Commercial & Business

For many Queensland business owners, hiring full-time staff doesn’t always make sense. You might bring in a marketing consultant for a campaign, a contractor to handle IT, or a bookkeeper for a few hours a week. It’s flexible, efficient, and keeps your overheads down.

But it also comes with risk. Too often, these arrangements start with a quick chat or a handshake and no written agreement. When expectations don’t line up, that’s when the trouble starts.

That’s where a service agreement or consultancy agreement steps in, setting out exactly what’s expected, protecting both sides, and keeping your business relationships on solid ground. We’ll walk you through how these agreements differ and why having the right one is savvy.

What Is a Service Agreement?

A service agreement is a formal contract that sets out the terms between a business providing services and the client receiving them. These include what will be done, by when, for how much, and what happens if something goes wrong.

Think of it as the rulebook for your working relationship. Whether you’re providing cleaning services, web design, bookkeeping, or construction work, a service agreement ensures both parties understand their rights and obligations.

Under Queensland and Australian contract law, a valid agreement must include:

• An offer
• Acceptance
• Consideration (something of value, such as payment)
• An intention to create legal relations

A well-drafted service agreement covers these basics and goes further, addressing practical details that help prevent misunderstandings.

Key Clauses in a Strong Service Agreement

1. Scope of services

This is the heart of the agreement. What exactly is being provided? The more specific you can be, the better. A vague or open-ended scope is one of the most common sources of disputes: one party thinks they’re getting one thing, while the other believes they’re providing something different.

2. Payment terms

How much will be charged, when is payment due, and what happens if payment is late? Many Queensland businesses include:

• progress payments;
• invoicing cycles; and
• interest on overdue amounts.

However, these should align with the Australian Consumer Law and any relevant industry codes.

3. Term and termination

These deserve careful attention. If your agreement is a standard form consumer or small business contract, heavily one-sided termination or liability terms may be ‘unfair’ under the ACL’s unfair contract terms regime. Significant penalties can apply for proposing or relying on unfair terms.

That said, common termination options include:

• Termination for convenience: Either party can end the agreement with notice (for example, 30 days), without needing to prove breach or fault.
• Termination for breach: The agreement can be ended if one party fails to meet their obligations and doesn’t fix the issue within a set timeframe.
• Termination for insolvency: Either party can end the contract if the other becomes insolvent or enters administration.
• Termination at the end of a project or term: The contract automatically ends once the agreed work is completed or the fixed term expires.

The key is balance. Both parties should have fair and reasonable exit options that reflect the nature of the relationship.

4. Intellectual property (IP)

Who owns the work once it’s created? Under the Copyright Act 1968 (Cth), the creator of original work usually owns the copyright unless the contract says otherwise. If you’re commissioning a logo, website, or written report, make sure the agreement clearly addresses IP ownership and licensing.

5. Liability and indemnity

These clauses outline who’s responsible if something goes wrong. Service providers often limit their liability to the contract’s value, while clients may want broader protection. In standard form contracts, liability terms that tip too far in one direction can be unfair under the ACL, and penalties may apply.

6. Insurance

Well-drafted agreements should address insurance requirements relevant to the arrangement. Depending on the nature of the services, this may include public liability insurance, professional indemnity insurance, and, where applicable, workers’ compensation cover. Requiring evidence of appropriate insurance at the outset protects both parties.

7. Dispute resolution

Many businesses include a staged dispute process, starting with negotiation, moving to mediation, and only going to court as a last resort. This approach saves time, money, and relationships.

8. Privacy and data handling

If the services involve personal information, the agreement should address privacy and data security (and, where applicable, compliance with the Privacy Act and any sector-specific obligations). The agreement should outline:

• What personal information may be collected;
• How it’s stored and protected;
• Who it can be shared with; and
• What happens to it once the job ends.

What Is a Consultancy Agreement?

A consultancy agreement is a type of service contract used when a business hires an independent professional to provide expert advice or specialised knowledge, rather than hands-on work.

For example, if a Queensland business brings in a marketing strategist to design a campaign plan but doesn’t expect them to actually run the ads, that arrangement would usually fall under a consultancy agreement. The consultant is being paid for their advice and expertise, not for carrying out the day-to-day work.

This distinction matters both legally and practically. One of the main challenges with consultancy arrangements is working out whether the individual is truly an independent contractor or, in reality, an employee.

The Employee vs Contractor Question

Even if someone is a genuine contractor, superannuation and payroll tax can still apply in some cases. For example, super may be payable where the contract is mainly for the individual’s labour, and Queensland payroll tax may apply to certain contractor arrangements unless an exemption applies. If you’re unsure, check with your accountant or lawyer before finalising the arrangement.

In many cases, courts focus closely on the contract’s rights and obligations, but practical reality can still matter, particularly if the contract isn’t comprehensive, has been varied, or doesn’t reflect what’s actually happening.

Therefore, a well-drafted consultancy agreement should make it clear that:

• The consultant operates as an independent contractor, not as an employee;
• They’re free to work with other clients;
• The consultant is responsible for their own tax and superannuation (subject to the exceptions noted above); and
• They have control over how their services are provided.

A Note on Sham Contracting

Sham contracting (misrepresenting an employment relationship as independent contracting) can lead to penalties and liability for unpaid employee entitlements. Labels won’t protect you if the arrangement is, in substance, employment. If your consultant arrangement closely resembles employment in practice, it is worth seeking legal advice before proceeding.

Key Clauses in a Consultancy Agreement

1. Confidentiality

Consultants often access sensitive business information, including financial data, client lists, or strategy documents. A confidentiality clause (sometimes called a non-disclosure agreement) protects that information and continues even after the contract ends.

2. Restraint of trade

The agreement must address whether the consultant can work with competitors or approach clients once the engagement ends. Restraint clauses may be enforceable if they protect a legitimate business interest and are reasonable in duration, geography, and scope.

3. Deliverables and milestones

Consultants usually produce outcomes, e.g., reports, strategies, or recommendations, rather than physical work. The agreement should spell out exactly what needs to be delivered and the timeframe for doing it.

4. Indemnity for professional advice

If the consultant’s advice results in a financial loss, who bears the cost? Most professionals hold professional indemnity insurance, and the agreement should require this cover.

Service Agreement vs Consultancy Agreement: What’s the Difference?

The two documents share many similarities, but here’s an easy way to tell them apart:

• Use a service agreement when you’re hiring someone to do something, like build, design, or deliver.
• Use a consultancy agreement when you’re engaging someone for their expertise to guide, advise, or strategise, rather than perform day-to-day tasks.

In practice, the lines often blur. For instance, a marketing consultant might both design a strategy and implement it. In that case, your agreement should cover both the advisory and practical aspects.

Some specific considerations

Queensland businesses should also be aware of several key legal frameworks that apply to these agreements:

• Australian Consumer Law (ACL): Found in Schedule 2 of the Competition and Consumer Act 2010, it prohibits misleading conduct, unconscionable conduct, and unfair contract terms in standard-form agreements.
• Personal Property Securities Act 2009 (Cth): Can be relevant where the arrangement creates a security interest, for example, retention-of-title terms or certain equipment leasing/financing arrangements.
• Local factors: For businesses in regional Queensland, including the Whitsundays, consider practical issues like access, seasonal work, and subcontracting. It’s better to address these upfront than leave them to assumption.

Common Mistakes Queensland Businesses Make

1. Relying on generic templates

If you’ve searched for “service agreement template” or “consultancy agreement template Australia free”, you’re definitely not alone. However, online templates might include clauses that don’t align with Queensland law or leave your business exposed.

2. Leaving the scope vague

Disputes frequently arise from “scope creep”, that is, when clients expect more than what was originally agreed. Define exactly what’s included (and excluded) from the start.

3. Ignoring intellectual property

Many businesses assume they own the work they’ve paid for, only to find out later they don’t. Always confirm IP ownership in writing.

4. Skipping legal review

Having an experienced Commercial and Business Lawyer like one of ours draft or review your agreement costs far less than fixing a dispute later.

Get the Right Agreement for Your Business

A service or consultancy agreement is more than just paperwork; it’s the foundation of your professional relationships. For Queensland businesses of any size, having clear, enforceable agreements is one of the simplest and most effective ways to protect your interests.

At PD Law, our experienced Cannonvale Lawyers help you draft, review, and negotiate service and consultancy agreements that are practical, balanced, and tailored to your needs. Whether you’re providing services or engaging them, we’ll make sure your business is protected from day one.

Ready to get your contracts sorted? Call 07 4946 6670 or book a consultation now.

Disclaimer: The information in this article is general in nature and does not constitute legal advice.

 

 

Before signing a loan agreement in Queensland, it’s worth pausing to understand what you’re really agreeing to.

With lending on the rise, more Queenslanders are taking on loans than ever—and not always with a full grasp of the fine print. A loan agreement isn’t just paperwork; it’s a roadmap for your money that sets the ground rules between borrower and lender and helps prevent costly surprises later on.

Without understanding it, you risk more than just confusion—hidden fees, unfair terms, or even legal disputes can follow. Whether you’re borrowing for a home, expanding your business, or lending to someone else, knowing what’s in your loan agreement is the key to protecting your financial future.

Lending Trends in Australia

Data from the Australian Bureau of Statistics (June 2025) shows just how active the lending market has become:

• New loan commitments for dwellings rose 9%.
• Owner-occupier loans increased 9%.
• Investor loans climbed 5%.
• First home buyer loans rose 7%.

With more people borrowing and refinancing, it’s never been more important to make sure your loan agreement is clear, fair, and legally sound.

The Basics of a Loan Agreement

At its core, a loan agreement sets out how much is being borrowed, how and when it will be repaid, and what happens if things don’t go according to plan. Think of it as a legally binding roadmap—it keeps both parties on track and protects everyone involved.

A well-drafted agreement:

• sets clear expectations,
• helps avoid misunderstandings, and
• provides legal protection if a dispute arises.

In Queensland, these agreements must also comply with consumer protection and fair trading laws. The rules differ depending on whether the loan is personal or business-related, so it’s crucial to know which framework applies to your situation.

Key Elements Every Loan Agreement Should Include

Every solid loan agreement includes a few essential parts:

1. The Principal and Interest Rate: The principal is the amount borrowed, and the interest rate determines the cost of borrowing. Together, these form the foundation of the deal.
2. Repayment Terms: These outline when and how repayments must be made—weekly, fortnightly, or monthly—and for how long. Clear terms help borrowers plan their budgets and prevent confusion.
3. Default Clauses: These set out what happens if a borrower doesn’t meet their obligations. Consequences can include extra fees, having to repay the full amount immediately, or legal action.
4. Security and Collateral: If the loan is “secured,” the borrower pledges assets such as property, vehicles, or business equipment as collateral. This reduces risk for the lender but increases risk for the borrower if repayments aren’t made.

Understanding Interest Rates and Fees

Interest and fees can make a huge difference to the total cost of a loan.

• Fixed rates stay the same throughout the loan, making it easier to budget.
• Variable rates move with the market—great when rates fall, risky when they rise.

There’s also compound interest, where you pay interest on top of previous interest, and simple interest, where you only pay on the original amount borrowed. The difference can add up fast.

Beyond interest, watch for extra costs like:

• establishment fees,
• ongoing account fees, and
• penalties for late or early repayments.

Knowing these upfront helps you understand the true cost of borrowing.

Security and Guarantees: What’s at Stake

Lenders often require security to reduce their risk. For larger loans, this usually means a mortgage over property or a charge over business assets.

Sometimes, a lender might also ask for a personal guarantee—where another person (often a company director) agrees to pay if the borrower defaults. This is common for small business loans, but can have serious consequences for guarantors, including the loss of personal assets.

If your loan involves loans for circulating and non-circulating assets (formerly knowns as fixed or floating charges), often used for company loans, make sure you understand how they work and how they’re registered on the Personal Property Securities Register.

Repayment Options That Fit Different Needs

Loan repayment structures can vary depending on your financial situation:

• Principal and Interest Loans: Regular payments that reduce both debt and interest over time.
• Interest-Only Loans: Lower repayments for a set period, but the loan balance doesn’t decrease.
• Balloon Payments: Smaller regular payments with a large lump sum due at the end.
• Line of Credit: Flexible access to funds when needed, with interest charged only on what you use.

Choosing the right structure depends on your cash flow and financial goals.

Default: The Hidden Danger in the Fine Print

Defaulting on a loan doesn’t just mean missing a repayment. It can include breaching other terms—like not maintaining insurance or providing false information. Once you default, the lender may demand full repayment, seize secured assets, or take legal action.

Before signing, make sure you fully understand the default clauses. Some agreements include harsh terms that could be triggered even if you’re mostly keeping up with repayments.

Borrower Protections Under Queensland Law

Fortunately, Queensland law provides several safeguards for borrowers.

• The National Consumer Credit Protection Act ensures lenders assess whether a loan is suitable before approving it.
• The Australian Consumer Law prohibits unfair, misleading, or unconscionable conduct.
• The Banking Code of Practice (followed by many major banks) requires lenders to act fairly and transparently.

These laws give borrowers recourse if lenders act improperly or include unfair terms in their agreements.

Why Legal Review Is Worth It

Having a lawyer review your loan agreement before signing can save you from years of financial trouble. An expert Commercial and Business Lawyer like ours can:

• Explain complex terms in plain English.
• Spot unfair or risky clauses.
• Negotiate better conditions on your behalf.
• Ensure the agreement complies with all relevant laws.

For lenders, legal review ensures the contract is enforceable and your security interests are properly documented.

Common Mistakes Borrowers Make

Some of the most expensive mistakes happen before the ink dries:

• Signing without reading or understanding the document.
• Ignoring the total cost, including hidden fees.
• Overlooking default clauses.
• Giving personal guarantees without realising the full risk.
• Skipping legal advice altogether.

Taking the time to review the agreement—and getting expert help—can prevent long-term stress and financial damage.

Keep Good Records

Always keep copies of your loan agreement, any amendments, payment records, and correspondence. If your loan is secured, make sure the security interests are properly registered. Regularly reviewing your loan terms also helps ensure you stay compliant and aware of your obligations.

Move Forward with Confidence

Signing a loan agreement isn’t something to rush. It’s a powerful legal document that can shape your financial future. Understanding what you’re agreeing to—and seeking professional advice—gives you confidence and peace of mind.

At PD Law, we draft, review, and explain loan agreements for Queensland borrowers and lenders—always in plain English. We’ll help you understand the details, spot potential issues early, and make sure your agreement works for you.

Thinking about a new loan or have one on the table? Get in touch with one of our Cannonvale Lawyers today.

Online reviews have become a powerful tool utilized by both business owners and consumers. For the former, reviews are now an important part of their public reputation and help them spread the word about their goods and services. For consumers, reviews have become a significant platform to help them make a decision about where to spend their money.

However, the power of reviews comes with legal implications when an online post is alleged to have damaged the reputation of a business and possibly caused the owner financial loss. In these cases the subject of the view may have potential actions for defamation, injurious falsehood, and misleading and deceptive conduct under section 18 of the Australian Consumer Law (ACL).

What are the elements for a business review to be defamatory?

Defamation refers to the act of making false statements about someone or something that causes harm to their reputation. For a statement to be defamatory, it must meet certain criteria.

Firstly, the statement must be communicated to a third party, which occurs when a post is published on Google Reviews, for example. The statement must also identify the subject, either explicitly or implicitly. In the case of businesses, a negative review about a specific company would typically meet this criterion.

Next, the statement must convey a defamatory meaning which harms the subject’s reputation or exposes them to ridicule, hatred, or contempt. Furthermore, the statement must be false. Truth is a complete defence against defamation claims.

Finally, the defamatory statement must cause harm to the subject’s reputation, leading to financial or non-financial losses.

What can a business do about a review it regards as defamatory?

If a business believes that a Google or other online review of their goods and services contains defamatory content, it can take legal action against the reviewer. In Australia, defamation law allows for individuals and certain ‘excluded’ corporations to sue for defamation. Under uniform defamation legislation applying in every state and territory, corporations that are not-for-profit or employ fewer than 10 people can take action for defamation, while large companies cannot.

Some of the possible actions a business can pursue include:

Cause of Concern Notice: In most cases businesses will typically be advised by their legal representatives to send a cause of concern notice to the reviewer, requesting that they remove or edit the defamatory content. This course of action can often resolve the matter without the need for formal legal action which can be both costly and time-consuming. In some cases, businesses may request Google or another service provider to remove the defamatory review. Online companies such as Google maintain policies for removing content that violates its guidelines, including defamatory material, though disagreements frequently arise over use of this discretion by service providers.

Injurious falsehood: Injurious falsehood, also known as trade libel, occurs when false statements which harm a business’ financial interests are published to a third party. If a Google Review contains false information that has caused financial losses, a business can pursue injurious falsehood claims against the reviewer. This claim can be difficult to prove, requiring the plaintiff to prove that the defendant acted maliciously to harm the plaintiff in posting the review and secondly, the statement caused actual damage, such as a loss in sales or decline custom.

Action for defamation: If the cause of concern notice is ineffective, a business can file for defamation. The court will assess the content of the review, its impact on the business’ reputation, and the truthfulness of the statements. In defamation the plaintiff must prove the defendant’s review, in this example, contained one or more defamatory ‘imputations’, or negative claims, about a person or their behaviour. The negative imputation of a review suggesting the food at a restaurant was awful, for instance, might be that the chef and other staff are incompetent and unqualified.

A number of defences exist to a defamation action, of which the most common are:

• the defendant is able to show that what was published was substantially true;
• the defendant argues they were offering their honest opinion, rather than making a statement of fact; or
• the defendant was innocently distributing material which they were not aware was defamatory.

Actions for Misleading and Deceptive Conduct under the Australian Consumer Law

In addition to defamation and injurious falsehood, businesses in Australia can also consider taking action under the ACL. Section 18 of the ACL prohibits misleading and deceptive conduct in trade or commerce. This provision has been applied to online reviews in certain circumstances.

If a Google Review contains false or misleading statements that could potentially deceive consumers and harm a business’s commercial interests, a business may have a case under section 18 of the ACL.

Any action considered under this provision should closely consider the following before commencing:

• Whether the review contains statements that are false or misleading, including claims about a product’s quality, safety, or the business’s conduct.
• Whether the review was part of trade or commerce, meaning it relates to the supply of goods or services. Google Reviews about a business often fall within this category.
• Whether the false or misleading statements actually caused or are likely to cause harm to the commercial interests of the business.

Unlike legal action for defamation or injurious falsehood, section 18 of the ACL does not require proof of malicious intent on behalf of the person who posted the review, but instead focuses on the effect of the conduct.

What remedies can be sought for any of these actions?

When pursuing legal action for defamation, injurious falsehood, or misleading and deceptive conduct, various remedies may be available for a successful outcome.

A business or individual may be awarded monetary compensation to cover the losses incurred due to the defamatory or misleading content. The court may issue an injunction to prevent the reviewer from further posting defamatory or misleading content. In some cases, the court may order the reviewer to issue an apology or a correction to rectify the harm caused. The court may also order the losing party to pay the legal costs of the successful party.

Seek expert legal advice

Google Reviews have immense power to shape public opinion and affect businesses’ reputations. But if a business believes that a Google Review contains defamatory, injurious, or misleading content, it has legal avenues to address the issue. The advice of our expert team at PD Law should be sought if you are in the position of either plaintiff or defendant in the situation described in this article. We can clarify the issues involved and help guide you on the best way forward in what can be a difficult area of the law.

In the fast-paced and ever-changing world of business, partnerships come and go. Whether it’s due to disagreements, shifts in direction, or simply the natural evolution of companies, the dissolution of a business partnership is an inevitable reality that many entrepreneurs will face.

Business partnership dissolution refers to the legal and administrative process of terminating a partnership. It marks the end of the formal relationship between two or more individuals or entities that have jointly operated a business venture.

When a business partnership dissolves, it’s essential to understand the reasons behind this decision. There are various factors that can contribute to the dissolution of a partnership. Internal conflicts can arise from differences in vision, management styles, or financial discrepancies. These conflicts can create a strained working environment, making it challenging for the partners to continue their collaboration.

Furthermore, external factors can also play a significant role in the decision to dissolve a partnership. Changes in the market, such as shifts in consumer preferences or technological advancements, can render the partnership’s business model obsolete or unprofitable. Regulatory challenges, such as new laws or regulations that impact the partnership’s operations, can also pose significant obstacles.

In addition, economic downturns can have a severe impact on a partnership’s financial stability. A sudden decline in the economy can lead to reduced consumer spending, decreased demand for products or services, and financial hardships for the partnership. These external factors can create a situation where the partners believe that dissolving the partnership is the most prudent course of action.

Ultimately, when the challenges facing a partnership become insurmountable, and efforts to resolve the issues prove unsuccessful, dissolution may be the only viable option. It is crucial for the partners to carefully evaluate the situation, consider the long-term implications, and make an informed decision.

Legal Aspects of Dissolving a Business Partnership

Dissolving a business partnership is a complex process that involves various legal aspects. It is crucial to understand the legal requirements and consequences involved to ensure a smooth and legally compliant dissolution. Each jurisdiction may have specific regulations, so consulting with a legal professional is essential to navigate through the intricacies of the process.

Legal Requirements for Dissolution

Before embarking on the dissolution process, it is crucial to understand the legal requirements involved. Each jurisdiction may have specific regulations, so consulting with a legal professional is essential to ensure compliance. Generally, the process involves filing the necessary paperwork, notifying relevant authorities, and settling financial obligations with creditors, partners, and shareholders.

When dissolving a business partnership, it’s important to consider the legal obligations that need to be fulfilled. This may include filing a dissolution form with the appropriate government agency, such as the Secretary of State or Companies House, depending on the jurisdiction. Additionally, partners may need to notify other relevant parties, such as clients, suppliers, and employees, about the dissolution.

Settling financial obligations is another critical aspect of the dissolution process. This includes paying off any outstanding debts, resolving any pending legal disputes, and distributing assets among the partners. It is essential to ensure that all financial matters are properly addressed to avoid potential legal complications in the future.

Legal Consequences of Dissolution

Dissolving a business partnership can have far-reaching legal consequences. Liabilities, debts, and obligations must be handled correctly to protect the interests of all parties involved. Failure to do so can result in legal disputes, financial loss, and damage to professional relationships.

One of the primary legal consequences of dissolution is the potential for legal disputes. Partners may have disagreements over the division of assets, settlement of debts, or the interpretation of partnership agreements. Resolving these disputes can be time-consuming and costly, often requiring the intervention of legal professionals or even court proceedings.

Financial loss is another significant consequence that partners may face during the dissolution process. The liquidation of assets, settlement of debts, and payment of legal fees can all contribute to financial strain. It is crucial for partners to carefully manage their finances and seek expert guidance to minimize the impact of dissolution on their financial well-being.

Furthermore, the dissolution of a business partnership can have an impact on professional relationships. Partners may need to navigate the emotional and personal aspects of the dissolution, which can strain relationships built over years of collaboration. It is important to approach the process with empathy and open communication to maintain goodwill and minimize any negative consequences on future business endeavours.

Understanding the legal ramifications and seeking expert guidance throughout the process can help navigate potential pitfalls and ensure a smoother path towards closure. By addressing the legal aspects of dissolution diligently, partners can protect their interests and move forward with confidence.

The Process of Dissolving a Business Partnership

1. Initial Steps for Dissolution

The first step in dissolving a partnership is to communicate openly and honestly with your business partners. Discuss the challenges and reasons for dissolution, exploring potential alternatives if applicable. It’s vital to approach this conversation with empathy, respect, and a commitment to finding the best outcome for all parties involved.

2. Dealing with Assets and Liabilities

During the dissolution process, the division of assets and liabilities must be addressed. This includes identifying and valuing all business assets, settling outstanding debts, and determining how profits and losses will be allocated.

Seeking professional assistance, such as a financial advisor or accountant, can ensure an equitable distribution and minimize potential disputes.

3. Finalizing the Dissolution

Once all financial matters have been settled, it’s important to document the dissolution through legal procedures. This typically involves filing the necessary paperwork with the appropriate authorities, such as the state or local business registrar. By adhering to these administrative requirements, you can formally close the chapter on your business partnership.

Emotional and Psychological Aspects of Dissolution

Managing Stress During Dissolution

Dissolving a business partnership can be emotionally challenging. Egos, disappointments, and unfulfilled expectations can surface, increasing stress levels. It’s crucial to invest time in self-care and seek support from family, friends, or even a therapist to manage the emotional impact of the process. Prioritizing your mental well-being will contribute to clearer decision-making and a healthier transition.

Maintaining Professional Relationships Post-Dissolution

While the dissolution of a partnership marks the end of a specific business venture, it doesn’t necessarily mean the complete severance of professional relationships. Cultivating open lines of communication and focusing on shared goals can facilitate future collaborations or the opportunity to provide references for one another. Maintaining professionalism throughout the dissolution demonstrates integrity and can help preserve valuable connections even in the face of adversity.

Preventive Measures and Alternatives to Dissolution

Conflict Resolution Strategies

Instead of immediately resorting to dissolution, exploring conflict resolution strategies can be a proactive approach to save a struggling partnership. Engaging in honest and open dialogue, seeking mediation or arbitration, or even involving a professional consultant can help identify solutions and bridge the gap between differing perspectives.

Restructuring the Business Partnership

In some cases, rather than dissolving the partnership entirely, restructuring may present a viable alternative. This can involve the introduction of new partners, redefining roles, and responsibilities, or pivoting the business strategy to adapt to changing circumstances. With careful consideration and a willingness to adapt, partners may discover a renewed sense of purpose and a path forward for their business venture.

In conclusion, the dissolution of a business partnership is a complex endeavour that requires careful consideration, legal understanding, and emotional resilience. By approaching the process with transparency, empathy, and a commitment to finding the best possible outcome, partners can navigate this challenging transition successfully. Remember, partnership dissolution may mark the end of one journey, but it can also pave the way for new beginnings and fresh opportunities in the world of business.

Running a business can be an all-consuming affair leaving little time for contemplation of what happens to the enterprise in the event of a family tragedy or a business partner retiring or dying.

But in fact, these type of events should be considered by all owners as part of business succession planning, which we’ll discuss in this article. This planning process is essential to not only protect the wealth you’ve built within the business, but also provide clear direction around your legacy – what does the business look like once you or your partners move on.

Creating a buy-sell agreement

Unfortunately most business owners end up reacting to sudden events which threaten the viability of their enterprise, rather than plan ahead for them. A dispute with a partner, external legal action by a client, illness, death, divorce, disability and bankruptcy are all in the nature of events which can threaten a person’s stake in a business and their ability to pass on wealth in the entity.

One way to deal with the possibility of such events is the creation of a ‘buy-sell agreement’. This agreement, which sets out what will happen to each party’s interests in the business should an event force them from the business, can be incorporated into an existing company constitution, partnership or stakeholder agreement, and pre-empts what needs to happen if any of the aforementioned events transpire.

Ideally the agreement provides certainty and transparency on the steps to be taken if an event which seriously impacts the running of the business occurs – how any change to the ownership structure will be dealt with, how any exiting directors or partners will be paid out, how contingencies such as legal action will be paid for, and more. Importantly it provides notice to all those involved in the business so they can take steps to protect their investment in the business, by taking out – for example – insurance to cover the unforeseen event. Spending time getting this agreement right is all part of diligent business succession planning.

Questions to be asked in creating a buy-sell agreement

Business owners should be able to answer a number of relevant questions in the process of creating a buy-sell agreement, including:

• How is your interest in the business valued so that if you need to exit the enterprise, it can be sold to other interests at a fair price?
• Who are the likely buyers of the interest and how do they plan to fund its acquisition?
• What are the tax implications and consequences for the business if you sell to a third party or an interrelated party?

Key considerations in successfully implementing a buy-sell agreement

Identify the parties to the agreement: Is the agreement only between business partners or are the spouses or partners of the principals also parties? This is a pertinent question if any of the owners are going through a separation or divorce and business assets potentially become part of a financial settlement.

Which events are covered by the buy-sell agreement: To obviate the need for possible legal action later, it’s important to detail which events are covered by a buy-sell agreement. It’s advisable to be as comprehensive as possible in drafting this section to accommodate all potential situations. Typically, death, disability, divorce, default (such a bankruptcy), retirement, resignation, irreconcilable disagreement (between principals or partners) and decision-making deadlock are common events covered in such agreements.

Covering off these events generally provides more detail than existing exit clauses in stakeholder agreements or company constitutions, so those documents should be checked to prevent overlap or inconsistency.

How to value the business: Disputes often arise over the value of the business and each party’s interest in it once an event covered by the buy-sell agreement arises. The assistance of an accountant or a licensed valuer will often be required to value the business and determine its worth.

Working out termination profits and any other benefits: The buy-sell agreement should also cover what funds a departing owner/principal should take from existing business profits, as well as any other assets or benefits. Expert legal and financial advice is likely necessary at this stage.

Buy-sell agreements, like testamentary wills, should be reviewed and if necessary updated on a regular basis to ensure the document reflects the business’s current structure.

Discuss business succession planning with our expert team

The drafting of a buy-sell agreement as part of business succession planning is increasingly important in a litigious world. It is important to undertake this process before certain events arise in order to protect the viability of a business and provide certainty for all parties about the future of the enterprise.

Our experienced team at PD Law can help draft such an agreement with business owners and help you understand how it fits in with your existing company documents, such as stakeholder agreements. We will also help you understand the implications for tax and estate planning. If you have questions about the points raised in this article, please call our professional team as soon as possible.

There are several remedies available to a party in case of a breach of a contract by the other party. In general, the two most popular types of remedies are either legal remedies or equitable remedies.

Legal remedies include monetary damages, which are meant to compensate the aggrieved party for any losses suffered due to the breach. The amount of damages awarded will depend on the severity of the breach and the extent of the losses suffered.

The other option is equitable remedies, which are non-monetary remedies that are aimed at restoring the parties to their original positions before the breach occurred. These remedies can include specific performance, that requires the breaching party to fulfill their obligations under the contract, or injunctions, which prevent the breaching party from taking certain actions that would cause further harm to the aggrieved party.

Other than these two options, there are several other remedies available for a breach of contract, depending on the nature and severity of the breach. Here are some of the most common remedies:

1. Damages:
   This is one of the most common remedies for a breach of contract. The purpose of damages is to compensate the non-breaching party for any loss suffered as a result of the breach. There are several types of damages, including compensatory, consequential, and punitive damages.
2. Specific Performance:
   This remedy requires the breaching party to fulfill their obligations under the contract. It’s typically used when the subject matter of the contract is unique or when monetary damages are inadequate.
3. Rescission:
   This remedy allows the non-breaching party to cancel the contract and be released from any further obligations. It’s typically used in cases where the breach is so substantial that it would be unfair to require the non-breaching party to continue with the contract.
4. Reformation:
   This remedy allows the Court to rewrite the contract to reflect the original intent of the parties. It’s typically used in cases where there was a mistake or misunderstanding in the original contract.
5. Injunction:
   This remedy requires the breaching party to stop doing something, or to refrain from doing something. This is typically used in cases where monetary damages are inadequate.

It’s important to note that the availability of these remedies depends on the specific circumstances of the breach, and it is always best to consult a legal professional to determine the best course of action.

If you need to discuss breach of contract remedies, contact our commercial team today to find out how we can help you.

Challenging economic conditions in the post-Covid world have caused a rash of insolvencies in certain parts of the Australian economy, in particular the construction industry. As such it’s important for company directors dealing with the possibility – or the reality – of insolvency to remember their legal responsibilities under Australia’s Corporations Act 2001 (‘the Act’). In particular, directors need to be aware of the potentially serious consequences of continuing to trade while insolvent. This article takes a closer look at what constitutes breaches of the law by company directors and the penalties they may face for trading while insolvent.

Insolvency under the Corporations Act

Under section 95A of the Act, a person is considered insolvent if they are unable to pay all their debts as and when they become due and payable. Directors have a duty to prevent insolvent trading and protect the interests of creditors.

This duty requires due diligence on the part of company directors to remain vigilant about the financial health and status of the company, regularly assessing its financial position, identifying potential insolvency risks, and implementing strategies to address them.

Maintaining accurate and up-to-date financial records is essential for directors to assess the company’s solvency. Failure to keep proper records may indicate a lack of oversight and can contribute to allegations of insolvent trading. Taking professional advice from an accountant or insolvency practitioner to recognise and address a perilous financial position is highly advisable for company directors facing insolvency. Experts will also help clarify the issues involved in undertaking the process of administration or liquidation, perhaps in preference to insolvency.

What is considered a breach of the laws relating to insolvency?

A company director may breach their fiduciary duty to remain vigilant about the financial health of the company if:

• they held a position as a director when the company incurred debt;
• the company is insolvent at the time of incurring debt or becomes insolvent due to the additional debt incurred;
• there are ‘reasonable grounds’ to believe that the company is insolvent or is likely to become insolvent;
• the director is reasonably aware – or should be reasonably aware – that these grounds exist;
• the director is required to act to prevent the company from incurring debt.

What are some of the factors that comprise reasonable grounds for a director to suspect the company is, or is at risk of, insolvency? Examples include when the company’s liabilities exceed its assets, cash flow is limited, lines of credit are declined, legal demands for payment of debt start to arrive, and taxes and employee superannuation liabilities become overdue.

A director’s duty includes the consideration of whether there are reasonable grounds to suspect the company is insolvent or will become insolvent before incurring a new debt.

Penalties for insolvent trading

Civil penalties, compensation proceedings and criminal charges can apply to company directors who continue to trade while insolvent.

Civil penalties in the form of substantial fines vary depending on the severity of the breach, but can range up to $200,000 for an individual.

Directors may be ordered to compensate the company or its creditors for the losses incurred due to insolvent trading. This can involve personal liability for the debts the company accumulated while insolvent in proceedings initiated by ASIC, a liquidator or a creditor. A compensation order can be made in addition to civil penalties. Again depending on the severity of the breach, these pay-outs are potentially unlimited and could result in the bankruptcy of an individual director, disqualifying them from continuing as a director or managing a company.

In the most severe instances of insolvent trading, where the conduct of a director or directors was dishonest, deliberate and egregious, directors may face criminal charges leading to a large fine or up to five years’ imprisonment, and disqualification from further serving as a company director.

Statutory defences for directors exist within the Act, such as a director having reasonable grounds to expect the company was solvent, or that a reasonable, competent person produced information that would reasonably lead to a belief that the company was solvent – but these will be ineffective if the director failed to take steps to stay informed about the company’s financial position.

In 2017 the introduction of ‘safe harbour’ laws served to protect directors from personal liability for debts incurred during insolvent trading action where the director can show insolvent trading was a more favourable option than entering into voluntary administration or liquidation.

Seek professional advice to avoid trading while insolvent

Insolvent trading is a fraught issue for company directors in tight economic times, requiring them to maintain high and constant awareness of their company’s financial position and their responsibilities under the law. Breaches can result in life and career-changing consequences, including criminal charges. Directors must take prompt, appropriate action to address insolvency risks.

If you need more information about how to address concerns about insolvency, including your obligations under the Act, speak with our corporate law experts at PD Law as soon as possible for direct, relevant advice to help you take the right steps.

SMSF’s themselves are not capable of borrowing money, this is due to restrictions under the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994 (Acts). Notwithstanding this, people are able to indirectly borrow money for the purchase of property for the SMSF by purchasing in a separate entity to hold on trust for the SMSF.

SMSF lending, involves using the fund’s assets to secure a loan for the purpose of investing in property. If you’re considering SMSF lending, you’ll need to ensure that your SMSF is set up correctly and meets all the legal requirements. You’ll also need to engage a lender that offers SMSF loans and meet their eligibility criteria.

Lending with a SMSF is a complex process that involves strict compliance with the Australian Taxation Office’s regulations. If you’re considering borrowing money through an SMSF to invest in property or other assets, it’s important to seek professional advice from a licensed financial adviser and lawyer.

Some of the key requirements for lending with an Self-Managed Superannuation includes having the correct and lawful SMSF structure in place and ensuring that the SMSF has sufficient funds to meet the loan repayments. It’s also important to have a solid investment strategy in place and to consider the potential risks associated with borrowing through an SMSF.

Before considering borrowing money to purchase SMSF property, you will need to consider the following:

1. Valid SMSF structure: The SMSF must be established and maintained according to the Australian Taxation Office’s requirements.
2. SMSF borrowing rules: The SMSF must comply with the rules set out in the Acts. These rules include restrictions on the type of security that can be used for the loan, the loan-to-value ratio, and the terms of the loan.
3. Sufficient funds: The SMSF must have sufficient funds to meet the loan repayments and other ongoing expenses, such as property maintenance and insurance.
4. Solid investment strategy: The SMSF must have a clear investment strategy in place that outlines the investment objectives and the risk profile of the fund.
5. Professional advice: It is recommended that investors seek professional advice borrowing through an SMSF. Overall, lending with an SMSF can be a complex process, and it is important to fully understand the requirements and potential risks before making any decisions.

Once you have the above in place, and have consulted your advisors you will be ready to enter into a contract for the purchase of a property and can proceed with the finalisation of your lending from there.

Trademark protection is a crucial aspect of business strategy that safeguards your brand’s identity and reputation. It’s a legal shield that prevents others from using a similar mark that could cause confusion among your customers, such as a logo, phrase, colour, sound etc. Marketing is a crucial tool in today’s society, and registering a trademark allows you to protect any goodwill, value or credibility you have built based on your brands identity, which is what makes it recognisable in the marketplace.  But what exactly is trademark protection, and how does it work, and what should you consider when trademarking something.

What is Trademark Protection?

A trademark is a unique symbol, logo, word, or phrase that identifies and distinguishes a company’s goods or services from those of others. It’s a brand identifier that speaks volumes about the quality and reputation of your products or services.

Trademark protection is the legal process of registering and protecting your trademark from unauthorised use. It’s a legal right granted to the trademark owner to exclusively use, license, or sell the mark within a specified geographic area.

The registration of a trademark is effective for ten years and can be renewed for a further ten years.

Why is Trademark Protection Important?

Trademark protection is vital for several reasons. It prevents others from capitalizing on your brand’s reputation by using a similar mark. This can lead to customer confusion and potentially damage your brand’s reputation.

It also gives you the exclusive right to use your trademark in connection with the goods or services for which it’s registered. This means you can take legal action against anyone who uses your trademark without your permission.

How to Obtain Trademark Protection

1. Choosing a Trademark

Before you can register a trademark, you need to choose one that is unique and distinctive. It should be easily recognisable and should not be descriptive of the goods or services it represents.

Keep in mind that not all trademarks are eligible for registration. For instance, generic terms, geographical names, common surnames (even if they are your own), prohibited signs, restricted financial terms, misleading marks, and those that are offensive or against public policy are not registrable.

2. Trademark Search

Once you’ve chosen a potential trademark, the next step is to conduct a trademark search. This is to ensure that your chosen mark is not already in use or registered by another company.

A comprehensive trademark search involves checking trademark databases, business directories, domain name registries, and social media platforms. It’s advisable to hire a trademark attorney or a trademark search company to conduct a thorough search.

3. Trademark Application

After confirming that your chosen trademark is unique, the next step is to file a trademark application with the relevant trademark office. The application process involves filling out a form, providing a clear representation of your mark, and paying the required fees. When applying for a trademark, you’ll need to select the classes of goods and services that you’ll use your trademark for. There are 45 categories, and so it is imperative that you pick the correct class as you will only have exclusive rights to the trademark for the goods and services selected. You will not be able to add new classes once your application is submitted and will have to file a new application for the additional goods and services.

The fee for the application is dependent on how many classes of goods and services you select in your application.

Once your application is submitted, it will be examined by a trademark examiner. If your application meets all the requirements, your trademark will be published in a trademark journal for opposition. If no opposition is filed within a specified period, your trademark will be registered.

4. Maintaining Your Trademark Protection

Obtaining trademark protection is just the first step. To maintain your trademark rights, you need to actively use your trademark in commerce and monitor the market for potential infringements.

If you discover that someone is using your trademark without your permission, you can take legal action to stop the infringement and claim damages.

Trademark protection is an essential tool for safeguarding your brand’s identity and reputation. It’s a legal right that gives you exclusive use of your trademark and the power to prevent others from using a similar mark. By understanding the importance of trademark protection and the process of obtaining it, you can ensure that your brand remains unique and distinctive in the marketplace. Even if you are starting up a business, this is something you should consider carefully at the initial stages of growing your business, to safeguard you from any competitors.

Bankruptcy is a legal process that provides relief to individuals or businesses who are unable to pay their debts. While it can offer a fresh start, it’s essential to understand the impact it can have on various aspects of your life. During the bankruptcy process, a registered Trustee or Official Trustee is appointed to manage your assets and creditors.

Two Types of Bankruptcy:

There are two ways bankruptcy can come about:

• Voluntary bankruptcy: if you become insolvent, you can voluntarily file for bankruptcy by filing a debtor’s petition with the Australian Financial Security.
• Involuntary bankruptcy: if you owe a creditor more than $10,000, this creditor may apply to the Courts to make you bankrupt. This method is generally used if the creditors thing it is their best option to recover the debt owed.

How Long Does Bankruptcy Last?

Bankruptcy typically lasts for 3 years and 1 day, in accordance with the Bankruptcy Act 1966, however this may be extended to 5 or 8 years at the request of your appointed Trustee.

What Debts Are Covered in Bankruptcy?

There are two types of creditors:

Unsecured creditors: This is a creditor which doesn’t have a hold over any possessions, assets or property purchased with the credit they provided. The creditor has no security over the debt, and therefore does not have the right to repossess any goods or assets owned by you.

Secured Creditors: Secured Creditors are secured by a mortgage, or lien or charge over your assets until the debt is paid off. These include things such as mortgages, car loans, hire purchase agreements or secured business loans. These creditors take preference over unsecured creditors, and essentially jump the queue over unsecured creditors.

The Financial Impact of Bankruptcy

One of the most immediate effects of bankruptcy is on your finances. While it can eliminate most of your debts, it’s not without its consequences.

Bankruptcy can lead to the loss of your assets. Depending on the type of bankruptcy you file, you may have to surrender certain assets to repay your creditors. This could include your home, car, or other valuable possessions.

It can significantly impact your credit score. A bankruptcy filing can stay on your credit report for up to ten years, making it more challenging to secure loans or credit in the future.

Bankruptcy and Your Credit Score

Bankruptcy can cause a severe drop in your credit score. The exact impact will depend on several factors, including the type of bankruptcy and your credit score before filing.

It’s important to note that while bankruptcy can hurt your credit score, it also provides an opportunity to rebuild. By making timely payments and managing your finances responsibly post-bankruptcy, you can gradually improve your credit score over time.

Disqualification from acting as a Director of a company during the Bankruptcy Period

If you are serving as Director of a company when you declare bankruptcy, you will be disqualified during the period. Your shares in a company will pass to the appointed Trustee, who then has the choice to either sell the shares or liquidate the company. Once the Bankruptcy period has ended, you can then become a director of a company again.

The Emotional Impact of Bankruptcy

Bankruptcy can also have a significant emotional impact. The process can be stressful and overwhelming, leading to feelings of guilt, shame, or failure.

However, it’s important to remember that bankruptcy is a tool designed to help individuals and businesses overcome financial difficulties. It’s not a reflection of your worth or abilities.

Seeking support from a mental health professional or a support group can be beneficial during this challenging time. They can provide strategies to cope with the emotional stress associated with bankruptcy.

The Social Impact of Bankruptcy

Bankruptcy can also affect your social relationships. It can lead to strained relationships with family and friends, especially if they are also your creditors.

Furthermore, bankruptcy can impact your professional life. Some employers may view bankruptcy negatively, which could affect your job prospects. However, it’s illegal for employers to discriminate against you solely based on your bankruptcy.

It’s crucial to communicate openly with your loved ones about your situation. Honesty can help alleviate misunderstandings and foster support during this challenging time.

Bankruptcy and Future Financial Opportunities

While bankruptcy can make it more difficult to secure loans or credit, it’s not impossible. Many lenders offer “second chance” or “fresh start” programs designed for individuals who have filed for bankruptcy.

However, it’s essential to approach these opportunities with caution. High interest rates and fees often accompany these programs. It’s crucial to understand the terms and conditions before agreeing to any financial agreement.

Bankruptcy can also affect your ability to secure housing. Some landlords may be hesitant to rent to someone who has filed for bankruptcy. However, with time and a demonstrated commitment to financial responsibility, these opportunities can become more accessible.

At the end of the Bankruptcy period, the bankrupt individual will be ‘discharged’.

Bankruptcy is a complex process with far-reaching effects. It can impact your finances, emotions, social relationships, and future opportunities. However, it’s also a tool that can provide relief from overwhelming debt and a chance to start fresh.

Understanding the effects of bankruptcy can help you make an informed decision about whether it’s the right choice for you. It’s always recommended to seek advice from a legal professional to help you understand your options and the potential consequences. Contact our commercial team today to see how we can assist you.

Running a business these days is challenging enough without being let down by the fine print on your important forms such as invoices. The terms and conditions a business includes on documents such as invoices and quotes with detail on such important things as delivery terms, returns and refunds, payments, warranties, and limitation of liability are important to get right at the outset. Ambiguity or loopholes in these terms can open avenues for unnecessary and time-consuming red tape and, potentially, costly legal action.

Seeking the advice and guidance of legal professionals with experience in writing important commercial documents is vital to minimise the likelihood of problems with customers and clients later on. This article sets out five of the most significant reasons for taking the time to ensure a business’s terms and conditions are well drafted.

1. Defining the scope of the business-client relationship

Terms and conditions help define the key aspects of the relationship between a business and its customers to ensure there is clarity and transparency about the expectations and obligations of both parties. For a business, this ‘fine print’ should cover the products or services it will provide; the timeframe in which the goods or services will be provided; and the means by which the goods and services will be provided. Clear definition of the scope of the relationship, including when a binding contract between the parties is formed and when responsibility passes to the customer, avoids later misunderstandings and disputes.

The details of the business should also be clearly marked, including its ABN or ACN number for tax and GST components.

2. The importance of delivery terms

Expanding on the first point, a regular area of dispute between businesses and their customers is when and how goods and services are delivered, which party is responsible for the costs of delivery, and what the policy is when certain goods and services are not supplied, are delayed, or are damaged. These terms should be clear, concise, and fair to both the business and the customer.

Common delivery terms will specify shipping methods, estimated delivery times, shipping fees, and international delivery options. It’s also crucial for businesses to consider Australia’s vast geographical expanse when developing these terms, as delivery times can vary significantly between urban and remote areas.

3. The policy on returns and refunds

Returns and refunds is a frequent area of dispute between businesses and their customers, requiring terms and conditions that clearly state the policy under which customers can return products and request refunds. This includes specifying timeframes, acceptable reasons for returns, and any associated costs.

In Australia, consumers have rights protected by the Australian Consumer Law (ACL), which include guarantees of acceptable quality, fit for a particular purpose, match the description of the product or service, and match any sample or demonstration. Consumers have the right to return goods that do not meet these guarantees. Your terms and conditions should align with these legal requirements and clearly outline the process for customers to exercise their rights. Some businesses may also include a ‘30-day’ policy in their terms and conditions, allowing customers to return goods they are not satisfied with even if there is no fault.

4. The importance of payment terms

It could be argued that for a business, payment terms are the highest priority to get right when drafting terms and conditions. They dictate how and when customers are expected to pay for products or services. It is important to be transparent about payment methods accepted, due dates, consequences for late or missed payments (such as penalty payments) and any fees associated with specific payment methods. Details on whether prices are inclusive of GST and other taxes, and whether the business can charge interest and legal costs for the recovery of outstanding payments should also be included. Additional conditions may deal with entitlements to a discount or other reward for consumers.

For online transactions, cybersecurity is a significant concern. Businesses should assure customers that their payment information is handled securely. If a business collects and stores customer payment information, it must inform customers about its data handling practices.

5. Warranties, limited liability and other relevant terms

Warranties are promises made by businesses about the quality and performance of their products or services, and what should happen if things go wrong. These warranties can be explicit or implied by law. In Australia, warranties are governed by the ACL, and businesses must ensure that their terms and conditions align with these consumer guarantees.

Explicit warranties offered by the business should be clearly defined in the terms and conditions, including the duration and the process for making a warranty claim. It’s crucial for Australian businesses to understand the ACL’s requirements and limitations regarding warranties, which can vary based on the type of goods or services offered.

Limitation of liability clauses protect a business from legal jeopardy caused by certain acts, particularly where a business’s goods and services may involve an element of risk or where delays are likely. These clauses can help protect your business from excessive financial exposure in case of disputes or legal claims. By agreeing to the terms and conditions, the client or customer acknowledges risk and, generally speaking, gives up their right to sue the business.

Under the ACL, businesses cannot exclude or limit their liability for consumer guarantees. Nevertheless, limitation of liability clauses can still be useful in defining the scope of the seller’s responsibilities and liabilities in other aspects of the business. For example, the clause can specify the extent to which the business will be responsible for direct damages, indirect damages, or third-party claims.

Consult our expert team

Covering off all the elements discussed in this article in properly drafted terms and conditions is a crucial part of a business’s operations. By getting these important details right sooner rather than later, the legal risk that comes with disputes can be greatly minimised. Here at PD Law, our expert team of legal professionals we can help draft these terms and conditions with you to ensure they’re compliant with the law while providing you the best possible protection.

There are few more frustrating experiences for a consumer than a problem arising with a product or service they’ve spent their hard-earned money purchasing. From malfunctioning electronics to holiday experiences that don’t live up to the advertising, our first reaction is to seek some type of redress to help make things right.

In Australia, the Australian Consumer Law (ACL) is in place to safeguard the interests and rights of consumers. Coming into effect in 2011, the ACL is a national set of laws applicable in all states and territories providing consumers with certain guarantees and protections when purchasing goods and services.

The law sets out the duty of a seller to a buyer, whether the purchase was made in store or online, including that the goods sold are fit for purpose, must match their description and are of acceptable quality. Customers shown a sample of the good or service before the sale must be given products that reasonably match that sample. If the seller provided the buyer with information or made representations, and the buyer relied on these in making the purchase, the representations or information become implied terms in the contract between the parties and the seller is bound by them.

Likewise, if the buyer makes clear they want the product for a particular purpose, and then buys it based on the seller’s claims or expertise that it will be suitable for that purpose, the buyer may not be able to rely on ACL protections if it was unreasonable to rely on the seller’s skill or judgment.

Below we look in more detail at what a consumer can do when unhappy with goods and services they’ve purchased either in person or online.

Consumer guarantees under the ACL

As outlined above, a core protection within the ACL is the consumer guarantee that products and services of acceptable quality, fit for particular purpose and match the description of the product, or a sample or demonstration of it. This guarantee ensures that products and services purchased in Australia are of a standard quality that a reasonable consumer would expect. When a product or service fails to meet a guarantee, the consumer has a right to a remedy such as a refund, repair, replacement or exchange, compensation or cancellation of contract.

Consumer guarantees apply to a wide range of goods and services, from electronics and clothing to food and travel packages, and requires the supplier to rectify the situation. It should be noted consumer guarantees are different to warranties and apply automatically to transactions of goods and services. Warranties are extra promises that a business can choose to make on top of the consumer guarantees.

There are also occasions where a consumer may not be entitled to a remedy, including:

• simply changing their mind and deciding they do not like or cannot use the product;
• damaging or using goods in an unreasonable or unintended manner;
• discovering the goods or services are available more cheaply elsewhere;
• examining the goods before buying and not noticing an obvious fault;
• when a defect is drawn to the buyer’s attention before buying (such as goods labelled as seconds with their faults clearly marked);
• when the buyer did not rely upon, or unreasonably relied upon, the seller’s skill or judgment when choosing a product or service;
• when a buyer asked for a service to be done in a certain way against the advice of the business;
• when the problem with a service was caused by the actions of someone other than the business.

More detail on refunds, repairs, costs of returns

Where there’s a major problem with a product, such as it being unsafe, markedly different from the description or sample, or can’t be used for its normal purpose, for example, a business must offer the consumer a refund or replacement of the same type of product.

A refund should be for the full value of the product and be provided in the same form as the original payment, unless the parties agree otherwise. The buyer can also keep the product and receive compensation for its reduced value as a result of the fault. A consumer can also be entitled to compensation for extra damages and loss.

For a major problem with a service, a consumer can cancel a contract and refund, though the amount will vary depending on whether they have received any services under the contract before the problem arose. The buyer may also retain the contract but pay a lower price, reflecting the problem, or if they have paid upfront, get some money back, again depending on whether or not services have already been provided.

For more minor problems with goods or services, the business must fix the problem or repair the product for free and is not obliged to offer a replacement or refund if it chooses. A business that does not fix a minor problem within a reasonable amount of time enables the buyer to have the item repaired elsewhere, with the business obliged to meet the reasonable cost of repair; get a refund or replacement; keep the product or cancel the contract, and be compensated for the drop in value caused by the problem.

Returning products

The seller is responsible for paying for reimbursement of freight costs for faulty products or collection of large or heavy items, with a reasonable time. If the seller confirms a problem with the product, it must reimburse the consumer for any reasonable return costs they have already paid. For this reason, the buyer should keep all receipts for transport or postage costs. The buyer may be responsible for the costs of collection if it’s later discovered there is no problem with the product.

Seeking Compensation

In addition to seeking a refund or replacement, consumers have the right to claim compensation when a product or service does not meet the required consumer guarantees. Compensation can cover a range of damages, including:

Consequential loss – this includes additional costs incurred due to the faulty product or service. For instance, if your refrigerator breaks down and your groceries spoil, you may be entitled to compensation for the cost of the groceries.

Diminished value – if a product or service is not of an acceptable quality, you may experience a loss of value or enjoyment. In such cases, you can seek compensation for the diminished value.

Personal injury – if a product or service causes personal injury due to a defect or negligence, you have the right to claim compensation for medical expenses and other damages.

Aggravation and inconvenience – consumers are entitled to compensation for any aggravation and inconvenience caused by the failure of a product or service to meet consumer guarantees.

Consumer guarantees and online shopping

It should be noted the ACL is not limited to purchases from physical stores; it also applies to online transactions. When shopping online, consumers have the same rights as they do when buying from a brick-and-mortar store.

Exercising your rights under the ACL

If you have a problem with a product or service, reach out to the supplier as soon as possible. Explain the issue and your desired resolution, whether it’s a refund, replacement, compensation, or another remedy. Document all interactions with the supplier, including dates, times, and correspondence. This will be useful if you need to escalate the matter.

If the supplier does not provide a satisfactory solution, you can escalate the matter by contacting relevant consumer protection authorities, such as the Australian Competition and Consumer Commission (ACCC).

Unsure what to do? Contact our team at PD Law

Understanding your rights under the Australian Consumer Law is vital when something goes wrong with products and services you’ve purchased. It provides the framework for seeking refunds, replacements, compensation, and other remedies when products or services fail to meet the required standards. If you’re unsure what you need to do to, or how to go about having the problem fixed, contact our friendly team of legal professionals at PD Law. Our experts can provide clear and relevant advice on how to enforce your rights when you didn’t get what you paid for.

Dealing with debt can be incredibly challenging and stressful. However, by implementing effective strategies, you can navigate the process of debt recovery with confidence. In this article, we will explore various strategies that can help you successfully recover your debts and regain control of your financial situation.

Understanding the Basics of Debt Recovery

First and foremost, it is essential to understand the importance of debt recovery. Debt recovery refers to the process of recouping unpaid debts from individuals or businesses. It plays a crucial role in maintaining financial stability and ensuring the smooth functioning of the economy. By recovering debts, lenders can mitigate their losses and continue providing their services to customers.

Debt recovery is not a simple task; it requires a comprehensive understanding of the legal and financial aspects involved. It involves a series of steps, including communication with debtors, negotiation, and, if necessary, legal action. It is a delicate process that requires tact, patience, and expertise.

The Importance of Debt Recovery

Debt recovery is vital for several reasons. Firstly, it helps to secure the financial health of businesses and individuals by reclaiming money owed to them. Unpaid debts can have a significant impact on cash flow, hindering the ability to meet financial obligations and invest in growth opportunities. By recovering these debts, businesses can maintain their financial stability and continue their operations smoothly.

Secondly, recovering debts discourages individuals from defaulting on their payments, promoting responsible financial behaviour. When debtors realize that there are consequences for not fulfilling their financial obligations, they are more likely to prioritize their payments and avoid defaulting. This, in turn, contributes to a healthier credit culture and reduces the overall risk of default in the economy.

Lastly, successful debt recovery contributes to a healthy and sustainable economy. When debts are recovered, lenders can reinvest the funds into new projects, expand their businesses, or provide better services to their customers. This infusion of capital stimulates economic growth, job creation, and overall prosperity.

Key Terms in Debt Recovery

Before delving deeper into the strategies, it’s important to familiarize ourselves with some key terms commonly used in debt recovery. These terms include:

• Debtor: the individual or entity who owes a debt
• Creditor: the party owed the debt
• Default: the failure to pay a debt as agreed
• Collection Agency: a third-party agency hired to assist with debt recovery

Understanding these key terms is essential for effective communication and comprehension of the debt recovery process. Debtors, creditors, and collection agencies all play integral roles in the recovery process, and having a clear understanding of their roles and responsibilities is crucial.

Debt recovery is a complex and multifaceted process that requires careful planning, effective communication, and a thorough understanding of legal and financial frameworks. In the following sections, we will explore various strategies and techniques employed in debt recovery, providing you with a comprehensive guide to navigating this challenging terrain.

Preparing for Debt Recovery

Before embarking on the journey of debt recovery, it is crucial to assess your debt situation and set realistic goals.

Assessing Your Debt Situation

Start by gathering all the necessary information about your debts, including the outstanding balances, interest rates, and payment terms. This will give you a clear picture of your financial obligations and help you strategize accordingly. Additionally, you should identify any potential roadblocks or legal issues that may arise during the debt recovery process.

Setting Realistic Debt Recovery Goals

Once you have a comprehensive understanding of your debt situation, it’s time to set realistic debt recovery goals. Break down your outstanding balances into manageable chunks and establish a timeline for repayment. By setting achievable goals, you can stay motivated and measure your progress as you work towards becoming debt-free.

Implementing Debt Recovery Strategies

Now that you have assessed your debt situation and set realistic goals, it’s time to implement strategies that will expedite the debt recovery process.

Prioritizing Debts for Recovery

It is crucial to prioritize your debts based on factors such as interest rates and payment terms. Start by tackling high-interest debts or those with approaching deadlines. This will help you avoid accruing additional interest and penalties. You can also consider consolidating your debts into a single loan with a lower interest rate to simplify the repayment process.

Negotiating with Debtors

When it comes to debt recovery, communication is key. Reach out to your debtors and initiate discussions about repayment options. Be empathetic, yet firm, in your approach. Explore possible alternatives such as extended payment plans or settlements that may be mutually beneficial. Collaborating with your debtors can help create a win-win solution and improve your chances of successful debt recovery.

Legal Aspects of Debt Recovery

Understanding your legal rights and following the necessary legal procedures are essential components of debt recovery.

Understanding Your Legal Rights

Familiarize yourself with the applicable laws and regulations governing debt recovery in your jurisdiction. Knowing your rights as a creditor and understanding the rights of debtors will equip you with the knowledge needed to navigate legal complexities confidently.

Legal Procedures in Debt Recovery

If negotiations fail, you may need to resort to legal recourse to recover your debts. In such cases, consult with an attorney who specializes in debt recovery. They can guide you through the legal procedures, including sending demand letters, filing lawsuits, and obtaining judgments. Remember to adhere to all legal obligations and maintain proper documentation throughout the process.

Maintaining Good Relationships During Debt Recovery

Although the debt recovery process may be challenging, it is essential to prioritize maintaining healthy relationships with your debtors.

Communication Strategies with Debtors

Open and transparent communication is crucial when dealing with debtors. Establish clear lines of communication and keep your debtors informed about any changes or updates regarding their debts. By maintaining a respectful and understanding approach, you can foster trust and cooperation, which are essential for successful debt recovery.

Balancing Firmness and Empathy

While it’s important to assert your rights as a creditor, it’s equally important to approach debt recovery with empathy. Understand that individuals facing financial difficulties may be experiencing stress and anxiety. By balancing firmness with empathy, you can create a more collaborative environment that promotes successful debt recovery while preserving relationships.

In conclusion, successful debt recovery involves understanding the basics, preparing for the process, implementing effective strategies, adhering to legal procedures, and maintaining healthy relationships. By employing these strategies, you can overcome the challenges of debt recovery and regain control of your financial future.

The Retail Shop Leases Act 1994 (‘the Act’) was enacted in Queensland to protect the interests of small retail business owners. The Act aims to provide transparency and fairness in commercial leasing transactions. Lessors (landlords) and lessees (tenants) must ensure they understand the Act to ensure they’re complying with their obligations. This article outlines key features of the Act, focusing on lessor’s disclosure obligations for lease entry and renewal, disclosure obligations for lease assignments, and the ramifications of failing to adhere to these obligations.

Disclosure Obligations Under The Act

The Act mandates that before a retail shop lease is entered into, renewed, or assigned, certain key information must be provided by the lessor to the lessee. This information aims to ensure that lessees are well-informed about the terms and conditions of the lease, creating a more equitable relationship between the parties and pre-empting potential later legal disputes about the lease.

Lessor’s disclosure obligations for lease entry and renewal: When entering into a new lease agreement, the lessor must provide the prospective lessee with a disclosure statement. This statement contains comprehensive information about the terms of the lease, including details about rent, outgoings, lease term, and any incentives provided. This allows the lessee to make an informed decision regarding the lease agreement.

When it comes to lease renewal, the lessor has the obligation to provide a lessee with a renewal notice and a current disclosure statement at least seven days before the option to renew expires. Failure to do so could lead to disputes and complications during the renewal process.

Disclosure obligations for entering into an assignment of a lease: In cases where a lessee wishes to assign their lease to another party, the Act requires the lessor to provide both the current lessee and the proposed assignee with a disclosure statement. This document must be provided within seven days of receiving a written request from either party. The disclosure statement provides critical information about the lease and allows the assignee to evaluate the terms and conditions before taking over the lease.

It should be noted the prospective assignee can give the assignor a notice to waive the seven-day period for the disclosure statement (but the assignor disclosure must still be given before the lessor is asked to consent), thereby satisfying section s22B(1) of the Act. Failure to comply with this section could result in the assignor and any guarantors continuing to remain liable under the lease for any default by the assignee.

Effect of failure to comply with disclosure obligations: Non-compliance with the disclosure obligations outlined in the Act can have significant consequences for both the lessor and the lessee. If a lessor fails to provide the necessary disclosure statement, the lessee may have the right to terminate the lease within the first six months of the lease term. Additionally, the lessor may face penalties for failing to meet their obligations.

In cases of lease assignment, failure to provide the required disclosure statement can also result in the assignee having the right to terminate the assignment within six months of the assignment taking effect. Therefore, it is important to ensure that disclosure obligations are adhered to within the timeframes specified under the Act to ensure the lease is enforceable for the entirety of the term.

For expert advice contact our professional team

Our team of commercial and property law experts are well versed in the complexities of the Retail Shop Leases Act 1994, helping clients navigate its requirements as a lessor or lessee. We will help you understand the importance of diligently observing the Act’s disclosure requirements before entering a lease, renewing an existing lease, or considering an assignment.

Before issuing proceedings, it is important to remove emotion from the decision and carefully consider the personal and financial implications. Issuing proceedings not only results in further legal fees, but it also becomes difficult to stop what you have begun without there being some adverse costs consequences. Litigation can affect a person’s business interests, employment, public reputation and personal wellbeing. Therefore, it is essential to consider the risk factors involved such as the costs of the litigation and having to potentially pay for the other parties legal costs should the judge’s decision not go your way.

In this article we’ll be looking at what is involved in issuing proceedings in court. From the initial steps of filing a claim, disclosure of information and collection and exchange of evidence, through to the final judgment (and possible appeal), costs and the timeframes involved, understanding the intricacies of this process is crucial for anyone seeking legal resolution.

Timeframes

The timeframe for issuing proceedings varies depending on the complexity of the case and the specific court’s caseload. An experienced defence lawyer will attempt to delay proceedings, which will result in a costly dispute over issues you may have never wanted to deal with but, because the court rules allow it, the other side has introduced them to their advantage. Not only is the process costly, it can takes months or years to reach a final trial date. Parties should be prepared for potential delays and consider their willingness to commit the time required for the legal process.

Commencement of proceedings

Issuing court proceedings commences once a statement of claim is filed in the relevant Queensland court and served on the other party. The claim sets out the details of the dispute, the parties involved, and the relief sought. The other party will then have 28 days to file a defence. From here, both parties will be required to submit disclosure documents, collect and exchange evidence and be required to attend trial. Following this, final judgement will be made and possibly appeals will be filed. Litigation is inherently risky and uncertain because the result is simply not known until judgement is given. Even if we can provide an opinion on prospects, there is ultimately never any guarantee given the nature of the adversarial process.

Trial process

Case management: Once both parties have filed their initial documents, the court may hold case management conferences to streamline the process. These conferences can address various aspects, including narrowing the issues, setting deadlines, and exploring the possibility of settlement.

Discovery: This phase involves the exchange of documents and evidence relevant to the allegations made in the case. Both parties are required to disclose documents that both support their respective claims, but also the other side’s claims, excluding documents covered by legal professional privilege which protects the confidential relationship that exists between a lawyer and their client.

Pre-trial steps: In preparation for trial, parties may engage in pre-trial procedures such as exchanging witness statements and preparing expert reports. These steps help streamline the trial process by ensuring that all relevant information is available and disclosed.

Trial: The trial is the culmination of the proceedings, where each party presents their case before the court. Witnesses may be called to testify, and evidence is presented to support the claims and defences. Evidence may also be presented by way of affidavit – a sworn statement by someone not required to appear in court unless they are required for cross-examination. The trial process can be complex and may involve cross-examination and detailed legal arguments.

Types of judgments

Following the trial, the court will issue a judgment or reserve judgment until a later date. This judgment outlines the court’s decision on the matter, including which party is successful and the relief granted. The judgment may also include orders regarding costs and any other relevant matters. It’s important to note that the judgment may be subject to appeal, which can extend the legal process further.

Judgments can also be achieved without going to trial. Should the other side fail to file a defence, and providing the statement of claim is for a clearly calculated amount, the plaintiff’s lawyer can file for judgment by default to avoid the trial process and proceed to enforcement. Summary judgement can also be applied for, whereby the plaintiff argues the defendant has no real prospect of successfully defending all or part of the claim, and there is no need for trial of the claim.

Appeals: If a party disagrees with the judgment, they may have the right to appeal the decision to a higher court. The appellate process involves reviewing the legal aspects of the case rather than re-evaluating the evidence. Appeals can introduce additional time and costs to the proceedings.

Consult experienced legal professionals:The phrase ‘costs follow the event’ – meaning the successful plaintiff can expect to have their legal costs met – is not a straightforward concept sounding in a guaranteed amount. Ultimately, the awarding of costs is subject to the Court’s discretion and the simple but unavoidable fact of whether the defendant has the money to pay the plaintiff’s costs.

In general, standard costs are awarded, usually reflecting about 50-70 per cent of the total legal fees a plaintiff might incur in taking court action. Indemnity costs – being standard costs plus the balance of legal fees – are awarded only in more serious cases of bad faith, misconduct, or wilful disregard of the court process or the law. The court’s discretion will also take into account whether any formal offers were made to settle the matter before or during the trial process.

Consult experienced legal professionals

Issuing proceedings in a court is a structured process that demands careful planning, legal expertise, and an understanding of the potential costs and timeframes involved. Navigating the legal system can be complex and emotionally demanding, making professional legal advice essential. Legal professionals can guide individuals through the process, ensuring that all procedural requirements are met and all relevant evidence is presented effectively. Contact our team of experienced litigation lawyers at PD Law today for more information on the steps discussed in this article.

Once a buyer has made the decision to commit to the purchase of a commercial property there are a number of important steps to take during the settlement and post-settlement phases.

Settlement of commercial property generally takes longer than the typical 30-day settlement period for residential properties because of there are considerably more issues involved in handover – from financing and due diligence, to reviewing existing leases on the property and other documents associated with the asset.

We’ll take a closer look at some of these formalities in this article which our commercial property legal experts at PD Law have ample experience and expertise in.

The due diligence process

Once the contract to purchase has been agreed to between seller and buyer, we’ll provide you with a purchase pack that contains all key documentation including the contract.

It’s always advisable for due diligence to be made a condition of the contract so that the buyer can conduct more extensive checks to make sure the property will be commercially viable.

Searches on council rates, zoning and business use approvals for the site, building and pest inspection reports, equipment testing reports (air-conditioning, fire prevention, etc) as well as lease inquiries and whether the property is within or comprises a body corporate, are examples of the information a buyer should be in possession of before the deal is complete. Additionally, a land tax search and obtainment of a land tax clearance certificate is necessary to determine whether this impost is owing on the property and whether it needs to be accounted for in the settlement price.

Due diligence provides an opportunity for the buyer to terminate the contract and have the deposit refunded if the information produced is not to their satisfaction.

Leases and service contracts

One of the most important issues to deal with during the settlement process is reviewing any existing lease or leases entered into by the previous owner, as well as service contracts. It is crucial that one of our experts at PD Law, for example, review such lease agreements as part of the due diligence process or as a condition of the contract to ensure they do not contain clauses which create onerous or unusual obligations for the new landlord.

The items scheduled in a typical commercial property contract in Queensland will provide for disclosure of any leases, including the name of the tenant, the lease term, whether there are any options for the tenant to extend the lease, the rent payable and the use of the property by the tenant.

It’s important for the buyer to create diary reminders of the important dates applicable to the lease, such as expiry or when options for renewal are activated.

The seller is required to give a copy of all leases, as well as a statement it has done so, to the buyer after the contract is signed. The buyer has seven days to terminate the contract if they are not satisfied with the terms and conditions of any lease. If the buyer does not terminate the contract, they are bound by the disclosed leases, after completion of the contract.

The buyer is entitled to terminate the contract at any time before settlement, even if the contract is unconditional, if information in the lease schedule – such as the amount of rent to be paid by the tenant or the period of the lease, for example – is incorrect.

Additionally, a seller cannot – without the consent of the buyer – accept a surrender of lease, grant a new lease, vary an existing lease, assign an existing lease, or negotiate or set new rent in breach of the contract.

If the tenant had paid rent in advance to the seller, the sale price of the property will be reduced by the outstanding amount. If the tenant is in arrears, the seller has the responsibility for retrieving the outstanding amount from the tenant after settlement. The seller also provides the buyer with a Notice of Attornment which the buyer gives to the tenant after settlement, confirming sale of the property and directing the tenant to pay future rent to the new owner.

If the property is subject to any service contracts (for maintenance and cleaning, for example), the terms and conditions of those contracts should also be reviewed as part of the due diligence process with the costs considered in the overall market value of the property.

Getting other documentation in order

An important aspect of the settlement period is ensuring all document relating to the property are reviewed. These documents include the building’s certificate of occupancy (formerly certificate of classification, providing information about the building’s class; how the building can be used; ongoing maintenance requirements; fire safety; other special requirements), the building’s plans and drawings, documents to manage tax (such as depreciation) and lease documents (as discussed above).

Depending on the business structure used to buy the commercial property (partnership, company, trust, etc) a buyer should also update their will to reflect the significance of the asset and provide certainty to beneficiaries about how it will be handled if something happens to the owner.

The buyer should contact their financier one month after registration to obtain a registration confirmation certificate. If a financier was used for the purchase, the buyer’s legal representative can send this once received.

Rely on expert advice

At PD Law seeing through commercial property transactions to completion is a specialty of our legal professionals. From an initial discussion about the risks involved in investing in the commercial asset through the contract, settlement, and post-settlement considerations addressed in this article, we can help streamline the process for the would-be commercial property owner. Contact us today to talk through your commercial property investment.

This article follows on from our recent post providing a checklist of essential things to do when buying a commercial property, this time dealing with the important issues of financing, risk and GST implications.

Commercial property can be a lucrative investment but it’s important to do the necessary groundwork before the purchase to reduce your risk and other potential difficulties.

The importance of finance

A major component in the process of acquiring a commercial property is organising finance well before the contract-signing stage, such as a loan covering the purchase price as well as GST, stamp duty, legal fees and any others costs associated with the transaction. It’s important for a would-be owner to understand what their loan repayments will be before undertaking more detailed due diligence on the property. A risk and return assessment should be conducted with a financial adviser or mortgage broker.

If the buyer needs a loan to acquire the property, the contract will likely be subject to finance approval, allowing the seller to terminate the deal should financing not be secured. This condition will usually be reflected in a ‘finance’ section of the contract, providing a date by which the finance condition is to be complied with – usually 14 or 21 days from the date the contact is signed by all parties.

It should be noted that commercial property is generally considered a riskier investment when compared with residential property due to its exposure to economic slumps and fluctuations. Commercial borrowers do not have the same protection as home buyers. Where a buyer of a residential property can borrow up to 90 per cent of the purchase price, most lenders require borrowers for a commercial property to have a minimum contribution of 30 per cent, meaning they will consider lending up to 70 per cent of the property’s value. Lender’s mortgage insurance is also not available for commercial property owners so a sufficient upfront deposit or equity is essential to secure the loan.

A key consideration for a lender to a would-be buyer is the commercial property’s ability to generate stable rental income from tenants. This can be demonstrated through the lease agreement with the current tenant, showing that the rent can cover the loan repayments or, alternatively, through a profit and loss forecast showing that the loan will allow your business to earn additional income sufficient to cover the repayments.

A borrower for commercial property will often need to provide a residential property as security for the loan, while most bank lenders will also insist on a General Security Agreement (GSA) over the property and any and all of the business’ assets. This requirement may be waived if it can shown income generated by the property will service the debt.

Risks associated with commercial property

The question of risk in buying commercial property is generally a reference to insurance. In many cases, taking our commercial property insurance is required before finance can be secured to purchase the asset.

The standard conditions of most commercial property contracts in Queensland state the property is at the risk of the buyer from 5pm on the next business day after a contract has been signed by both parties. A potential buyer should, therefore, arrange an insurance cover note for the property as early as possible. Likewise, a seller should maintain the existing insurance on the property until it is sold, as security against the possibility the property is not insured by either party and then becomes irreparably damaged after a contract is signed but before it becomes unconditional.

Other risks also need to be considered by a commercial property owner in the event they became unable to make mortgage payments, or in the case of a tenant defaulting by going into receivership. Life insurance, income protection or specific property insurance may be required to mitigate these realistic possibilities.

Consider how much GST adds to the purchase price

Australia’s goods and services tax needs to be considered in any property transaction, with attention paid to whether the purchase price for the asset includes GST. The GST rate for commercial transactions is currently 10 per cent. In most cases, the GST payable on the sale of property is included in the sale price and is paid by the seller.

A seller’s obligation to pay GST will generally depend on whether they are registered – or are required to be registered – for tax purposes. If registered for GST purposes, the seller is obliged to pay GST unless some special exemption applies. A buyer who is registered for GST and intends to use the property for business purposes can claim that tax component in their next business activity statement, though the requirement to pay it upfront can result in a cash flow problem in the short term.

A commercial property sale will generally be exempt from GST if the business is sold as a ‘going concern’, meaning the seller is selling an enterprise, including any assets used in that enterprise, to the buyer. Partial GST may also be paid under the Margin Scheme, an alternative way of working out the GST to be paid when a commercial property is sold as part of a business.

If a buyer purchases a commercial property where there is a lease agreement in place, they may be required to pay GST on the rental income from the tenant.

Stamp duty: A buyer should also keep in mind this state-based tax on the purchase, to be paid either on the basis of the unencumbered value of the property or on the basis of the consideration (the payment the buyer agrees to make) for the property. The dutiable value – the higher amount of the two values listed above – is the stamp duty the buyer will have to pay on the transaction.

Speak with commercial law specialists

For any of the issues raised in this article, buyers should not only contact commercial property specialists such as mortgage brokers but also experts in commercial and property law such as our team at PD Law. From the terms of the contract to what you should know before arranging financing, assessing the risks involved in making the investment and working out GST and other tax obligations, we can provide clear advice and expert guidance through to completion of the deal. Contact us today for an initial discussion.

For many people buying a small business is their most viable path to a desired life working for themselves, compared with the riskier proposition of starting a business from scratch.

In this article, we’ll outline some of the advantages and disadvantages of buying a small business, the benefits of various entities used to purchase the business, the wisdom of using a consultant during the purchase process, and the importance of the due diligence process both before and after signing the contract.

Discussing these issues with experienced legal professionals is a sensible course of action to check all the necessary steps are taken to make the right decision.

Advantages and disadvantages of owning a small business

Notable advantages to purchasing an existing small business include:

Cash flow: An established, profitable business can produce immediate financial returns and provide records that can be used to attract other investors or partners.

Clients and customers: A well-run business has an established client base which a committed new owner can build on and expand.

Plant and equipment: Depending on the proposed deal, essential equipment used to operate the business can be part of the purchase.

Goodwill: A well-established venture will have a ‘good name’ which becomes part of its value when it comes time to on-sell the business.

Among some of the common disadvantages of purchasing a small businesses are:

It may not be a ‘going concern’: If establishment of the business is incomplete and needs more funds for equipment or fit-outs, for example, this can be an immediate financial drain on the new owner.

Existing debt: Depending on the structure of the deal, a new owner may need to assume the former owner’s debts and other liabilities, and pay existing debtors on time.

Fees and charges: Besides the purchase price, fees for legal and accounting services need to be accounted for, as well as other expenses such as stamp or transfer duty.

Loyalty to former owner: It’s in the nature of small business that some proprietors will develop a loyal following which may not continue with the new owner.

Overstated goodwill: The concept of goodwill is a notoriously difficult concept to value and can be overstated by a prospective seller to inflate the sale price.

Locked-in contracts: Part of due diligence (discussed below) in purchasing a small business is to check whether the enterprise is locked in to long-terms contracts with suppliers, maintenance/cleaning or other services, which might be on unfavourable terms for the business.

Which structure should be used to buy the business

There are also advantages and disadvantages to the different business structures used to purchase and run the enterprise, be it as a sole trader or a company. Business registration, tax, intellectual property and other legal or financial obligations all differ depending on business structure, while the size and type of the business may dictate the best structure for owning the entity.

While operating as a sole trader offers the owner control and nimbleness to make necessary changes in the business, the chief drawbacks are personal liability for business debts and the possibility of losing personal assets if the business fails. Tax will also be charged at the individual’s marginal rate rather than a lower corporate rate. A partnership brings similar benefits and risks.

A company, by contrast, is a separate legal entity and losses will be carried by shareholders in the entity rather than the individual owner. Legal dealings are conducted in the company’s name, shares may be transferred to other people, and the entity is taxed at the lower company rate.

There are a variety of other structures, each of which has its own pros and cons, depending on what buyers are looking to achieve, how much control and protection they’d like, as well as how easily they can exit, to name a few.

The role of consultants

Engaging a consultant at the outset once you’ve decided to purchase a small business can save you time and stress. An experienced consultant can help a prospective owner develop a business plan, assess the financial and operational fundamentals of the business, help re-shape its focus, and create a marketing/public relations strategy and advertising campaign. Consultants may have different skill sets, or combine a number of skills in accounting, financial arrangements and legal obligations in one service.

Importance of the due diligence process

Doing the necessary research on a business that is up for sale is a crucial stage both in the lead-up to signing the contract and afterwards.

Financial records, legal documents and details of how the business operates – including its contracts and leases, existing deals with suppliers, its staffing levels, codes of conduct and human resources records, assets, inventory, licences, permits and liabilities – should all be discovered during this period in order to make an informed decision.

Due diligence helps a buyer to determine whether the business is properly valued and uncover any issues that could affect profitability now or into the future. Having a trusted, independent person examine the business’ financial records is perhaps the most important aspect of due diligence. This step should comprise close checking of the past three-to-five years of the business’ financials including tax returns, BAS, accounts receivable and payable records, balance sheets, profit and loss records, cash flow statements and sales records. This process will help answer the question of whether the business has outstanding debts on assets or to external suppliers.

Other costs

Buying a small business will attract expenses such as transfer duty on the purchase. The would-be owner needs to budget for this outlay as well as licence or lease assignment fees, bank loan fees (bank guarantee advice), legal fees, accountant fees and set-up costs.

Consult with experienced legal professionals

At PD Law we have helped many people into business ownership by making the processes described above easier to navigate. If you have a small business in your sights, we can assist with the discovery process and ensure the elements discussed in this article are methodically checked off so that a judicious decision is made and the business gets off to a flying start under new management.