have the reverse effect.
Tip 5 - Use a non-binding indicative offer/heads of agreement
An indicative offer/heads of agreement/letter of intent is a good way of setting expectations with parties in relation to the potential terms of the deal and the proposed timetable.
These documents should be non-binding, except for confidentiality terms (and possibly for terms dealing with exclusivity and break fees, if applicable).
Tip 6 - Allow for a comprehensive due diligence process
It is important to have a well organised and comprehensive data room. A data room is important for a few reasons:
Sellers should consider using a virtual data room with document security controls (e.g. restrictions on copying, printing or sharing documents) rather than an online file sharing service.
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.
The commonly known “5 P’s” of success (“proper planning/preparation prevents poor performance”) are as relevant to the sale of your business as in other areas of life. If you are proposing to sell your business, proper planning, and preparation before entering into any discussions with potential buyer(s) will assist you in obtaining the best possible price for your business, limit delays and reduce exposure to risks.
Over the next few weeks, we will highlight some of the top tips and traps for individuals and companies that are looking to sell their business.
The commonly known “5 P’s” of success (“proper planning/preparation prevents poor performance”) are as relevant to the sale of your business as in other areas of life. If you are proposing to sell your business, proper planning, and preparation before entering into any discussions with potential buyer(s) will assist you in obtaining the best possible price for your business, limit delays and reduce exposure to risks.
Over the next few weeks, we will highlight some of the top tips and traps for individuals and companies that are looking to sell their business.
Tip 1 - Determine the best corporate structure for a future sale of your business
What is the best corporate structure for a future sale of your business? A company, unit or discretionary trust, sole trader, other? While the immediate considerations for most businesses are legal and financial risk minimisation in the operation of the business, when structuring your business, always plan for the possibility of a future exit. Don’t wait for an exit (or possible transaction) to start thinking about the structure of your business. If you are trying to restructure a business immediately before a sale, this could:
Tip 2 - Appoint your advisers early
Tip 3 - Share sale vs asset sale
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.
When arriving at the contract negotiation stage of selling your business or shares in your company, you are likely to be presented with a lengthy list of warranties by the buyer or its lawyers for inclusion in the sale and purchase agreement. While seller warranties are a normal feature of a business or share sale, there are ways in which a seller can manage (and, in some cases, reduce) associated risks and liabilities. Read this article to learn more.
When arriving at the contract negotiation stage of selling your business or shares in your company, you are likely to be presented with a lengthy list of warranties by the buyer or its lawyers for inclusion in the sale and purchase agreement (SPA). While seller warranties, like other terms of an SPA, are negotiable, it is usual for a comprehensive set of seller warranties to be included.
Warranties are a set of statements about your business or company on which the buyer relies in deciding to buy your business, or the shares in your company. Those statements may be positive (eg, in carrying on the business, you or your company complied with all laws) or negative (such as, there are no claims by third parties against your business or company). If a seller warranty turns out to be untrue (ie, you breach the warranty), you will be liable for any resulting loss suffered by the buyer.
Warranties will be given by the seller of the business or shares, but if the seller is a company, the buyer may require individuals associated with the seller (eg, its directors) to provide the warranties together with the seller, so that the buyer can bring claims for warranty breaches against any or all of the seller and those individuals.
While seller warranties are a normal feature of a business or share sale, there are ways in which a seller can manage (and, in some cases, reduce) associated risks and liabilities.
Tip 1 – Disclosure is the key
It is usual (and reasonable) for seller warranties in the SPA to be qualified or limited by reference to all information disclosed (or ‘fully and fairly’ disclosed) by the seller to the buyer before the SPA is entered into. The effect of that qualification or limitation is that the buyer will not be able to claim a breach of warranty has occurred if the matter giving rise to the claim was properly disclosed to the buyer by the seller before the SPA was signed. To maximise your ability to rely on any disclosure qualification/limitation in the SPA:
Note that if your disclosures reveal an issue of material concern to the buyer (eg, a claim or potential claim which might adversely impact the business or the company after completion of the sale), the buyer may insist on the inclusion of a seller indemnity in the SPA to cover the buyer for any loss it may suffer in relation to that specific issue. Unlike the warranties, your liability under the specific indemnity will not be limited by disclosure, but you could seek to have other limitations apply, such as those mentioned in the next tip.
Tip 2 – Negotiate the inclusion of other warranty limitations and qualifications in the SPA
In addition to the disclosure qualification, it is normal practice for the seller’s (and other warrantors’) liability in respect of warranties to be limited and qualified in other ways under the SPA. Typically:
Tip 3 – Warranty and indemnity insurance
It may be possible to obtain sell-side or buy-side warranty and indemnity insurance cover for breaches of seller warranties. Whether such insurance is feasible (and obtainable) in a particular case will turn on the size and nature of the transaction and the circumstances of the target business or company.
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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.
The Commonwealth has recently passed the Treasury Law Amendment (Cost of Living Support and Other Measures) Act 2022 (Cth) which gives effect to the second stage of an overhaul of employee share schemes for Australian companies.
The Commonwealth has recently passed the Treasury Law Amendment (Cost of Living Support and Other Measures) Act 2022 (Cth) (ESS Act) which gives effect to the second stage of an overhaul of employee share schemes (ESSs) for Australian companies. Together with the first stage of the overhaul that addressed the taxing of certain ESS interests, the general aim of the changes set out in Schedule 4 of the ESS Act is to make the implementation of ESSs easier for companies and more desirable for participants.
What is an ESS?
ESSs are, in essence, arrangements for a company to offer securities (e.g. shares in a company) or interests in those securities (e.g. options to acquire shares in a company) to its employees, usually at a discounted price. ESSs can be an effective tool to attract and incentivise staff.
Barriers to an ESS
However, in order to offer securities for sale, including to employees, companies are generally required to comply with the disclosure requirements under the Corporations Act 2001 (Cth), including by providing a document containing certain prescribed information (e.g. a prospectus or an offer information statement). The disclosure obligations in the Corporations Act are onerous and the cost and time involved in complying can be prohibitive for many SMEs and start-ups.
There are some exemptions to the disclosure requirements in the Corporations Act, but before the ESS Act, the exemptions available in relation to the issue of shares to employees were narrow and restrictive. For example:
Additionally, companies wishing to implement an ESS have had to contend with the rules that required an operator of certain ESSs to hold an Australian financial services licence, as well as the advertising and hawking restrictions under the Corporations Act.
The new rules
Under the ESS Act (which comes into effect on 1 October 2022), if certain requirements are met in respect of an ESS, then for that ESS (Eligible ESS):
Requirements for an ‘Eligible ESS’
The requirements that an ESS must meet to be an Eligible ESS are still somewhat complex and largely depend on whether or not the participant is required to pay for the securities (or interests in securities) offered and whether or not the company is listed. For offers made by unlisted companies that do not require a participant to pay for the securities (or interests insecurities) or borrow funds to pay for them, the key requirements to be an Eligible ESS include (but are not limited to):
For offers by unlisted companies that do require a payment by participants, the key requirements to be an Eligible ESS include (but are not limited to):
Money received from participants for applications made under an Eligible ESS must be held in trust until the ESS Interests are issued or transferred, or the money is returned to the participant.
There are also new criminal offences introduced by the ESS Act relating to Eligible ESSs, including in relation to circumstances where the offer or disclosure document contains a misleading or deceptive statement or omission.
Meet our newest team member - Stacey Noonan.
What were you doing before Sierra Legal?
I was working part-time at a mid-tier firm. Prior to that I had some time away from practising law to look after my three kids – practising law is easier!
What do you do with your time when you aren’t advising on M&A deals and reviewing contracts?
Mostly still looking after those three kids – but rather than changing nappies I’m now a taxi service/administrative assistant for their hectic social and sporting lives! I also like to read and enjoy cooking and getting active – even just a quick walk to the beach makes my day so much better.
What was your first job?
Other than things like babysitting and helping in my dad’s business when I was a kid, my first ‘real’ job was waitressing. I really quite liked being a waitress, but I worked in the restaurant at a winery and I was terrible trying to explain the wine menu!
What was the first thing you bought with your own money?
I think it was Madonna’s ‘True Blue’ cassette tape. It’s possibly still one of the best things I’ve ever bought!
What was the last book you read?
I’ve usually got a few ‘on the go’ at once. The last book I finished was ‘The Yield’ by Tara June Winch. I’m also reading Stan Grant’s ‘Talking to My Country’ to continue my self-education on indigenous issues and the Palace Papers by Tina Brown for something a bit more light-hearted. And the odd chapter of Harry Potter when I’m allowed.
Favourite place?
I have many cities I love, but the place I feel most at peace is the bush – specifically the ‘scrub’ of Central-West New South Wales just after it has rained.
Favourite food?
Shellfish (preferably that someone else has ‘shelled’ for me!).
Least favourite food?
Mint. Peppermint, spearmint, whatever – it’s all gross.
Best advice you have received?
Every time I think of taking a shortcut, I hear my Grandad saying ‘if something’s worth doing, it’s worth doing well.’ That advice has been both a blessing and a curse throughout my life! Perhaps the best advice is from my dad: ‘You’ve always got to like the person looking back at you in the mirror’.
ASX has announced changes to the annual and subsequent listing fees for the 2023 financial year.
ASX has announced changes to the annual and subsequent listing fees for the 2023 financial year.
These fee changes will come into effect on 1 July 2022.
FY23 annual listing fees will be calculated as at 31 May 2022 and will apply from 1 July 2022. ASX will issue the annual listing fee invoices in the first week of July 2022.
Initial listing fees will change from 1 January 2023.
The new fee schedules will be made available on the listing fees page of the ASX website from 1 July 2022 (Link). Until that time, a copy of the new fee schedules can be viewed using this link: Link.
For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - Link.
On 3 March 2022, ASIC granted conditional relief to allow additional time for certain companies and registered schemes to hold virtual-only meetings.
Find out more in this article.
On 3 March 2022, ASIC granted conditional relief to allow additional time for certain companies and registered schemes to hold virtual-only meetings.
A virtual-only meeting is a meeting that is held entirely using virtual meeting technology and this is the only way to participate in the meeting.
Under ASIC Corporations (Virtual-only Meetings) Instrument 2022/129, all unlisted companies (public and proprietary) are able to hold virtual-only meetings until 30 June 2022, even where this is not expressly required or permitted under the entity’s constitution. Under this instrument, listed companies and listed and unlisted registered schemes were able to hold virtual-only meetings until 31 May 2022, even where this was not expressly required or permitted under their respective constitutions.
Before an unlisted public or proprietary company relies on the relief provided by ASIC, the directors of the company must pass a resolution that it would be unreasonable for the company to hold a meeting of its members wholly or partially at one or more physical venues, due to the impact of the COVID-19 pandemic.
Permanent amendments to the Corporations Act 2001 (Cth) have already been made, such that (with effect from 1 April 2022) companies and registered schemes can hold virtual-only meetings, but only if this is expressly required or permitted by the entity’s constitution. For registered schemes, the provisions of the scheme’s constitution that require or permit virtual-only meetings must have been included in the constitution either at the time the scheme was established, or by special resolution of scheme members.
From 1 April 2022, companies and registered schemes can also hold hybrid meetings. At a hybrid meeting there is also one or more physical places at which the meeting is held, and so members can choose to attend in person or participate remotely via virtual technology.
For more information, please contact any member of the Sierra Legal team, whose contact details can be found here.
Get to learn about what makes Terri tick.
When did you start at Sierra Legal?
In December 2021.
What were you doing before Sierra Legal?
I have been working in the non-profit sector in youth development across Africa for the past 8 years and still work in that sector one day a week. I now run programmes in South Africa for budding entrepreneurs, teaching our youth how to start and run their own successful micro-businesses. With 75% youth unemployment in South Africa, it is critical that we equip the youth with the skills to generate their own income.
What do you do with your time when you aren’t advising on M&A deals and reviewing contracts?
I recently moved to Cape Town in South Africa (previously I was in Johannesburg for eight years) and so I love the mountains and the hiking I’m able to do here. I have Table Mountain literally on my back doorstep, so I’m very blessed. My number one favourite pastime though is spending time in Kruger National Park, viewing Africa’s amazing wildlife.
What was your first job?
I started my working career as a police officer in South Australia at the age of 18 years. Talk about being forced to grow up in a hurry! It’s not an easy job on so many levels and I think the most important thing is learning how to cope (in a healthy way) with the things you see and must deal with daily. Sadly, I lost several friends to suicide who just couldn’t cope with the pressure. I think the psychological support that police officers get these days is much better than when I was a police officer many years ago. In fact, we had no support – you just had to ‘get on with it’.
What was the first thing you bought with your own money?
A Nikon SLR camera. I have always had a passion for photography and saved up to get a good camera and lenses. This was back in the ‘old days’ of film. I had a darkroom at home (aka the laundry with black plastic over the windows) where I used to do all my own film processing and printing. I loved it! Thirty years later, photography is still a passion of mine although the format has changed to digital which of course makes it much easier for the average person to be a ‘good’ photographer. Now that I’m living in South Africa, my favourite photographic subjects are the wildlife in Kruger National Park.
What was the last book you read?
Simon Sinek’s “Start with Why”. The book looks at what separates great companies and great leaders from the rest and why some people and organisations are more inventive, pioneering, and successful than others. I love Simon Sinek, particularly his unconventional and innovative views on business and leadership. He is the eternal optimist and has deep compassion for the human race and our ability, through working together, to change our world for the better. Check out his podcast, A Bit of Optimism – it’s brilliant!
Favourite place?
Having lived in South Africa and worked across Africa for the past 8 years, I still think Australia is the best country in the world and it’s still my ‘home’ and favourite place. A very close second is where I am living now, in Cape Town. It has so much to offer, from the sea to the mountains, and reminds me so much of Melbourne. I love living here.
Favourite food?
That’s a tough one because I’m such a ‘foodie’. I love good quality, fresh, flavoursome, healthy food. I’m known as the ‘Salad Queen’ and love making interesting salads and combining different flavours together. I know coffee is not a food but it’s my number one priority when I wake up.
Least favourite food?
Peas! I have hated them ever since I was a child. Although I love snow peas and snap peas – go figure. So, I guess it’s mushy peas / frozen peas that I dislike intensely.
Best advice you have received?
I try to live by this quote: “I've learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” (Maya Angelou).
I love people and have a genuine interest in people and what makes them tick. Africa has afforded me the opportunity to work with past African Presidents, highly educated professionals, illiterate rural workers and with people who live in shacks made of pieces of scrap metal in townships. I treat everyone the same - with respect, compassion and with an ear to listen and learn. I have found that every single one of us want the same thing – to be seen, to be heard and to feel that what we do matters.
The 2022 Federal Budget has been released and it notes that the government plans to scrap a number of ASIC fees from September 2023.
The removal of the following ASIC fees was announced in the 2022 Federal Budget as part of the Modernising Business Registers (MBR) program:
The abolition of the above fees is scheduled to take effect from September 2023, coinciding with the new Australian Business Registry Services (ABRS) platform becoming operational. Established as part of the MBR program, the ABRS will result in the consolidation of more than 30 ASIC registers and the Australian Business Register (ABR) into one place.
The Budget papers say that the Government will forgo revenue of $64.9 million over 3 years from 2023-24 to streamline fees associated with Australia’s Business Registers, as companies are migrated to the new ABRS platform.
The Australian government has recently introduced Director IDs. In this article, we explain:
A director identification number (Director ID) is a unique 15-digit number that identifies an individual as a director of an Australian company, registered Australian body or Australian registered foreign company.
All directors need to apply for their own Director ID and they will keep it forever even if they:
The requirement for Director IDs was introduced by the Australian government to:
You need a Director ID if you are a director of a:
You do not need a Director ID if you are:
You can apply for a Director ID now.
If you plan to become a director, you can apply for a Director ID before you are appointed as a director.
When you are required to apply for a Director ID depends on the date you become a director, as follows:
When you became a director |
When you must apply for a Director ID |
On or before 31 October 2021 | By 30 November 2022 |
Between 1 November 2021 and 4 April 2022 | Within 28 days of appointment |
From 5 April 2022 | Before appointment |
When you are required to apply for a Director ID depends on the date you become a director, as follows:
When you became a director |
When you must apply for a Director ID |
On or before 31 October 2022 | By 30 November 2023 |
From 1 November 2022 | Before appointment |
ASIC is responsible for enforcing Director ID offences set out in the Corporations Act. It is a criminal offence if you do not apply on time.
ASIC’s enforcement role covers the following Director ID offences under the Corporations Act:
Offence |
Penalty |
Failure to have a Director ID when required to do so | $13,200 (criminal); $1,100,000 (civil) |
Failure to apply for a Director ID when directed by the Registrar of the Australian Business Registry Services | $13,200 (criminal); $1,100,000 (civil) |
Applying for multiple Director IDs | $26,640, or, 1 year imprisonment or both (criminal); $1,100,000 (civil) |
Misrepresenting Director ID | $26,640, or, 1 year imprisonment or both (criminal); $1,100,000 (civil) |
The Australian Business Registry Services (ABRS) is responsible for administering the Director ID initiative. The ABRS was established to streamline how people register, view and maintain their business information with the Australian government.
It is free to apply for a Director ID from ABRS (https://www.abrs.gov.au/director-identification-number/apply-director-identification-number).
The following are the various Director ID application options:
Method |
Requirements |
Online |
|
By phone |
|
Paper Application |
|
For more information, please contact any member of the Sierra Legal team, whose contact details can be found here.
Engaging an adviser, such as a lawyer, accountant, valuer, mergers and acquisitions (M&A) / corporate adviser or business broker can be a daunting process. In any given field, there are many advisers and service firms in the market, and it can be difficult to know the best way to find and engage the right one for you – what should you look out for? This blog sets out some tips for engaging an adviser….
Engaging an adviser, such as a lawyer, accountant, valuer, mergers and acquisitions (M&A) / corporate adviser or business broker can be a daunting process. In any given field, there are many advisers and service firms in the market, and it can be difficult to know the best way to find and engage the right one for you – what should you look out for?
This blog sets out some tips for engaging an adviser, which are based on our experience in building good long term working relationships with our clients. As a specialist corporate and commercial law firm, we are not just familiar with the engagement process from the adviser’s standpoint. We have also assisted clients in engaging other advisers.
Tip 1: Experience - find an adviser that has experience and specialises in the things you need
Ideally, find an adviser that specialises in the areas that are important to you.
For example, when it comes to lawyers, there are many areas of law and subsets of law (such as corporate and commercial law, property law, employment law, intellectual property law, family law and dispute resolution). A lawyer that specialises in a particular area:
Similar considerations apply to other professional advisers, such as accountants.
It may also be helpful if the adviser has experience relevant to your industry and in dealing with businesses of the same or similar size as yours. That could be of particular importance when, say appointing an M&A adviser to advise you in relation to the sale of your business, or a valuer to value a business.
You should also ensure that the adviser holds all necessary licences and other authorisations to provide the services you need. While it may be obvious that your lawyer needs to hold an appropriate practising certificate, it may be less known that a corporate advisory firm needs to hold an Australian financial services licence (AFSL) to provide advice and services in connection with a sale or other dealing in shares and other financial products. A business broker may need to hold an estate agent’s licence issued by the relevant state authority to sell your business.
It is worth doing your research and checking out an adviser’s website and social media to determine the experience and expertise that the adviser has in a particular area. A recommendation or referral from a colleague, another adviser or trusted contact can also be a useful way of finding an adviser that meets your needs.
Tip 2: Scope of Work
Following initial discussions and prior to engaging an adviser, ensure that the scope of work for the services you need is clear and you are also clear on any carve-outs, exclusions or assumptions as this will ultimately affect the fees that will be charged.
For example, if you engage a law firm to prepare a business sale contract for you, is the quote just for the initial draft of the document or does it include further drafts following your comments and questions? Does the quote include assistance with completion/settlement? Does the scope of work include assistance with ancillary documents as part of the transaction?
If in doubt, ask the adviser to clarify the scope of work with you.
Tip 3: Fees
Professionals such as lawyers and accountants typically charge fees on an hourly basis - although some may cap fees or charge fixed fees for particular work.
Capped or fixed fees for a particular scope of work provide some certainty as to the invoice you expect to receive at the end of the matter. If an adviser provides a fixed fee, as noted above in Tip 2, ensure that you understand the scope of work for that fixed fee as work outside the agreed scope may be charged at the adviser’s standard hourly rates.
For large matters, it is often a good idea to obtain regular updates on the fees incurred to date so that you can keep track of the work that has been done and the fees incurred.
Some advisers, such as M&A advisers, may charge break fees if the client terminates their engagement before the transaction to which the engagement relates proceeds (or if it does not proceed), or may be entitled to their fee if the transaction subsequently proceeds. It is important that you understand these fees, and the circumstances in which you could be liable to pay them.
Tip 4: Obtain multiple quotes
It can be a good idea to obtain multiple quotes for the work required. However, if you do so, you will need to consider those quotes in detail as it is often not a matter of comparing ‘apples with apples’. It is important to assess the scope of work, charge-out rates for future work, whether the fees are an estimate or a fixed fee, any assumptions or exclusions, and the relative experience of the respective advisers.
For some advisers such as lawyers, keep in mind that a cheaper upfront price will not necessarily mean a cheaper price overall, particularly if the initial scope of work is limited, and the matter becomes more protracted.
Also, it is worth asking the adviser to clarify who in their firm will be engaged in your matter and their hourly rates. To keep fees low, some professional services firms (such as legal and accounting firms) often use junior staff to produce the work, which may not be the same quality as a practitioner with more experience.
Tip 5: Communication and rapport
With everything else being equal (i.e., experience, scope of work, fees, etc), you should consider whether you have a good rapport with the adviser you are engaging (and whether that adviser is a good communicator, both with advice and returning your calls and queries in a satisfactory and timely fashion).
As a business owner, it is important to surround yourself with first-class experts you can trust - from legal advice to accounting and financial strategy.
Communication, trust and respect are important for building a long term adviser-client relationship, and for ensuring that you are kept up to date as your matter progresses.
Tip 6: When to appoint an adviser
In some cases, it may be obvious when to engage an adviser. For instance, you would appoint an M&A adviser or business broker before you offered your business for sale.
However, from experience, when it comes to lawyers, we know many people believe that it will be cheaper if they are engaged at the last minute of a transaction. Nonetheless, it can often be more efficient, and costs can be saved, if lawyers are involved from the commencement of the matter - they can then be up-to-speed on the entire transaction from the start, and can ensure that a matter is correctly structured (which could save costs in the long run if parts of a transaction need to be unwound due to lack of advice).
About Sierra Legal
Sierra Legal is a boutique corporate and commercial law firm that specialises in assisting their clients with buying and selling businesses, corporate structuring, capital raisings and general corporate/commercial matters. Sierra Legal has lawyers in Melbourne, Brisbane and the Gold Coast. All of our lawyers are at Director or Special Counsel level with at least 13 years’ experience in medium to large local and international law firms.
How does Sierra Legal charge for work?
We work with our clients to develop fee arrangements that are the most appropriate for each matter. Our fees are structured in flexible and innovative ways, including fixed or capped fees, blended rates, and, for some transactions, success-based fees.
Our pricing is transparent, and we always provide our clients with certainty on the legal costs related to their matters. The vast majority of our work is performed on a fixed or capped fee basis, making it easy for you to budget for legal costs.
For ongoing legal work, clients can also obtain greater price certainty by selecting a Sierra Legal Monthly Plan. Please see Sierra Monthly Plans.
Other legal specialties and advisers
While Sierra Legal specialises in corporate/commercial legal matters, we have contacts at a number of other firms with expertise in other areas of law, such as property law, dispute resolution and employment law. We may also be able to put you in contact with other advisers, and assist you in the engagement process (e.g., reviewing their terms of engagement). We are always happy to have a chat, so please do not hesitate to contact us should you not know the type of lawyer required for a matter, or you need a recommendation for an area of law outside of our specialisation or for another type of adviser.
You’ve probably heard it before: “We just need you to sign our standard NDA first. We’ll send it through. You just need to sign and send it back.”
Is it OK to sign the other party’s standard non-disclosure agreement (NDA) (also commonly known as a ‘confidentiality agreement’)? Will your company’s standard NDA be the right fit for the discussions you are about to have? Maybe, but it’s probably best to understand the NDA and whether it is suitable for the circumstances first.
You’ve probably heard it before: “We just need you to sign our standard NDA first. We’ll send it through. You just need to sign and send it back.”
Is it OK to sign the other party’s standard non-disclosure agreement (NDA) (also commonly known as a ‘confidentiality agreement’)? Will your company’s standard NDA be the right fit for the discussions you are about to have? Maybe, but it’s probably best to understand the NDA and whether it is suitable for the circumstances first.
Contrary to what some people may think, not all NDAs are the same. Here are some issues to think about:
What ‘Confidential Information’ will be covered?
The obligations under a typical NDA are based around protecting what is defined as ‘Confidential Information’. It is common to see very broad definitions of ‘Confidential Information’, so that the agreement covers essentially everything provided by one party to the other, or everything about one party that is known to the other party, except for information in the public domain. This may be appropriate, but you need to be aware that it may mean that a very wide range of information is covered by the agreement, so it may be very onerous or simply impractical to fully comply.
If there is only a small range of information that really needs to be protected, it may be best to define ‘Confidential Information’ much more specifically.
‘Approved Purpose’
It is usual for a NDA to set out an ‘Approved Purpose’ or ‘Permitted Purpose’, which is the only purpose for which the receiving party is permitted to use the Confidential Information. It is important to get this right.
Responsibility for accuracy of information
It is common for standard NDAs to include a clause that seeks to exclude the disclosing party’s responsibility or liability for the accuracy or completeness of the information disclosed. Sometimes we see the opposite: a clause providing that the disclosing party guarantees the accuracy and completeness of the information.
Care and consideration should be given to these clauses before agreeing to them. What if the whole purpose of your dealings with the other party is that they are giving you materials that you should be entitled to rely on? Or the opposite, are you doing the other party a favour and want to minimise your liability in relation to the information, but you have just signed up to an agreement with a specific warranty of accuracy and completeness?
Who can be given the information?
Most of the time an NDA will be entered with a company. But when the information is disclosed, which individuals within the company receiving the information should be allowed to access it?
It is usual for an NDA to provide, at a minimum, that the information can only be shared within the company with individuals who have a need to know the information in relation to the Approved Purpose and that the company is responsible for ensuring that the individuals comply with the terms of the NDA. This may be appropriate, but you may also want to consider a more restrictive approach if you are the “disclosing party”. For example, this could include an obligation on the receiving party to ensure that all individuals to whom it provides access to the confidential information sign a personal confidentiality undertaking which is provided to the disclosing party.
Putting the right templates in place
Your organisation can more efficiently enter into suitable NDAs by having the right templates in place that take account of these and other issues in accordance with your organisation’s circumstances and needs.
Please feel free to contact any member of the Sierra Legal team to discuss how we can assist.
Buying a business? If so, you may need to think about the warranties to be provided by the seller, the limitations to those warranties that may be requested by the seller, whether there should be co-warrantors, and whether there should be a retention of the purchase price to satisfy future warranty claims…
Your decision to buy a business and your negotiations with the seller over the price and other terms and conditions of the purchase will be influenced by information provided by the seller. For example, the seller is likely to provide you with financial statements of the business. The seller may also be willing to share internal forecasts and budgets. Other information and documents relevant to the business may be disclosed by the seller as part of your and your advisers’ due diligence investigations of the financial, operational and legal aspects of the business.
It is, of course, prudent for the purchaser to check the information the seller provides for accuracy and (in relation to any forecasts and budgets provided by the seller) reasonableness. For instance, this could be done by a review or audit of the financial statements (where they are unaudited special purpose accounts) and, if possible, independent verification by searching public records and registers. However, budgetary and time constraints and the nature of much of the information provided by the seller will rarely allow you to undertake a complete investigation of all aspects of the target business, and to independently verify all information provided by the seller.
This is why it is common for the purchaser to require the seller to provide warranties about the business in the contract for the sale and purchase of the business. The warranties will generally be about specific aspects of the business and may be used to confirm information provided by the seller. If the warranties are later proved to be incorrect, or misleading (depending on the wording of the warranty provisions in the contract), the purchaser will be entitled to recover any resulting loss from the seller.
The following are some key points about seller’s warranties from the purchaser’s perspective:
Warranty limitations: The seller is likely to want to limit their exposure under the warranties. One common limitation is to seek to exclude warranty claims based on information or matters which the seller disclosed to the purchaser before the sale and purchase contract was signed (the principle being that if the seller has disclosed a risk to you before you legally committed to the purchase, you should not be able to sue them for any loss if that risk later eventuates).
Although that is not generally unreasonable, if you are prepared to accept a limitation based on seller disclosure, the extent of the limitation should be clearly stated in the contract. For example, you may want to stipulate that only full and fair disclosure of a matter which may give rise to a future warranty claim, or only full and fair disclosure against specified warranties (in a disclosure letter or similar document given by the seller before the contract is signed), will limit your right to claim under the warranties. Otherwise, the seller may argue that a general and non-specific disclosure of information during due diligence (which may have been insufficient to enable you to identify a risk of a warranty breach) will preclude you from making a warranty claim afterwards.
Other common limitations include a monetary cap on the seller’s liability for warranty claims and a time limit within which the purchaser is allowed to bring a claim for breach of warranty.
Co-warrantors: If the seller is a company, the sale proceeds may, a short time after the sale of the business completes/settles, be distributed to the company’s shareholders, leaving no more than a shell company with no, or no substantial assets. That would make a later warranty claim by the purchaser against the seller company fruitless. Therefore, you may want someone of some financial substance, in addition to the seller company, to give the warranties under the sale contract. That will often mean the directors of the seller company being required to give warranties jointly and severally with the company.
Hold-back of funds/escrow: Even so, there may be no opportunity for the purchaser to assess the financial standing of the directors or other co-warrantors when entering into the sale contract, in particular, their financial standing in the future when a warranty claim may need to be made. To ensure that there will be some funds readily available to meet a claim later on, you may try to negotiate for some of the sale price to be held back at completion/settlement, or placed in escrow (i.e., held by a third party stakeholder or your lawyer in trust), for part or all of the warranty period.
If you have any questions on seller warranties, or any other legal aspect of buying or selling a business, please do not hesitate to get in touch with one of the Sierra Legal team.
Recent updates involving the Unfair Contract Terms regime in Australia are a reminder to regularly review and update any standard form/template contracts used in your business to ensure compliance with that regime.
Unfair Contract Terms regime
The Unfair Contract Terms regime in the Competition and Consumer Act applies to "standard form contracts" which are either "consumer contracts" or "small business contracts". If a court or tribunal finds that a term in these types of contracts is ‘unfair’, the term will be void (i.e. the term will not be legally binding on the parties). The rest of the contract can continue to bind the parties to the extent it is capable of operating without the unfair term. For further background on the unfair contract terms generally, you can read our previous article on this topic.
Recent updates
Updates/consultations in relation to the Unfair Contract Terms regime include:
Fuji Xerox case
We previously wrote (October 2020 Article) about the ACCC’s legal action in the Federal Court against Fuji Xerox Australia, where the ACCC alleged that Fuji Xerox’s template/standard form contracts included contract terms (including automatic renewal terms, excessive exit fees and unilateral prices increase) that were unfair under the Unfair Contract Terms regime in the Competition and Consumer Act.
Fuji Xerox applied for a summary dismissal of the ACCC’s case on the basis that the contracts in question were merely template contracts and the ACCC’s case did not identify or focus on any actual contract between Fuji Xerox and a particular customer.
In March 2021, the Federal Court of Australia rejected Fuji Xerox’s application for summary dismissal. Although a final decision has not yet been made on whether the terms in Fuji Xerox’s template contracts are actually unfair under the Unfair Contract Terms regime, the activity involving the Fuji Xerox case (as well as the ACCC consultation) is a good reminder to ensure any standard form or template contracts are regularly reviewed to ensure that they do not contain any terms that could be considered to be unfair under Unfair Contract Terms regime.
If you have any questions on unfair contract terms and how they apply to your business please get in touch with one of the Sierra Legal team.
Congratulations to Kenneth Gitahi on his promotion to Director and Samantha Khoo and Troy Mossley on their promotions to Special Counsel.
Ken, Sam and Troy all specialise in mergers & acquisitions, shareholder arrangements, IPOs and other capital raisings, private equity investments, and general corporate and commercial advice and have been invaluable members of the Sierra Legal team!
Joint ventures/business arrangements are commonly structured as proprietary limited companies with 2 or more shareholders. While it may not seem essential at the start of the business relationship, having an agreement between the shareholders has a number of key benefits. The following are a few key issues to consider prior to having a shareholders agreement prepared:
Joint ventures/business arrangements are commonly structured as proprietary limited companies with 2 or more shareholders. While it may not seem essential at the start of the business relationship, having an agreement between the shareholders has a number of key benefits including:
If you require a shareholders’ agreement, it is important that it is tailored to the shareholders, to the business, and to the future plans of the company. The following are a few key issues to consider prior to having a shareholders agreement prepared:
Structure of the agreement: Consideration should be given to the short to mid-term plans of the company as this may impact the terms and structure of the agreement. For example, if it is expected that the company will look to raise funds by issuing ordinary or preference shares to parties other than the existing shareholders, the agreement should be appropriately drafted so that amendments are not required at the time of issuing those shares.
Decision making: How will decisions of the company and the business be made? For example:
Funding and share issues:
Transfer of shares:
Employment arrangements:
Restraints: Restraints are provisions that protects the business if any shareholder leaves. Care must be taken to ensure these provisions are not drafted in a way that may result in them being unenforceable or contrary to law (e.g. under the cartel/exclusionary provisions in the Competition and Consumer Act 2010 (Cth)).
Resolution of deadlocks:
If you have any questions on shareholders agreement or need a shareholders agreement prepared for your company, please do not hesitate to get in touch with one of the Sierra Legal team.
If you're looking to deal with a boutique commercial law firm that puts your needs first, contact Sierra Legal. We do what the big firms do but with a small, agile team that provides personalised service to each client.
Get in touch today and talk about how Sierra Legal can meet your commercial and corporate legal needs.
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