Mergers & Acquisitions

Covid 19- an overview of the JobKeeper wage subsidy scheme

The core component of the Federal Government’s business support package in response to the Covid-19 pandemic is the JobKeeper scheme. This scheme is intended to help employers retain employees on their books, with the objective of ensuring money continues to circulate in the economy during these challenging times.

The JobKeeper legislation was passed by the Federal Parliament on 8 April 2020.  Rules dealing with administering the scheme were made by the Treasurer on 9 April 2020.

The JobKeeper payment is, in a nutshell, a AUD$1,500 per fortnight per employee wage subsidy paid by the Federal Government to employers until 27 September 2020. 

The estimated cost of this measure is AUD $130 billion. The Government has stated that $1,500 per fortnight is the equivalent of about 70% of the median Australian wage and represents about 100% of the median Australian wage in some of the most heavily affected sectors, such as retail, hospitality and tourism.

The scheme operates via a reimbursement system. Participating employers make wages payments to their employees and are then reimbursed in arrears $1,500 by the Government per eligible employee per fortnight. The Government does not pay employees direct. The JobKeeper payment cannot be claimed in advance. The first payments to eligible employers will commence in the first week of May 2020.The first payment is for the fortnight of 30 March - 12 April 2020 i.e. the scheme commences from that date.

Employers who wish to participate in the scheme must register their interest through the Australian Taxation Office website here by 31 May  2020.

Key Eligibility Requirements

• The employer must be an "eligible employer"

The employer must pursue their objectives principally in Australia.

An employer is not eligible for the JobKeeper payment if any of the following apply:

• the Major Bank Levy was imposed on the employer or a member of its consolidated group for any quarter before 1 March 2020
• the entity is an Australian government agency (within the meaning of the Income Tax Assessment Act 1997)
• the entity is a local governing body i.e. a local government council
• the entity is wholly owned by an Australian government agency or local governing body
• the entity is a sovereign entity
• the entity is a company in liquidation
• the entity is an individual who has entered bankruptcy.

The effect of the second and third exceptions listed above is that employees of State and local Governments are excluded from benefiting from the JobKeeper scheme.

The scheme is not limited to companies. Partnerships, trusts, not for profit organisations, sole traders and other legal entities are eligible to participate in the scheme. Special rules apply to payments to business owners and directors. 

• Most employers will be eligible if their business turnover falls by 30% 

In order to be eligible for JobKeeper payments, the projected turnover of the employer's business must fall by 30% as compared to the same period last year. In order to register for the scheme, a business must self assess that it has had or will have the necessary decline in turnover.  

A 50% turnover decline is required for businesses with revenue of AUD$1 billion or more.

Charities need suffer only a 15% decline in order to be eligible.

The turnover calculation is based on GST turnover, even if the employer is not registered for GST. The ATO has released detailed rules about calculations that must be made, and what documents and supporting evidence is needed.

• Employees need to have been engaged by the employer as at 1 March 2020. This includes full-time and part-time employees. Casual employees are only eligible if they had been employed on a regular basis for at least 12 months prior to 1 March 2020.

Eligible employees must be currently employed by the employer for the fortnights it claims for (including those employees who are stood down or re-hired). The subsidy cannot be claimed for employees who left employment before 1 March 2020.

Employees are only eligible if they are older than 16 and were Australian residents on 1 March 2020.

Many employers in the "gig economy" who are casual employees - including in hospitality, food services, retail and tourism - will be unable to benefit from the scheme if they are "recent hires" i.e. have been employed as casuals for less than 12 months as at 30 March 2020. 

Key legal obligations for participating employers

• Each employee must be paid at least AUD $1,500 per fortnight before tax.

Each employee in respect of whom an employer receives a JobKeeper payment must be paid at least $1,500 per fortnight before tax by the employer. This is the case even if the employee would normally receive less than $1,500 per fortnight.  The employer cannot keep the difference between the JobKeeper subsidy and the employee's usual wages. In effect, the wages of employees who usually earn below $1,500 per fortnight are increased to $1,500. 

It can be seen that for employees who earn less than $1,500 per fortnight, their continued employment through to 27 September 2020 essentially comes at no cost to the employer.

If an employer does not continue to pay their employees for each pay period, they will cease to qualify for the JobKeeper payments. For the first two fortnights (30 March – 12 April, 13 April – 26 April) wages can be paid late, provided they are paid by the employer by the end of April 2020.

• The JobKeeper payment can only be received by one employer for an individual

Only one employer can claim the JobKeeper payment in respect of a person. Where a person works multiple jobs, a choice will need to be made as to which employer receives the subsidy. The employee makes the choice. An employer cannot claim the JobKeeper subsidy without an employee's consent.  

If an employee is a long-term casual and has other permanent employment, they must choose the permanent employer.

• An "one in, all in" principle applies

If an employer decides to participate in the JobKeeper scheme, it must nominate all of its eligible employees. The employer cannot choose to nominate only some eligible employees. However, individual eligible employees can choose not to participate.

• Tax must still be deducted on employee's wages

No deduction for JobKeeper payments received is made when calculating and deducting PAYG tax payments on employee's wages.

• Superannuation is not payable on "top up" payments 

New rules are being introduced by the Government with the intention to not require the superannuation guarantee to be paid on additional payments that are made to employees as a result of JobKeeper payments.

JobKeeper Enabling Directions

The JobKeeper scheme gives eligible employers the authority to make what are described as "JobKeeper Enabling Directions" in respect of eligible employees. These directions are designed to provide greater flexibiliity to employers to manage the hours, duties and location of their workforce in the face of the significant Covid-19 related challenges.

JobKeeper Enabling Directions available to eligible employers include: 

• standing down employees (including reducing days and hours)
• changing the duties performed by the employee
• changing the employee’s location of work.

If you need legal assistance in relation to the JobKeeper scheme, please contact Damian Quail in our office.

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

What tax risks do I take on when I become a company director? (updated)

This is a question often asked of lawyers. There are many risks a person is exposed to when they agree to become a company director. 

Below is an extract from a paper I presented at a Legalwise Seminar "Business Clients: 20 Answers To Their Most Asked Questions" in Perth on 21 November 2019. 

1. Risk of breaching directors duties if taxes are not paid

Directors have an obligation to act in good faith and in the best interests of the Company and to act with reasonable care and diligence. This includes ensuring the company’s tax affairs and tax compliance matters are managed diligently.

Accordingly, a director must ensure that a company of which he or she is a director complies with its tax payment obligations. Failure to do so can result in the director being in breach of his or her legal duties as a director, which may attract penalties under the Corporations Act 2001. This could include civil penalties, compensation proceedings and criminal charges. Seek our advice as needed.

2. Risk of personal liability under Director Penalty Notices

Division 269 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (the TAA) sets out the Director Penalty Notice (DPN) regime. Under Division 269 directors are required to ensure that the company complies with its Pay As You Go (PAYG) withholding and Superannuation Guarantee Charge (SGC) obligations. If a director fails to ensure compliance, the Commissioner of Taxation can recover personally from the director a penalty equal to the company’s outstanding PAYG and SGC obligations. 

What is PAYG withholding? 

By law a company must withhold tax from salary, wages, commission, bonuses or other allowances the company pays to an individual as an employee.  Tax legislation also requires a company to withhold tax in other scenarios, including:

• payments to company directors and officer holders;
• payments to workers under a labour-hire agreement; 
• payments under certain voluntary agreements; and
• payments to suppliers where an ABN has not been quoted in relation to a supply.

Broadly, these laws are known as the PAYG withholding regime. Withheld tax amounts must be paid to the ATO.

What are SGC obligations?

By law a company must also pay compulsory superannuation guarantee amounts to its employees. The Superannuation Guarantee (Administration) Act 1992 (SGAA) requires that employers pay a fixed percentage of an employee’s earnings into the employee’s superannuation fund. This is the superannuation guarantee (SG) amount. A Superannuation Guarantee Charge (SGC) is imposed on employers who fail to pay the required SG amount i.e. the SGC is the shortfall plus interest (usually 10% per annum) and administration costs (usually $20 per employee per period). The SGC must be paid by the employer to the ATO each quarter. 

Personal liability under Director Penalty Notices 

The DPN regime allows the ATO to impose a personal penalty on directors who fail to ensure a company complies with its PAYG withholding and SGC obligations.

In summary, if a company has an outstanding PAYG withholding or SGC debt then the ATO can send a DPN to a director giving that director 21 days to:

• cause the company to pay the debt; or
• put the company into liquidation; or
• put the company into voluntary administration; or
• come to a payment arrangement with the ATO.  

Requirements for a valid DPN

Section 269-25 of the TAA sets out the requirements for a DPN to be valid. The DPN must:

• set out what the ATO thinks is the unpaid amount of the company’s PAYG withholding or SGC liability; 
• state that the director is liable to pay to the ATO, by way of penalty, an amount equal to that unpaid amount because of an obligation the director has or had under Division 269 of Schedule 1 of the TAA; and
• explain the main circumstances in which the penalty will be remitted.

Notably, the DPN does not have to be physically received by a director for it to be valid, as long as there was effective delivery as defined in the TAA.

Avoiding personal liability under a DPN

After a DPN is issued, the ability of the director to avoid paying the penalty personally is relatively limited. If the unpaid PAYG withholding or SGC amount was reported to the ATO within three months of the due date, then the personal penalty can be remitted (cancelled) if: 

• the company pays the outstanding debts; 
• an administrator is appointed; or 
• the company commenced being wound up,

within 21 days of the DPN being given.

Importantly, the penalty on the director may not be remitted if instead a payment arrangement is agreed with the ATO (as referred to above). The ATO can commence proceedings against the director at the end of the 21 day period.  

So, a DPN cannot be ignored and must be dealt with promptly. To be clear, the 21 days runs from the date of issue, not the date of receipt.

Prior to 2012 it was sometimes possible to wind up a company at any time to avoid paying the penalty in a DPN. Amendments to the TAA in 2012 removed this ability. Essentially, the 2012 amendments make directors automatically personally liable for PAYG withholding and SGC amounts that remain unpaid and unreported three months after the due date for lodging a tax return. A DPN issued in relation to such debts is a so-called “Lock down DPN”. A director who receives a Lock down DPN cannot cause the DPN penalties to be remitted by placing the company into voluntary administration or liquidation.

So, directors must be diligent in ensuring a company keeps it tax returns up to date and lodged. Adopting a tactic of failing to lodge returns will not work. Even if the company cannot pay a PAYG withholding or SGC debt, directors must still lodge the return anyway. If they do not do so, automatic personal liability will be imposed and that liability will not be able to be remitted if a Lock down DPN is issued.

Defences to liability under a DPN

A director may avoid personal liability under a DPN if a statutory defence is applicable.  Broadly, a director may avoid personal liability if the director can show that:

• because of illness or some other good reason, the director did not take part in the management of the company at the time when the company incurred the PAYG withholding or SGC or obligation;  or
• the director took all reasonable steps to ensure the company complied with its PAYG withholding or SGC obligation, by ensuring one of the following things happened:
  • the company paid the amount outstanding;
  • an administrator was appointed to the company; 
  • the directors began winding up the company; or
  • in the case of an unpaid SGC liability – the company treated the SGAA as applying in a way that could be reasonably argued was in accordance with the law, and took reasonable care in applying that Act. 

The TAA allows for defences to be raised within 60 days from notification – that is, 60 days from when the DPN is issued.  Again, a DPN cannot be ignored and must be dealt with promptly.

A DPN defence must be submitted to the ATO in writing, clearly articulating which defence the director is seeking to rely on. It should provide all the necessary information and supporting documentation to substantiate the defence. We can assist in this regard.

Illness defence

The illness defence mentioned above has a number of limbs that must be satisfied. These are discussed in the case of Deputy Commissioner of Taxation v Snell [2019] NSWDC 159. A detailed discussion is beyond the scope of this article. For present purposes, it is sufficient to observe that it can be difficult to substantiate the defence, as there must not be any evidence that the director took part in any aspect of the management of the company at any time during the relevant period. It is not enough to show that the director did not take part in managing the tax affairs of the company.

Also, medical evidence will be required in support of the proposition that the director could not have reasonably been expected to take part in the management of the company due to the illness.

Reasonable Steps Defence

Section 269-35(2) of the TAA provides that a director is not liable for the penalty in a DPN if the director took all reasonable steps to ensure that one of the outcomes referred to above happened.

In determining what reasonable steps could have been taken, regard must be had to when, and for how long, the director took part in the management of the company as well as all other relevant circumstances.  The ATO will consider what a reasonable director in that position during the time the director was subject to the obligation would have done. The assessment is an objective one.  Directors who are “too busy” or simply devote their attention elsewhere will not be able to rely on the defence. A lack of attention to details or ignorance of the company’s financial position will also not be enough to establish the defence.

Liability of new directors versus previous directors under a DPN

Directors recently appointed to the position are given a grace period to comply with their obligations under section 269-15 of the TAA. A director who is appointed after the due date for a PAYG withholding or SGC liability can become personally liable for the amount if after 30 days the liabilities remain unpaid.

This means that as soon as a director is appointed, they should review the company’s PAYG withholding and SGC liabilities, and ensure any amounts which remain unpaid are paid within the 30 day period. They should also check to ensure all outstanding tax returns have been lodged. If they find outstanding PAYG withholding or SGC liabilities or returns, they should seriously consider resigning.

A retired or former director can also be given a DPN. Resigning as a director does not allow a director to escape liability. The courts have confirmed that the ATO can impose liability on persons who were directors at the relevant time when the PAYG withholding or SGC obligation accrued.  There is a continuing obligation on directors to ensure the company complies with withholding tax obligations, and this obligation can persist despite the director ceasing to act in the role.  Specialist tax advice should be sought by directors in such situations.

3. Risk of personal liability for unpaid GST

Updated: 10 February 2020

New legislation recently passed exposes directors to personal liability for unpaid GST.  The Treasury Laws Amendment (Combating Illegal Phoenixing) Bill 2019 was passed by both Houses of Parliament on 5 February 2020. Once Royal Assent is given- which should take a few weeks, at most - the ATO will be able to collect estimates of anticipated GST liabilities from company directors personally via DPN's, in certain circumstances.  The new law will allow the ATO to collect unpaid GST from directors in the same way as PAYG withholding and SGC can be recovered via DPN's, as discussed above. The new law is expected to take effect from 1 April 2020. 

4. Risk of personal liability for tax debts incurred while insolvent

Directors can be personally liable for debts incurred by a company where the company trades while insolvent. This is because one of the fundamental duties of a director is to ensure that the company does not trade while it is insolvent.  If a company is unable to pay its debts as and when they fall due the company is insolvent.

Common signs of insolvency include:

• suppliers refusing to extend credit to the company;
• minimal or insufficient cash flow;
• problems paying suppliers and other creditors on time; 
• difficulty in meeting loan repayments on time; 
• difficulty in keeping within bank overdraft limits; and
• legal action being taken, or threatened, by creditors over money owed to them.

In certain circumstances, directors may be liable for debts incurred by a company when it is insolvent. This could include tax liabilities incurred by the company while trading insolvent. There are various penalties and consequences of insolvent trading, including civil penalties, compensation proceedings and criminal charges. A detailed consideration of these issues is beyond the scope of this article. Seek specialist advice from us as needed.

5. Risk of personal liability as a Public Officer

A company carrying on business in Australia is obliged to appoint a “public officer” to act as the company’s representative and official point of contact for the ATO.

A public officer must be appointed by the company within three months of the company commencing business in Australia or deriving income from property in Australia.  It is an offence to fail to appoint a Public Officer. There must always be a person who holds the position of public officer.

Generally, the board of directors will choose who is appointed as a public officer. The power will normally be contained in the company’s constitution. 

The public officer must ensure that the company meets its obligations under the ITAA, and they can be held liable for penalties which are imposed on the company for failing to comply with the ITAA.  Similar provisions are found in the SGAA.

As can be seen from the above, there are many tax risk involved when accepting an appointment as a company director. Diligence on the part of the director is required if personal liability is to be avoided.

For further information and advice please contact me, Damian Quail.  

Thank you to Michelle Hankey and Cassandra Bailey for their assistance in preparing the original paper I presented.

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Handshake deals and transfer duty: you can’t avoid paying duty by not documenting the deal

Sometimes two parties to a deal are tempted to use a "handshake agreement" to try avoid paying stamp duty/ transfer duty. Apart from the obvious legal risks about "no-paperwork deals", taking this approach to try avoid paying transfer duty simply will not work !

When is transfer duty payable? 

Transfer duty is payable in Western Australia (and other Australian jurisdictions) where there is a transfer of dutiable property or a dutiable transaction takes place, whether or not there is a physical document or agreement documenting the transaction. 

The obligation to pay transfer duty arises from the intention to transfer dutiable property or from actually transferring the dutiable property. This means that failing to document a dutiable transaction does not result in no transfer duty liability arising.

Duty is (generally) payable by the purchaser or transferee of the dutiable property.

Dutiable property includes land in Western Australia and business acquisitions involving the transfer of business assets in Western Australia, such as stock, plant and equipment, goodwill and intellectual property. 

Dutiable transactions can include an agreement to transfer dutiable property, a trust acquisition or surrender, amongst other things. 

If a transaction is, or will be, effected by an instrument (for example a business sale agreement), liability for transfer duty arises when the instrument is executed. If the dutiable transaction is not effected by an instrument, and is not going to be effected by an instrument, then the Duties Act 2008 (WA) sets out when transfer duty on a dutiable transaction will arise. For example, if there is an some sort of agreement to transfer dutiable property (maybe a verbal agreement or an informally documented "agreement"), then the liability to pay duty will arise when that agreement is reached between the parties. Even if there is no agreement, an obligation to pay duty arises when dutiable property is actually transferred. 

Therefore, the obligation to pay transfer duty is not avoided by simply not documenting the deal. Transfer duty will arise regardless of whether an agreement of any sort is actually recorded. 

Assessment of Duty – Documents to be lodged

To recap, where parties agree to transfer dutiable property, it is the date of that agreement on which liability to pay duty arises, regardless of whether a formal document is executed between the parties at a later stage. 

What documents are required to be submitted to the Office of State Revenue for the purposes of assessing the duty payable will depend on whether there is hard copy documentation of the transaction. 

If there is hard copy documentation (such as a sale agreement or other contract), then that instrument will need to be lodged for duty assessment.  

If there is no hard copy evidence or record of the transfer or the agreement to transfer, the person who is liable to pay the transfer duty must either lodge: 

• an instrument in hard copy form that evidences the transaction, and if there is more than one instrument, each of them; or
• make a transfer duty statement to provide evidence of the transfer and have the transfer assessed for duty. 

The required documents must be lodged within 2 months after the day on which liability for duty on the transaction arises. This is typically the date on which the parties agreed to transfer the property, not the date on which the formal document is signed. For example, if the base agreement terms are agreed between parties for a business sale, and later the parties agree to formally document the transaction by executing a business sale agreement, the date on which duty arises is the earlier date on which the basic agreement was made.

Reaching a handshake agreement and then "leaving the document to the lawyers to sort out" can be a trap - the obligation to lodge and the two month period starts on the date of the handshake, not the date the documents are finalised (which may be many months later).

Failure to lodge a transaction record within the time period is an offence and can result in fines and penalties and additional duty being payable . 

Summary 

Liability to pay transfer duty will arise regardless of whether hard copy agreements are entered into. Parties who agree to transfer dutiable property should be aware that failing to document the transaction will not avoid the liability to pay duty, and may lead to fines and additional duty liaibility.

Where a transaction is documented "after the fact", always bear in mind that the date on which the parties agreed to transfer the dutiable property is the date from which the lodgement obligation is calculated, not the later date on which the formal document is signed.

For further information regarding transfer duty obligations please contact Damian Quail or Cassandra Bailey of our office. 

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Superannuation guarantee amnesty: one last chance to pay compulsory superannuation for non-complying employers who employ "contractors"

Employee versus contractor? Are you sure?

Over the past decade many Australian companies have retained the services of people who claim they are "contractors" not employees. Usually the "contractor" wants to be paid a gross fee/remuneration, stating that they will take care of income tax, superannuation and other payments. 

The attraction for the employer is a lower total cost of retaining the person as compared to bringing them on as an employee, as well as perceived flexibility in options for ending the relationship as compared to traditional employment (the thinking is that no redundancy or leave entitlements need to be paid and no notice period applies).

Such practices were common in the IT, marketing, construction and other industries, particularly so called “digital industries”. The “gig economy” has seen the practice gain pace.

The legal reality is that many "contractors" are actually employees, particularly where they turn up to work at the same place each day, take their instructions from "a boss" at the company, are paid by the hour rather than for delivering an end product, and don't have to redo their work at their cost if the deliverable is not done to the required standard.

In such cases, income tax and compulsory superannuation guarantee payments must be paid by the employer for "contractors" who are, legally, employees. If the payments are not made, significant penalties accrue over time and must be paid to the Australian Tax Office (ATO).

Often this superannuation liability only hits home when the employer tries to sell their company and the buyer's due diligence experts point out the problem. Significant superannuation shortfall payments and ATO penalties loom large for the seller, as well as a reduction in the sale price, or at least a significant escrow sum demanded by the buyer.

A superannuation guarantee amnesty is potentially available.

Legislation has been reintroduced to Parliament providing an amnesty for employers who have not paid superannuation guarantee (SG) payments. The proposed amnesty will allow fines to be avoided, provided the SG payments are made.

The Treasury Laws Amendment (Recovering Unpaid Superannuation) Bill 2019 (the Bill) was re-introduced into the House of Representatives on 18 September 2019. The Bill was then referred to the Economics Legislation Committee for further inquiry. The Committee released its report recently - available here.

The Bill provides employers who have previously failed to pay SG contributions and failed to disclose the shortfall to the ATO with a “second chance” to self-correct any historical non-compliance. 

This amnesty operates as a way for the ATO to encourage employers to disclose unpaid SG amounts for the period during which the amnesty applies - without fear that they will be liable for fines typically associated with non-compliance. 

What are my SG obligations generally?

The Superannuation Guarantee (Administration) Act 1992 (SGAA) requires that employers pay a certain percentage of an employee’s earning into the employee’s superannuation fund. A Superannuation Guarantee Charge (SGC) is imposed on employers who fail to pay the required SG amount i.e. the SGC is the shortfall plus interest and administration costs, and this is payable by the employer to the ATO each quarter. 

Employers can also be liable for penalties for failing or refusing to provide a statement or information as required under the SGAA, which can be up to 200% of the amount of the underlying SG amount (known as Part 7 Penalties). 

How will the proposed amnesty work?

The first step is disclosing unpaid SG to the ATO. An employer who discloses SG non-compliance and pays an employee’s full SG entitlements plus any interest (which may incude nominal interest and a general interest charge (GIC)) will be entitled to the amnesty, and will avoid liability for penalties normally associated with late payment and non-compliance.  

The employer with an outstanding SG liability can either: 

• pay the unpaid SG amounts, GIC and nominal interest directly to the ATO; or 
• pay the unpaid SG and the nominal interest to the employee's superannuation fund, and then elect to offset these amounts against their liability for SGC and GIC (if any).

However, if employers have an existing SGC assessment for a quarter, or are otherwise unable to contribute directly into their employee’s superannuation fund, they will be required to pay the SGC to the Commissioner directly.

If the employer makes a disclosure under the amnesty, the administration charge component of the SGC will be waived (see example 1.1 in the Explanatory Memorandum). 

The amnesty is proposed to extend to all reporting quarters from the quarter commencing 1 July 1992 to the quarter commencing 1 January 2018. 

The disclosure to the ATO must be made in the correct form, and the employer must pay the amount of the disclosed SG to the employee or the SGC to the ATO (see above) within the required period. Failure to pay will mean the employer will not be able to rely on the amnesty and will be subject to the normal penalties imposed. 

It is expected that employers will be given from 24 May 2018 to 6 months after the date the Bill receives Royal Assent to make disclosure and pay the shortfall and interest (the Amnesty Period).  

In summary, in order to benefit from the amnesty the unpaid SGC must: 

• Not have been previously disclosed to the ATO; 
• Have been incurred between 1 July 1992 and 31 March 2018; and 
• Not be under examination by the ATO previously.

The employer must also:

• disclose the shortfall to the ATO within the Amnesty Period; and
• pay the shortfall plus interest within the Amnesty Period. 

If the employer does the above things for eligible SG shortfalls, they will not be liable for Part 7 Penalties. SG amounts paid during the Amnesty Period will be tax deductable. 

If the Bill is passed, employers who have failed to comply with their SG obligations in the past should take advantage of this opportunity to avoid liability for such penalties.

Employers who fail to disclose during the Amnesty Period 

Employers who do not disclose and pay unpaid SG and interest within the Amnesty Period will be subject to higher penalties. Generally, the Commissioner has discretion to remit Part 7 Penalties. However, from the day after the Amnesty Period ends the Commissioner’s ability to remit Part 7 Penalties will be limited. According to the Explanatory Memorandum, the Commissioner will not be able to remit penalties below 100% of the amount of SGC owing by the employer for a quarter covered by the amnesty. The penalty will include interest and an administration fee. 

What does this mean for my business?

The amnesty is a one-off second chance for employers to reduce their exposure to penalites for unpaid SG. Employers who are aware that they have failed to comply with their SGC obligations, or are unsure whether they have fully complied since 1 July 1992, should ensure that they keep informed of the progress of the Bill. 

In particular, employers who have utilised the services of “contractors” who look-and-feel like employees should consider taking advice on whether the persons involved were legally employees for the purposes of tax, superannuation and other legislation.

If you would like further information regarding the new laws or any other issue please contact Damian Quail or Cassandra Bailey.

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Disclose the full upfront price or risk breaking the law: new upfront pricing laws apply

It is not uncommon for businesses to advertise a headline price for goods and services to their customers, and to only disclose optional costs in the fine print or in a manner that is not necessarily clear to customers. This is no longer permitted. Some businessess will need to change their pricing practices, particularly businesses selling goods online.

The Treasury Laws Amendment (Australian Consumer Law Review) Bill 2018 amends the Australian Consumer Law contained within the Competition and Consumer Act 2010, and imposes an obligation on businesses operating in Australia to ensure transparent pricing for consumers. As of 26 October 2019, businesses must display the total price for the goods and services including all pre-selected optional items. In other words, if optional components are pre-selected or automatically applied by the seller, these options must be included in the headline price. The customer then has the option to remove the pre-selected options selected in order to pay a lower price.

These new laws will especially affect businesses who sell goods and services online. The Explanatory Memorandum to the new legislation provides some helpful examples in relation to airlines. For example, if an airline fare is $500 and a website pre-selects an optional carbon offset fee of $5, then the headline price must be $505, not $500. However, if the carbon offset fee is not pre-selected or automatically applied, then the ticket can be advertised at $500.  

The same approach is applicable for promotions which display only a portion of the total price. Businesses must ensure that the total price is displayed just as clearly as the fractional price. Essentially, the new laws aim to avoid the situation where headline prices are advertised initially, but once the customer clicks through the website the price is increased to include pre-selected options and charges. 

Businesses should ensure that their pricing strategies conform with the new laws. 

If you would like further information regarding the new laws please contact Damian Quail. 
 

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Minutes of Board Meetings: more than just a "box ticking" exercise

The importance of minute taking at Board meetings was recently highlighted by the Financial Services Royal Commission.  The Governance Institute of Australia and the Australian Institute of Company Directors have collaborated to publish a Joint Statement of Board Minues (Joint Statement, available on the AICD’s and the Governance Institute's websites), which outlines key principles and best practice approaches to minute taking and document retention.

In many ways, the Joint Statement provides a “best practice” guideline for recording decisions and discussions at Board meetings. Company officeholders would be wise to carefully review the Joint Statement and ensure they are adequately recording minutes of Board meetings and complying with their statutory obligations. We have summarised below five key takeaways from the Joint Statement.

1. Board minutes are a legal record 

Board minutes are a legal record of Board decisions. The minutes may be the best, and sometimes only, evidence of the decision making process at Board meetings. Minutes may help to establish that directors have satisfactorily exercised their powers and discharged their duties.

Minutes should include the key points of discussion and detail the issues and risks the Board has considered. If judgment is required and directors are balancing a number of competing risks, it is prudent to consider whether the minutes capture them adequately. This is important where directors wish to rely on the “business judgement rule”.

2. Balance the level of detail 

The Joint Statement highlights the importance of ensuring the information recorded contains a sufficient level of detail.  Too much information can be unhelpful and too little can cause ambiguity. The right balance needs to be struck. 

In summary, Board minutes should record:

• the general thrust of issues raised and the general response of the Board; 
• the rationale for the resolutions and decisions passed by the majority, and the risks and issues which have been considered by the Board;
• the collective decision; and
• significant issues raised by directors and any votes by directors against or abstaining. 

However, Board minutes should not record:

• every director’s contribution, discussion or debate – minutes should not be viewed as a transcript as this will likely contradict the long standing principle that the Board is to act as a collective; and
• the details of “robust discussions” that take place – documenting “who said what” can negatively impact the perception of Board dynamics. 

The Board paper and supporting documentation used in the decision making process should influence the details in the minutes. Where appropriate, minutes should refer to the Board paper and supporting documents, but avoid repeating the contents. In that regard, directors should take an active role in reviewing Board papers and satisfying themselves that they provide adequate information on which to base decisions. 

3.    Stick to a particular style 

The Joint Statement provides some helpful stylistic tips for drafting minutes, including that minutes should: 

• be drafted in a succinct and clear manner in plain  English;
• be consistent – using a template is advisable; 
• not use emotive language; 
• be impartial; and 
• not repeat the contents of the Board paper.

4.    Consider regulatory and statutory compliance 

It is a requirement of the Corporations Act 2001 that a company keep a minutes book in which proceedings and decisions at Board meetings are recorded within one month of the meeting. It is important directors understand the statutory obligation - failing to do so is an offence of strict liability.

Minutes must be signed by the chair of the meeting, or by the chair of the next meeting, within a reasonable time after the meeting takes place. All directors should be given an opportunity to review and discuss the minutes before they are approved and signed.

Companies should implement (or review their current) document retention policies. It may be necessary to seek legal advice regarding what policies should be implemented and the obligations to safeguard evidence.  

5.    Be wary of Legal Professional Privilege 

It is common for Boards to consider legal advice. A cautionary approach should be taken in determining the degree of privileged information to include in the minutes. In many cases, it may be sufficient to document that the Board considered relevant legal advice when making a particular decision. Any privileged information in the minutes should be clearly identified and ideally be included in an appendix. Importantly, where minutes refer to privileged advice they should not be provided to third parties without first obtaining legal advice as this may waive privilege. 

If you require further advice about conducting Board meetings or corporate governance or advice generally, please do not hesitate to contact Cassandra Bailey at cassandra.bailey@whlaw.com.au or 9481 2040. 

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.

Board Spills - Getting the notice right

The interaction between section 249D and section 203D of the Corporations Act 2001. 

There has been a significant rise in shareholder activism over the last couple of years.  Often this is driven by shareholders with financial capacity and vision for the company, wanting to turn around the company’s stagnant fortunes and share price.  A common mechanism for shareholders to replace the board of a public company is a section 249D notice under the Corporations Act 2001.  A section 249D notice allows a shareholder or shareholders with at least 5% of a company’s share capital to force the company to call a general meeting to vote on resolutions proposed in the notice. 

There are a number of formal requirements, and many tricks and traps for shareholders, in utilising the section 249D notice provisions.

The section 249D notice must be in writing, state any resolution to be proposed at the meeting, be signed by the members making the request, and be given to the company.

On receipt by the company of a valid section 249D notice:

• its directors have 21 days to call a general meeting;
• if the meeting is to remove a director,  at least 21 days’ notice of the meeting must be given to shareholders; and
• the meeting must be held within 2 months of the company receiving the section 249D notice.

If the section 249D notice proposes resolutions for the removal of all or certain directors, the requirements of section 203D Corporations Act 2001 also need to be kept in mind. Section 203D(2) requires shareholders who want to remove a director at a general meeting, to give notice of their intention at least 2 months before the meeting is to be held.  The second part of section 203D(2) provides that if the company calls a meeting after that notice of intention is given, the director can be removed at the meeting even if the meeting is held less than 2 months after the notice of intention is given.

It is the structure of section 203D and the interplay between sections 203D and 249D that tends to cause grief for requisitioning shareholders.

Common mistakes

Because section 249D does not explicitly refer to section 203D it is sometimes overlooked.  If a section 203D notice has not been given,  or it is given after the section 249D notice, a proposed resolution in the section 249D notice to remove a director is ineffective and there would be a question whether the company had to call the meeting at all.

Other issues we sometimes see are the two notices being combined into one, or being issued on the same day. 

The two notices cannot be combined.  That is, the section 249D notice cannot also serve as the shareholder giving notice of their intention under section 203D.  There are at least a couple of reasons for this.

• Firstly, the legislation is drafted in a way that contemplates two separate notices being given.  They have different functions, different formal requirements, and can be given in different ways.  In drafting sections 203D and 249D, Parliament could have but did not expressly dispense with the need for notice under section 203D when a section 249D notice is being given.
• Secondly, it is not conceptually possible for a shareholder to give notice of their intention to remove a director at a meeting to be held in at least 2 months’ time, if the shareholder is on the same day by a section 249D notice compelling the company to call that meeting in no more than 2 months’ time.  The shareholder cannot have the required ‘intention’ at the time of giving the section 203D notice. 

As well as being separate notices, the section 203D notice should be given to the company before the section 249D notice is delivered; not on the same day.  That is the only way sections 203D and 249D can operate harmoniously and with full effect.

The section 203D notice can and should be given in such a way that it is possible for the meeting to be held after the 2 month period required by section 203D (although the company may then make its own decision to bring the meeting forward as foreshadowed by the second part of section 203D).   This can only happen if the section 249D notice is given to the company at least a day after the section 203D notice is given; preferably longer (out of an abundance of caution).   The exact timing will depend on the circumstances in each case.

We recommend that shareholders intending to use section 249D to remove directors from the board of a public company get legal advice on the process, and assistance to ensure each step is properly planned and executed.  Conversely, directors receiving such notices should seek prompt advice about how to manage their obligations under the Corporations Act 2001 and what steps can be taken to defend themselves and the company against the attack.

For advice to prepare for or defend an attempted board spill, please contact Dominique Engelter on +61 9481 2040 or dominique.engelter@whlaw.com.au.

This article is general information only, at the date it is posted.  It is not, and should not be relied upon as, legal advice.  This article might not be updated over time and therefore may not reflect changes to the law.  Please feel free to contact us for legal advice that is specific to your situation.