Security Documents, Loans & Your Business

Are you looking at taking out a loan? Make sure you understand the paperwork involved beforehand.

One security document that almost all lenders require a business to sign prior to a loan being provided is a general security agreement.

This is because a lender is looking for a guarantee that your business will be able to pay back the principal amount and the interest in full.  To provide this, lenders will usually require:

  • thorough investigations on your business and its cash flow;
  • you to make specific representations which must remain true during the term of the loan;
  • your business to provide undertakings that it must perform; and
  • you and your business to sign security documents that grant the lender rights over your assets.

A general security agreement or GSA is a security document that gives a lender rights over all your business’s present and future assets (including tangible and intangible property). This does not however include assets such as land or statutory licenses. If your business defaults on the loan, the lender will be entitled to take enforcement action against you, including

  • Appointing a receiver over your business and
  • Selling the secured assets

Before signing a GSA, you should consider the following:

Is The GSA Required? 

It is essential to question why the lender requires the additional security and, if possible, negotiate with the lender to remove the requirement to provide a GSA. It is in your interest to limit the security you provide to the lender to secure the loan, as otherwise, the security may not be proportionate to the loan amount.

Are The Terms Of The GSA In Line With The Industry Standard?

A GSA is a standard security document required by lenders, so the terms of a GSA should follow standardised expectations across the financial sector. Consult with your lawyer to ensure that the terms are within expectations, or to negotiate for the GSA to be drafted to be in line with the industry standard. 

What Are Your Other Obligations Under A GSA?

Your legal obligations under a GSA will generally include:

  • effecting and maintaining adequate insurance policies over the business assets with a reputable insurer;
  • providing the secured party sufficient information about the business assets to allow it to protect its interest over the assets; and
  • not dealing with business assets without the secured party’s consent unless it is in the ordinary course of your business.

What Are The Restrictions On Dealing With Your Business Assets

A standard GSA places significant restrictions on your ability to deal with your business assets, without the lender’s consent. Under a GSA, there may be restrictions on the business’s ability to:

  • sell or transfer the business assets. If any assets are sold, the proceeds may need to be applied to the debt unless the secured party agrees otherwise;
  • permit others to have an interest over the assets;
  • transfer the control of the assets to others, and
  • alter the nature of the assets.

Is A Power Of Attorney A Requirement Or A Recommendation?

Why do you need a Power of Attorney? It’s one of the most critical safeguards you can have in place to protect your ability to make decisions. That’s why it’s highly recommended that you put into place a Power of Attorney as a part of your overall estate planning.

What Is A Power of Attorney?

A Power of Attorney is a legal document through which you appoint someone you trust to act on your behalf in regards to your property and financial affairs. The document states what the attorney is authorised to do on your behalf. This can be quite narrow and specific or as general as you wish.

Why Should I Have a Power of Attorney?

A Power of Attorney is not only valuable for the situation you lose your ability to make decisions. You may travel overseas and want to give your attorney access to your bank accounts to pay your bills or manage your finances. Alternatively, if you become unwell or lose the ability to manage your financial affairs, having a Power of Attorney allows your attorney to make decisions on your behalf.

What Happens If I Lose Capacity & Are Without a Power Of Attorney?

If you lose capacity and haven’t made a Power of Attorney, there will be no one with legal authority to manage or make decisions about your property or finances. Your family may have difficulty accessing your bank accounts to pay your bills. If you need to move into residential aged care and your home needs to be sold, only someone appointed as your attorney can do this.

A relative or another person may need to apply to the Guardianship Tribunal or Supreme Court to have a financial manager appointed for you. This may not be the person you have chosen and could cause your family significant time and cost to apply to the Guardianship Tribunal.

Your Employee Gets Jury Duty – What Do You Have To Do?

Employers must comply with the legal responsibilities outlined when dealing with an employee summoned for jury duty, or they could face penalties of up to $50,000.

When an employee gets summoned for jury duty, it can stress the workplace as other staff take on extra work.

As an employer, you’ll likely want to avoid the inconvenience of releasing an employee for jury duty; however, this may be difficult.

Can You Refuse To Release An Employee For Jury Duty? 

As an employer, you must release any employee for jury duty if they have been summoned. It is an offence to act prejudicial to an employee if they have been summoned for jury duty, including threatening their employment or wages.

If your business faces significant hardship with an employee at jury service, you may be able to request that the employee be excused. This will require an explanation of jury service’s impact on your business.

A request must be communicated before empanelment (when the jurors have been selected), and making a request does not guarantee that your employee will be excused.

What Are The Employee’s Rights?

When your employee is away on jury duty, this cannot be counted as any other leave other than jury duty leave. An employee’s annual leave and sick leave will be unaffected.

Employers also cannot dismiss their employees for attending jury duty. Most Australian states restrict employers from terminating an employee or detrimentally changing or threatening employment terms because an employee is on jury duty.

Employers also cannot ask an employee to work on a day they serve as a juror in court or to work additional hours to make up for the time they missed whilst on jury duty.

When an employee is serving jury duty, employers generally must pay permanent employees their usual wages for the first 10 days of service or pay what is often called ‘make-up pay’. This is the difference between the jury service payment and the employee’s base rate for the ordinary hours they would have worked.

Why Sole Company Directors And Shareholders Need A Will

Dying intestate (without a Will) can pose many complications for the ordinary person.

But when a sole director and shareholder of a company dies without a Will, it can have an even more devastating impact. Upon the death of a sole director and shareholder of a company without a Will, no person is properly authorised to immediately run the company, leaving many stakeholders scrambling for answers.

The risks are higher for sole directors and shareholders as there are no surviving directors to manage the company and appoint a new director.

Generally, a near relative or another person of the deceased will apply for Letters of Administration to manage the estate; however, this process can be lengthy. If no one applies for Letters of Administration, a creditor of the deceased can apply – this can result in the winding up of the company.

Alternatively, the Public Trustee may administer the estate, but this process is also long.

The company may not be able to operate during the period when there is no director. Most banks and other financial institutions are unwilling to accept instructions for a company’s trading account if there is no authorised person. Furthermore, major stakeholders such as employees and suppliers may not be able to get paid during this time.

To avoid the pitfalls associated with intestacy, sole directors and shareholders of a company must create a valid Will and make provisions for who is the beneficiary or beneficiaries of their shares.

3 Myths About Inheriting The Family Home

While receiving money from a family member who has passed away can sometimes be quite handy for those facing cash-flow issues, managing an inheritance is more often an emotional, financial challenge.

Not only do individuals have to cope with the grief of losing someone, but they also face making crucial decisions regarding the deceased’s finances, which can have lasting tax implications for the future.

Here are three common inheritance myths individuals should know before facing tough financial decisions:

The Family Home Is CGT-Free

Principal places of residence are usually free of capital gains tax, but a principal place of residence can be subject to CGT when a beneficiary inherits it. The way homes are treated depends on whether they were purchased before or after September 20, 1985. If a deceased’s house was purchased before September 1985 and is sold within two years of the date of the owner’s death, then it is CGT-free. If the home is sold after this time, it is subject to CGT. The only exception to this rule is if the inheriting beneficiary used the home as their principal place of residence, which would incur no CGT.

A Will Cannot Be Changed

A person with the capacity can make as many changes as they want to their will to create a document that fulfils their wishes. But once a person loses their capacity and their will is not changed, things can become quite complicated. In cases like these, it is the responsibility of the executor of the will to ensure the document is valid, and binding and is the last official will of the deceased. Even though it can cost money to make changes to a will, it is certainly worthwhile in the long run to get it right.

Beneficiaries Receive The Cash Equivalent Of Any Gifts

Those who are set to receive an asset (e.g. the family home) sold before their parents pass away are not entitled to the cash equivalent if the parent’s will has not been changed. It is quite common for a person to sell their home to enable them to move into aged care, but problems can arise when homeowners die, and the proceeds of their house are divided according to the estate. Unfortunately, the general principle is that if a particular gift has been made to a beneficiary, but the gifted asset is not owned at the time of death, then that gift fails.

How To Tell When Your Business Is Being Defamed

In the business world, customer reviews are critical to selling your business or services to others. Sometimes though, these reviews may be written in a manner that you might consider slanderous or defamatory (mainly if they are not a truthful account of their experience with the business).

Defamation actions can be very costly and challenging to defend. However, where successful, substantial monetary damages can be awarded and in some cases, plaintiffs can obtain a court order called an “injunction” that prevents any further communication of the offending publication or material.

Each of the Australian states and territories enacted uniform defamation laws (Uniform Defamation Laws) that took effect on 1 January 2006. Before the Uniform Defamation Laws reform, there was little consistency in the defamation laws in each state and territory.

Further reforms to the Uniform Defamation Laws (2021 Amendments) took place in July 2021, but those reforms were not taken up by WA and NT, which continue to use the Uniform Defamation Laws unamended.

Several key changes were introduced through these amendments, including (and perhaps most importantly):

  • Serious Harm – the allegedly defamatory matter has caused (or is likely to cause) serious harm to the plaintiff. A person who wishes to take legal action for defamation must be able to prove that they have suffered, or could suffer, ‘serious harm’. For a business, it that needs to prove that it has suffered ‘serious financial loss’ as a result.

In all states and territories, companies and other organisations with a “legal personality” (e.g. incorporated associations, trade unions, local councils) cannot sue for defamation.

There are specific exceptions, however, which allow some corporations to sue for defamation if

  1. it is a non-profit corporation and not a public body (such as a local government or public authority); or
  2. it employs less than 10 people, is not related to another corporation and is not a public body.

Corporations may attempt to pursue a claim for defamation through an officer or employee identified by the communication, even though they may not be specifically named (as the ‘face’ of the business).

A company can alternatively bring an action for “malicious falsehood” also known as injurious falsehood. Doing this requires four elements of the action to be established, including:

  1. a false statement about the goods or business;
  2. publication of that statement to a third person;
  3. the statement was published maliciously; and
  4. actual damage as a consequence (which may include a loss of business).

It can be difficult for businesses to prosecute against defamation due to the intricacies of the area. Legal advice should be sought if you are concerned about defaming someone or think you might have your own claim against someone who has defamed you.