Why I chose a career in the law?

Becoming a lawyer was not my first choice as a career. I was a police officer in South Australia but when I moved to Victoria to live, due to my life partner getting a transfer with the Air Force, I had to give up my policing career.  In the mid-90s transferring as a police officer to another State was not allowed. I was required to start as a cadet again at the Police Academy in Victoria, which was crazy given that I was a senior member of the police force in South Australia.  My partner then decided that he wanted to study law whilst remaining in the Air Force, and he asked me if I was interested in sitting the university entrance exam for law with him.  I had nothing better to do at the time, so I decided to sit the exam and was successful. The rest is history!

What unique perspectives do women bring to the law?

I think women bring a unique perspective and value to the law because of their diverse experiences and backgrounds.  Historically, women have been underrepresented in the legal profession, which has resulted in a lack of female perspectives in the development and application of the law. However, as more women have entered the field of law, their voices and experiences have begun to shape legal policies and practices in meaningful ways.

I believe that women bring a unique style of leadership to the legal profession that emphasises collaboration, relationship-building, and consensus-building.  This can lead to more effective and sustainable legal policies and practices. Women also bring empathy and compassion to the law.  By this I mean that women are often socialised to be caregivers and nurturers, which can translate to a greater sense of empathy and compassion for others.  This can be especially valuable in legal contexts where clients may be facing difficult and emotionally charged situations.  

Finally, while resilience is an important attribute for all lawyers, women in the law often face unique challenges that require a particular kind of resilience. Studies show that women lawyers are more likely to experience gender bias, discrimination, and harassment in the workplace.  However, despite these challenges, many women in the law have demonstrated remarkable resilience. They have persevered in the face of adversity, overcome obstacles, and achieved great success in their careers.  It is important that as women in the law, we support and advocate for each other.

Any female role models and why?

I have a few but in relation to law, the late Ruth Bader Ginsburg tops my list.  She advocated for gender equality, broke barriers by becoming the second woman appointed to the US Supreme Court, paving the way for other women to follow in her footsteps and she was a strong leader, both on and off the bench.  Despite facing many obstacles throughout her career, Ginsburg persevered and continued to fight for what she believed in. She inspired women and girls to pursue their dreams through courage, hard work, humility, determination, and perseverance.

Undertaking due diligence is a crucial step in the process of acquiring a business. The due diligence process generally involves a detailed investigation to thoroughly assess the target business’ assets, capabilities, and financial performance, and identify potential problems or unexpected liabilities. It is a valuable risk management tool that allows the buyer to make informed decisions and avoid unpleasant surprises.

Due diligence allows the buyer to identify and mitigate potential risks and liabilities that could impact on the target business’s value or return on investment. It helps the buyer and seller establish a realistic valuation of the business, and assists the buyer to gain a comprehensive understanding of it. The results of due diligence inform the terms of the transaction, including price, warranties, and payment terms.

For a buyer undertaking due diligence, it is essential that the process be conducted thoroughly yet efficiently. Here are our top tips for conducting effective due diligence:

Tip 1: Negotiate an exclusivity period with the seller - an exclusivity period will ensure that the buyer can devote time and resources to undertaking due diligence without being concerned that the seller is, at the same time, trying to solicit other offers for the target business.

The majority of M&A deals have a buyer exclusivity period during which the seller agrees to discontinue marketing and stop actively looking for buyers. Also known as a “no shop” period, the seller agrees to deal exclusively with the buyer during this period, preventing the seller from soliciting, negotiating or entering into agreements with other buyers.

The due diligence process takes time. It is important the buyer allows sufficient time for thorough due diligence to be undertaken as part of the transaction timetable and that this is reflected in the exclusivity period.

Tip 2: Engage experienced advisers – a buyer should engage advisers (including lawyers, accountants and tax advisers) experienced in advising on M&A transactions to assist in conducting (and reporting on) due diligence on a target business.

Experienced advisors will know what issues to focus on (or look out for) during the due diligence process. They will assist the buyer in developing a comprehensive due diligence plan, conducting research required to uncover potential risks, and providing recommendations for dealing with due diligence findings.

Tip 3: Tailor the scope of due diligence - before obtaining detailed information from the seller, the buyer and its advisers (legal and financial) should tailor the scope of due diligence to fit the target business. The scope of the due diligence review will depend on factors such as the nature of the business, its size and value, the industry it operates in, and the risk appetite of the buyer. Materiality thresholds are often adopted to enable the buyer’s due diligence team to focus (and report) only on matters of sufficient materiality. This can improve the efficiency of the due diligence process and ensure relevant issues are not overlooked.

Tip 4: Obtain relevant and detailed information about the target company – it is standard practice to issue the seller with a due diligence questionnaire that has been customised for the specific nature of the transaction and target company’s business. The purpose of the due diligence questionnaire is to gather relevant information about the target business to assess its value and potential risks.

The seller should also be collating due diligence materials in an online data room. Materials in the data room typically include:

• financial information including financial statements such as the income statement, balance sheet, and cash flow statement, as well as tax returns and any other documentation required to provide a comprehensive picture of the target company’s financial performance;
• corporate governance and ownership materials such as constitution, shareholders agreement, share certificates, and member registers;
• legal contracts that are important to the business such as sale, supply, service, and distribution agreements, and leases;
• intellectual property records including details of patents, trademarks, copyrights, and other intellectual property the target company owns or has licensed;  
• information technology materials including details about the target company's technology infrastructure, such as software, hardware, and data storage;
• human resources information such as organisational charts, policies, and employment contracts;
• litigation or regulatory filings including information regarding any current or pending cases or investigations; and
• environmental information including any environmental assessments, permits, regulatory approvals or other documentation related to the company's environmental impact.

Tip 5: Conduct a detailed and targeted review - Once the seller has completed the questionnaire and uploaded documents to the data room, the buyer and its advisers will review these materials. Typically, a due diligence review is divided into several separate components, each conducted by the relevant experts:

• Legal due diligence: this includes a review of the corporate structure and records of the target company, material contracts, results of searches of registered intellectual property, business names, registrations of personal property securities and other securities, current proceedings, and transfers of employees and their entitlements;
• Commercial due diligence: this includes a review of real property/premises, plant and equipment, stock and inventory, systems and processes, employees, customers, products and services, suppliers, assets, insurance, market trends and issues;
• Financial due diligence: this includes a review of financial performance, financial position, maintainable earnings, debtors, creditors, work in progress, salaries and wages, superannuation, finance facilities, guarantees and bonds, pre-payments, tax returns, liabilities, notices, disputes, penalties; and
• Tax due diligence: this includes a review of tax returns, liabilities, notices, disputes, penalties, etc and the tax impact of the transaction (as structured) on the buyer.

Tip 6: Review and act on due diligence findings - once the buyer’s advisers have completed their review of the due diligence materials, they will report their findings in writing to the buyer. Reporting is often done on an “exceptions basis” only (unless the buyer requires otherwise).  This means due diligence reports will only mention issues with a value or impact over a certain materiality threshold. The reports will contain recommendations for managing the issues uncovered during the due diligence process that will inform the buyer’s actions.

Provided the buyer wishes to proceed with the transaction, the next step is to negotiate definitive transaction documents. Issues identified in due diligence and the corresponding recommendations of the buyer’s advisers will frequently translate into protections sought by the buyer in the transaction documents. These could include the completion of certain actions as conditions precedent to completion, pre or post-completion undertakings, warranties addressing specific or general areas of concern for the buyer, or indemnities to protect the buyer from specific risks.  

If you have any questions on buying a business, undertaking legal due diligence or would like assistance with conducting legal due diligence on a target business, please do not hesitate to get in touch with one of the Sierra Legal team.

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Buying a business can be a complex and challenging process. It's important to be aware of the legal issues involved to ensure the transaction is successful and legally sound.

Tip 1: Know what you are buying  

Most businesses are operated through company structures.  This means that a buyer of the business can buy:

• the shares held by the shareholders of the company; or
• the assets used by the company to operate the business. 

There are crucial differences between share purchases and asset purchases that it is imperative for buyers and sellers to understand.  

• Share purchase transaction: this involves the buyer purchasing shares in the company that operates the business.  When a buyer purchases all of the shares, they become the sole shareholder or owner of the company. Through the company, they own everything the company owns (such as plant and equipment, land and buildings, goodwill, intellectual property, and rights and benefits under customer contracts).  Importantly, the buyer is also “buying” the liabilities of the company (which are factored into the purchase price).  
• Asset purchase transaction: this involves buying all or only some of the assets used to operate the business.  Assets may include contracts, plant and equipment, land and buildings, goodwill, and intellectual property.  In an asset purchase transaction, the buyer may prefer to purchase just the assets used in the relevant business, leaving behind extraneous assets as well as debts or liabilities.   

There are advantages and disadvantages of buying assets versus shares and vice versa. Buying just assets can provide flexibility, allowing the buyer to choose the assets they want and avoid liabilities of the target business. On the other hand, buying shares is often a simpler because the buyer takes ownership of the business in one transaction.

The decision on whether to buy shares or assets does not have to be made straight away. A preferable approach may become clearer after undertaking due diligence on the target. There may also be tax reasons to prefer to purchase shares over assets or vice versa, and professional advice should always be sought in this regard from the outset.

Tip 2:  Negotiate an exclusivity period with the seller

The buyer should negotiate an exclusivity period during which it has the sole right to conduct due diligence on the target business.  The purpose of the exclusivity period is to prevent the seller from trying to solicit other offers or negotiate with other prospective buyers.  Also known as the “no shop” period, the seller agrees to exclusively deal with the buyer during this period.  

It is natural for buyers to want to protect their interest and improve the chances of a successful completion. They do not want to have to deal with late counter offers. Most buyers aren’t willing to spend time and resources if there is little certainty of closing the deal. Your lawyer can assist you with the appropriate documentation to ensure exclusivity during the due diligence period.  

Tip 3:  Understand your funding options

Before starting the acquisition process, a buyer should understand how it will fund the proposed acquisition (cash, debt finance, vendor finance, equity). There are many ways to acquire financing, but it is vital to plan the acquisition financing structure to fit the circumstances. The cost of the acquisition financing structure must be grounded in the cash-flow generating capacity of the target and the strength of its asset base.

If a buyer needs a loan to fund the acquisition, the lender may wish to take security over the shares or assets of the target business and review the buyer’s due diligence on the target business. Large volumes of debt are more appropriate for mature companies with steady cash flows. Businesses that compete in unstable markets, that want to grow fast and need large amounts of capital to do so are more likely to seek equity financing.

Tip 4:  Undertake your due diligence

Due diligence is essentially an investigation into (and an appraisal of) the target business. It is an opportunity to assess the value of its assets and liabilities as well as the businesses’ commercial potential. 

From a legal perspective, due diligence on a business acquisition includes things like:

• reviewing and cross-checking ownership records and corporate governance documents;  
• analysing material contracts for provisions that may be triggered by an acquisition or which are onerous in nature;  
• evaluating funding and borrowing arrangements, as well as any security granted over the assets of the business;  
• considering compliance with regulatory requirements such as environmental, health and safety, or industry-specific regulations;  
• assessing any litigation the business is subject to;  
• examining records of employees, their entitlements, and their employment contracts; and  
• conducting searches on any land or premises owned or occupied by the target business.

Beyond legal due diligence, a buyer will usually also conduct financial, commercial and possibly tax due diligence on the target company or business in conjunction with their financial advisors.  

The importance of due diligence should not be underestimated. This is because:

• a buyer should ensure that it knows what it is buying so that it can better manage the risks associated with the purchase;  
• it will assist the buyer to negotiate the terms of the purchase, for example, it may reveal certain risks in the target business which the buyer may want to protect against;  
• issues arising in due diligence can usually be dealt with in the transaction documents either as condition precedents or completion deliverables, or via warranties and indemnities; but  
• only the known issues and risks of a transaction can be managed to ensure an optimum outcome.  

The level of due diligence on the target business will depend on a number of factors including the value of the acquisition and the buyer’s experience in the relevant industry.  Please see our recent article for top tips when conducting due diligence (LINK).

Tip 5:  Understand what protections you may need in transaction documents as a result of due diligence findings  

If the buyer still wants to proceed with the purchase after conducting due diligence, the next step is to prepare, negotiate and enter into definitive transaction documents.  Sometimes a term sheet or heads of agreement is entered into first.  

Material issues arising from due diligence should be translated into protections sought by the buyer in the sale and purchase agreement and/or as adjustments to the purchase price.  Examples of buyer protections that are often included in a sale and purchase agreements include:

• having conditions precedent that must be satisfied before settlement or completion of the transaction;
• representations or warranties from the seller regarding the quality, condition, and title of the assets being sold;
• indemnification provisions that require the seller to compensate the buyer for any damages or losses resulting from breaches of the sale agreement or other contractual obligations; and  
• provisions that require part of the purchase price to be held back or retained until a specified action or result is achieved this could take the form of an earn out or escrow arrangement.  

If you have any questions on buying a business, undertaking legal due diligence, or would like assistance with conducting legal due diligence on a target business, please do not hesitate to get in touch with one of the Sierra Legal team.

What were you doing before Sierra Legal?

Working in corporate law for a top-tier law firm. Before I entered the law, I worked in banking as a business analyst and product manager. 

What do you do with your time when you aren’t advising on M&A deals and reviewing contracts?

I love escaping to the ocean, especially to scuba dive. When I’m not dealing with a transaction, you might find me underwater exploring a shipwreck or photographing marine life. Above water, I enjoy pilates and yoga as well as creative writing. 

What was your first job?

My first job was at the local supermarket. I used to work the checkout and also behind the deli counter. When it was quiet we would “face up” the shelves (bring the stock to the front). I was really good at facing up the tins of tuna!

What was the first thing you bought with your own money?

A portable TV. It was sort of like a Gameboy, but it had a tiny TV screen and a big arial you had to pull out. Reception wasn’t always the greatest, and the resolution was not so good either, but I thought it was pretty special. I didn’t actually end up actually using it much though due to the aforementioned reception and resolution issues. 

What was the last book you read?

“The Happiest Man on Earth” by Eddie Jaku - an amazing story of survival which emphasises the importance of kindness. 

Favourite place? 

Either the Great Blue Hole in Belize or Fish Rock Cave off the coast of South West Rocks in New South Wales. Fish Rock Cave is an ocean cave which runs 125 metres underwater through a rock in the ocean. Its inhabitants include grey nurse sharks, turtles, crayfish, and bull rays. 

Favourite food?

I will eat most things but favourites include sashimi, shellfish, Mexican, and, of course,  chocolate. 

Least favourite food?

I’m not very fussy but liquorice gets a firm “no” from me. 

Best advice you have received?

I’m still deciding on that. I like the approach taken by the Minimalists, for example the following minimal maxims: 

• The most effective way to declutter is to leave the junk at the store
• Our memories are not in our things; our memories are inside us
• The right thing to do is rarely the easy thing to do 

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.

Buy/sell trigger events

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.

Buy/sell insurance

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.

Advantages of a buy/sell agreement

The key advantages of a buy/sell agreement are:

• to provide for funds to be available to enable the outgoing shareholder to be bought out.  Often, a buy/sell trigger event will happen unexpectedly, so the continuing shareholders may not otherwise be able to raise the necessary funds without having to sell the company or its business (which, in any case, may not be easy to do within a short timeframe);
• to enable the outgoing shareholder (or outgoing shareholder’s estate or family) to access the value of the outgoing shareholder’s shares in the company after a buy/sell trigger event has occurred; and
• to allow the continuing shareholders to own and run the company after a buy/sell trigger event has occurred in relation to the outgoing shareholder, without interference from the outgoing shareholder’s estate or family (who may not have previously been involved in the company’s affairs), or from any third party who might (in the absence of a buy/sell agreement) buy the outgoing shareholder’s shares.

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.  

Key questions when preparing a buy/sell agreement

The following are some key questions shareholders should ask themselves before deciding on the terms of a buy/sell agreement:

• What are buy/sell trigger events? The answer to this question is likely to depend on the ability to obtain insurance cover for each shareholder (or its associated person) for the relevant events, and the cost of that insurance cover.  For example, it may not be possible to obtain the same kind and level of cover for all shareholders (or shareholders’ respective associated persons), or the same kind and level of cover for all of them at a reasonable cost.
• How will the insurance policies be held?  There are a number of options, including each shareholder holding their own individual policy, each shareholder taking out policies covering the other shareholders (or their associated persons), or the company holding the policies.  Each of these options has advantages and disadvantages, and the approach taken will depend on the parties’ particular circumstances.
• What is the amount to be insured?  Ideally, the insured amount should be sufficient to cover the value of each shareholder’s shares, but the cost of such cover may be an issue.  Furthermore, the value of the company’s shares is likely to fluctuate over time, and therefore the agreement should provide for periodic valuations of the company’s shares and reviews and variations of insured amounts.
• What happens if the insurance proceeds are greater or less than the value of an outgoing shareholder’s shares?  If the insurance proceeds are insufficient to cover the outgoing shareholder’s shares, the agreement could provide that the loss represented by the shortfall is to be borne by the outgoing shareholder (or their successors), or that the continuing shareholders must fund the shortfall, perhaps over a period of time.  The entitlement to any excess insurance funds should also be addressed in the agreement.

Interplay with shareholders’ agreements

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.

Other business structures

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.

Seek professional advice

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).

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Overview

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:

• broaden the type of contracts that may be caught by the Unfair Contract Laws; and
• introduce significant civil penalties for contraventions.

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.

What types of contracts do the Unfair Contract Laws apply to?

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:

• that are for the supply of goods or services or the sale or grant of an interest in land;
• where at least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis); and
• where the upfront price payable under the contract is no more than $300,000 (or $1 million if the contract is for more than 12 months.).

What are ‘unfair’ contract terms?

A contract term may be ‘unfair’ if it:

• causes a significant imbalance in the parties’ rights and obligations;
• is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
• causes financial or other detriment (such as delay) if it were relied on.

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:

• set out the price;
• define the product or service being supplied; or
• are required or permitted by another law.

How will things change if the Bill is passed?

Under proposed amendments (in summary):

• the proposal of, use of, application of, or reliance on unfair contract terms would be prohibited;
• many more contracts will be considered ‘small business contracts’; and
• significant civil penalties and other remedies could be imposed for contraventions.

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:

• $50 million;
• three times the value of the benefit the company obtained from the breach; and
• if the court is unable to determine the value of the benefit the company obtained, 30% of the company’s turnover during the breach period.

Do I need to do anything?

If the Bill is passed, businesses will need to move quickly to:

• identify and review their standard form contracts to ensure they do not contain unfair contract terms; and
• implement any necessary changes to their standard form contracts and business practices.

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here (LINK).

Background

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.

Effective date

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.

Requirements during and after the transition period

The following requirements apply during and after the transition period:

1. Existing listed entities appointing a new ASX Contact

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.

2. Entities that are listed (or re-listed) during the transition period

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.

3. After the transition period

On and from 1 October 2022:

• Any new nominated ASX Contact will need to complete and pass the course prior to their appointment; and
• The nominated ASX Contact of any entity that is to be listed (or re-listed) must complete and pass the course prior to that entity’s listing (or re-listing).

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.

Existing ASX Contacts

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).  

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.

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:

• the buyer has a legitimate interest to protect;
• the restraint imposed was no more than reasonably necessary to protect that legitimate interest; and
• it is not against public policy or harmful to the public interest.

Legitimate interest

Protecting legitimate business interests with a ROT clause does not extend to simply preventing future competition. A legitimate interest might include:

• a commercial interest, such as confidential information, trade secrets or intellectual property knowledge which if leaked, would harm the business or the company; or
• the goodwill of a business, including customer and supplier connections.  Many of the cases that consider restraints in the context of a business or share purchase indicate that the buyer would usually have a legitimate interest in protecting the goodwill in the business (or the business of the company) it has bought.

Reasonableness of the restraint

A court will consider several factors in deciding on whether a restraint clause is reasonable, including:  

• the industry and nature of the business;
• the nature of the restricted activity;
• the length of the restraint (generally speaking, the longer the restraint period the less likely it will be considered reasonable);
• the geographical area to which the restraint applies (this should usually be limited to the location(s) in which the business or company operates); and
• whether the party that is the subject of the restraint (generally being the business or share seller) has received any consideration for agreeing to the restraint (typically, that would be the price the seller received for the business or shares).

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.

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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:

• by assignment; or
• by novation.

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:

• promise to the outgoing party to carry out the outgoing party’s contractual obligations after the assignment date; and
• indemnify the outgoing party against claims against it by the continuing party for any post-assignment failure by the incoming party to carry out those obligations.

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:

• The terms of the contract itself – does the contract prohibit, allow or place any conditions on any method of transfer?
• Your ultimate goal, including in relation to who should be responsible for liability arising under the contract before and after the transfer.
• The commercial position of each of the outgoing party, the continuing party and the incoming party – for example, how readily will the continuing party give its consent?

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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.  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.

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.

• Individuals and companies are legal entities.
• A trust is not a legal entity, but the trustee of the trust is.  Therefore, the contracting party should be the trustee (which may be a company or an individual).  The party could be named in a contract as “ABC Pty Ltd as trustee of the XYZ Trust”, or just “ABC Pty Ltd”.
• A partnership is not a legal entity separate from its partners.  Therefore, all the partners would be parties to the contract, but that may not be practical in the case of a large partnership.  However, as each partner is treated under the law as an agent of the partnership and the other partners for partnership business purposes, generally, any partner of a partnership could enter into the contract on behalf of the partnership.  Sometimes, a partnership will have a ‘nominee company’, which is a separate company owned or controlled by the partners and used to enter into contracts on behalf of the partnership (ie, the nominee company will sign the contract as agent, or as nominee or on behalf, of the partnership).

Tip 2 – Make sure you’re contracting with the right party

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.

• Before finalising the contract, ask a representative of the business what the structure of the business is (ie, whether it is operated through a company, trust or other entity), so that you can correctly identify the party that needs to enter into a contract with you.
• Search the internet to help you to identify the correct party.  On-line ASIC company and business name searches, ABN searches using the Australian Business Register, domain name searches, and trade mark searches through IP Australia can all assist in revealing or verifying the legal entity with whom you are dealing.

Tip 3 – Check that the other party has authority to enter into a contract with you

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.

• If a company or individual is entering into a contract with you as trustee of a trust, you could ask for a copy of the trust deed to check that it gives them the power or authority to contract in that capacity (ie, as trustee).  That will be important if you wish to ensure that the assets of the trust will be available to meet the party’s contractual obligations (and any future contractual claims you may have against the party).
• To check that a person entering into a contract on behalf of a partnership has authority to bind all of the partners, it may be necessary to have the person provide evidence that they are a partner of the partnership (eg, a copy of the partnership deed, or a document under which they were appointed a partner).  Alternatively, you could ask to see a power of attorney or similar document signed by all of the partners authorising the person (or nominee company, if applicable) to enter into the contract (or contracts generally) on behalf of the partnership.

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.

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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

• Keep the pressure on after signing and use a “completion agenda”.  People often fall into the trap of thinking that the deal is done once a sale and purchase agreement is signed, but that is often not the case and a lot of work still needs to be done, such as satisfying conditions precedent and getting ready for completion.
• Don’t announce early, unless you have to as a matter of law (e.g. ASX listing rules) or other reasons (e.g. word gets out about the deal and clarification is necessary).  A seller can often lose bargaining power if news of the deal gets out.  In such circumstances the seller often can’t afford for the deal not to go through to completion and therefore may feel they need to waive conditions precedent or accept half-performed completion steps.
• Start the process early for the release of registrations on the Personal Property Security Register.  The buyer will likely require all PPSR registrations to be released prior to or at completion and it can be difficult to convince third parties that hold PPSR registrations over a target business to release those registrations quickly (as there is often no incentive for them to do so).  There may also be large numbers of historical registrations that haven’t been released and reconciling all of the registrations can be time consuming.

Tip 12 - Don’t forget post-completion steps after the champagne is popped

• These could include ASIC filings, asset transfers (e.g. motor vehicles), escrow arrangements, completion accounts preparation, assistance from the seller after completion, non-competition restraints, and warranty claim periods.
• Prepare a timetable of post-completion steps and diarise the relevant dates.

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For more information, please contact any member of the Sierra Legal team, whose contact details can be found here - LINK.

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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:

• The seller may end up in a far worse position because the buyer is likely to produce buyer friendly transaction documents; and
• Substantial costs can be involved in negotiating the documents back to a reasonable position.

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:

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:

• The content of the data room forms the basis on which a potential buyer will determine its offer price for your business.  So, in simple terms, a disorganised/deficient data room can often result in a lower offer price (or the buyer requesting onerous terms and conditions in the sale and purchase agreement to protect its position).
• An effective data room can also give powerful tools to the seller (e.g. document security mechanisms, the ability to monitor who is reviewing what documents and for how long, and an effective process for submitting, answering and recording requests for further information).
• If important information is missing from the data room (or there is any false or misleading information) and the deal goes ahead, then this may result in the buyer suing the seller in the future for breach of warranty or misleading and deceptive conduct.  So it’s important to have an accurate record of exactly what was disclosed to the buyer to assist with any future claims.

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.

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:

• delay the transaction;
• scare off buyers;
• cause additional expense; and
• have adverse tax consequences, for example if assets have to be moved across various entities.

Tip 2 - Appoint your advisers early

• Advisers could include corporate advisers, lawyers and accountants/tax advisers.
• Appointing your advisers early will limit the risk of things going in the wrong direction from the start and a seller agreeing to commercial terms with a buyer without understanding the full implications of those terms.
• Advisers need to be experienced in M&A transactions.
• Obtain cost estimates from advisers up front, ideally with fee caps or fixed fees and consider incentives for corporate advisers to maximise the sale price.

Tip 3 - Share sale vs asset sale

• Consider how the transaction is to be structured – for example, the shareholders selling their shares in a company (share sale) or the company selling its assets (asset sale).
• The tax outcomes may be better for the seller if the transaction is a share sale, but buyers may be reluctant to take on the historical liabilities associated with the company.
• Buyers may prefer an asset sale as they can choose the assets to be acquired and leave behind most unwanted liabilities.

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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 (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:

• gather all relevant information and documents in relation to your business as soon as possible in the sale process and include it in a data room to which the buyer and its advisers are given access.  The information presented in the data room should be true and not misleading, as otherwise you could be exposed to claims by the buyer of breach of warranty (eg, a seller warranty to the effect that all information you provided was true and correct), or misleading and deceptive conduct.  This means that both positive and negative facts about your business or company ought to be disclosed, to give an accurate picture.  The data room should have facilities enabling the buyer and its advisers to request additional information and to ask questions, and for you and your advisers to answer them.  For evidentiary purposes, a record of all information (including questions and answers) included in the data room will need to be generated, and there should be a facility to enable the parties to download a copy of the contents of the data room at completion of the sale.  Electronic or virtual data rooms are ideal for those purposes.  There are various third party virtual data room platforms available for sellers to use.
• for added protection, the seller may also provide a disclosure letter or similar document to the buyer prior to signing the SPA, which sets out specific disclosures against specific seller warranties in the SPA.  The SPA would then need to provide that the contents of the disclosure letter also qualify the seller warranties, in the same way as information in the data room.

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:

• there is monetary cap on the seller’s and other warrantor’s liability.  The cap is usually a percentage of the sale price, up to 100%.  There will be a stronger argument for a lower percentage, the higher the sale price.  Also, there may be different caps for different types of liability (eg, breaches of title and capacity warranties, and some specific indemnities, may attract a higher cap);
• a minimum claim amount (and a minimum amount for a ‘basket’ of claims) is set, so that the buyer is precluded from bringing an individual warranty claim unless it exceeds a minimum claim amount, and until the total amount of all claims exceeds a minimum aggregate claim amount; and
• the buyer will have a time limit, after completion of the sale, within which to bring claims for warranty breaches.  There may be different time limits for different types of warranty claims (eg, tax claims may have a longer tail).  The time limit usually applies to the notification by the buyer of warranty claims, but it is advisable to also include a separate time limit for the buyer to issue legal proceedings for the claim after notification.  Otherwise, as long as the buyer gives you notice of a warranty claim by the claims notification deadline, the claim will be preserved, and the buyer will be free to issue proceedings against you long (even years) after the notification time limit expires.

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) (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:

• The Corporations Act allows an exemption for:
  - offers made to employees who are 'senior managers'; and
  - offers made (in any 12 month period) to no more than 20 persons (including employees) and where the amount raised does not exceed $2 million in total.

• The ASIC class order relief (Class Order 14/1001 (unlisted bodies)) applies only where (among other things):
  - The value of all offers to each participant in each 12 month period is no more than $5,000.
  - The ESS does not involve the employer group making a loan to the participant to fund the acquisition of the securities.

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):

• the existing disclosure requirements and restrictions on advertising and hawking securities under the Corporations Act will not apply; and
• an Australian financial service licence will not be required by the operator (and general financial advice can be provided in relation to the Eligible ESS without an Australian financial service licence).

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):

• The offer must be for the issue, sale or transfer of:
  - fully paid shares;
  - a beneficial interest in a fully paid share; or
  - a unit in, an incentive right, or an option to acquire, a fully paid share,
  (ESS Interest).
• The offer must be made to a director, employee or service provider of the company (or certain persons/entities related to them).‍
• For an offer of options or incentive rights, an ‘offer document’ must be provided at the point of offer pursuant to Division 1A of Part 7.12 of the Corporations Act. The offer document must include certain prescribed information.

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):

• The offer must be for an ESS Interest.
• The offer must be to a director, employee or service provider of the company (or certain persons/entities related to them).
• The ESS Interest must be acquired by the participant who pays for the ESS Interest.
• The sum of the following two numbers must not exceed 20% (or such other percentage specified in the company’s constitution) of the interests actually issued in the company:
  - the number of interests that may be issued, directly or indirectly, as a result of the offer; and
  - the number of interests that have been issued, or could be issued as a result of previous offers, in connection with an employee share scheme made during the previous three years.
• The participant must not be charged more than $30,000 per annum (plus an additional amount for certain dividends and cash bonuses received and other amounts accrued by the participant).
• Any plan to allow a participant to make regular payments or elect to have regular deductions made from their wages or salary for the purposes of acquiring ESS Interests (Contribution Plan) must satisfy certain requirements, including that the participant must agree in writing to the terms of the Contribution Plan before participating.
• For an offer of options or incentive rights, an ‘offer document’ must be provided at the point of offer pursuant to Division 1A of Part 7.12 of the Corporations Act. The offer document must include certain prescribed information.
• The participant must be provided with a disclosure document 14 days before an offer is made (and, where the ESS Interest is an option or incentive right, before the ESS Interest can be exercised). The nature of the disclosure document required depends on the nature of the ESS Interest offered, but the requirements for a disclosure document are generally less onerous than the existing disclosure requirements.
• Where the company provides a loan to enable a participant to purchase the ESS Interests:
  - the loan must have no interest or fees payable;
  - in the event of default in the payment of the loan, the right of recourse against the participant must be limited to forfeiture of the ESS Interests acquired using the loan;
  - the borrower must be the participant who will acquire the ESS Interests; and
  - the loan cannot be provided to an existing shareholder.

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.

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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.

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.

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.

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 removal of the following ASIC fees was announced in the 2022 Federal Budget as part of the Modernising Business Registers (MBR) program:

• ASIC company annual late review fees. This is a welcome move, particularly for small companies, which are more likely to incur these fees due to oversight.  Late review fees may also act as a disincentive for companies (particularly small ones), to update their details on the ASIC database if they miss a lodgement deadline, which makes the database prone to being inaccurate and out of date, and therefore less useful.
• ASIC search fees.  The abolition of fees payable by the public to search the ASIC database for information about companies (for example, registration status, registered office address, names of directors and shareholdings) will align Australia with other countries such as the US, UK and New Zealand, where (unlike the current position in Australia) a lot of information about a company can be obtained by anyone from Government databases for free. However, the scrapping of search fees may not good news for third party providers of company search services, who may lose some business.
• Some “ad hoc” company lodgement fees.  The Budget papers did not specify which ones are to be scrapped, but evidently some lodgement fees will continue to apply.

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.

What?

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:

• change companies;
• stop being a director;
• change their name; or
• move interstate or overseas.

Why?

The requirement for Director IDs was introduced by the Australian government to:

• prevent the use of false or fraudulent director identities;
• make it easier for external administrators and regulators to trace directors’ relationships with companies over time; and
• identify and eliminate director involvement in unlawful activity, such as illegal phoenix activity (which is where a company is liquidated, wound up or abandoned to avoid paying its debts and then a new company is started to continue the same business activities without the debt, leaving employees and suppliers unpaid).

Who?

You need a Director ID if you are a director of a:

• company;
• Aboriginal and Torres Strait Islander corporation;
• corporate trustee, for example, of a self-managed super fund;
• charity or not-for-profit organisation that is a company or Aboriginal and Torres Strait Islander corporation;
• registered Australian body, for example, an incorporated association that is registered with the Australian Securities and Investments Commission (ASIC) and trades outside the state or territory in which it is incorporated; or
• foreign company registered with ASIC and carrying on business in Australia (regardless of where you live).

You do not need a Director ID if you are:

• a company secretary but not a director;
• acting as an external administrator of a company;
• running a business as a sole trader or partnership;
• referred to as a ‘director’ in your job title but have not been appointed as a director under the Corporations Act 2001 (Cth) (Corporations Act) or the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (Cth) (CATSI Act);
• a director of a registered charity with an organisation type that is not registered with ASIC or the Office of the Registrar of Indigenous Corporations to operate throughout Australia; or
• an officer of an unincorporated association, cooperative or incorporated association established under state or territory legislation, unless the organisation is also a registered Australian body.

When?

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.

For directors under the Corporations Act

When you are required to apply for a Director ID depends on the date you become a director, as follows:

For directors under the CATSI Act

When you are required to apply for a Director ID depends on the date you become a director, as follows:

Criminal offence

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:

How?

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:

For more information, please contact any member of the Sierra Legal team, whose contact details can be found here.

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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:

• will be up to date on any changes to the law in that area;
• are more likely to be doing legal work in that area on a daily basis, and will therefore have considerable experience and expertise in handling similar matters; and
• can identify any legal issues quickly and expertly.

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.

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.