Issue 52 - May 2008

• Minimising business risks (part 1 of 2)
• Restraints of trade
• Mortgage and housing crisis in the US
• Useful publications available to guide people through separation
• The Verdict

Support for parents of special needs children

Federal Budget 2008-2009

Some useful tips... Minimising business risks (part 1 of 2)

At some stage during its life, a business will be indebted to numerous creditors and the business owner may have signed a guarantee in respect of those debts. There are several methods of protecting personal assets from creditors if debts cannot be repaid.

The following list (whilst not comprehensive) highlights several areas that business owners may want to consider in order to attempt to protect their assets from creditors.

Placing assets in a spouses’ name or in a discretionary trust
In most circumstances, creditors will not be able to make a claim upon assets owned by your spouse or held by a discretionary trust, provided that you are not the trustee. If your spouse is the trustee, then he or she is the person who will usually decide how to divide up the income or capital of a trust (or not to). Of course, stamp duty and capital gains tax issues must also be considered before transferring assets as well as the potential operation of claw back provisions.

Encumbering assets if you cannot transfer them
An asset that is mortgaged to its value is not attractive to a creditor. The mortgagee in such a case is the only entity that will benefit from the subsequent sale of the asset. 

Business structuring
It is possible to establish a company with a single director and/or single shareholder. In doing so, the law creates a “veil of incorporation” by which members and directors of the company have liabilities only to the amounts unpaid (if any) on any issued share capital. This liability is usually only $1.00.

Only in limited circumstances can the corporate veil be lifted. The courts may be prepared to lift the veil where:
Insolvent trading is present;
fraud or deception is present;
avoidance of contractual obligations has occurred;
public policy reasons require it; or
the involvement of associated companies or groups casts doubt on the genuineness of the transaction.
Fixed and floating charges
Before making a loan of money to a company, a charge should be created and lodged with the Australian Securities & Investments Commission (ASIC) to secure repayment of that money (in preference to unsecured creditors) should the business fail.

A fixed charge is one that fastens on ascertained and definite property or property capable of being ascertained and defined (for example a mortgage over a property) whereas a floating charge, on the other hand, is shifting in its nature, “floating” over the property which it is intended to affect until some event occurs or some act is done which causes it to settle and fasten (usually called “crystallisation”) on the subject of the charge. Most charges are both fixed and floating.

This article is to be continued on our June 2008 newsletter however, for further information regarding minimising business risk or in relation to any other corporate of commercial law issues, please contact Craig Pryor or email craig@wmdlaw.com.au.

 
Protecting your business interests  Restraints of trade

Many employers use restraints of trade to protect their business when an employee leaves the organisation. In general terms, a restraint of trade is a limit on where, how and with whom an employee may work after the termination of their employment. Restraints often restrict an employee’s ability to work for competing companies within a certain geographical area for a specified time period.

Recent Court cases have highlighted the importance of properly drafting restraints of trade. In order to enforce a restraint of trade, the court requires that the employer show that the restraint is reasonable. What is reasonable will depend on the nature of the business setting the restraint, the time period and area of the restraint and nature of the work undertaken by the employee.

In general, a restraint of trade should go no further than is reasonably necessary to protect the legitimate interests of the employer, the employee and the public. Legitimate interests may include trade secrets, confidential information, customer relationships and business opportunities.

A restraint clause that is drafted too broadly is likely to be unenforceable. Therefore, employers should attempt to tailor a restraint clause so that it accurately reflects the nature of the business activities and goes no further than to meet their reasonable requirements. Legal assistance is invaluable in creating restraints. Without restraints in employment contracts an employer will only be able to rely upon their common law rights, which are often inadequate.

If you would like any further information in relation to drafting restraint clauses or require advice on employment contracts more generally, please contact Kevin Dwyer or Craig Pryor or email kevin@wmdlaw.com.au or craig@wmdlaw.com.au.

How will Australian borrowers be affected with falling house prices?  Mortgage and housing crisis in the US

The US housing and mortgage markets are in financial turmoil. The core problem is that the risk of falling house prices will produce a large increase in the mortgage default rates and jeopardise the value of mortgages worth billions of dollars.  If housing prices continue to fall millions of people who purchased their homes in recent years could have negative equity in their homes.

If people default on their mortgage and the value of their home has significantly decreased, the lenders lose out.  In the US borrowers, who default can simply turn over their house keys to the lender and walk away.

However, if the US trend of falling house prices occurred in Australia, borrowers won’t be in the same position as their US counterparts.  In Australia, lenders have the power to pursue defaulters not only by taking possession of their home but also by going after their other assets and income.  This highlights the need for Australian borrowers to find the best possible mortgage, and to minimise any chances of default.

In light of this, we have been informed that Mortgage House at Caringbah uses an interest minimisation strategy that has been recognised as an effective method to pay off your home loan faster, saving thousands of dollars in loan interest. If you would like more information regarding effective loan strategies, including their Chameleon Executive Home Loan product contact Michael Richardson at Mortgage House Caringbah on 9540 3411 or email michaelr@caringbahmortgagehouse.com.au for more details.

If you would like further information regarding any mortgage issues or property related matter please contact Rebecca Flynn or Melissa Grant or email rebecca@wmdlaw.com.au or melissa@wmdlaw.com.au.

Assistance during separation  Useful publications available to guide people through separation

The Federal Government, in partnership with the Family Court and others, has prepared a series of publications to assist people who are separating.  These publications are:

What About Me? – a book of practical ideas on looking after yourself after separation.
Me and My Money – tips and hints to help stretch your dollar after separation.
Me and My Kids – tips and hints to help you build on your relationship with your children after separation.
Me, My Kids and My Ex – tips and hints on surviving separation and maintaining a stable parenting role.
We have reviewed the booklets and believe that they will be very useful to most people who are experiencing separation whether children are involved or not.

If you would like a free copy of any or all of these booklets or advice in relation to any family law issues, please contact Greg Dickson or email greg@wmdlaw.com.au.

 Your questions answered The Verdict

In this section, we answer your general questions in relation to any area of law. Obviously, we are not able to provide specific legal advice or advice in relation to a current legal matter. If you have a question you would like us to answer, please submit it by email to rebecca@wmdlaw.com.au.

What are the likely costs if I want to terminate my residential lease early?

A tenant may able to break or terminate their residential tenancy agreement early, however there may be costs incurred by the tenant for the early termination.

The Notice of the Termination must be in writing, signed and dated, and include the address of the premises and the termination date (further information may be required depending on the conditions of the lease).

If the tenant wishes to terminate the agreement early it is preferable to do so allowing for the longest notice period possible. This allows the landlord or agent the maximum time in which to find a new tenant. Any assistance offered by the exiting tenant to locate a new tenant may reduce the costs involved.

The downside of terminating an agreement early is that the landlord may claim compensation for the economic loss suffered because of the early termination. The landlord’s loss may include:

loss of rent for the time between the exiting tenant moving out and a new tenant moving in;
any shortfall if the new tenant pays less rent than the exiting tenant was paying;
costs incurred in re-letting the premises including agent’s fees; and
additional advertising costs in finding a new tenant.
For example, if the exiting tenant moves out and premises are vacant for a period of 4 weeks, the exiting tenant may be forced to pay the landlord rent for that 4-week period. In these circumstances the landlord is under a duty to minimise any loss suffered and therefore must take reasonable steps to find a replacement tenant.

If the exiting tenant has a dispute with the landlord, an application may be pursued with the Consumer, Trader and Tenancy Tribunal, which is under the control of the New South Wales Department of Fair Trading.

Giving parents a much needed break Support for parents of special needs children

We often take the opportunity to introduce the readers of our newsletter to our clients and contacts who offer services which may be of interest or assistance. This month we introduce Christina Campbell, who has established the business ABAlink.

ABAlink caters to families of children with special needs. ABAlink can supply therapists for ABA programmes for children with Autism. ABAlink can provide "Super-sitters" who are trained to deal with special needs children to give parents a much needed break.

ABAlink is linked with government agencies around Sydney so that families may be able to access ABAlink's respite or super sitter free of charge.

Director and Founder of ABAlink, Christina Campbell welcomes enquiries from parents in need. Take a look at ABAlink's website, www.abalink.com.au, for more information and contact details.

An overview  Federal Budget 2008-2009

The new Federal Budget was released by the Treasurer, Wayne Swan, on 13 May 2008.

For an overview of the Budget and what it means for you, we have included a link to an information brochure prepared by the NSW Business Chamber.
 

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