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There was a time when, if a company got into financial difficulty the contracting party could terminate the contract, even if the company had been meeting all its obligations. The “ipso facto” clause was the contract’s device that allowed this termination to take place. A Latin term that means, rather unhelpfully, “by the fact itself”, the ipso facto clause acted like a trip switch in a fuse box that the contractor could flick at the occurrence of an insolvency event, pulling the plug on the contract and bringing an end to the business trading. Not so now.

As part of the sweeping insolvency reforms that came into operation on 1 July 2018, new legislation has prohibited ipso facto clauses that once provided for a contract to self-destruct in the event of insolvency.An insolvency event can include voluntary administration, receivership and schemes of arrangement. These are all processes where the company is trying to work its way out of financial difficulty.The activation of the clauses has been particularly prevalent in the construction industry where parties seek to withdraw the obligation to continue providing their services in what they consider to be a risky business environment.

The new ipso facto provisions and the safe harbour reforms (discussed in previous articles) share a common purpose – to discourage directors and contracting parties from bailing down the escape hatch, and to get them to keep trading.This essence of the ipso facto reform, that only applies to contracts, agreements or arrangements entered into after 1 July 2018, is to provide for a “stay” against the enforcement of those ipso facto clauses.

In other words, any action taken by a party relying on that ipso facto clause to weasel its way out of a commitment to stay the distance of the contract, would be suspended to allow the company to continue trading for the benefit of its creditors and employees, until the administration ends or the company is wound up.

A contracting party can apply to the court for an order that a stay on enforcement rights be lifted if it is appropriate in the interests of justice or, in the case of a scheme of arrangement, if the scheme was not for the purpose of the company being wound up in insolvency.

The very positive side of the change for creditors and employees is that the company experiencing financial difficulty can continue to trade while it still meets its obligations under the contract – without the other party pulling the contractual rug from under its feet. With all the changes taking place in insolvency, we can guide you through the opportunities provided by the complex reforms.

If you need any assistance please contact us on (08) 9489 3399

With the ATO’s compliance targeting of large businesses in the past few years reaping rewards, this tax time, its turning its attention to small businesses. As a small business owner, what do you need to be aware of to stay out of the ATO spotlight? We have the answers to that and more, contact us today and we can help you sort out your business to avoid any issues with the ATO.

If you need any assistance please contact us on (08) 9489 3399

Managing tax disputes can be like wrestling with a superhero

It is sometimes said that a superhero like the DC Comics character Superman can be uninteresting because he is, for all practical purposes, indestructible. Critics have said the knowledge that he will most likely win can make Superman’s adventures  monotonous.

A similar accusation could be levelled at the Federal Commissioner of Taxation (the flesh and bone personification of the ATO). To most people, including a hefty majority of small and medium businesses, the Commissioner appears to be immune from defeat. He has extraordinary powers – he can require a taxpayer to produce almost any documents even if he doesn’t know whether the taxpayer has done any wrong; his assessments (or amended assessments) are generally valid even if he doesn’t follow the requirements of the taxation legislation; and, perhaps most worryingly to taxpayers, he can often (but not always) enforce those assessments and recover tax debts even if that tax is subject to a dispute.

Read the full newsletter here

The Australian Competition & Consumer Commission (ACCC) is the government body responsible for enforcing the Franchising Code of Conduct, and if you or someone you know are considering entering into a franchise arrangement, this will probably be a good starting point to get an idea of what to expect.

The code imposes strict obligations on franchisors to make sure that franchise agreements are fair (you can use the search tool on the ACCC’s website to find it).

It is a requirement that both franchisees and franchisors act in good faith in all their dealings with one another. Another significant point that should be kept in mind is that penalties for failure to comply can be significant.

However, if you’ve got a plan and are determined to forge ahead, it is also good to know that from a tax point of view, starting and running a franchise business is broadly the same as starting and running most other small businesses.

Read the full May Newsletter here

The Australian Competition & Consumer Commission (ACCC) is the government body responsible for enforcing the Franchising Code of Conduct, and if you or someone you know are considering entering  into a franchise arrangement, this will probably be a good starting point to get an idea of what to expect.

The code imposes strict obligations on franchisors to make sure that franchise agreements are fair (you can use the search tool on the ACCC’s website to find it).

It is a requirement that both franchisees and franchisors act in good faith in all their dealings with one another. Another significant point that should be kept in mind is that penalties for failure to comply can be significant.

However, if you’ve got a plan and are determined to forge ahead, it is also good to know that from a tax point of view, starting and running a franchise business is broadly the same as starting and running most other small businesses.

Read the full report here