Buy/Sell Agreements

It is commonly recognised that small proprietary limited companies and unit trusts are the most popular vehicles for parties to come together to establish and operate a business or to participate in an investment.  The most well managed of those vehicles are regulated by shareholder agreements (for companies) and unit holder’s agreements (for unit trusts).

In recent years a trend has developed where many of those agreements now contain provisions which require death and total permanent disability insurance for each shareholder/unitholder (participant).  The intention being that in the event of death or total permanent disability of a participant, the proceeds of those policies are to be used by the surviving participants to purchase the shares/units of the deceased participant.

The main effect of these provisions is twofold:

1.   to provide funds for the surviving participants to acquire interest of the deceased participant; and

2.   to provide funds to the family of the deceased participant in a situation where there may not be a ready market for the estate of the deceased participant to sell the shares/units. 

There are various ways to structure the required insurance cover and each has different taxation implications. There are also various ways to structure buy/sell clauses.  In this regard, one of several important matters to be taken into account is the need to ensure that the terms of the buy/sell clauses adequately provide for an annual review of the level of insurance cover against the value of the shares/units held by respective participants to ensure the proceeds of the policies is sufficient to acquire the interests .

We can assist with the preparation of shareholder and unitholder agreements containing buy/sell provisions.

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Proposed Protection to “Small Businesses” from Unfair Contract Terms

The Federal Government’s Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 was tabled in Parliament in 24 June 2015.  If passed in its current form the Bill will afford “small businesses” protection against unfair contract terms in “small business contracts” in a manner similar to the protections consumers currently have against unfair contract terms in consumer contracts under the Australian Consumer Law (see clause 23 of schedule 2 of the Competition and Consumer Act 2010 (Cth)).  Amongst other things, the Bill proposes to amend the ACL to extend the prohibition on unfair contract terms (which currently only apply in relation to consumer contracts) to small business contracts.

 

Small businesses are defined in the Bill as businesses with less than 20 employees. Small business contracts are defined in the Bill as contracts for the supply of goods or services or the sale or grant of an interest in land, where one party is a small business and the upfront price payable under the contract does not exceed $100,000.00 or the contract has a duration of more than 12 months and the upfront price does not exceed $250,000.00.

 

The Bill effectively provides that a term of a small business contract will be void if the term is “unfair” and the contract is a “standard form contract”.

 

Section 24 of the ACL defines unfair terms as those that would cause a significant imbalance in the parties’ rights and obligations arising under the contract, those which are not necessary to protect the interest of the party who would be advantaged by the term and those terms which would cause detriment to the other party if they were relied on.

 

Section 27 of the ACL provides some guidance for determining whether a contract is a standard form contract.  These include contracts where one of the parties has most of the bargaining power and where a party is required to either accept or reject the terms of the contract without an effective opportunity to negotiate the terms of the contract.

 

The Federal Minister for Small Business the Hon Bruce Billson MP in March this year noted on his web page that the Australian Small Business Commissioner had observed instances of unfair contract terms in telephone and internet contracts, office equipment leasing contracts and retail premises leases.

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Revised Franchising Code of Conduct

It has now been 6 months since the introduction of the new Franchising Code of Conduct. 

As franchisors should now be aware, the majority of the changes to the Code affect franchisors, such as:

*   the inclusion of new rules regarding the management and use of marketing funds;

*   limitations on restraining franchisees’ business activities at the end of the franchise;

*   limitations on imposing significant capital expenditure requirements on franchisees; and

*   a new penalty regime for infringements. 

The new Code also introduced a new form of Disclosure Document and an additional requirement to provide an Information Statement to prospective franchisees.  Both franchisors and franchisees are also subject to the newly introduced obligation to act in good faith in relation to matters arising in relation to the franchise arrangement.

We can advise and assist both franchisors and franchisees with their obligations under and compliance with the new Code.

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