1. the number of failed businesses exceeded 2500 for the third consecutive quarter during the first
   three months of 2012.
2. the number of external administration (EXAD) appointments in the first quarter of 2012 increased
   by 16.7 per cent compared with the 2011 March quarter.
3. Companies entering EXAD rose from 2598 in the December 2011 quarter to 2655 during the March quarter.
4. There has also been a significant rise in the number of businesses
   being wound up through the courts:
    
   1. a record 449 businesses were wound up through the courts in February, compared with 79 in January.
   2. Queensland showed a significant spike in external administrations during the March quarter, with an increase of 54.2 per cent from 404 (March quarter 2011) to 623 (March quarter 2012).

Zeke Bentley, Principal of Irish Bentley Lawyers and head of the Firm’s insolvency and restructuring section, observed:

“The first wave of post GFC insolvencies came in form of large, complex and highly leveraged businesses.

We are now seeing the middle market slow down. The failure of these middle-market businesses is quite significant, due to the flow on to their suppliers, contractors and employees.

Queensland is suffering more than most States, despite their strong mining industry, as Queensland businesses are still recovering from the 2011 floods, and the decline in tourism.

In my view, the next interesting area for insolvencies, with many speculating that businesses will have difficulty adjusting to the Government’s carbon pricing.”

We are likely to see how this will effect the economy later this year.”

Financiers and clients who supply goods on credit have been greatly impacted by the Federal Government’s Personal Property Securities Act which came into force on 30 January 2012.

The PPSA provides that:

1. Creditors have a 2 year transitional period in which to register a charge for any goods supplied before 30 January 2012.
2. The supplier only has security over goods supplied after 30 January 02012 if the supplier registers their security interest before delivery.
3. If the registration is not completed, then the charge is then technically invalid.
4. If a liquidator is appointed, these goods become company assets regardless of ROT clauses.
5. There is no protection for suppliers if the registration does not occur prior to the delivery of goods to the customer.

Suppliers of goods with substantial value must protect themselves by registering their security over any goods supplied, and they must do so before delivery.

The Insolvency and Trustee Service of Australia (ITSA) has broken down the number of personal bankruptcies across Australia according to postcode.

The Gold Coast and the Tweed Heads contributed more bankruptcies than any other .

More than 1900 Gold Coast residents were declared bankrupt last financial year, with 181 living in the suburb of Nerang!!

1707 personal bankruptcies were declared in 2010-11 for the 25 postcodes of the Gold Coast, with 210 bankruptcies declared in the 10 postcode areas between Byron Bay and Tweed Heads.

The most stress was felt in the northern belt of the Coast, where 181 people went under at Nerang, followed by Southport (167), Upper Coomera (149), Beenleigh (147) and Surfers Paradise (137).

The Gold Coast appears to be unfavourably represented across Queensland, attributable for about 20 per cent of the state’s 8483 personal bankruptcies.

South of the border, the retail and industrial centre of Tweed Heads recorded 91 personal bankruptcies across its two postcodes.

The ITSA figures relate purely to personal loans and securities and do not include the number of companies going into liquidation.

Bankruptcy often occurs when people exhaust their personal credit cards to pay off company debts.

In addition, credit is very tight and the ATO is ramping up enforcement activity and holding directors and business owners accountable.

The new national register is administered by the Australia Securities and Investments Commission.

The new national register will:

• Dispense with the need for business to register their name in more than one state or territory;
• Allow you to renew and register your business name online; and
• Result in reduced registration fees ($30.00 for one year renewals and $70.00 for three year renewals).

You do not have to do anything as all current business names will be automatically converted to the new national register, including the current expiry date.

Once the new national register commences, all correspondence (business name renewal notice etc) will come from the Australia Securities and Investments Commission.

The Queensland register will cease operation on 25 May 2012 at 5:00pm.

In the case of Ashton, Mr Nicholas Corcoris was a property investor who purchased properties through trusts.  Mr Corcoris prepared the trust deeds himself, without the help of professionals.

Mr Corcoris and other entities associated with him objected to assessments made by the Commissioner of State Revenue.  They alleged the Commissioner wrongly assessed transfers of property on the basis that the Commissioner did not have regard to the face that the properties were held in trust.

The Tribunal found that:

1. for each trust, there was no evidence of the payment of a settled sum to establish the trust;
2. there were a large number of errors and inconsistencies in the trust schedule, execution pages and associated minutes that were exhibited;
3. because there were no trust deeds, there was no evidence of any undertakings by the trustee to hold the transferred property for the unitholders – therefore, each trust lacked certainty of intention, which is an essential element for any enforceable trust.

4. found that the ‘trusts’ Mr Corcoris created were ‘nothing more than trust schedules, sometimes combined with trustee execution pages’.
5. The trusts did not exist.
6. The appellants were not entitled to any tax benefits that would have otherwise been available to the trustee companies in the purchase and transfer of the properties.

Failing to pay the settled sum (or failing to show that the trust deed is complete and properly executed) may:

• result in the trust being invalid;
• open the trustee to potential liability; and
• create a barrier to the tax and other benefits that trusts are created to enjoy.

Your trusts and companies need to be set up correctly by professionals.  Failing to do so can prove very expensive.

Contact us on 07 3891 3333 to discuss your structure to ensure it is valid and offers asset protection and tax effectiveness.

Zeke Bentley met with the entrepreneurial Brim family in London in 2005 and since that time has helped the family secure permanent residency in Australia, and set up their entire car manufacturing business.

During this time, we have helped Tomcar establish links with key government departments, industry experts, and key contacts.

We have advised on tax issues, ADR compliance, asset protection, how to secure research and development grants, and the protection of valuable intellectual property.

We have successfully negotiated venture capital investment agreements, licensing agreements with international automotive companies based in Israel, India and the USA, and the overall liability issues associated with manufacturing in Australia generally, and with specific reference to the Trade Practices Act and its replacement, the Competition and Consumer Act.

We have successfully drafted manufacturing agreements and sponsorship contracts for the group and set up distribution agreements for the sale of the unique vehicles throughout Australia, Asia and the Pacific.

At Irish Bentley Lawyers, we pride ourselves on providing a holistic professional service aimed at helping you with your entire business affairs.

We are experienced in a broad spectrum of business law. If a legal matter falls outside our experience, then we will know who can assist, and we will advise you as part of our service.

We are very proud of the Tomcar business and the Brim family and wish the business all the success that this incredible product deserves.

For more information on Tomcar, please visit their website: www.tomcar.com.au

In essence, The Phoenixing Bill, and the Similar Names Bill seek:

1. to attach personal liability to Directors who held officeholder positions in both the old entity and the new “phoenix” entity. That personal liability relates to the new entity’s debts, for a 5 year period into the future.
2. to empower ASIC to wind up the old entity so that employees can seek their unpaid entitlements through the Government’s General Employee Entitlements and Redundancy Scheme (GEERS).
3. To reduce the cost of publishing corporate insolvency notices, by allowing this to occur on a single publicly available website, rather than in the print media or the ASIC gazette.

If the Bills are passed, then Directors of phoenix activities should seek exemptions from the Court (or the liquidator of the old company) to avoid personal liability. Seeking this exemption will involve paying the liquidator’s fees associated with considering the application.

Background

29% of companies that “became insolvent” in 2009-2010 had one or more directors who had previously been involved with a failed, wound-up entity.

This compares with 10% during the 2004-05 financial year.

The ATO has been reported as stating that there are about 6000 phoenix companies in Australia and from 7500 to 9000 directors who will have personal liabilities under this legislation.

The Gillard government released two draft bills directed at cracking down on phoenix companies – the Corporations Amendment (Phoenixing and other measures) Bill 2012 (the Phoenixing Bill), and the Corporations Amendment (Similar Names) Bill 2012 (the Similar Names Bill).

What is a phoenix company?

The term “phoenix company” is used to describe the scenario where a director of a failing company, sells the assets to a new entity, leaving the unpaid debts in the shell of the old company. In other words, one day a company ceases trading and is left behind with just a pile of debts, and the next day the phoenix company, like the bird from Greek mythology, rises from the ashes, opens its doors and trades on with the same assets and customers.

The Phoenixing Bill

This Bill proposes to empower ASIC to address phoenixing activity, such as empowering ASIC to order the winding up of abandoned companies when, amongst other grounds, it appears to ASIC that a company is no longer carrying on its business.

Workers employed by a failed company can only recover unpaid entitlements through the Government’s General Employee Entitlements and Redundancy Scheme (GEERS), if the company is placed into liquidation. This is of no assistance if the directors have simply walked away from the company without winding it up, so empowering ASIC to wind up non-trading entities helps employees claim unpaid entitlements.

The bill also proposes a number of cost-saving measures such as permitting the publication of corporate insolvency notices on a single publicly available website, rather than in the print media or the ASIC gazette.

Similar Names Bill

The Similar Names Bill proposes to make directors personally liable for the debts of a company that has a similar name to a pre-liquidation name of a failed company (or its business) , where that person was also director for at least 12 months prior to winding up.

Unless an exemption is sought, such directors could be personally liable for debts incurred by the new (phoenix) company within five years of the commencement of the winding up of the failed company.

Innocent directors can seek an exemption from liability from the liquidator, or a similar Court-ordered exemption, if they establish they have acted honestly and ought to be excused from liability.

The liquidator, or the Court, must consider the following issues when considering whether to grant an exemption:

1. whether there were reasonable grounds to suspect insolvency at the time debts were incurred by the failed company.
2. how brazen the “phoenix activity” is when considering:
   1. the extent to which the new company has assumed the assets, employees, premises and contact details of the failed company, and
   2. whether any act or omission by the directors was likely to create the misleading impression that the new company was the same company as the failed company.
3. Whether the similarly-named company was carrying on business in the 12 months before the commencement of the winding up of the failed company.

Making the directors of the “phoenix” company  personally liable for  the debts of the new company for the next 5 years, will have a number of effects, such as:

1. Making common directorships between the old and the new entity less common.
2. Where there are common directorships, the directors will be well advised to seek the exemptions, and/or to ensure that the new company has healthy and adequate  working capital.
3. Increasing the role of liquidators to consider whether there has been phoenix activity, and if so, whether the exemption should be granted.

Clause 596AL(7) provides that the liquidator is entitled to their “reasonable remuneration” in making an exemption determination. That reasonable remuneration needs to be paid by the director, so there is a cost involved in seeking the exemption.

Some phoenix companies (with same assets, same employees, same premises, same contact details, same customers) use different names from that of the company whose business they assumed, because the old name is tainted and the new entity has not wish to be affected by it. These phoenix companies will not be caught by the proposed new laws.

The Similar Names Bill only addresses situations where the new company uses a similar company name to the old company or business. If the new company uses a similar business name, this would not appear to be caught by the Bill as presently drawn.

Further information:

Please refer to:

1. the exposure draft of the Similar Names Bill and its explanatory document.
2. The press release issued by Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP to the effect that Tony Abbott and the Coalition have announced that they will “say no” to the Phoenixing Bill.

$213 represented 0.02% of the amount sought on the $739,000 bankruptcy notice.

Bankruptcy notices need to be carefully drafted by experienced insolvency lawyers as they are prone to being set aside.

The rules are strict because of the drastic consequences that flow from failing to satisfy same.

In 1990, Sydney developer Andrew Clubb was able to set aside a notice purely because Westpac incorrectly calculated the interest payable by $213.

The Bank assumed there were 365 days in every year when they calculated the interest payable on $427,938.29.

One of the years however was a leap year, however, so they were out by 1 day in their interest calculations.

The total interest sought was $311,000, however the failure to allow for 1988 being a leap year resulted in an error of $213, so the entire bankruptcy notice (seeking more than $738,000), was set aside.

Ouch.

Indeed, his Honour Justice James Burchett said in his 1990 judgment:

“When Julius Caesar decreed that from the year now known as 45BC onwards there should be adopted the Julian calendar, with its provision for recurring bissextile or leap years, he not only set the scene for a well-known Gilbertian jest; he also set the scene for the problem posed by the present case,” “For the basic question is whether, in calculating a proportionate amount of interest due at a yearly rate, the year in question being a leap year, is it permissible to convert the yearly sum to a daily rate by dividing by 365, or whether it is essential to include the intercalary day, thus making the divisor 366.”

A similar decision in 1991 resulted in a bankruptcy application being judged invalid, as the debt exceeding $100,000 was overstated by $33.19, or 0.03%. That bankruptcy application was against The New York Deli, Double restaurateur Henry Saade.

This is why it is important to engage an experienced insolvency lawyer when serving bankruptcy notices, or when trying to have them set aside.

The number of companies entering into external administration for the past five years follows:

An analysis on a state-by-state basis for calendar year 2011 reveals significant problems for Tasmania (up 82% on the average of the previous five years) and Western Australia (up 70%). There is a more moderate increase in insolvencies for Victoria (up 21%), South Australia (up 36%) and Queensland (up 38%). New South Wales is only up 9%.

Interestingly, there has not been a significant increase in Queensland insolvency numbers since the floods in January 2011. For the 11 months to November in 2011 there have been 1,895 Queensland insolvencies compared to 1,826 for the same period in 2010, being an increase of only 4%.

Despite the full year result, total company collapses for December 2011 fell markedly; down 22.4% from 983 in November to 763 attributable to the fact that December is a shorter trading month. Notably, all states and territories recorded a fall in company collapses in December with South Australia and Western Australia falling by 66.7% and 51.1% respectively.
Treasurer Wayne Swan said in the 2011-2012 Mid-Year and Fiscal Outlook: “Global developments have impacted on our share market, on trade outside of the mining sector and on confidence, with consumers becoming more cautious and businesses more reluctant to expand their workforce in the current uncertain global environment”.

Businesses have experienced significant pressure as a result of higher interest rates, increased enforcement actions by the Australian Tax Office, low consumer confidence, higher rates of saving and the historically high Australian dollar.

If your business is experiencing tough times as a result of the global economic market, call Irish Bentley Lawyers to discuss your options. It is important that you seek legal advice on the options available for your company, and also to minimise the chance that your Directors will be personal liable for tax and other debts.

There is a common misconception that “going bankrupt” is an easy way to escape your debts.
Nothing could be further from truth.

A recent Federal Court decision (Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54) highlighted the consequences to a bankrupt of not cooperating.
This is the focus of this article, and this case concerns an application by Mr Mulhern (a bankrupt) to travel to Ireland to attend his father’s funeral, notwithstanding a long history of failing to co-operate with his trustee despite being required to by the Bankruptcy Act.

Before going into the details of this case, it is worth outlining why bankruptcy should be avoided (if possible), and why you should seek legal advice on your options before making any decisions.
Irish Bentley Lawyers offer a $300 fixed fee consultation to discuss all issues associated with bankruptcy.

Firstly, bankrupts have a raft of long term issues to deal.
Obviously anyone who is an ex-bankrupt have bad credit ratings and will therefore have difficulty(throughout their life) securing loans, mobile phone contracts etc.
They will pay significantly higher interest on any loans that they can get.
Ex-bankrupts also experience difficulty:

1. Securing loans and overdrafts.
2. Getting leases.
3. Finding business partners.
4. Zpplying for visas.
5. Applying for real estate licenses and membership to professional bodies.

Secondly, during the bankruptcy, Bankrupts have a number of duties which they must comply with to help the trustee – for example, bankrupts must:

1. Detail all of their assets and interests.
2. Disclose any financial matters that arise during their bankruptcy.
3. Transfer any inheritances received during the bankruptcy, to the trustee.
4. Assist with any examination of their affairs.
5. Seek permission before they travel.
6. Be removed as directors of any companies.

Obviously the above issues are not exhaustive.

The recent Federal Court decision (Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54) highlighted the consequences to a bankrupt of not cooperating.
The case concerns an application by Mr Mulhern (a bankrupt) to travel to Ireland to attend his father’s funeral, notwithstanding a long history of failing to coopoerate with his trustee.

Bankrupts are required to seek the permission to travel in any event.
Prior to seeking permission, there was a long history of Mr Mulhern not cooperating with his trustee.
Indeed, the trustee had successfully applied for separate arrest warrants to be issued to compel Mr Mulhern to cooperate:

1. On 9 August 2011, Justice Logan issued a warrant for Mr Mulhern’s arrest under s 78 of the Bankruptcy Act: see Pearce (Trustee) v Mulhern (Bankrupt)
2. The bankruptcy would be seriously hampered by reason of the travel which is now proposed.
3. Mr Mulhern completed a statement of affairs on 12 March 2010, and, with his cooperation, this proceeding could have been far more advanced than it is today.
4. The Trustees gave genuine and anxious consideration to Mr Mulhern’s request and decided, in all of the circumstances, that it should not be acceded to. I share the Trustees’ view and am not persuaded that it would be just and equitable, for Mr Mulhern to travel.

For a full account of the decision, the link is: Pearce (Trustee) v Mulhern (Bankrupt) (No 4) [2012] FCA 54

If you are having personal cash flow issues, then book a fixed fee consultation with Irish Bentley Lawyers to discuss your options including part X and part IX arrangements, and bankruptcy.

It is important that you seek advice on all of your options, and he pros and cons of each option before making any decisions.