Under the new Personal Property Securities Act 2009 (Cth) (“the Act”) a security interest is an interest in personal property and in substance secures payment of a debt or other obligation.   A security interest incorporates the previous forms of security such as mortgages and charges over assets; however, it also incorporates transactions such as:

• traditional retention of title (“ROT”) clauses in contracts (where a purchaser has possession of the property but does not acquire title from the seller until the full purchase price is paid); and
• financing or operational leases of personal property for a term exceeding twelve months (or 90 days in the case of a motor vehicle, boat or aircraft).

Under the Act, suppliers and lessor’s who utilised ROT clauses will become secured parties with a security interest in the property supplied.  In order to protect themselves, suppliers and lessor will need to register their security interest in the property supplied or leased.

Provided the security interest is registered,  suppliers and lessor utilising ROT clauses will receive a purchase money security interest which entitles them to take priority over all other, including earlier, security interests in the collateral where the requirements of the Act have been complied with.

The Act also provides protection against a trustee in bankruptcy or a liquidator as the property subject to the security interest will not be available to a trustee in bankruptcy or a liquidator.

It is important to note that the Act does not require a registration to be made in respect of all supplies or leases to the same buyer or lessee.   A single registration may cover subsequent security interests in property that is supplied under later agreements. 

Given the above, it is highly recommend that all businesses review not only their client arrangements but also their business ...

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The recent Federal Court decision of Australian Securities and Investments Commission v Healey [2011] FCA 717 (“Centro”) shows the significant obligations that directors need to take into account when approving financial statements of their company. In this instance, the directors approved financial reports for Centro Property Group and Centro Retail Group which failed to disclose that the cumulative liabilities of both companies were $3.75 billion.

Justice Middleton held that certain directors and former officers of Centro had:

1. Breached their duties to act with due care and diligence under sections 180(1) and 601FD(3) of the Corporations Act 2001 (Cth)(“the Act”); and
2. Failed to take all reasonable steps to comply with, or secure compliance with the financial reporting obligations contained in Part 2M.3 of the Act, pursuant to section 344(2) of the Act.

In making this decision, his Honour clarified that directors have a responsibility to read, understand and focus on the contents of the financial reports they are required to approve or adopt. It is not sufficient for a director to be briefed by a party with knowledge of the contents of the financial report.

Further, the responsibility of the director extends to require that the director ensures that the financial statements are consistent with the director’s knowledge of the company’s financial position, which requires the director to examine in detail the report and be continually apprised of the company’s financial circumstances. ...

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A shareholders’ agreement is a contract that regulates the rights and obligations of members of a company.  A shareholders’ agreement is not a mandatory document required under the Corporations Act2001 (Cth) (“the Act”), however, it provides an important mechanism for regulating aspects of a company not catered for in either the company’s constitution or the replaceable rules of the Act.  It further assists in the overall running of the business by providing certainty with respect to the obligations/expectations/rights of the members of the company.

Shareholder agreements generally cover the following matters (among others):

1. exit strategies for members (i.e. agreements to sell shares on particular occurrences, i.e. death);
2. the financing policy of the company;
3. determining who is to manage the day-to-day business of the company;
4. the requirements and conditions of any shareholder loans;
5. the dividend distribution policy of the company;
6. restraints of trade with respect to the members and their related key persons;
7. a shareholder’s rights to appoint/remove directors; and
8. any pre-emptive rights a member has to acquire shares in the event of another member selling their shares.

A further advantage of a shareholder agreement is to reduce the risk of potential disputes between members.  Shareholder disputes can be costly and only reduce business value.  Where a dispute does arise however, it is most important that a clearly defined procedure is contained in the shareholders' agreement setting out  how the dispute will be handled, so as to minimise disruption to the business.

To discuss whether a shareholders’ agreement would be beneficial for your organisation, please contact Matthew Rouse on 07 3648 9900. ...

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A recent High Court decision has made it clear that Lessee’s face potential liability in the event they alter leased premises without the Lessor’s consent.

In 1996, the applicant Tabcorp Holdings Ltd (“Tabcorp”) and the respondent Bowen Investments Pty Ltd (“Bowen”) entered into a ten year lease term with two five year options to renew.  Prior to entering into the lease, Bowen had taken considerable care and expense in the construction of the foyer to the leased premises, with the foyer containing specialised materials (such as San Francisco Green Granite).  In or around June 1997, Tabcorp approached Bowen regarding making alterations to the foyer area.  Bowen responded in turn saying that consent was not given.

Bowen subsequently attended the premises and discovered that the glass and stone partition, timber paneling and stone floor tiles had been removed and what remained of the floor work was in the process of being jack-hammered.  Despite protests on the part of Bowen, Tabcorp completed the alterations to the foyer area around August 1997.  The Lease between Bowen and Tabcorp contained the following lease provision by which the Tenant covenanted:
“Not without the written approval of the Landlord first obtained (which consent shall not be unreasonably withheld or delayed) to make or permit to be made any substantial alteration or addition to the Demised Premises”
The lease also contained covenants that the Tenant will:

1. Keep the premises in repair;
2. To yield up the premises on the determination of the lease in good repair; and
3. To make good any breakage or damage.

These provisions are considered standard lease terms.

The Federal Court originally found in favour of Bowen and awarded damages in the amount of $34,820.00 (which represented the difference in the value of the property with the old foyer and the value with the new foyer.  Bowen appealed this decision.  On ...

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