Welcome to a New Year
And just like that it is 2022! Though we all hoped that this Summer would bring more normality, the reality of living through a global pandemic has again hit with plans and holidays disrupted by Covid. Though we may not have all been able to have the holidays we planned, the Elevate Legal team has enjoyed a break over the Christmas and New Year period and appreciated being able to spend time with family and friends. We hope that all our clients were able to rest and re-charge as well.
We are looking forward to another busy year helping clients succeed in their business endeavours. If you need assistance with anything, please get in touch.
Here’s to a successful 2022!
Andrew, Roxie, Yee & Ash
In this edition, instead of focusing on just one client, we’d like to congratulate a number of our clients on their recent achievements and recognition:
- Jupiter Ionics successfully completed a $2.5m seed investment round in November 2021. Elevate Legal assisted Jupiter Ionics through this process.
- MGA Thermal through the University of Newcastle won the Australian Financial Review’s Research Commercialisation prize.
- Castlepoint Systems was a finalist for the Australian Information Security Association (AISA) start up of the year; the RegTech company of the year and Female Founder of the year; and was named by FinTech Global as one of the global 100 most innovative companies transforming financial services.
- Two of our clients – Scalene Group and Livewire Markets – were included in the Australian Financial Review’s Fast Starters list, of Australia’s top 100 fastest growing companies in 2021.
Congratulations to these clients, who are all members of our Alliance service. We look forward to continuing to support their growth and success.
What’s keeping us busy
Here’s some projects we’ve worked on with our clients over the last few months.
- Helping many clients with capital raising – term sheets, SAFE notes and issues of ordinary and preference shares to VC investors
- Advising several clients on potential purchases and sales of businesses
- Software / SaaS contract terms – more than we can count
- Lots of reseller and distribution agreements, teaming agreements
- Heads of Agreement / MoUs for development agreements and joint ventures
- Intellectual property licences, assignments and other transactions – including spin-outs from Universities into new companies
- Preparing, reviewing and advising on lots of commercial contracts and NDAs
- Preparing documentation and setting up ESOPs
- Preparing corporate documentation such as Shareholder Agreements and Constitutions
If you’re looking for similar solutions please get in touch.
Director Identification Numbers
We have given updates on the introduction of Director Identification Numbers (DIN) in previous editions. In November 2021 the requirement to have a DIN came into effect. The dates for when a director needs to apply for a DIN depend on their appointment date:
Date you become a director and date you must apply
On or before 31 October 2021: By 30 November 2022
Between 1 November and 4 April 2022: Within 28 days of appointment
From 5 April 2022: Before appointment
For Australian resident directors, the fastest way to obtain a DIN is to apply online at the Australian Business Registry Services (ABRS) website. This will require a myGovID account (which is different to a standard myGov account).
For foreign resident directors, a paper form will need to be completed and lodged including identity documents. We recommend that foreign resident directors commence this process as soon as possible as it is likely to be more time consuming.
Be reasonable with Automatic Renewal Terms
The Australian Competition and Consumer Commission (ACCC) recently investigated the terms of a standard consumer contract issued by UK based Please Hold (UK) Limited (Please Hold), particularly focusing on the automatic renewal terms. The Please Hold consumer contract had an automatic renewal clause whereby the contract automatically renewed for a further term on expiry of the initial term (usually 24-36 months). This automatic renewal occurred unless the customer terminated the contract in writing by giving at least 42 days’ notice before the end of the initial term. If a customer did not terminate the contract within this time the only way for them to end the contract was to pay termination charges equal to the balance of the charges for the further term minus 3%.
The ACCC considered these automatic renewal terms unfair as they had the potential to cause significant financial detriment to customers who may have to pay for services they no longer need or want, even if they had tried to cancel them. Please Hold updated their contract based on the feedback from the ACCC to include a rolling month-to-month contract term after the initial term and allowing for termination at any time after the initial term by giving 30 days’ notice.
Australian courts have found automatic renewal clauses to be unfair on a number of occasions, so it is important that businesses construct automatic renewal clauses carefully, including:
- notifying customers that their renewal date is approaching;
- Giving customers a reasonable time to terminate the agreement before automatic renewal; and
- ensuring that the automatic renewal clause is transparent and clear so that the customer understands what they are agreeing to.
Case Note – Yelland v Plus Architecture
In a recent case Yelland v Plus Architecture  VSC 416, the Supreme Court of Victoria considered whether the sale of a shareholder’s shares at a discount was a breach of a shareholders’ agreement and whether the termination of a director amounted to corporate oppression. This was a case about a dispute among directors and shareholders, in this case in an architecture practise.
Mr Yelland was a director of various Plus Architecture companies and his company, Yelland Security Pty Ltd, was his nominated shareholder. He had a falling out with the other directors. The other directors elected to terminate Mr Yelland’s appointment as a director from the companies due to what they felt was inappropriate behaviour with employees. Subsequently, Mr Yelland served notice of his resignation as a director of the companies.
The shareholders agreement included the common term, whereby if a director leaves the business, their shares can be bought out by the company (and/or the other shareholders). It also included the common ‘good leaver/bad leaver‘ arrangement, where good leavers are paid fair market value, while bad leavers get less (in this case, a 30% discount to fair market value).
In this case, the other directors and shareholders treated Mr Yelland as a bad leaver (because they had terminated him) and bought his shares at a 30% discount. Mr Yelland argued he should have been treated as a good leaver (because he resigned) and been paid full market value (and that the other directors had wrongly sacked him to get his shares cheaply).
The court decided in favour of the other directors – their termination resolution was passed before Mr Yelland resigned, so it prevailed; and they could buy the shares at the 30% discount.
The court also considered whether the termination amounted to oppressive conduct, however it was found that the motivations for the termination were in the best interests of the business and not to obtain the shares held by Yelland Security Pty Ltd at a discount.
These sorts of disputes – and the shareholder agreement terms designed to deal with them – are quite common. While each case rests on its own facts, this decision shows that bad leaver terms can be applied to departing directors, provided the other directors are acting for appropriate reasons and comply with the shareholders agreement. Of course, if you’re in Court then it’s already a sub-optimal outcome for everyone…
A selection of things taking up time outside work:
- Beautiful World, Where Are You, Sally Rooney – the next novel from the author of Normal People and Conversations with Friends is set in Ireland and follows the lives and relationships of best friends Alice, a successful novelist, and Eileen as they navigate trying to be happy in a world that can be difficult and indifferent. (Roxie)
- Stay Close, Netflix – the next miniseries based on a novel by Harlan Coben, is a British mystery drama with plenty of suspense (and a little bit of blood and gore!). (Roxie)
- Regular readers will know I have a keen interest (obsession?) with US Presidential politics. This summer’s reading was all about the craziness of the Trump administration, starting with Fear: Trump in the White House by Washington icon Bob Woodward; and Peril, which he co-authored with Robert Costa. Both books are full of mind-bending accounts from White House and Pentagon insiders of chaos, corruption, lies and basic ineptitude. To think that the Republican Party is still apparently beholden to this man is quite shocking. Lincoln and even Reagan would turn in their graves. I also read Endgame: Inside the Impeachment of Donald J. Trump, by Eric Swalwell, a Californian Democrat member of the House of Representatives, and one of the leaders in Congress’ moves to investigate Trump’s links to Russia’s interference in the 2016 election (anyone remember the Mueller Report?) and then to impeach Trump for his attempt to have Ukraine help him win the 2020 election. While it’s clearly partisan – Swalwell is currently suing Trump and his lackeys for their involvement in the Capital riot on January 2021 – it gives a detailed insider’s account of how Washington works. (Andrew)
- My other non-fiction reading was the biography Edison, by Edmund Morris. I really enjoyed Morris’ 3-part biography of Teddy Roosevelt, and his work on Edison is also a thoroughly readable introduction to this remarkable man, and an insight into the US during the Gilded Age. (Andrew)
- And for some levity, my summer fiction reading started with Crossroads by Jonathan Franzen. I loved this book. If you’ve read Franzen’s other novels you’ll know what to expect: a poignant, funny, brutally honest exploration of family dynamics and all our foibles. Highly recommended. I finished up with Station Eleven, by Emily St. John Mandel. The novel takes place before and after a fictional swine flu pandemic has devastated the world, killing most of the population. The book was published some years ago – in 2014 – but not surprisingly is enjoying a renaissance, and this year is on the Year 12 VCE English curriculum. While the plot is clearly on-point, I found the characters thinly-developed. Maybe 3 stars. (Andrew)