Love (& law) in the time of COVID-19
Challenging times, indeed.
The global COVID-19 pandemic is causing huge disruption to global business. We’re not going to add much to the extensive commentary, other than a few points for directors and management to look out for:
- Cash getting tight? If you’re getting close to the wall but trying to put together a recapitalisation or work-out plan, brush up on the safe harbour protections for directors.
- Also note that the Federal Government has announced short-term changes to insolvency and bankruptcy laws, including making it harder to place companies into liquidation, and temporary relief for directors from personal liability for trading while insolvent.
- Impossible to perform a contract? You (or the other party) might want to cancel a contract which is now impossible, or much harder, to perform. Check to see if the contract has a force majeure Even if it doesn’t, you may still be able to use the general law principle of frustration of contracts, to suspend or terminate performance.
If you need specific guidance please contact us. We’re working remotely but otherwise business as usual for us. In the meantime, our best regards to all of you and your colleagues and families.
Andrew, Roxie & Yee
Each newsletter we profile one of our clients doing amazing things.
Diffuse Energy has created the world’s most powerful small wind turbine. Their Hyland turbine is a more sustainable alternative to diesel and produces nearly twice the power output of similar sized wind turbines, while also being safer and quieter than competing turbines. Elevate Legal began working with co-founders Joss Kesby, Sam Evans and James Bradley in early 2018 and we look forward to continuing to provide legal support for their business growth. www.diffuse-energy.com
MGA Thermal’s mission is to enable the shift to renewable energy by providing a new way to store energy that is clean, economical and scalable. MGA’s modular blocks are stacked into insulated storage tanks, storing energy for use in a range of applications – improving the electrical grid’s stability, residential and commercial space heating, industrial process/waste heat, and even electric vehicles. We began working with MGA Thermal in early 2019 and continue to work with founders Erich Kisi, Alex Post and Dylan Cuskelly. www.mgathermal.com
What else is keeping us busy
Here’s some other projects we’ve worked on with our clients over the last few months.
If you’re looking for similar solutions please get in touch.
- Helping several companies with capital raising – including term sheets, SAFE agreements, convertible notes, due diligence, share subscription agreements and shareholder agreements.
- Advising a local software business on a trade sale to a US buyer
- Advising on a sale of an industrial business
- Selective share buybacks for several clients.
- Software / SaaS contract terms
- Intellectual property licences, assignments and other transactions
- Setting up a not-for-profit incorporated association
- Preparing, reviewing and advising on lots of commercial contracts.
Directors’ personal liability for GST payments
Generally speaking, the directors of a company are not personally liable for the company’s unpaid debts.
However, laws passed in February 2020 (which come into effect on 1 April 2020) give the Commissioner of Taxation new powers to look through the company ‘veil’ and recover unpaid GST and other indirect taxes from the directors of the company personally.
If the company doesn’t lodge its business activity statement (BAS) by the due date, the Commissioner can issue an estimate of what he believes is the correct net amount owing.
The new laws were designed to stamp out ‘phoenix companies’ – however the law is not limited to these scenarios, and applies to all company directors, even those not engaged in illegal conduct and those who may have missed a lodgement for genuine reasons.
So, directors – check that your company is lodging its BAS on time and paying GST and other taxes!
Who is an Officer of a subsidiary?
In March 2020 the High Court of Australia ruled that a person could be an ‘officer’ of a subsidiary company even though they were not named as an officer.
Michael King was the CEO and executive director of MFS Ltd, the parent company of the MFS Group, which imploded in 2008. ASIC sued Mr King (and others) for a dodgy transaction undertaken by one of the MFS Group subsidiaries. ASIC claimed Mr King had breached his Corporations Act duties as an officer of the subsidiary, even though Mr King had ceased to be a director of the subsidiary before the transaction. ASIC won at trial, Mr King won on appeal, and then ASIC won in the High Court.
The Corporations Act defines an officer of a corporation to include a director or secretary of the corporation, and also a person who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation, or who has the capacity to affect significantly the corporation’s financial standing.
The High Court decided that Mr King was an officer of the subsidiary despite not holding a formal executive role at the time of the transaction, as he was involved in the management of the subsidiary and had the capacity to significantly affect its financial standing.
Directors of parent companies take note that you may still be liable as an officer of a subsidiary even if you are not serving as a director or secretary of the subsidiary.
During this time where we are all spending more and more time at home, we have some book recommendations to help keep you busy and entertained.
First, Roxie’s recommendation:
Boy Swallows Universe – Trent Dalton
This is the first novel written by award-winning Australian journalist Trent Dalton. He cleverly incorporates his own unsettled and chaotic childhood growing up in the suburbs of Brisbane where heroin was rife, into the life of protagonist Eli Bell. Eli has his own issues with a mother in jail, a brother who does not speak, a father who is absent, a stepfather who is a drug dealer and the ever-present threat of notorious drug dealer Tytus Broz. He does however find solace and comfort in his babysitter come best friend…a convicted murderer. The story is beautifully written and pulls you into Eli’s world, highlighting how (mostly) no person is only one dimensional, and elements of both ‘good’ and ‘bad’ are found in us all. It is likely this book has been recommended to you before, so we are just adding to the chorus of voices saying, ‘read it!’.
And some tips from Andrew’s summer reading list:
The Fifth Risk – Michael Lewis
The story of how (wilfully) unprepared President Trump and his team were to govern. If you believe in good government and principled leadership, maybe give this a miss – it will only make you angry.
Bad Blood – John Carreyrou
Subtitled ‘Secrets and Lies in a Silicon Valley Startup’, this is the inside story of the rise and collapse of Theranos. A well written and compelling in insight into the dark side of the startup fable.
The Underworld USA Trilogy (American Tabloid, The Cold Six Thousand and Blood’s a Rover) – James Ellroy
A rollicking trip through the dark side of the 60s and early 70s in the US, with the Mafia, FBI and KKK in twisted collusion against the Kennedys, Castro and Martin Luther King. J Edgar Hoover, Howard Hughes and Sonny Liston make fine cameo performances. Just plausible enough to be frightening.
Unreliable Memoirs – Clive James
Essentially Australian memoir of childhood from the late, great, witty Clive James. Hilarious and touching.
On the Shortness of Life – Seneca
Timely, and timeless, wisdom in a short book from 2000 years ago:
“It is not that we have a short time to live, but that we waste a lot of it. Life is long enough, and a sufficiently generous amount has been given to us for the highest achievements if it were all well invested. But when it is wasted in heedless luxury and spent on no good activity, we are forced at last by death’s final constraint to realize that it has passed away before we knew it was passing. So it is: we are not given a short life but we make it short, and we are not ill-supplied but wasteful of it… Life is long if you know how to use it.”