As the Coronavirus pandemic sweeps across the globe, many Australian businesses are experiencing unprecedented levels of disruption.  This is due, in large part, to measures introduced by Australian and foreign governments to control the spread of the Coronavirus, including travel bans, geographic lock downs and social distancing and quarantine/isolation requirements.  These measures have disrupted supply chains within Australia and globally, and the ability of individuals to travel freely, both within and outside Australia.

In this environment, the ability of individuals and entities to comply with ongoing contractual obligations may be severely tested, and in some cases, may be rendered impossible.  Even though the occurrence of a global pandemic could not reasonably have been foreseen by parties to a contract, a party that is unable to comply with its contractual obligations due to the effects of the Coronavirus pandemic may, depending on the terms of the relevant contract, still be in breach of the contract and liable to compensate the counterparty for the counterparty’s resulting losses.

Since the effects of the Coronavirus pandemic will likely linger for the foreseeable future, it is important that parties under a contract take immediate steps to head-off any issues that may arise.  We would recommend taking the following actions:

Undertake a review of active contracts

Now is the time to undertake a review of your active contracts, with the assistance of your lawyers, to identify the options or remedies that are available if either you, or a counterparty, cannot comply with contractual obligations in the current circumstances.

Some key things to look out for in a contract review are:

• Force majeure provisions that allow a party to delay the performance of contractual obligations due to the occurrence of an event beyond its reasonable anticipation or control and which prevents it from performing those obligations.  Generally, the occurrence of a global pandemic would ordinarily fall within a broadly drafted force majeure provision, but it is important to check the definition carefully.  It is also important to understand the precise steps required for a party to validly rely on a force majeure provision and to follow them as required under the contract.
• Delay or extension of time provisions that entitle a party to a delay, or an extension of time, in complying with contractual obligations, as a result of specified events occurring.  Checking these specified events will be critical to determining whether or not one or more of them would apply in the current circumstances.  Equally important is understanding the precise steps that a party seeking to rely on the benefit of these provisions must follow.
• Default provisions, which specify the circumstances in which one or more parties will be in breach of the contract.  A failure to comply with any provisions of a contract is a common event of default.  For example, in an equipment supply contract, a failure to deliver the relevant equipment to the purchaser by a specified date would ordinarily be an event of default under that contract.
• Termination provisions, which provide for the termination of a contract by a non-defaulting party if an event of default occurs in relation to the defaulting party.  Ordinarily, being in breach of a contract, and failing to remedy the breach within a specified period (if the breach is capable of remedy), will entitle the non-defaulting party to terminate the contract.  Some contracts may also provide a non-defaulting party with a right to terminate the contract if the defaulting party is unable to comply with one or more of its obligations under the contract for a specified period of time due to events beyond the defaulting party’s reasonable control.  One of the consequences of a non-defaulting party terminating a contract due to an event of default occurring in respect of the defaulting party is that the non-defaulting party can seek to recover, from the defaulting party, its losses arising from the termination of the contract.

Regular communication with counterparties

Keep in regular contact with the other party(ies) to your contract and notify them as soon as possible if you suspect, or expect, that you may not be able to comply with any obligations due to the effects of the Coronavirus pandemic.

Notifying your counterparties early may enable them to take steps to minimise or eliminate any adverse effects that they may experience if you are unable to perform one or more contractual obligations.  This may help generate and maintain goodwill between the parties, which may be required if you need the counterparty’s co-operation to amend the contract to accommodate the difficulties you are experiencing.

The contract may also contain a specific requirement requiring you to notify the counterparty in writing if you suspect, or expect, that you may not be able to comply with any obligations under the contract.  A failure to do so may constitute an event of default.

Take action to mitigate any losses

It is not just the party that may be prevented from complying with its contractual obligations due to the Coronavirus pandemic that should take some action.  If you anticipate that the counterparty to your contract may experience difficulties in complying with the contract due to the Coronavirus pandemic, you should take active steps to minimise the losses you may suffer as a result. 

Not only is this a prudent commercial approach to take, it is also required by law in many instances.  Even if the counterparty breaches the contract and you are entitled to terminate the contract and recover from the counterparty the losses you have suffered as a result, you may be prevented under law from recovering any losses that you would not have suffered had you taken reasonable steps to minimise your losses.

***

If you have any questions regarding the drafting of, or compliance with, any commercial contracts given the effects of the Coronavirus pandemic, please get in touch with Ken Gitahi or one of the other Sierra Legal team members – https://www.sierralegal.com.au/team.

Would your corporate group benefit from lodging one set of accounts with ASIC?

Certain wholly-owned companies may be relieved from the requirement to prepare and lodge audited financial statements under the Corporations Act, where they enter into a deed of cross guarantee with their parent entity, other entities in their corporate group, and meet certain other conditions.  The end result is that only the parent company needs to prepare and lodge audited accounts with ASIC, which can simplify financial reporting requirements and reduce costs. 

If you work with a large corporate group that is seeking to take advantage of this reporting relief, or if you work with a corporate group that already has a deed of cross guarantee in place and the structure of the group has changed (or is planning to be changed), we recommend that you start the process as soon as possible so that the relevant documents can be prepared, finalised and lodged with ASIC by 30 June. 

If you have any questions on the ASIC instrument and obtaining relief, or if you need assistance with preparing and lodging the relevant documents, please get in touch with one of the Sierra Legal team.

You can book an online video conference with us using the link below:

https://www.sierralegal.com.au/meetings

We recently sat down with James Nickless, General Counsel at The MaxSoft Group.

MaxSoft (through its subsidiaries including StrataMax, StrataCash, StrataPay and StrataLoans) is one of the leading providers of software and financial services to the body corporate and strata industry. 

James, having previously been a Partner at 2 national law firms specialising in body corporate and strata law, has been General Counsel at MaxSoft for 2.5 years. 

James is the first legal counsel employed by MaxSoft and, in his first General Counsel role, he shares his thoughts on lessons learnt in the past 2.5 years.

What are some of the biggest lessons learned from your first role as General Counsel?

• You are not the rock star anymore.  In private practice, the lawyers are the producers who provide the services that generate the revenue.  Everything in a law firm is designed around supporting the lawyers and enabling them to perform at their best.  In a software company, the software developers are the rock stars and the lawyer plays a supporting role.  It is difficult to appreciate the value you are providing by reducing risk, improving compliance and often advising against certain initiatives when compared to the much more tangible value calculation about total billable hours per year.
• Non-lawyers often perceive you differently to how other lawyers do.  Sometimes off the cuff comments or personal opinions can be taken as set-in-stone, legal gospel by colleagues just because “the lawyer said it”.  You have to be careful to clearly distinguish at times when you are giving a legal opinion and when you are simply offering a commercial or personal perspective on something.  When you are used to debating and brainstorming legal concepts with other lawyers, it can be challenging when people simply take your conjecture as “the answer” and when they interpret your weighing up alternatives as “not knowing the answer”.
• Not everybody thinks like you do.  In law firms, there are generally more similar personality types and thinking styles than in-house (massive over-generalisation, I know).  It is both challenging and rewarding to look past these differences and to collaborate with others that think and act completely differently to the way you are used to doing things.  I have really learned to try harder to truly understand the ideas of others and find the value that isn’t immediately apparent to me.  It is amazing that the process for generating good ideas and solving problems in-house is not always a linear, logical and controlled process.  Often someone else’s throw away comment can spark a genius solution that no one person would have come up with on their own.

What is your favourite thing about working in-house?

Having “buy-in” to the company as a whole and being able to experience the difference made by my contribution.  In private practice, much of my interaction with clients was transactional in nature and I didn’t often get to see the lasting effects of my work.  It would generally be the case that “if it ain’t broke, don’t talk to the lawyer”.  It is nice now to be able to give things the full attention that they need, not simply the amount of time I could allocate between various clients or the effort commensurate with the amount a client wanted to pay. 

We thank James for his time and for sharing these thoughts and lessons.  Hopefully they resonate with other in-house lawyers.

At Sierra Legal, we assist a number of in-house legal teams.  If you are interested in exploring different ways of working, we would be happy to share some insights with you.  These insights include some things other in-house legal teams are doing to deliver value to their clients and get the most out of their external legal spend.  Please get in touch with one of the Sierra Legal team - https://www.sierralegal.com.au/team

As part of the Dynamic Business "Let's Talk" series, Sierra Legal Senior Associate Kenneth Gitahi shares his thoughts on going public:

“A proprietary (or private) company may consider going public (that is, converting to an unlisted public company) to make it easier to raise capital from the general public.  However, this benefit needs to be weighed against the increased regulatory and cost burdens that apply to public companies.

The requirement to hold an AGM, appoint an auditor and prepare audited financial reports, are among the key regulatory and cost burdens that public companies face.  Public companies also pay a much higher annual registration fee and they must have at least 3 directors and at least 1 company secretary.  Removing a director of a public company can only be done at a general meeting by shareholders (and not by directors).  Removing an auditor requires ASIC’s consent.

Even greater regulatory burdens are faced by public companies listed on a stock exchange, which must also comply with the rules of the stock exchange.

Seeking independent professional advice before going public is vital.”

Read more of the discussion from business owners and entrepreneurs here - https://dynamicbusiness.com.au/featured/lets-talk-taking-your-company-public-with-an-ipo.html

When Craig Sanford established Sierra Legal in March 2010, what he had in mind was something very different to the traditional “ivory tower” law firms in the industry.  He created a boutique firm that provides high quality and commercially focused legal services to its clients, using a close-knit team of friendly and highly experienced lawyers who enjoy a technology savvy and truly flexible working environment.  For a boutique firm, Sierra Legal has some great clients, including Medibank, Bingo Industries, BP, Hisense, Chubb Insurance, Simoco Wireless Solutions and World Vision Australia.

To help Craig reflect on the last 10 years since starting Sierra Legal, he recently sat down with one of his colleagues, young gun Troy Mossley, and responded to a number of wide ranging questions.  Here is the interview …

Why did you decide to start Sierra Legal 10 years ago? 

After finishing my law and science degrees at Monash Uni in the early 90s, I went straight into a large Australian law firm called Middletons, now known as K&L Gates.

I worked extremely hard at Middletons, and made it to partnership by the time I was 30.  I learned a lot and had a fantastic experience, and had the privilege of working with some great partners, including John Mann, Warwick Isherwood, Andrew Chambers, Robert Desmond, John Kelly and Robert Springall (some of whom are still at the firm!).

However, after 19 years at Middletons, my wife, Katie, and I decided that it was time for a change - I wasn’t seeing a lot of my family, the 12+ hours a week of commuting to and from work was starting to wear a bit thin, and I thought that if I didn’t try something else after such a long time at Middletons, I never would! 

I wasn’t really excited about the idea of jumping into another large law firm or changing to a different profession, so I decided to “give it a crack” and start a new law firm from scratch in March 2010!

Sierra Legal initially ran alongside a separate corporate advisory business (Hawksburn Capital) founded by Mark Thexton and James Chisholm.  While Sierra Legal now operates independently (focusing purely on legal matters), Mark and James were certainly instrumental to the initial growth and success of Sierra Legal and I am grateful for their support. 

Did you ever see yourself as an entrepreneur?

I never really saw myself as an entrepreneur.  In fact, if you were to ask my colleagues and friends at the time I left Middletons, I’m sure most of them would have said that I was the last person they would have expected to jump out on my own.

I suppose I first had a taste of being an entrepreneur in my teenage years by doing a few little things to earn some money.  I remember buying a couple of cheap second-hand bikes, doing them up and then selling them for a profit.  I also did a letterbox drop in the neighbourhood offering to mow people’s lawns, do some landscaping and other odd jobs, and some people took me up on it.  There were little things like that, but nothing in a big way.  It wasn't really until 2009/2010 when I suddenly had that big entrepreneurial urge to quit a perfectly stable and well-paying job, and start a new business from scratch!

How did you initially find the jump from a big firm to a start-up?

It was a big shock to the system.  The first 6 months were very hard.  I probably underestimated how difficult it is to start up and run a new business.

Back when I was a partner at Middletons, I had a full-time secretary, a dedicated team of lawyers and infrastructure to back me up.  But I had to leave all that behind when starting Sierra Legal.  

Cash flow was a real concern in the beginning.  Coming from a regular good-paying job, I had to invest in the new business and make lots of sacrifices along the way.  I didn't earn anything for the first 6 months or so, and had 2 kids in a private school.  Plus, Katie and I foolishly started a home renovation at about the same time as starting the business.  There was a lot more money going out than coming in!

Katie and I had to put in place a strict budget for the family in the early days, making sure we didn’t spend beyond our means.  When we went to the supermarket, we had to stick to our budget.  Unlike when I was a partner in a big law firm, we couldn’t just buy something because we wanted to.  Fortunately, we had some savings, so we had a bit of a buffer to get us through those early days.  I was also very lucky to have a wife and family who were supportive of me taking the big jump.

Do you have any regrets in starting Sierra Legal?

Absolutely not. 

I have some great memories from my time at Middletons/K&L Gates, and I think it was and still is a great law firm.  However, Sierra Legal has been a fantastic journey.  I am really proud and grateful in terms of what we (being me and the rest of the Sierra Legal team) have been able to create and achieve at Sierra Legal over the last 10 years.  Most importantly, I genuinely enjoy getting up in the morning (or at least most mornings!) to do my job … for me, that is the key measure of success from a work and business perspective.

The flexibility associated with running my own business has also been great.  Over the last 10 years since starting Sierra Legal, I’ve been able to be a much bigger part of the lives of my wife and kids than might have otherwise been the case if I’d kept working in a big city law firm.  It has also enabled me to take up 2 other passions, being athletics and share trading.  In terms of athletics, I have been able to juggle the demands of the business with a proper athletics training schedule, and have been fortunate to win medals on the National and World stage at various masters athletics championships - a couple of highlights have been a silver medal in the 800m at the World Masters Athletics Championships in Perth in 2016 and a gold medal (and Australian record) in the 4 x 400m relay at the World Masters Athletics Championships in Spain in 2018.

When did you hire your first employee?

Sierra Legal hired its first employee in early 2011, about a year after starting the business.  Mike Jeffery came across to Sierra Legal as a Senior Associate from a large firm in Brisbane called McCullough Robertson. 

Mike is now a Director of Sierra Legal - he has been with the business so long that I pretty much regard him as a co-founder of the business, and he has certainly been a massive part of our success and growth over the years.

Since employing Mike in 2011, we have slowly built the team to the point where we now have a fantastic team of dedicated, loyal and highly experienced lawyers.  It’s by far the best team I’ve ever had in my 29 years of being in the legal profession.

As a relatively small firm, have you had any trouble retaining staff?

We have had an amazingly good staff retention rate.  In 10 years, we have only lost one lawyer from the business.  Interestingly, that person left the firm a few years ago to take on an in-house legal role at Medibank, which is now one of our largest clients.

What is Sierra Legal’s secret in having this high staff retention rate?

I think it’s been a combination of factors.  At Sierra Legal, we offer something totally different to traditional law firms:

• We have a genuinely flexible working environment.  I think a lot of firms say that they have flexible work practices, but they don’t really.  In our case, we have offices in Melbourne and Brisbane where staff can sit and work if they really want to, but for most of the time when not out on the road, all of us work predominantly from home offices.  Everyone is encouraged to prioritise family activities, whether that be school pickups and drop-offs, family holidays or just having dinner with the family, and we fit in work around that.  Don’t get me wrong, all of our lawyers work extremely hard, but everyone knows that they have total flexibility to enable them to fit everything they want to into their lives.
• As well as having great clients, we tend to do a lot of interesting and high-value work, which obviously helps in keeping everyone happily engaged in their work.
• We don’t have personal fee budgets.  Instead, we set and monitor team goals and work collectively towards achieving them.  I think it’s fair to say that personal fee budgets are hated by most lawyers working in traditional law firms!  At Sierra Legal, we really are focused on working as a team and doing the best possible job for the client - if we do that, then our view is that the fees will look after themselves.
• All team members share in the profits of the firm, and everyone has visibility over the financial performance of the firm - by this I mean profit, as well as revenue.
• We have zero office politics.  This might be a product of our flexible working environment, as well as having people in the team that are closely aligned in terms of their business, family and personal goals.  Everyone just gets along well with each other!
• All team members are given the opportunity to understand and share in the strategy and direction of the firm.  As an example, a year or so ago we were approached by a large law firm that was keen to acquire Sierra Legal - before making a decision, I discussed this fully with the team and soon discovered that they weren’t interested, so we didn’t do the deal!

Overall, I think the secret to retaining staff is just to treat everyone equally and with respect.  Some of the things that I have just mentioned are pretty unique for a law firm, and probably result in less dollars in my pocket as a business owner.  But again, if we can have a business where everyone enjoys getting up in the morning to come to work, that’s what makes me happy!

With everyone doing a lot of work from home offices, do you find it difficult to maintain a strong team culture?

Since we have only lost one lawyer from the business in 10 years, I think we are doing something right in terms of maintaining a good culture.  With the team spread over Melbourne, Brisbane and the Gold Coast, we regularly communicate with each other on Zoom - so it just means that we see a lot of each other in 2D rather than 3D! 

I sometimes look back at when I was a partner at Middletons, and can honestly say that I spend a lot more time communicating with staff now at Sierra Legal compared to when I was at Middletons, mainly because of the admin and other responsibilities associated with being a partner in a big law firm that would often soak up a lot of my day.

Given my experiences with Sierra Legal in terms of staff working remotely, I get a little frustrated with some people’s view that it is difficult to maintain a strong team culture if you aren’t all physically in the same office.  At Sierra Legal, I think we have clearly proven otherwise!  I also often wonder what our world would be like if other professional services firms (and possibly other types of businesses) could see the light and have their staff working predominantly from home offices - for a start, I think it would solve our massive traffic problems overnight and enable governments to divert the billions of dollars they are wasting on road infrastructure to more important things like hospitals and schools …

What are some of the key attributes to being a successful entrepreneur? 

For me, some of the key attributes would be hard work, self-discipline, positive attitude and humility.

I also think that one of the problems with some entrepreneurs is that they can be focused too much on the “big picture” and aggressively growing their business.  They sometimes lose sight of the detail and doing the best possible job for clients.  I think it’s important to still get that balance right between growing the business and looking ahead, while at the same time having a level of focus on the detail and service delivery to your clients so that the clients keep coming back to you.

The ability to build strong relationships with people, particularly customers and staff, is also crucial for a successful entrepreneur.

What is your biggest weakness in business and how do you overcome it? 

Attention to detail and being too hands on in the business.  While it is obviously important for a lawyer to have good attention to detail, I sometimes find myself spending too much time working in the business, rather than on it.  I have overcome this to some degree by building a fantastic team of senior lawyers that I can trust and rely on, enabling me to spend more time on strategic activities and new opportunities for the business. 

The other difficulty I have, which I’m sure is shared by a number of business owners, is finding the right work-life balance.  I think I still work too hard!  I often find myself online late at night doing work or looking for the next deal - but that’s because I enjoy what I am doing, and no longer think of it as work.  Having said that, I also recognise the importance of getting that work-life balance right …

What is the biggest challenge you have faced? 

In terms of Sierra Legal, the biggest challenge early on was enticing good people to join the business from larger firms when we didn’t have a long history.  It’s a lot easier now that we have been around for 10 years and have a great team.  

What was the best advice you were ever given?  What advice would you give someone starting a business? 

The best advice I was given was to just give it (Sierra Legal) a go, with my “security blanket” being my skills as a lawyer that I had developed over 19 years at Middletons – that is, if Sierra Legal didn’t work out, I could always just get a job with another law firm, so starting up my own business wasn’t overly risky after all!

The advice I would give to someone starting a business is lots of planning, start small, keep a close eye on your financials and work hard.

Before starting an entrepreneurial journey, I’d also encourage you to get out there and join the workforce or work with bigger teams of people to get some experience in a similar field to your proposed new business.  In those early years, I think you gain valuable experience by being around different people in a typical work environment.  To get some grounding in a traditional kind of job is important, maybe not for 19 years like me, but for at least a few years before you jump out on your own.

What was the biggest risk you ever took?  Would you do it again and why?  

The biggest risk I took at Sierra Legal was probably hiring our first employee 9 years ago - as I mentioned,  Mike is still with the business now, and is a Director of Sierra Legal.  At the time, it was a massive step up in terms of expenses, as well as the commitment and responsibility that comes with having an employee.  I would make the same decision again, as this was the starting point for us in terms of building a great team at Sierra Legal.   

What is your favourite quote on business, leadership or life and why? 

Revenue is vanity, profit is sanity, cash is king.  A lot of people seem to judge the success of a business on its size, including revenue and employee numbers, but as a business owner it soon became clear to me that profit and, more importantly, cash flow are the key measures for business success.

What next for Sierra Legal?

I’d like to keep the business going in its current direction, working with an awesome team and continuing to act for great clients doing high-quality, rewarding and profitable work.

I’m also really excited by the opportunities involved with our new automation service offering, Arreis Automation.  I can see this side of the business growing considerably over the next few years.

On a personal level, I would still like to be involved in the day-to-day work at Sierra Legal.  But maybe over time, I will transition to a more strategic, higher level role in the business.  It would be great to see all of the team that we have now, continuing to progress through the business and getting to Director level as well.  

In terms of the future size of the business, I can see us adding more great people to the team over time, but I certainly don't see Sierra Legal becoming another ivory tower law firm.  I still want to maintain that boutique firm environment at Sierra Legal, with genuinely flexible work practices and all the other attributes I’ve mentioned that set us apart from our competitors. 

At the end of the day, our focus will always be on providing top quality service to our clients and retaining great staff, and I’m sure the business will continue to go from strength to strength.

As part of the Dynamic Business "Let's Talk" series, Sierra Legal Senior Associate Kenneth Gitahi shares his thoughts on raising capital - how do you know which option is best for you:

“Capital raising options for businesses include family loans, government grants, crowd-sourced funding, commercial loans, venture capital funding, and selling a share of the business (i.e. through private equity investment or an IPO).

The best option will depend on your business and funding requirements and may be influenced by factors such as the speed with which funding is required, cash flow of the business, the maturity of the business, the amount of funding required, the cost of funding, the flexibility with which the funds can be used, and the appetite for increased regulatory burdens that may apply to some forms of capital raising.

For example, borrowing from a family member can mean that the payment arrangements and use of funds are flexible and the money can be available quickly, whereas, approval for a commercial loan can take longer as a bank undertakes due diligence and commercial interest rates may be high.  In addition, the use of funds may be restricted to a specific project.

Seeking independent professional advice can help to determine the best capital raising option for your business.”

Read more of the discussion from business owners and entrepreneurs here - https://dynamicbusiness.com.au/featured/lets-talk-raising-capital.html

We are excited to be named as a finalist in the legal services category of the Australian Small Business Champion Awards 2020!

The last 12 months have been massive for us… and 2020 is shaping up to be even better!

Thanks to all of our clients, colleagues, referrers, family and friends for their continued support.

The Australian Treasury has recently released a consultation paper on proposed enhancements to the unfair contract term protections in the Australian Consumer Law.  This consultation paper invites interested parties to provide feedback on options to enhance the unfair contract term protections for small business, consumers and insurance contracts.  Such options include making unfair contract terms illegal and attaching penalties, strengthening powers of regulators, and changing the threshold for what constitutes a small business.  Please see https://consult.treasury.gov.au/consumer-and-corporations-policy-division/enhancements-to-unfair-contract-term-protections/ for further details.  If you are interested in making a submission, the closing date for such submissions is 16 March 2020.

If you have any questions on unfair contract terms and how they apply to your business please get in touch with one of the Sierra Legal team – https://www.sierralegal.com.au/team.

We recently sat down with Simon Isaacs, Founder and CEO, and Heath Fitzpatrick, COO of eBroker.

eBroker is an online business finance broker that uses AI and algorithm technology to match small business owners with various non-bank business lenders. 

In this Q&A, Simon and Heath share their thoughts on the unsecured loan market for small businesses in Australia and key issues to consider if a business is considering taking an unsecured loan.

What is the status of the unsecured loan market for small businesses in Australia?

Unsecured business lending is becoming an increasingly a popular choice among small businesses in Australia.  This is because there is an increasing number of lenders in the market that are prepared to lend on an unsecured basis, and there is an increasing use of technology to more adequately assess a borrower and that borrower’s risk profile.

What is an unsecured loan?

An unsecured loan means that the borrower doesn’t need to provide any assets to secure the loan.  It also means that even if the borrower has existing credit facilities in place, they can still be approved for a loan as no business assets or property is required as collateral.

However, in some cases calling a loan ‘unsecured’ is a bit of a misnomer.  While an unsecured loan may not be secured by physical assets owned by the borrower, a borrower will need to consider and be aware of the terms that apply to that loan and in particular any personal guarantees that may be given.  Such personal guarantees would make the loan secured by any personal assets owned by the guarantor.

What do lenders look for?

The common concerns of small businesses in obtaining an unsecured loan are that they are just starting out and don’t have a mature business; they have a bad credit history; or they don’t have enough assets to secure a loan.

While physical property or collateral may not be required, for unsecured loans, a borrower will be borrowing the funds against the future growth of their business. Lenders will consider:

• a borrower’s past transactions, credit/debit card sales, and account balance;
• whether a borrower has regular cash flow and account deposits to finance their business; and
• the amount of money a borrower has left after paying existing loans, suppliers, bills, etc. to determine if there is financial capacity to re-pay the loan.

How do repayments work?

Repayments are generally made at regular intervals. This is to reduce the risk on the lender side and also to monitor the borrower’s behaviour in making repayments. As to the amount that can be borrowed, this largely depends on the borrower’s monthly turnover. Usually, lenders will lend up to 80-90% of the borrower’s average monthly turnover to make sure there is some buffer to pay the principal and interest of the loan.

What are the advantages of an unsecured loan?

• Approvals for unsecured loans are generally fast.  A borrower can get qualified and be advanced funds within 2-3 business days of an application.
• No physical collateral or security is required.
• Credit score is generally not an issue. A borrower is generally qualified based on the strength of their business.
• Flexible payments. Repayments are calculated and made based on business profits. If a business is having a slow month, they can make adjustments on profitable business months.

What to look out for / what are the disadvantages?

• Due to convenience and higher risk ratings, an unsecured loan normally attracts a higher rate of interest.
• It is important that a borrower carefully considers and checks the terms of the loan contract.  Unsecured loans can have stringent default or missed payment conditions.  This may include the ability for the lender to take possession of any of the borrower’s business assets or the ability to enforce any personal guarantees.
• Given the higher rates of interest and repayments, these loans are normally only viable over shorter terms. 

Last Tip

As mentioned, it is important that a borrower checks the terms of its loan contract carefully.  If a lender requires personal guarantees, an unsecured loan may not necessarily be truly ‘unsecured’ and personal assets of the guarantors (usually directors of the borrower) could still be at risk. 

Thanks to Simon and Heath for their time and for sharing these thoughts and tips.

If you are a business and are considering your finance options, please get in touch with the team from eBroker - www.ebroker.com.au.

If you are a business owner and have any questions on the legal aspects of a loan contract or any security being provided, please get in touch with one of the Sierra Legal team - https://www.sierralegal.com.au/team.

We are delighted to be an event partner of The Future Advisor accountants conference being held at the RACV Resort at Noosa, Queensland on 12 – 14 March 2020.

The conference will be a fantastic opportunity for accountants to actively participate in open discussions centred on what accounting firms will need to look like to meet the future needs of SME business owners and their expectations of accountants as their lead advisor.  There is a great line up of speakers, including Greg Hayes, Rob Nixon and other industry leaders.  Attendees will get an opportunity to share thoughts, ideas and opportunities, plus attend a welcome dinner and drinks and a networking river cruise.  I'm also told that there will be a guest appearance by Trent Innes, XERO Managing Director - Australia & Asia. 

Please see www.thefutureadvisor.com for further details.

Some interesting commentary on the M&A sale process in the latest Mergermarket publication “M&A Preparedness: How to plan for your next transaction”.  Please use the link to access a copy of the Report.

While the report is based on a survey of respondents based in North America, the same key findings and conclusions apply to Australian M&A transactions.  A couple of the key findings in the report include:

• When looking back on previous deals:
• 87% of respondents said they would they would have organised the company for a sale well in advance of the process beginning; and
• 57% of respondents would have retained outside counsel earlier in the process.

• Respondents noted that the greatest logistical challenge for sell-side preparation was readying the necessary legal, financial and technical paperwork. One respondent noted that “The absence of paperwork, records of meetings, or unsigned documents by necessary parties is a threat that will ultimately reduce the value of the seller. Buyer due diligence is concentrated mostly on concrete data and paperwork for previous transactions and references. Handling these is especially difficult if the sell-side is not organized.”

The key findings in the report support our previous recommendations that 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. 

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. 

 Such preparation can include a seller undertaking their own due diligence by considering and collating the documents/information that a potential buyer will want to see when conducting its due diligence.  Please see our articles 'Top 7 legal tips when selling a business' and 'Tips and traps for selling your business' for further commentary on seller due diligence and other tips if you are proposing to sell your business.

Please get in touch with one of the Sierra Legal team if you need any assistance with due diligence or the sale of your business.  We also have a template checklist of documents that a potential buyer is likely to want to review during due diligence that can assist you with the process.  Please contact us to obtain a copy.

We’re excited to be back in 2020 (in what is our 10th year) to continue providing exceptional, commercially focused legal services to our clients in the following areas:

• M&A (including buying and selling companies and businesses).
• Shareholder transactions (including shareholder agreements and joint ventures, private equity transactions and IPOs).
• Corporate advisory (including Corporations Act and ASX Listing Rules advice).
• Commercial law (including customer and supplier contracts, IT and IP licences, outsourcing contracts and finance arrangements).

If you are thinking about engaging in a corporate/commercial transaction in the next 12 – 18 months, please do not hesitate to get in touch with one of the Sierra Legal team (https://www.sierralegal.com.au/team) as it is never too early to have an initial discussion.  

For further information on us, our experience and some of the innovate products we offer, please also see:

• https://www.sierralegal.com.au/what-we-do and https://www.sierralegal.com.au/experience for further details on our legal services, flexible fee arrangements/products and our experience; and
• https://www.sierralegal.com.au/arreis on our innovative legal automation platform, Arreis Automation.

We look forward to working with you in 2020!

We are delighted to have partnered with leading eLearning business training provider, Vocam, to produce the content for a series of Australian workplace legal compliance eLearning training courses, as part of Vocam’s “Business Training-TV” platform.

These training courses are a vital component of workplace training for all organisations, and help create ethical workplaces that follow relevant laws, regulations and standards.

Please see https://www.businesstraining-tv.com/australia-workplace-legal-compliance-elearning-training-courses/ for further information on the legal training courses, or https://www.businesstraining-tv.com/ for other courses offered by Vocam.

Sierra Legal is very pleased to have been accepted as a member of the Asia-Pacific Legal Innovation and Technology Association.  We are looking forward to collaborating with other members and sharing our ideas for innovation in the legal sector.

We’re delighted to have Kate Save and Be Fit Food on board and thanks for the great review!

“This software from Sierra Legal is a game-changer for seamlessly creating documents which you need to use regularly without all the hassles of version control, manual editing and avoidable human errors.  At Be Fit Food, we use this software for contracts and NDAs to name a few, and their customer support is incredible too!”

Kate Save – Founder and Managing Director of Be Fit Food

Some interesting commentary on vendor due diligence and virtual data rooms in the latest Mergermarket publication on “Sell-side success”.  Please click here to obtain a copy of the report.

We recommend that 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.  Such preparation can include a vendor undertaking their own due diligence by considering and collating the documents/information that a potential buyer will want to see when conducting its due diligence.

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.

Please get in touch with one of the Sierra Legal team if you need any assistance with vendor due diligence.  We also have a template checklist of documents that a potential buyer is likely to want to review during due diligence that can assist you with the process.  Please get in touch with us to obtain a copy.

By 1 January 2020, public companies, large proprietary companies and proprietary companies that are trustees of a registrable superannuation entity must have a whistleblower policy.  It will be a criminal offence if a company that must have a whistleblower policy does not have one. 

To assist companies comply with their obligations with respect to whistleblower policies, ASIC have just released Regulatory Guide 270 which is available on ASIC’s website - please click here to access a copy of the Regulatory Guide.

For further information on the requirement to have a whistleblower policy, please see our August 2019 article - Sierra Legal Article, or ASIC’s recent media release with respect to regulatory guide 270 - ASIC Media Release.

If you need any assistance preparing a whistleblower policy by 1 January 2020 please do not hesitate to contact a member of the Sierra Legal team - https://www.sierralegal.com.au/team.

Who should be aware of this?

If your business supplies goods or services (or both goods and services) to consumers and gives a warranty against defects for those goods/services, then it’s crucial that you’re aware of some changes to the law that took effect on 9 June 2019.

What are “warranties against defects”?

Under the Australian Consumer Law (ACL), if a supplier or manufacturer of goods or services chooses to provide a “warranty against defects” to “consumers”, then that warranty must be in a document (Warranty Document), and that Warranty Document must comply with specific requirements.  The ACL is part of the Competition and Consumer Act 2010 (Cth) (Act).

A “warranty against defects” is a representation (e.g. a promise) given to a consumer that, if the goods or services (or part of them) are defective, then the supplier or manufacturer will:

• repair or replace goods (or part of them); or
• resupply or fix a problem with services (or part of them); or
• provide compensation to the consumer.

Such a representation will only be a warranty against defects if it is made at or around the time that the goods or services are supplied.

An example of a “warranty against defects” for the supply of services could be a statement by a bicycle shop that an old bike they have repaired for a consumer will not have any mechanical issues for a period of 12 months after the repair was completed.

“Who is a consumer”?

Under the Act, a person will be considered a “consumer” if they purchase:

• goods or services that cost less than $40,000; or
• goods or services that cost more than $40,000, but are of a kind ordinarily acquired for domestic, household or personal use or consumption; or
• a vehicle or trailer primarily used to transport goods on public roads.

A purchaser will not be considered a consumer if the relevant goods are purchased to be resold or to be transformed into a product that is then sold.

What are the requirements for warranties against defects?

The Competition and Consumer Law Regulations 2010 (Cth) (Regulations) specify requirements relating to the “form and content” of warranties against defects.  One of these requirements is that the Warranty Document must specify the period within which the relevant warranty against defects relates, as well as certain details of the person providing the warranty.

The Regulations also require that a Warranty Document relating to the supply of goods must contain the following mandatory text:

Mandatory text for the supply of goods:

“Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and compensation for any other reasonably foreseeable loss or damage.  You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.”

Following changes to the Regulations which came into effect on 9 June 2019, the Regulations now also require that a Warranty Document relating to the supply of services, or to the supply of goods and services, must contain the following mandatory text:

Mandatory text for the supply of services:

“Our services come with guarantees that cannot be excluded under the Australian Consumer Law.  For major failures with the service, you are entitled:

• to cancel your service contract with us; and
• to a refund for the unused portion, or to compensation for its reduced value.

You are also entitled to be compensated for any other reasonably foreseeable loss or damage.

If the failure does not amount to a major failure, you are entitled to have problems with the service rectified in a reasonable time and, if this is not done, to cancel your contract and obtain a refund for the unused portion of the contract.”

Mandatory text for the supply of goods and services:

“Our goods and services come with guarantees that cannot be excluded under the Australian Consumer Law.  For major failures with the service, you are entitled:

• to cancel your service contract with us; and
• to a refund for the unused portion, or to compensation for its reduced value.

You are also entitled to choose a refund or replacement for major failures with goods.  If a failure with the goods or a service does not amount to a major failure, you are entitled to have the failure rectified in a reasonable time.  If this is not done you are entitled to a refund for the goods and to cancel the contract for the service and obtain a refund of any unused portion. You are also entitled to be compensated for any other reasonably foreseeable loss or damage from a failure in the goods or service.”

Can suppliers and manufacturers include additional information in Warranty Documents?

Suppliers and manufacturers are free to include extra information in Warranty Documents to explain how the consumer rights in the ACL apply.  However, they must ensure that such extra information does not limit or negate the mandatory text.

What are the consequences for failing to comply with the requirements for warranties against defects?

Fines of up to $50,000 (or $10,000 for individuals) can be imposed for failing to comply with the requirements in the ACL and the Regulations relating to warranties against defects.

In addition, a failure to comply with these requirements can lead to breaches of other parts of the ACL, which can have much harsher penalties.  As an example, if such a failure to comply is found to involve a false or misleading representation concerning the existence, exclusion or effect of a condition, warranty, guarantee, right or remedy, then the applicable penalties could include:

• for an individual – a fine of up to $500,000; or
• for a company, the greater of:
• $10,000,000; or
• 3 times the value of the benefit obtained from the contravention; or
• if the value of the benefit cannot be determined, 10% of the annual turnover of the company.

Click here for further details on warranties against defects as published by the Australian Competition and Consumer Commission.

For more information on the requirements for warranties against defects, and for general advice on compliance with the Australian Consumer Law, please contact:

• Ken Gitahi, Senior Associate, on +61 (0)401 450 220 or at kgitahi@sierralegal.com.au
• Mike Jeffery, Director, on +61 (0)402 745 054 or at mjeffery@sierralegal.com.au
• Craig Sanford, Director, on +61 (0)416 052 115 or at csanford@sierralegal.com.au

We were delighted to present to the legal teams of Medibank and WEX on “Practical tips for increasing productivity and efficiency”, including a demonstration of our new document automation platform, Arreis Automation.

As a business owner, in-house legal counsel or professional services firm, if you would like to book a free 20 minute demonstration to see how Arreis Automation could benefit your business, please use the link at https://www.sierralegal.com.au/arreis.

As part of the Dynamic Business "Let's Talk" series, Sierra Legal Special Counsel Jenny Lau shares her thoughts on the importance of 'face-to-face' networking:

"In this digital age, a lot of our relationships can be managed through a screen (think social media, email and Skype).

For this reason, I think face-to-face business networking is extremely important. Face-to-face meetings can humanise the business relationship. There is so much information to be gained about a person, their personal and business preferences, and their challenges from their facial expressions and body language. Similarly, I can show understanding, appreciation and compassion much better face-to-face. This can help me to build rapport and trust, which is very important in our role as trusted legal advisers. I’m no longer just some advice on a screen, I’m a person with whom you can confide/consult and collaborate."

Read more of the discussion from business owners and entrepreneurs here - https://dynamicbusiness.com.au/featured/lets-talk-networking-2.html

The Consumer Data Right regime and Open Banking commenced in Australia in August 2019.

The Consumer Data Right regime is intended to, among other things, give consumers greater choice and control over how data about them held by businesses and service providers in various sectors is used and disclosed.  This, in turn, allows consumers to more easily compare and switch between products and services.  Banking is the first sector in Australia to be impacted by the Consumer Data Right.  The energy and telecommunications sectors are expected to follow next.

Some brief background - in August 2019, the Competition and Consumer Act 2010 (Cth) was amended to introduce a new Part IVD relating to the Consumer Data Right regime.  This introduced some new concepts such as CDR Data, CDR Consumer as well as various privacy safeguards that set out certain standards, rights and obligations in relation to collecting, using, disclosing and correcting CDR Data when there are one or more consumers.  Under the Consumer Data Right regime, consumers can be either entities or individuals and therefore, the privacy safeguards apply to a wider set of persons (and data) within the relevant sector, and they are generally stricter, than the Australian Privacy Principles.  Further background to the introduction of the Consumer Data Right regime can be read in our previous article - https://www.sierralegal.com.au/news/2019/9/3/consumer-data-right-update

Recent updates - in the latest instalment of CDR-related releases this year, the Office of the Australian Information Commissioner (OAIC) released for consultation earlier this month, draft Privacy Safeguard Guidelines for the Consumer Data Right regime (CDR Privacy Safeguard Guidelines).  The CDR Privacy Safeguard Guidelines will guide entities covered by the CDR regime on how to avoid acts or practices that may breach the privacy safeguards.

The privacy safeguards and the CDR Privacy Safeguard Guidelines will apply to entities who are authorised or required to collect, use or disclose CDR Data for which there is at least 1 consumer.  However, for some of these entities, there may be a requirement to comply with both the privacy safeguards and the Australian Privacy Principles.

For other entities that are not caught by the CDR regime but are already covered by the Australian Privacy Principles, those principles will continue to apply (i.e. the privacy safeguards and CDR Privacy Safeguard Guidelines only impact upon entities that will be authorised or required to collect, use or disclose data under the CDR regime).

There are 13 privacy safeguards and the draft CDR Privacy Safeguard Guidelines include a summary of how each privacy safeguard interacts with the Australian Privacy Principles.

The OAIC is currently consulting on the draft CDR Privacy Safeguard Guidelines and is taking written submissions on these guidelines until 20 November 2019.  The final CDR Privacy Safeguard Guidelines are expected to be published on 16 December 2019.

You can access further information on the draft CDR Privacy Safeguard Guidelines through this link: https://www.oaic.gov.au/updates/news-and-media/oaic-commences-consultation-on-draft-cdr-privacy-safeguard-guidelines/

For more information on the Consumer Data Right regime, please contact:

Samantha Khoo, Senior Associate, on M: +61 (0)422 190 433 or E: skhoo@sierralegal.com.au

Mike Jeffery, Director, on M: +61 (0)402 745 054 or E: mjeffery@sierralegal.com.au

As part of the Dynamic Business “Let’s Talk” series, Sierra Legal Director Mike Jeffery shares his thoughts on “How you can successfully implement new tech”:

“For a business to successfully roll-out new technology (for internal use by the business), the utilisation of that technology (and ultimately, the success of that project) requires “buy-in” from staff.  Staff need to understand how the particular technology will improve processes within the business.  More importantly, staff need to appreciate how the technology will benefit them (e.g. saving them time, personally).  New technology that adds an extra layer of complexity for staff (no matter how beneficial to the business) is less likely to be widely adopted.

For customer facing technology, a similar philosophy applies. To achieve positive customer utilisation rates, simplicity and ease of use are critical. Customers take only seconds to judge new technology, so a slick and well-designed user interface is critical.”

Sierra Legal has recently launched its own tech - Arreis Automation.  See https://www.sierralegal.com.au/arreis for further details on how the Arreis Automation contract automation platform can benefit your business.

Read more of the Dynamic Business discussion here - https://dynamicbusiness.com.au/featured/lets-talk-new-tech.html

As part of the Dynamic Business “Let’s Talk” series, Sierra Legal Founder and Director Craig Sanford shares his thoughts on maintaining great work culture in a period of business growth - https://dynamicbusiness.com.au/featured/lets-talk-culture-2.html

Sierra Legal maintains a true “team” philosophy as part of our culture which promotes greater cohesion, efficiency and overall wellness within the team, which in turn assists us in providing clients with exceptional legal advice and service.

Are you a business that:

• has contracts for multiple types of arrangements?
• sometimes discovers mistakes (or hangovers from previous deals) in your contracts?
• requires efficiency when preparing contracts?
• enters into commercial transactions without contracts - because you don’t have time to properly document the arrangement?
• can’t justify the cost of having a lawyer assist you with all of your contracts?

If the answer to any of the above questions is YES, then Arreis Automation could be of benefit to you. 

Sierra Legal’s new division (Arreis Automation) assists businesses to develop their own template documents, and then builds and hosts bespoke web apps for those businesses – enabling businesses to quickly and easily generate their own contracts and other documents themselves from an online platform.

To find out how Arreis Automation can benefit your business and to see a demo, please visit - https://www.sierralegal.com.au/arreis. Otherwise follow us on LinkedIn to stay up-to-date on legal developments.

Some interesting data from Merrill Corporation on the Australian M&A market for the first half of 2019, including:

• Outbound deal values from Australia exceeded combined inbound and domestic deal values.
• For inbound M&A deals, the top 3 buyer geographies were Canada, Japan and Hong Kong.
• For outbound M&A deals, the top 3 target geographies were USA, the UK and the Czech Republic.
• The key sectors for both inbound and outbound deals have been the energy, services and industrials sectors.

You can sign-up to get the full report via this link: https://www.merrillcorp.com/us/en/insights/reports/ma-market-briefing-australia.html?utm_medium=affiliate&utm_source=mergermarket&utm_content=mergermarket_email&utm_campaign=7010h000001B7F1AAK&dm_i=1D5J,6HT44,PJRLP5,PS5R7,1

If you have any questions on, or need any legal assistance with a merger and acquisition please get in touch with one of the specialists at Sierra Legal.