After many years of discussion and many attempts from the Federal Government to deter, investigate, penalise and prosecute illegal phoenix activity and other directorship-related misconduct, Director Identification Numbers are now finally required from 1 November 2021 onwards. Directors will now need to verify their own identities so that the tracking of relationships between directors and corporate entities is significantly more streamlined, allowing illegal activities to be scrutinised to a much higher degree.

These Director Identification Numbers (DIN) fall under the purview of the Australian Business Registry Services (ABRS), an initiative of the Federal Government's MBR program, which seeks to modernise businesses and their interaction with government bodies.

All existing directors, registered on or before 31 October 2021, must comply with the new requirements and have a DIN by no later than 30 November 2022. This applies to directors of companies, registered foreign bodies, corporate trustees or super funds and registered Australian bodies and Aboriginal and Torres Strait Islander corporations.

It is recommended that all existing directors apply as soon as applications open from 1 November 2021. However, if you are appointed as a director after 31 October 2021 and before 4 April 2022 you must apply for a DIN within 28 days of your new appointment. From 5 April 2022 you must hold a DIN prior to your appointment as director.

Failure to comply can result in fines of up to $1.11 million.

Steps to apply for a DIN:

• It must be done personally by the director;

• You must apply for a MyGovID;

• You must have the relevant documentation on hand, being: Tax File Number, residential address, verification of ID documents such as; bank account documentation, Superannuation details and PAYG summaries, Centrelink payment summaries, dividend summaries and ATO notice of assessments; and

• This application must be completed on the ABRS website after gathering all this information and material.

Should you have any queries regarding the rollout of this scheme, how to ensure your compliance with your legal requirements, or commercial and business law generally, Gavin Parsons and Associates can assist you. Please contact us today on (02) 9262 4471.

In July 2021, the Treasury Laws Amendment (Acquisition as Consumer-Financial Thresholds) Regulations 2020 (Cth) (the Regulations) amended the Competition and Consumer Regulations 2010 (Cth), marking a significant change in Australia's consumer protection regime by expanding the definition of a 'consumer'.

Who is a Consumer?

Prior to the Regulations, the Australian Consumer Law (the ACL) defined a consumer as someone who purchased goods or services:

• for $40,000 or less, or

• for the intended use of personal, domestic or household use or consumption, or

• consisting of a vehicle or trailer acquired principally for the transport of goods on public roads.

Pursuant to the Regulations, starting 1 July 2021, the consumer threshold increased to now include any person who purchases goods or services valued up to $100,000. This widens the definition of who is a consumer to a large range of transactions.

These three requirements are exclusive, and the Regulations only altered the first requirement. Further, the Regulations do not seek to alter the exclusion of a person or business who is acquiring goods for the purpose of resupply, to use up or transform in the process of production or manufacture, or in the course of repairing other goods or fixtures of land.

ASIC Regulations

The Regulations amended the Australian Securities and Investment Commission Regulations 2001 (Cth) (the ASIC Regulations) in a similar way. Pursuant to the ASIC Regulations the prescribed amount for acquiring financial services as a consumer was also increased to $100,000. This means that a wide range of financial services will now be subject to the key protections of the ACL.

Implications of the Regulations

As the meaning of 'consumer' is relevant to the operation of many important sections of the ACL, the implications of the Regulations are significant.

Importantly, the Regulations impose the Consumer Guarantees on a wider range of transactions. Consumer Guarantees guarantee that:

• Goods are of acceptable quality;

• Goods match their description on packaging, labels, promotions or marketing, and they match their demonstration material;

• Goods are fit for their purpose;

• Goods come with full ownership;

• Goods do not carry hidden debts or charges;

• Services are provided with acceptable care and skill;

• Services are fit for the purpose;

• Services are delivered within a reasonable time.

These guarantees are incredibly important in protecting the rights of the consumer in day to day transactions. The expansion of the number of transactions that these Consumer Guarantees apply to is therefore a very important amendment with large implications, particularly for Small Businesses and Suppliers.

Further, the implications of the ASIC Regulations are that a number of financial services, such as business loans and linked credit contracts, are now also regulated by the ACL.

Small Businesses

The Regulations now give protection to many business-to-business transactions that it did not previously.

Small Businesses commonly operate in dealings in the $50,000-$100,000 range. As such, Small Businesses are benefitted by the new laws as they are now eligible to seek the remedies available under the ACL for any breaches of their rights as a consumer.

Suppliers

Suppliers of goods and services priced between $40,000 and $100,000 ought to be aware of the new obligations that the Regulations impose onto their transactions.

Suppliers need to be aware that the Consumer Guarantees now apply to their business dealings and they must ensure that their goods and services comply with the Consumer Guarantees.

Suppliers ought to ensure that specifics, for example the descriptions of goods and services in promotions or samples, must be assessed and amended to comply with the ACL. Further, any mandatory requirements must be met, for example ensuring that packaging for goods express warranties against defects.

Finally, Suppliers will benefit from ensuring that their employees understand the new rights and remedies that are available to their consumers. Compliance training programs could be beneficial for these purposes.

Suppliers that do not comply with the guarantees or warranties under the ACL will be exposed to significant liability under the extensive range of remedies available to consumers under the ACL.

Next Steps

Small Businesses that now fall within the definition of 'consumer' should familiarise themselves with their new rights and obligations. They will benefit from understanding whether their transactions with Suppliers are in compliance with the ACL, and from knowing the remedies now available to them.

We recommend that Suppliers that now fall within the $40,000-$100,000 transaction range immediately assess their transaction and business practices to ensure that they are complying with the Consumer Guarantees and warranties under the ACL.

Suppliers that are unsure whether their practices comply with the new obligations and requirements should contact Gavin Parsons of Gavin Parsons and Associates on (02) 9262 4471 or at gavin@gpalaw.com.au.

Section 588M(1A) of the Corporations Act 2001 (Cth) (the Act) was recently expanded to provide for a creditor to recover, from a director of a company, loss and damage suffered by the creditor where a director has contravened ss 588GAB(1) or (2) or 588GAC(1) or (2) of the Act.

Subsection 588GAB(1) of the Act is contravened where a director engages in conduct that results in the company making a creditor defeating disposition of company property and any of (a-d) below is satisfied:

1. the company is insolvent;

2. the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition;

3. less than 12 months after the disposition, the start of an external administration of the company occurs as a direct or indirect result of the disposition; or

4. less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition.

Otherwise, in circumstances where there may have been multiple directors appointed to the company: subsection 588GAC(1) of the Act is contravened where a director has engaged in conduct that procured, incited, induced or encouraged the disposition of property, that conduct results in the making of the disposition, the disposition is a creditor defeating disposition, and any of (a-d) above is satisfied.

What is a creditor defeating disposition?

A disposition of property of a company is a creditor defeating disposition, if (s 588FDB of the Act):

1. The consideration payable to the company for the disposition was less than the lesser of the following at the time the relevant agreement (as defined in section 9) for the disposition was made or, if there was no such agreement, at the time of the disposition:

   1. the market value of the property;

   2. the best price that was reasonably obtainable for the property, having regard to the circumstances existing at that time; and

2. The disposition has the effect of:

   1. preventing the property from becoming available for the benefit of the company’s creditors in the winding up of the company; or

   2. hindering, or significantly delaying, the process of the making the property available for the benefit of the company’s creditors in the winding up of the company.

Loss and damage, insolvency and winding up

The balance of s 588M(1A)(b-c) requires that one of more creditors have suffered loss or damage because of the disposition and the company’s insolvency; and the company is being wound up.

In those circumstances, the creditor may recover from the director an amount equal to the amount of the loss and damage: s 588M(3) of the Act.

Time limits and procedure

The creditor has six (6) years after the beginning of the winding up to commence such proceedings: s 588M(4) of the Act.

There are a few steps that a creditor must take before the creditor is able to commence proceedings pursuant to s 588M of the Act. These include:

1. The creditor first needs to seek the consent of the company’s liquidator to bring their proceedings: s 588R of the Act.

2. The creditor must wait six (6) months before seeking any such written consent (presumably to allow an opportunity for the liquidator to first take up the litigation themselves). The notice should ask the liquidator to give the creditor, within three (3) months of receiving the notice: (i) a written consent to the creditor; or (ii) a written statement of the reasons why the liquidator thinks that the relevant proceedings should not be commenced; s 588S of the Act.

3. If the liquidator does not provide the aforementioned consent, the creditor can, after waiting for the expiry of the three (3) month period, apply to the Court for leave (permission) to have the right to commence the proceedings: s 588T(2)(b) of the Act.

4. If, during the applicable three (3) months, the liquidator provides the creditor with a written statement as to why the liquidator thinks that the proceedings should not be begun, the creditor must file the statement with the Court when applying for leave and the Court must have regard to it when considering the application: s 588T(3) of the Act.

However, the creditor will be barred from commencing their own proceedings if: the liquidator has applied under s 588FF of the Act in relation to the debt or disposition, or in relation to a transaction under which the debt was incurred; the liquidator has begun proceedings under s 588M of the Act in relation to the incurring of the debt or the making of the disposition; the liquidator has intervened in an application for a civil penalty order against a person relating to a contravention of ss 588GAB(2) or 588GAC(2) of the Act relating to the disposition; or the liquidator has requested ASIC to make an order under s 588FGAA(3) of the Act relating to the disposition; or ASIC has made an order under s 588FGAA(3) relating to the disposition: s 588U of the Act.

When is this law useful to a creditor?

This right can be exercised in circumstances where the company’s liquidator is not taking active steps to recover compensation for the creditors in relation to creditor defeating dispositions. This inactivity can occur due to a range of reasons (for example, the liquidator may have little appetite for risk, or consider the risk v reward calculations undesirable, or lack sufficient time, funding etc).

Creditors who are interested in pursuing these types of claims can do so with their own lawyers (without the need to provide funding or indemnities to a liquidator or the additional burden on liquidator fees. Also, any recovery of money is to the benefit of the one creditor who takes the action, rather than for the liquidator on behalf of all creditors equally).

This article is not exhaustive in this complex area of law, various exceptions and qualifications apply. Gavin Parsons and Associates can assist you with your enquiries and explain how the new laws apply to you. Contact us on (02) 9262 4471 for a free no obligation consultation.

When faced with a claim by a creditor that you owe them an unpaid debt your options, generally are:

• Pay the debt in full;

• Negotiate a reduction and/or payment plan;

  • As part of this, you may propose items including security (mortgages, charges, liens etc) and/or third party guarantees;

• If the debt or a portion of it is genuinely disputed, communicate the reasons why and/or invoke alternative dispute resolution procedures or approach regulatory bodies that may be available;

• Go to Court (i.e. to seek a declaration ? e.g. that the debt doesn’t exist);

• Invoke procedures that may be available to you under the Corporations Act or Bankruptcy Act;

• Do nothing (however, this may result in adverse outcomes should the creditor take the matter further, involving amongst other things, adverse listings on your credit file, judgment debts, winding up or bankruptcy proceedings etc).

Other Tips

Be Careful with Open Correspondence (i.e. not marked ?Without Prejudice?)

It is wise (unless it is your intention to do so) to not admit in open correspondence that you cannot pay your debts as and when they fall due, or that you are suspending payment of debts owed to creditors generally. If you do, creditor/s may be able to simply bypass the statutory demand or Bankruptcy Notice procedure (i.e. presumption of insolvency following any non-compliance or other action thereto) and apply for a winding up (of a company) or a sequestration order (of an individual) in reliance on your correspondence alone.

If you are at all unsure about how and when you can properly use the ?Without Prejudice? legal concept and associated principles, please obtain legal advice.

Don’t let creditors squeeze you and always obtain legal advice if you are entering into a binding agreement

Whilst it may sound obvious, do not agree to any compromise that leaves you worse off than you were to begin with.

?Buying time to pay? can be very expensive.

If you are making any concession (e.g. that the debt is owing (in part or whole), that you need more time to pay, that you are unable to pay your debts as and when they fall due ? i.e. you are insolvent)) you should be aware that these concessions may be used against you later and you should very clear about what you are getting in return for that concession. If you are contemplating signing a Deed of Settlement and Release or any other similar document you should always read the document very carefully and seek legal advice about the effect of that document before signing it.

Further, the content of your texts and emails can in certain cases be held to constitute a legally enforceable agreement, so be careful in your communications.

If you dispute a debt, be very careful about agreeing to any kind of compromise that limits your ability to challenge the debt at a later date.

Often creditors will write to a debtor and propose a payment plan. If the debtor responds and agrees to the terms/ proposes a different payment plan which is accepted by the creditor, they can later be found to have ?admitted’ the debt and be precluded from disputing it.

Further, borrowing from new/mezzanine/caveat lending/short term finance providers to pay out existing creditors can often be financially detrimental to the debtor. You should obtain financial advice from a qualified person before resorting to this option.

Be wary of scams/ non-financial counsellors

In a similar vein, unfortunately there are unscrupulous operators who target people who are experiencing problems with debt. Be cautious with any kind of unlicensed fee charging debt management provider.

These consultants often charge high fees for little or no benefit to the debtor. They are often unlicensed (no AFSL or ACL) despite often appearing to provide services that require a licence from ASIC.

Don’t engage in illegal phoenix activity

It is unfortunately common for debtors to resort to illegal phoenix activity as a ?way out?.

There are many ways for this to occur. Often businesses and/or their directors experiencing financial distress will either receive unsolicited contact or be lured by the apparent attractiveness of quick/easy fixes on the Internet from advisors of different sorts offering their services. It is crucial to look into the background and professional associations of any person proposing this kind of activity.

If you engage anyone to advise you regarding issues arising from a failing business, they should be an insolvency practitioner, accountant or lawyer, and they should have the relevant professional qualifications and memberships.

If at any time you are transferring assets away, you should ensure that you receive full market value or the best value for the assets. Transferring the assets for no value or at an undervalue, is a hallmark of so-called ?phoenix? activity whereby individuals seek to avoid the consequences of insolvency by spiriting away items of value. ?Phoenix? activity that defeats legitimate debts is illegal and can result in the transaction(s) being set aside and civil and/or criminal liability for those involved. If you have any concerns regarding potential ?phoenix? activity, you should immediately seek legal advice.

The COVID-19 crisis

Notwithstanding the above, there are very unique options currently available to debtors ? during the COVID-19 crisis.

These are often specific to the nature of the debt or creditor involved.

For instance:

• Consumer credit: i.e. mortgages/ motor vehicle finance etc (Hardship provisions):

  • Many people believe that the existing reprieve being offered by the banks solely concerns residential mortgages. This is not true;

  • Relief is available under any form of credit contract governed by the NCCP Act. Should a debtor qualify under those circumstances, they would be able to apply for: an extension of the period of the contract and reduction of payments accordingly, the postponement of payments during a specified period, or extending the period of the contract and postponing the date of due payments.

    • The existing COVID-19 deferrals or ?repayment holidays? are in addition to the hardship provisions. They are not uniform or regulated/compulsory, but the Australian Bank Association has announced that member banks would be further extending eligible customer’s deferrals to the end of March 2021.

• Tenants:

  • Issues with rent and renters arose early in the COVID-19 pandemic, and have continued throughout the economic downturn. A Mandatory Code of Conduct was introduced earlier this year for retail, office, and industrial leases between owners, operators, landlords and tenants. This measure was made law in NSW with the Retail and Other Commercial Leases (COVID-19) Regulation 2020 (NSW) enacting legislative requirements under the Retail Leases Act, as well as the Residential Tenancies Act;

In the commercial/retail lease arena:

• For tenants who are either eligible for JobKeeper, or are a small to medium sized business with an annual turnover of up to $50 million, the code includes:

  • a restriction on the termination of leases for non-payment of rent during the pandemic and a reasonable recovery period;

  • that landlords must offer reductions in rent (such as waivers or deferrals) based on the tenant’s reduction in trade during COVID-19.

In respect to residential tenancies:

• Pursuant to the Residential Tenancies Amendment (COVID-19) Regulation 2020 (NSW), for six (6) months commencing 15 April 2020, COVID-19 impacted tenants cannot be evicted unless the landlord has taken part in good faith negotiations in regards to rent reductions. A tenant is considered to be COVID-19 impacted for the purpose of the regulation if one or more members of the household has lost employment, had to stop working or reduce working hours due to the impact of COVID-19 and household income has been reduced by 25% or more as a result. Tenants are also entitled to increased notice periods and have protections against financial penalties for terminating their lease early if they are COVID-19 impacted. If you are a tenant experiencing hardship because of the COVID-19 crisis, you should contact the Tenants’ Union of NSW.

• ATO debt:

  • The ATO is currently considering low interest payment plans and remitting interest and penalties applied to businesses who are affected by the COVID-19 crisis. You will need to discuss your particular circumstances with the ATO.

  • There are also increases to the thresholds for instant asset write off, accelerated depreciation and tax credits which may be available for certain businesses.

• Directors of companies:

  • Directors of companies have been provided with temporary reprieve from insolvent trading laws. This protection was introduced on 23 March 2020 and significantly expands protection for directors against the risk of insolvent trading claims when debts are incurred ?in the ordinary course of the company’s business.? According to the explanatory memorandum of the Coronavirus Economic Response Package Omnibus Act 2020, the ?ordinary course? includes adaptation to the unique circumstances posed by COVID-19 during the operation of this reprieve, including taking out a loan to move a business online, or to continue to pay employees. Initially scheduled to last for six (6) months until 23 September 2020, this measure can be, and is likely to be extended by regulation, should the government form the view it is necessary in order to protect the Australian economy from the shock caused by mass-liquidations.

• ATO stimulus:

  • Small and medium sized businesses as well as not-for-profit organisations were eligible for stimulus from the ATO during the March to June 2020 period, equal to 100% of the amount withheld on tax on salary and wages, up to a maximum of $50,000. For those not required to withhold tax, receiving a minimum payment of $10,000. This payment was continued between June and October 2020, for an amount equal to that received by eligible employers to 30 June 2020. This resulted in eligible businesses receiving in total between $20,000 and $100,000 under both payments. Payments are calculated and paid automatically by the ATO.

Finally

With various options available to you and other forms of relief under the law (i.e. increased thresholds to statutory demands/bankruptcy notices and time periods to comply) you may be able to successfully survive through these unprecedented times.

Further, those seeking to pursue you for debts should be wary that many of the avenues for relief are currently non-functional and will likely remain non-functional with extensions to COVID-19 protection measures. In the alternative, negotiation in order to make progress on settling debts to the extent that you are able should be pursued.

The reprieve will only be temporary. At a certain point in time, the stimulus and other protective measures will be wound back and it is expected that insolvencies will rise.

Accordingly, now is the time to negotiate and/or explore your options. If you need assistance understanding how to apply for, or make best use of the various COVID-19 protections and measures to assist your business, please contact Gavin Parsons & Associates on (02) 9262 4471 to book a free consultation and discuss how we can assist you.