Casual Employment Defined

The Full Federal Court in Workpac Pty Ltd v Rosatto [2020] FCAFC 84 on 20 May 2020, prompted calls for urgent legislative review because it threw into uncertainty the status of casual employees and the right to seek compensation for underpayments.

In a timely response designed to avoid uncertainty and minimise such claims, the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2021 contains a new statutory definition of what constitutes “casual” employment and relief for underpayment claims from employees incorrectly classified as casual to stop “double-dipping”.

  1. Casual employment” is now defined.

A person is a casual employee if;

  • an offer of employment made by the employer is made on the basis that the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work;
  • the employee accepts the offer on that basis; and
  • the employee commences employment as a result of that acceptance.

To determine whether, at the time the offer is made, the employer makes no firm advance commitment to continuing and indefinite work according to an agreed pattern of work, only the following considerations will apply:

  • whether the employer can elect to offer work and whether the employee can elect to accept or reject work;
  • whether the employee will work only as required;
  • whether the employment is described as casual employment; and
  • whether the employee will be entitled to a casual loading or specific rate of pay for casual employees under the terms of the offer or any applicable Award or Enterprise Agreement.

What was offered and accepted??

Importantly, the question of whether an employee is a casual is to be assessed on the basis of the offer of employment and the acceptance of that offer, not on the basis of any subsequent conduct by the parties. This will have the effect of reversing the full Federal Court decisions where the offer of employment was made on the basis of casual employment but the subsequent conduct of the parties was deemed to be the employment of a permanent nature at law.

A casual who commences employment as a result of the acceptance of an offer of employment remains a casual employee until a casual is converted to permanent employment under new rights of conversion to permanent employment or the employee otherwise accepts an alternative offer of permanent employment.

However- there is a new statutory right for a casual to make a reasonable request to convert to permanent employment.

  1. No More ‘Double-dipping”

Casuals are usually paid above an award rate as a “trade-off” against entitlements otherwise afforded to permanent workers.

Underpayment claims by casuals

What should see an end if not a great reduction to claims for underpayments by casual employees, a Court must now make a mandatory set-off of any casual loading amount paid by the employer to a “regular” casual employee who later claims underpayments as a result of being incorrectly classified as a casual and claims entitlement to:

  • paid annual leave;
  • paid personal/carers leave;
  • paid compassionate leave;
  • payment for absence on a public holiday;
  • payment in lieu of notice of termination;
  • redundancy pay.

Any underpayment claim may be reduced by a proportionate amount paid by the employer attributable to each of those entitlements claimed where the casual rate of pay loading is stated to be compensation for the particular entitlements.

Recommendation for Employers using Casual employees

  1. Immediately conduct an audit of all current casual contracts of employment.
  2. Make sure that they do meet the new statutory definition of casual employment.
  3. Ensure that any appropriate loading amount is clearly and separately identified as compensation for specified entitlements.

How can we help?

We can help you in the following:

  1. Review your workforce employment contracts and work practices, and assess your exposure and risks.
  2. Preparation of carefully drafted employment contracts that:
    • remove as much doubt or scope for mischaracterising the relationship
    • permit a set-off of any paid loading
  3. Assist with any restructuring of your workforce.

If you have concerns in relation to casual employees in your business, please contact Michael Sing to discuss how we can help on 07 3009 8444.

 

COVID-19 Financial Assistance for Small and Medium Businesses in 2021

On 11 March 2021, the Federal Government announced the SME Recovery Loan Scheme (Recovery Loan Scheme), which will come into effect on 1 April 2021 and operate until 31 December 2021 and aims to assist eligible businesses to access financial support.

Similar to the Coronavirus SME Guarantee Scheme (Guarantee Scheme), the Recovery Loan Scheme will offer lenders a guarantee from the government on certain loans to allow distressed businesses to access cheaper credit at a lower interest rate as Job Keeper (and other COVID-19 related government assistance) ends throughout 2021.

Eligibility

The following businesses will be eligible to access the Recovery Loan Scheme:

  • Businesses that have accessed Job Keeper payments between 4 January 2021 and 28 March 2021;
  • Businesses with up to $250 million in turnover; and
  • All business structures, including self-employed individuals as well as non-profit businesses.

Moreover, businesses that have accessed a loan under the Guarantee Scheme are not excluded from accessing assistance under the Recovery Loan Scheme.

Features of the SME Recovery Loan Scheme

From 1 April 2021 until 31 December 2021, eligible businesses will be able to negotiate a loan from a Participating Lender under the following terms under the Recovery Loan Scheme:

  • The Government will guarantee 80% of the loan amount.
  • Lenders are allowed to offer borrowers a repayment holiday of up to 24 months.
  • Loans are for terms of up to 10 years, with an optional repayment holiday period.
  • Loans can be either unsecured or secured (excluding residential property).
  • The interest rate on loans will be determined by lenders but will be capped at around 7.5%.

Loans issued under the Recovery Loan Scheme may be used for a broad range of commercial purposes (including the refinance of existing loans even those from the Guarantee Scheme), but cannot be used for:

  • To purchase residential property (but can be used for purchasing non-residential real property);
  • To purchase financial products;
  • Lending to an associated entity; or
  • Leasing, renting, hiring or hire purchasing existing assets that are more than halfway into their effective life.

SME Recovery Loan Scheme v Coronavirus SME Guarantee Scheme

The Recovery Loan Scheme commences on 1 April 2021 and the Guarantee Scheme ends on 30 June 2021, so there will be a short overlap of access to both schemes. While ultimately the terms of the loan will be negotiated with the lender, it is important to be aware that the Recovery Loan Scheme offers slightly better terms for loan seekers than the Guarantee Scheme. These include:

  • Whereas the Guarantee scheme was only available to businesses with a turnover of $50 million, the Recovery Loan Scheme is available to businesses with a turnover of $250 million;
  • The interest rate under the Recovery Loan Scheme is capped at 7.5%, while the Guarantee Scheme is capped at 10%;
  • The loan limit for the Recovery Loan Scheme is up to $5 million (in addition to any loans under the Guarantee Scheme), while for the Guarantee Scheme it is up to $1 million; and
  • The Recovery Loan Scheme allows a repayment term of up to 10 years with a “repayment holiday” of up to 24 months, while the Guarantee scheme only allows a repayment term of 5 years.

It will be interesting to see the uptake in the new Recovery Loan Scheme and whether the banks will rely on it to finance businesses that they otherwise might not, or if it will mainly be used to support businesses that would already qualify for usual bank finance.

For more information about the SME Recovery Loan Scheme, or if you would like to discuss how we can assist your business post-COVID-19, please contact us here or call (07) 3009 8444.

 

Director Resignations: New Laws Apply from 18 February 2021

From 18 February 2021 a company director will not be able to backdate their resignation more than 28 days or resign and leave a company without a director.

Backdating resignations was a common tactic used by directors who engage in illegal phoenix activity. The reforms and new changes are aimed at further combating such illegal phoenix activity.

Illegal phoenix activity can involve serious breaches of the law that include directors’ duties, fraudulent concealment or removal of assets and fraud by company officers under the Corporations Act 2001. Penalties include large fines and up to 15 years imprisonment for company directors and secretaries and others involved.

Directors will now have 28 days to lodge their notice of resignation with ASIC, otherwise the resignation will take effect from the date that the notice is lodged.

If the notice is lodged outside of the 28 days, application can be made to ASIC (within 56 days of the claimed registration date) or the Court (within 12 months of the claimed resignation date, unless the court allows a longer period) to fix the date that the resignation takes effect.

Directors will also be unable to resign or be removed by a company if that resignation or removal results in the company being without a director. This limitation does not apply if the company is in liquidation.

If you are concerned about your company, or your directors duties, or require clarification in relation to the new reforms, now is the time to get advice. Please contact our experienced restructuring and insolvency lawyers to ensure the best possible outcome for your circumstances. 

Call our Brisbane lawyers on (07) 3009 8444 or our Sydney lawyers on (02) 9307 8900. Alternatively, click here to get started.

 

 

Business Due Diligence

Business Due Diligence

This article will explain the reason why a due diligence should be undertaken in the sale and
purchase of a business.

Why do a due diligence?

There are a few reasons why a due diligence is important

  1. Risk assessment-conducting a successful and profitable business involves many
    aspects. Checking that each of the key aspects means that you satisfy yourself of the
    integrity and strengths/weaknesses of those aspects. In some businesses, this may
    simply means obtaining copies of relevant documents and reviewing it to properly
    evaluate the Vendor’s business. In some situations, those documents may lead to
    more questions and indicate that a more thorough investigation is required. In some
    cases-the information disclosed or obtained, may result in a decision to terminate the contract.
  2. Determining Value-Due diligence is a critical element in determining value of a
    business. Any factors which affect the future earnings of the company or the value of
    any underlying assets may have a positive or negative impact upon the price for the
    business. For instance, any impending litigation against the company could seriously
    impact upon sales and reputation and diminish the financial viability of the business.
    Alternatively-a projected increase in sales because of a new significant customer
    could mean a better profit and increased value.
  3. Identifying the assets of the business- in some cases, certain aspects of a business
    may be owned by third parties-such as intellectual property rights or real property,
    and the terms upon which the business has a right to use those assets can impact
    upon control of stock sales and profit margin.
  4. any risk minimisation strategy for both the vendors and purchasers, although each
    party will have different objectives. It typically includes a legal, financial and physical
    (eg building and environmental) investigation. It may require the assistance of
    accountants, lawyers and other experts to produce the necessary information.

Who should do one?

Purchaser. Obviously, any intending purchaser should undertake a due diligence
before moving to purchase a business. Usually this will be a term of a purchase
contract.

Seller. In most instances-a seller should also undertake a due diligence before listing
a business for sale. Making sure that all of the key aspects of a business are sound,
and clear to enquiry can mean that a seller gets maximum value for their business
and that any contractual due diligence can be quickly and easily satisfied. In some
cases-a thorough business due diligence by a seller and rectifying any issues
discovered can result in a significant increase in value.

 

What is a business due diligence?

This depends upon the nature and size of the business. However-common investigations
involve:

  • Who owns the assets and who should be parties to the transaction? It is common for
    family businesses to own some of the business assets in a mix of companies, trusts
    and the names of individuals. It is also common for third parties to own intellectual
    property rights if the business is conducted under a franchise or licence. It is
    important to firstly identify the key assets which make up the business and then to
    identify the relevant owners of the business assets and the contractual
    documentation should accurately reflect this.
  • Deciding whether a more tax and risk effective transaction will be to buy all the
    company shares, rather than the assets themselves.
  • Identifying any statutory or government licences, permits or consents and other
    requirements and the conditions attached to those requirements. In some cases-
    these aspects may determine purchaser entity-and may impact upon value and risk.
  • Identifying any third- party consents required such as from landlords or mortgagees
    for leased premises.
  • Identifying any key staff and the integrity of their employment contracts. Retaining or
    removing key staff can have a significant impact upon future profitability, and
    business/corporate culture.
  • Identifying current or future risk factors and eliminating or minimising them.
  • Identifying and negotiating any terms and preconditions of the contract of sale of the
    business. For example, what licences, permits and statutory consents are required to
    operate the business. There may also be other requirements that a purchaser must
    satisfy under competition and consumer laws, stock exchange rules, foreign
    acquisitions and take over laws, depending on the nature of the business and the
    parties involved.
  • Identifying any restrictions on the ability to sell and transfer all of the assets of the
    business- matters such as securities held on the business assets which a seller
    should discharge (eg mortgages on business land or securities on personal property
    registered on the PPSR).

While it is ultimately a vendor’s decision to sell and the purchaser’s decision to buy, a
thorough and comprehensive due diligence will assist both parties to make informed
decisions about whether to transact at all.

For a vendor, this may involve taking the results of a pre-sale due diligence, and
implementation of remedial steps to ensure that any buyer risks are eliminated to maximise
the value.

Seeking advice on such issues at the outset might impact the sale price you are willing to
settle on.

For a purchaser, obtaining the necessary financial information and business advice to be
comfortable with the risks and financial viability of the business will not only be comforting,
but can be critical, particularly if you are seeking to acquire bank finance and using that
business as well as your own personal assets as security.

 

Due Diligence in Contract Terms

It is common for a due diligence clause to be included in a business sale contract. Important
common procedural aspects might include:

  1. Time for due diligence
  2. Method of notification of satisfaction of due diligence
  3. Obligation on seller to deliver all required information and documents
  4. Extensions of Due diligence if any delays in providing documents
  5. Termination or price renegotiation rights
  6. Warranties as to the truth and completeness of information provided
  7. Confidentiality and return of information provided if sale does not proceed

What’s the cost? 

Cost will vary depending upon the nature size and type of business. There is no “fixed price”
that can be applied to all due diligence, and there may be additional unexpected costs to
investigate any issues revealed.

Due diligence may be an additional cost, as it does involve engaging financial, legal and
technical expertise.

However-a good and thorough due diligence will be well worth the cost when measured
against the failure or loss involved in a failed business because of a factor which should or
could have been identified and dealt with before settlement .

Identifying and dealing with critical issues either at the outset before a binding contract is
entered into or before a due diligence is satisfied is often far cheaper with better prospects of an outcome, compared to litigation to enforce rights.

If you are thinking of selling or buying a business, we can assist you.

Michael Sing
Partner, Property and Commercial

 

 

Instalment Contracts and Forfeiture of Deposits

Business Due Diligence

A recent matter reminds us all that in a hot real estate market and rising prices, any delays in settlement can be a fundamental breach. However-not all may be lost if there is an instalment contract.

We recently acted for a buyer of an off the plan property on the Gold Coast who initially signed a contract for $2,000,000 in 2017.

A deposit was paid of 10% of the purchase price at the time of signing.

4 years later when the developer called for settlement, the buyer’s financier was not ready to settle and sought a short extension to settle.

The developer refused to grant the extension, and purported to terminate and forfeit the deposit of $200,000 on the basis that the contract expressly provided time was of the essence and the failure to settle on the due date was a fundamental breach of the terms of the contract. The developer then offered to re-sell the property to the buyer at what it considered to be the current market value of $2,500,000-an increase of $500,000 ! Clearly, the developer had simply sought to take advantage of the market conditions and the increased value.

Naturally the Buyer was less than impressed and sought our advice.

Upon further investigation, it transpired that some months before the settlement was due, the developer’s had offered to build an additional storage area for the buyer attached to its basement carpark for $3,500. This additional storage area was offered on the basis that it would be “on title” and that the buyer would have exclusive use, and the CMS would reflect the additional space.

This offer was accepted and the additional storage area fee was paid.

Instalment Contracts definition

Was the additional storage space fee payment a payment “other than a deposit”?

In our view, this additional storage fee triggered the instalment provisions of the Property Law Act.

Under the Property Law Act 1974 (Qld) (PLA), section 71 defines:

a “deposit” as follows:

deposit” means a sum—

(a) not exceeding the prescribed percentage of the purchase price payable under an instalment contract; and

(b) paid or payable in 1 or more amounts; and

(c) liable to be forfeited and retained by the vendor in the event of a breach of contract by the purchaser.”

an “instalment contract” as follows:

“instalment contract” means an executory contract for the sale of land in terms of which the purchaser is bound to make a payment or payments (other than a deposit) without becoming entitled to receive a conveyance in exchange for the payment or payments.

a “prescribed percentage” as:

“prescribed percentage” means—

(a) for a contract for the sale of a proposed lot—20%; or

(b) otherwise—10%. 

30 days notice to terminate required

The effect of this was that the Developer had failed to terminate in accordance with S 72 which provides:

S71 (1) An instalment contract shall not be determinable or determined because of default on the part of the purchaser in payment of any instalment or sum of money (other than a deposit or any part of a deposit) due and payable under the contract until the expiration of a period of 30 days after service upon the purchaser of a notice in the approved form.

Following our robust representations to the developer’s legal representatives and threats of court action, the developer relented it position and offered to re-sell the unit at the original contracted price and credit the forfeited deposit to the new contract.

Our client buyer refused this kind offer and sought an immediate refund of the deposit, storage fee and interest. This was agreed upon and paid.

But for the fact that the additional storage fee made the contract an instalment contract, the developer was entitled to terminate and forfeit the deposit.

The matter was a timely and stark reminder that in a rising market with property values rapidly escalating, buyers must have their finance in order to settle on time or face the possible termination and loss of their deposits. However-in certain circumstances, and with the benefit of good legal advice, it may be possible to avoid the drastic consequences of a purported termination. It also emphasises the need for developers to  be aware of the consequences of accepting additional payments “other than” deposit monies before deciding to terminate.

If you have any queries on these matters-please contact us;

QLD: 07 3009 8444
NSW: 02 9307 8900
Email: [email protected]

 

Small Business Restructuring Reforms Now in Effect

On 1 January 2021, a number of amendments to Chapter 5 of the Corporations Act (2001) (Cth) came into effect, establishing a new framework of Australian insolvency law to better serve small businesses as they try to cope with the economic impact of COVID-19. 

Takeaways

  • Businesses with liabilities of less than $1 million will be entitled to a new debt restructuring and liquidation process, aimed at providing faster and lower cost pathways for businesses in financial distress. 
  • The reforms introduce a debt restructuring process that allows business owners to retain control of their company while a restructuring practitioner develops a debt restructuring proposal. 
  • The small business insolvency reforms are aimed at increasing the rate of successful restructures as well as reducing the number of financially distressed businesses entering voluntary administration and liquidation. 

Overview

Small businesses experiencing financial distress should note three key reforms to the Australian insolvency law that might be available to them:

  1. A new debt restructuring process to provide small businesses with a faster and less complex mechanism for financially distressed, but viable, companies to restructure their existing debts;
  2. A new simplified liquidation process for small businesses to allow faster and lower-cost liquidation, increasing returns for creditors and employees; 
  3. Complementary measures to ensure the insolvency sector can respond effectively both in the short and long term to increased demand and to the needs of small business. 

Small Business Debt Restructuring Process

The most significant insolvency law reform is the introduction of a new debt restructuring process for small businesses (Restructuring Process). Under the new debt restructuring model, eligible companies are able to approach a registered small business restructuring practitioner (Restructuring Practitioner) to assist in reviewing the business’ financial affairs and developing a restructuring plan to be put forward to the creditors within 20 days of their appointment. 

Once the plan is put forward, creditors are given 15 days to vote on the plan, after which the plan is either implemented and distributions are made according to the plan’s terms, or the company may resolve to go into some other form of external administrations (voluntary administration or the small business liquidation process, as discussed below). 

Eligibility

A company will be eligible for the Restructuring Process where:

  • Its liabilities are than less than $1 million (any liability that is not contingent)
  • It has not been the subject of a separate Restructuring Process in the past 7 years
  • It is not currently the subject of other forms of external administration. 

Additionally, before a Restructuring Practitioner may propose a restructuring plan to the company’s creditors, they must ensure the company:

  • Has paid its employee entitlements due (including its employees’ superannuation); and 
  • Has its tax lodgements up to date (this includes returns, statements applications and any other documents required under the taxation law, but this does not require all tax debts to be paid where the lodgements are up to date). 

Who May Act as a Restructuring Practitioner?

As the law currently stands only registered liquidators are permitted to consent to an appointment as a Restructuring Practitioner. However, it is the intention of the legislation to create a new class of registered small business Restructuring Practitioner, under the Insolvency Practice Rules, that solely focuses on small business restructuring.

Additionally, certain classes of persons are excluded from acting as a Restructuring Practitioner, including creditors of the company over the value of $5,000, related entities or auditors of the company. 

Powers of the Restructuring Practitioner and the Company

The small business restructuring process allows the company to continue trading in the ordinary course of business under the control of its owners, which is overseen by the Restructuring Practitioner while a debt restructuring plan is developed and proposed to the Company’s creditors. Any trading outside the company’s ordinary course of business requires the prior approval of the Restructuring Practitioner. 

The role and function of the Restructuring Practitioner include: 

  • Examining the company’s financial records and determining if the business is viable;
  • Assisting the company in developing a debt restructuring plan to restructure its debts; 
  • Proposing the plan to the company’s creditors; and 
  • Managing the disbursements if the plan is approved. 

It is the Restructuring Practitioner’s responsibility to remain as an independent third party and to ensure that the creditor’s rights are represented and protected, this includes preserving the rights of secured creditors and treating similarly ranking creditors consistently. 

Only creditors who are not related entities may vote on the restructuring plan, and in order for it to be approved, the plan requires the majority of value of the creditors to vote in favour. If the proposal is successful it binds all creditors. 

Once the plan is approved, the practitioner remains in his position and administers the plan according to its terms. If the plan is voted down, the process ends and the company may proceed in an alternative form of external administration – this may include the simplified liquidation process set out below. 

New Small Business Simplified Liquidation Process

The second key reform which came in effect on 1 January 2021 is the new small business simplified liquidation process, which gives eligible companies access to a faster and cheaper alternative to the standard large scale, complex liquidation process. 

Details of the Simplified Liquidation Process

Where a liquidator has been appointed pursuant to a creditor’s voluntary liquidation and they consider on reasonable grounds that the company meets the eligibility criteria, the liquidator may choose to adopt the small business liquidation process rather than the standard creditor’s voluntary liquidation process. 

The simplified liquidation process is faster and simpler than the standard process, with the aim of a greater return to the company’s creditors and employees. Under the new process:

  • the liquidator is not required to submit a section 533 report to ASIC on potential misconduct unless there are reasonable grounds that misconduct has occurred. 
  • the liquidator is not required to hold formal creditor’s meetings and can instead distribute information to creditors, and proposals for voting, electronically. 
  • The unfair preference voidable transaction provisions are restricted to prevent the liquidator pursuing claims against unrelated entities.
  • The system of dividend distribution and proof of debt submission is simplified. 

Eligibility

In order for a company to be eligible for the simplified liquidation it must satisfy a number of requirements under the legislation including:

  • The company must already be in liquidation pursuant to a creditor’s voluntary liquidation.
  • The company must have liabilities less than $1 million.
  • The company must have its tax lodgements up to date (returns, notices, statements and applications as required by taxation laws). 

Creditors may also request in writing that the liquidator not follow the simplified liquidation process within 20 days of the event triggering the simplified liquidation process, and the liquidator must cease the simplified liquidation process if the eligibility criteria are no longer met. 

Complementary Provisions to Support the Insolvency Reforms

In addition to the debt restructuring process and the simplified liquidation process, a number of other amendments have been made to the Corporations Act to assist insolvency practitioners and distressed companies to transition into these reforms. 

Temporary Relief for Companies Seeking a Restructuring Practitioner

To assist in the transition into the small business reforms and as insolvency practitioners become more familiar with the processes, from 1 January 2021 until 31 March 2021 eligible companies are able to declare their intention to utilize the small business restructuring process through ASIC’s published notices website. 

If a company declares their intention to access the Restructuring Process with ASIC, the insolvency relief that applied in 2020 (extended compliance period for statutory demands and temporary protection from insolvent trading liability) will continue to apply until they are able to engage an eligible Restructuring Practitioner before 31 March 2021.

New Small Business Restructuring Practitioner

As the law currently stands, only registered liquidators are eligible to act as Restructuring Practitioners, however, under the insolvency practice rules a new classification of insolvency practitioner will be created that will solely focus on small business restructures.

To streamline the small business restructuring process, the new classification of practitioner will have their practice limited to small business restructurings only and will be offered to registered chartered accountants, in addition to insolvency professionals. It would seem the aim of this new classification is to try to increase accessibility and supply of available practitioners to meet potentially higher demand for small business debt restructuring. 

More Reforms

Other complementary provisions include:

  • Key sections of Chapter 5 of the Corporations Act have been made “technology neutral” so to allow external administrations to be carried out without a formal meeting of creditors.
  • Fees associated with registration as a registered liquidator are waived until 30 June 2022.

Speak with one of Rostron Carlyle Rojas Lawyers’ qualified restructuring and insolvency lawyers today, at:

QLD: 07 3009 8444
NSW: 02 9307 8900
Email: [email protected]

 

Update to Ending of COVID-19 Relief Measures

 

Overview

On 22 March 2020 the Government announced temporary insolvency relief for financially distressed companies, to help businesses get to the other side of the Coronavirus crisis. 

The temporary insolvency relief increased the thresholds at which creditors could issue a statutory demand (or a bankruptcy notice) and the compliance time for debtors to respond to statutory demands and bankruptcy notices. 

As a result of the temporary relief measures, creditor enforcement action (to recover debts) effectively graded to a halt. Businesses that would otherwise have failed (and entered External Administration) were kept alive through a combination of lack of creditor debt recovery action and other Government relief incentives. Such as JobKeeper – which was intended to give temporary support to viable businesses during a period of broader mandatory restrictions and shutdowns. 

Consequently, the number of businesses entering External Administration (liquidation or voluntary administration) dropped over 50%. This compared to the same period last year and, in the September quarter 2020, bankruptcy numbers were at their lowest level since AFSA records began in 1986. 

Temporary relief was also given to directors of companies from any personal liability for trading while insolvent, with respect to debts incurred by the company in the ordinary course of the company’s business. Provided that an external administrator was appointed to the company before the moratorium’s expiry, being before 31 December 2020.

The temporary insolvency relief measures expired on 31 December 2020 (while JobKeeper currently has a scheduled end date of 28 March 2021).

Insolvent trading moratorium ends

  • Many people appear to be operating under the misunderstanding that the insolvent trading moratorium (in effect during the March – December 2020 period) provides a complete shield from personal liability for insolvent trading. That is simply not the case.

  • Directors trading-on a business beyond 31 December 2020 will be exposed to the insolvent trading provisions of the Corporations Act 2001 throughout any period that the company was insolvent—including the March-December 2020 period—should the company later end up in liquidation.

  • Directors should be aware that they would only be afforded protection under the temporary relief measures IF they appointed an external administrator to the company before the moratorium’s expiry, i.e., before 31 December 2020.

  • For the avoidance of doubt, directors of companies who are still trading now that were trading insolvent during the March – December 2020 period, and that later end up in liquidation, will be exposed to personal liability for insolvent trading.

Where are we now?

On 1 January 2021 (following the expiration of the temporary insolvency relief measures) the Government’s insolvency reforms to support small businesses commenced. 

The reforms introduce new insolvency processes suitable for small businesses aimed at reducing the complexity, time and costs required to quickly and efficiently restructure their affairs. Where restructure is not possible, businesses can wind up faster via the simplified liquidation process, designed to enable greater returns for creditors and employees. 

The new small business insolvency reforms (see link below) include:

  • A new Debt Restructuring Process for small businesses;

  • Temporary restructuring relief; and

  • A new Simplified Liquidation Process for small businesses.

For more information about the Small Business insolvency and restructuring reforms, please access our separate article HERE

Personal Insolvency and Bankruptcy Notices

  • Changes to Bankruptcy laws:

    • In March 2020, the Australian Government announced a series of changes to bankruptcy law, as part of the wider economic response to the COVID-19 pandemic.

    • Those temporary changes included:

      • an increase in the debt threshold, which enabled creditors to apply for a bankruptcy notice;

      • an increase to the timeframe for a debtor to respond to a bankruptcy notice; and

      • an increase to the temporary debt protection period available to debtors. 

    • As of 1 January 2021, those temporary changes have ceased, however, an amendment has been made to adjust the bankruptcy threshold amount. 

    • Relevantly:

      • the minimum amount of debt that can trigger bankruptcy is now $10,000 (down from $20,000 under temporary changes). Before the temporary changes, the minimum amount of debt that could trigger a bankruptcy was prescribed at $5,000.

      • The timeframe for a debtor to respond to a bankruptcy notice has reverted to 21 days (from 6 months under temporary changes). This means if a bankruptcy notice is issued on or after 1 January 2021, the debtor will have 21 days to comply with the bankruptcy notice.

      • The period for temporary debt protection for debtors has reduced from six months (under temporary changes) to 21 days.

      • Two or more creditors can combine their judgement debts to meet that minimum amount and together apply to court to petition to have a mutual debtor declared bankrupt

    • Back on the discussion table for government is the potential permanent bankruptcy reform to reduce the default bankruptcy period from three years to one year. That potential reform had stalled previously, but it may become a reality 2021.

Statutory Demands

Effective as at 1 January 2021, for creditor’s statutory demands against companies:

  • the minimum amount of debt for a statutory demand, that can trigger a winding up application, is now $2,000 (down from $20,000 under temporary changes), which is back to the way it was before the temporary changes.

  • The timeframe for a debtor to respond to a statutory demand has reverted to 21 days (from 6 months under temporary changes). This means if a statutory demand is issued on or after 1 January 2021, the debtor will have 21 days to comply with the statutory demand.

Update on JobKeeper

  • Ends 28 March 2021.

  • According to Federal Treasurer the Hon Josh Frydenberg MP, JobKeeper has costs $77 BILLION to date and at its peak was supporting 3.6 million Australian workers and around 1 million Australian businesses.

  • JobKeeper has now entered the second phase of its extension (from 4 January 2021). 

    • In this current phase, eligible businesses receive $500 per week for each staff member working at least 20 hours per week, down from $600. Other employees attract a payment of $325 per week, down from $375.

    • The tier 1 rate applies to eligible employees who worked for 80 hours or more in the four weeks of pay periods before either 1 March 2020 or 1 July 2020, and eligible business participants who were actively engaged in the business for 80 hours or more in February and provide a declaration to that effect.

    • The tier 2 rate applies to any other eligible employees and eligible business participants.

  • We anticipate that a significant number of businesses currently being kept alive solely by JobKeeper, will enter External Administration sometime after 28 March 2021.  

Practical tips & takeaways

  • Use the correct and updated Statutory Demand and Bankruptcy Notice forms to avoid challenges relating to material deficiencies in light of the above changes effective from 1 January 2021. 

  • Directors who think their companies were trading insolvent prior to 1 January 2021 (or since) should seek professional advice urgently to consider the options for their business and their personal position. 

  • Pressure from creditor enforcement being able to resume, and from JobKeeper coming to an end, will see an increase in companies entering External Administration and personal bankruptcies, likely from about March 2021. Business owners, directors and creditors should prepare themselves for new waves of insolvency and restructuring coming soon.

If you have felt the effects of the pandemic on your business or require assistance or clarification in relation to the ending of the temporary relief for financially distressed companies and businesses, now is the time to get advice on how to structure your company’s affairs or recovery activities.

Speak with one of Rostron Carlyle Rojas Lawyers’ qualified restructuring and insolvency lawyers today, at:

QLD: 07 3009 8444
NSW: 02 9307 8900
Email: [email protected]

 

The mid-point of JobKeeper: what we have seen and what we expect

The mid-point of JobKeeper what we have seen and what we expect

The Federal Government’s JobKeeper Payment Scheme is the most significant business stimulus package ever offered in Australia’s history. The scheme was unrolled in response to the devastating effects of the COVID-19 pandemic on local businesses. The ethos behind the scheme being that if Australians can stay employed and working for their pre-pandemic employer, we may be able to preserve some level of pre-pandemic business normalcy.

The details of the JobKeeper scheme are well known and can be summed up as a reimbursement payment of $1,500 (before tax) per fortnight for eligible employees where the business is able to demonstrate a decline of 30% in turnover.

The most recent reporting by the ATO states that over 872,000 businesses have been approved for JobKeeper and circa 3.3 million employees are now receiving the benefits of this stimulus. All in, the scheme is reported to be supported by a $70 billion carve out of Australia’s Federal Budget.

What we can expect in the coming months

With the scheme now reaching its projected mid-term, the ATO have begun to investigate fraudulent and ineligible claims. So far, a reported 6,500 businesses have already been removed from the program. The ATO’s compliance team are now reviewing applications for the following behaviours which may indicate a delinquency by an applicant:

– Payments to people who do not meet the eligibility requirements or are not employees;
– Falsifying records or revising activity statements to meet the fall in turnover test;
– Applying for JobKeeper where there is no evidence of carrying on a business or there is no assessable income from carrying on a business;
– Employers failing to pass on the full $1,500 payment to eligible employees;
– Multiple eligible business participant claims;
– Employees being incorrectly excluded under the one-in-all-in rule;
– There are penalties for making false claims and not complying with your obligations; and
– Instances where the actual and projected turnover have significantly diverged.

The ATO have urged all participants and applicants to perform a self-assessment of their applications. If there are any instances of an ‘honest mistake’, the ATO does have some limited discretion to work with the applicants on remedying the issue. If you are concerned that you or your employer may have done the wrong thing, the ATO have created a ‘tip-off’ line so the matter can be brought to their attention in priority.

The timeline for the scheme is also uncertain. At the date of publication, we are now in the 8th fortnight of JobKeeper. The scheme is slated to be in effect until 27 September 2020, meaning it will have been in effect for a total of 13 fortnights. Due to the uncertain nature of the pandemic, the administration of the scheme has not always been consistent and it is likely that we will see further updates to how and when it will be fully wound down.

For example, in the normal course, businesses were to lodge their monthly declarations between the 1st and 14th day of the month following the claim period (i.e. apply by 14 June for the May period). The declaration identifies the business’ participant and eligible employees for the claim period. However, in June we saw that deadline brought forward to 30 June, for the June 2020 period. If you have not already applied for JobKeeper by 30 June for the June period, the ATO has taken a strict stance of not accepting late applications.

Another example of the changes recently made to the scheme is for persons already receiving child care subsidies and sole traders operating child care services. As of 20 July, those persons will no longer be eligible for the JobKeeper payment.

It is unclear what changes will be to come. However, given the Government’s record of stripping away eligibility and now their undertaking a review for compliance, we consider it likely that these measures herald the early stages of the JobKeeper Scheme being systematically wound down.

Zombie companies

There has been a growing concern from within the local business community, financial advisors and body of insolvency practitioners that the JobKeeper package, along with the amendments to the Corporations Act to preserve businesses that we are now facing an economy of zombie businesses – i.e. businesses that would otherwise be dead if not for Government stimulus.

This is a very real concern for those businesses that operate on a trade credit basis or with delayed payment terms. The general advice we have been giving our clients in response has been to tighten the timeframes for payment provisions within their terms and conditions and to not let debts exceed $20,000. This has a twofold effect:

  1. Debts under $20,000 can be dealt with quickly and efficiently in the small claims court of most states. Once judgment is obtained, you can take steps to enforce the judgment debt, including placing the judgment debtor on creditor watch (thus stifling the debtor’s ability raise other debts before dealing with your judgment); and
  2. Debts over $20,000 can be dealt with by statutory demand, but the lapsing period for the payment under the demand has temporarily been extended from 21 days to 6 months.

If you are concerned that your business may in fact be a ‘zombie company’, you should seek advice from a suitably qualified insolvency practitioner. Directors of companies have duties to ensure they act in the best interest of the company, its members and its shareholders. Those duties have been preserved throughout the course of the pandemic, meaning it is as important as ever to ensure your business is sustainable not just while the stimulus is available but also when that stimulus is gone.

Directors of companies should turn a critical eye to their trade debtors, aged receivables, supply lines and customer books. If you identify that your business is reliant on certain companies or individuals paying large sums back or making major orders in the near future, you should also consider what those parties’ viability is likely to be once the stimulus is no longer available. The earlier you make this analysis, the better equipped you and your business will be at avoiding becoming a zombie company.

How to get help

The circumstances around the JobKeeper Payment Scheme are complex and highly unusual. Seeking the advice of a suitably qualified professional is key to making sure your business survives the pandemic. Rostron Carlyle Rojas Lawyers have serviced local communities in Brisbane, Sydney and Melbourne for nearly 20 years. We survived and advised our clients through the GFC and will continue to do the same through the COVID-19 pandemic.

Should you have any questions about the JobKeeper stimulus package or require help in securing your business as the package is wound down, Rostron Carlyle Rojas Lawyers is here to assist.

Hand sanitiser- not just protection from COVID-19

Hand-sanitiser-not-just-protection-from-COVID-19

As restrictions ease and businesses begin to re-open around Australia it is important for business owners to be aware of their obligations to eliminate or as far as possible minimise the risk of their employees, customers and other invitees (such as salespeople, suppliers or service providers) contracting COVID-19 while on their business premises.

As an employer a business owner must comply with their obligations under relevant Workplace Health & Safety legislation such as the model laws that have been implemented in most Australian jurisdictions. These laws impose duties on business owners to protect workers and invitees and if breached can lead to a fine of up to $600,000 and 5 years in jail for an individual or a fine of $3 million for a corporation, depending on the extent of the breach of duty. The severity of the offence increases if the breach of duty causes a person to be exposed to risk of death or serious injury or illness.

More generally a worker or invitee may have a claim for damages in negligence against a business owner who does not act reasonably. While initially a common law action negligence has more recently been enshrined in legislation such as the Queensland Civil Liability Act 2003. In both instances the elements that are required to succeed in a claim of negligence are:
• a person (the defendant) owed a duty of care to the injured party (the plaintiff)
• the defendant breached the duty of care
• the breach caused harm or injury to the plaintiff
In respect of the breach of duty the plaintiff must prove that:
• the risk was foreseeable, or ought reasonably to have been known by the defendant
• the risk was not insignificant
• a reasonable person in the position of the defendant would have taken precautions
In the context of COVID-19, given the widespread publicity about the risk of serious illness or death (particularly for vulnerable persons) and the ease of transmission of novel coronavirus, it would be extremely difficult if not impossible for a defendant to argue that the risk was either unforeseeable or insignificant.

In order to overcome the litigation risks brought about by COVID-19 business owners should ensure they adopt an industry approved COVID-safe plan and at the very least introduce policies and procedures that require all persons attending the business premises to practise physical distancing and good hygiene. Physical distancing should reflect government guidelines – 4 square metres per person and 1.5 metres between people – while good hygiene can be achieved by ensuring access to adequate and well-stocked hygiene facilities such as hand sanitisers. More than just a defence to contracting COVID-19 hand sanitiser may ultimately protect business owners from legal liability.

Casual Workers and Double Dipping

Casual Workers Double Dipping

Employers are rightly concerned about the possibility of having to pay their casual workers leave entitlements and exposure to very significant claims.

The recent decision of the Full Federal Court in Workpac Pty Ltd v Rosatto [2020] FCAFC 84 on 20 May 2020, has prompted calls for urgent legislative review.
The facts were unremarkable and are reflected in many workplaces around Australia.

Facts
Rossato was employed as a casual worker by labour hire company, Workpac under six consecutive contracts of employment for over 3 years.

Rossato asserted that despite the description of his employment and the 25% loading paid to him, that his employment relationship was not in truth and law, that of a casual employee.

Workpac applied to the Federal Court seeking:
• declarations that Rossato was a casual employee and not entitled to leave entitlements provided for permanent employees under the National Employment Standards in the Fair Work Act 2009 (Cth) (FW Act); or
• that Rossato’s pay included a 25% casual loading which should be ‘set off’ against any amount owed to him.
The Rosatta case followed on from an earlier decision in WorkPac Pty Ltd v Skene [2018] FCAFC 131 in August 2018, where it was determined that work of a regular nature and on-going basis is not genuinely casual.

Decision
In Rosatta, the Court decided that Rosatta, a casual employee who worked regular and systematic hours with predictable rosters and was paid as a casual, was not a casual for the purpose of sections 86, 95 and 106 of the FW Act.
Consequently, such an employee was entitled to receive both a casual loading plus paid annual leave, personal leave, compassionate leave and public holiday payments (for public holidays during the annual shut down) since he was a permanent employee.
The decision affirmed that casual employment is characterised by an absence of a “firm advance commitment as to continuing and indefinite work according to an agreed pattern of work”.
In determining the nature of the employment relationship, the Court determined that the absence of a firm advance commitment may be assessed by considering the employment contract as a whole, including whether it:
• provided for employment to be intermittent or irregular;
• permitted the employer to elect to offer employment on a particular day;
• permitted the employee to elect whether to work;
• is unlikely to continue for any length of time; and
• terminable on short notice.
The fact that the parties might agree to call the relationship one of casual employment is relevant, but is not conclusive to the true nature of the relationship. The actual practice and factual matrix must be considered.
In Rosatto, the facts which lead to the finding that the employment was not “casual” were:
• the parties had agreed upon employment for an indefinite duration;
• there was an agreed pattern of full-time hours (seven days on/seven days off with some variability of hours allocated);
• there were long term rosters (shift rosters at the mines were set up to seven months in advance);
• free on-site accommodation during a roster cycle, implying he was expected to work all shifts; and
• dealings between the parties over six contracts and different locations suggested mutual assumptions of continuity of employment.
Rosatta may yet be appealed, but if it is not-there are at least 2 class actions ready and waiting to file claims on behalf of casual workers, which may run into many millions of dollars in compensation for the unfortunate employers.

Can Casual Loading be set-off if work found not to be casual?

A set off of the 25% loading against the monies owed was not accepted because the Court found that:
• the employment contracts themselves did not clearly allow contractual set off; and
• paying a casual loading is not a substitute for enjoying paid annual leave since the purpose of paid annual leave is to provide for rest and recreation without loss of income. Casual loading is paid because an employee is understood not to be entitled to such leave.

What should you do if you employ casual workers?

1. Review your employment contracts immediately, particularly for any longstanding “casual” employees and identify any risks.
2. Review actual work practices for those workers.
3. Consider revising or restructuring workplace arrangements.

How can we help?
We can help you in the following:
1. Review your workforce employment contracts and work practices, and assess your exposure and risks.
2. Preparation of carefully drafted employment contracts that:
• remove as much doubt or scope for mischaracterising the relationship
• permit a set-off of any paid loading
3. Assist with any restructuring of your workforce.
If you have concerns in relation to casual employees in your business, please contact Michael Sing to discuss how we can help on 07 3009 8444.