Business Law

Two popular ways to get into running a business are through franchise and license agreements, both offering the benefit of allowing an entrepreneur to realise their goals through an established business model. Both types of agreements have different requirements in an operational and legal sense, which we’ll try and address in this article.

What are the basics of each type of agreement?

Franchise agreements: A franchise agreement is a legally binding contract between the franchisor (the established business owner) and the franchisee (the buyer), granting the franchisee the right to operate a business using the franchisor’s brand, products, and systems. In return, the franchisee pays initial fees and ongoing royalties to the franchisor.

The franchise agreement should cover matters such as the key terms of the business, training and support, non-compete clauses, how long the franchise relationship will last, royalty payments, renewal and sale rights, dispute resolution and a termination clause.

License agreement: A contractual arrangement between the licensor (the business owner) and the licensee (the buyer). The license agreement grants the licensee permission to use the licensor’s intellectual property, such as trademarks, patents, or proprietary technology, to operate their business. Unlike a franchise agreement, licensees usually have more independence in operating the business under license.

Typically the license agreement should cover the scope of the property being licensed, the agreed purpose for using the property, confidentiality clauses, exclusivity, payments or royalties, and any rights to transfer the license.

One of the key distinctions between a franchise and license agreement lies in the level of control and support provided by the original business owner. Franchises typically offer a higher level of support, as generally speaking the franchisor will provide comprehensive training, ongoing assistance, and a proven business model. In return the franchisee is also expected to adhere to specific guidelines and standards set by the franchisor, maintaining uniformity across all franchise locations in terms of factors such as business appearance, staff policies, and more.

License agreements, by contrast, tend to grant the licensee more autonomy in operating their business. While they gain access to the licensor’s intellectual property, the licensee will often receive limited other support and guidance. The licensee has the freedom to implement their own business strategies and practices as long as they stay within the terms of the license agreement.

Other key differences between franchising and licensing

When buying a business through a franchise agreement, the franchisee benefits from the established brand recognition and reputation of the franchisor. Customers are more likely to trust and frequent a business with a well-known brand, potentially leading to a faster return on investment.

License agreements, on the other hand, may not offer the same level of brand recognition, as the focus is primarily on accessing specific intellectual property. The success of the business largely depends on the licensee’s ability to market the product or service effectively under their own brand identity.

Franchise agreements will generally involve higher upfront costs than license agreements. In addition to an initial franchise fee, the franchisee is required to pay ongoing royalties to the franchisor, usually based on a percentage of their sales. These ongoing fees contribute to the support and resources provided by the franchisor.

License agreements often come with lower upfront costs, as they typically require a one-time licensing fee. The licensee may also negotiate a share of their revenue with the licensor, but this is usually less than the ongoing royalties associated with franchises.

Legal and regulatory requirements

Franchise agreements are subject to more stringent legal regulations compared with license agreements. In Australia, franchises are governed by the Franchising Code of Conduct, a mandatory regime that forms part of the Australian Consumer Law and which demands specific disclosure requirements, dispute resolution processes, and cooling-off periods for potential franchisees. This ensures transparency and protects the interests of both parties.

License agreements are generally less regulated, offering greater flexibility in their contractual terms. However, businesses should still seek legal advice to ensure that their licensing arrangement complies with relevant laws and regulations.

The importance of expert legal advice

Choosing between a franchise and a license agreement when buying a business requires careful consideration of various factors, including the level of support, brand recognition, costs, and legal requirements. Franchise agreements offer a turnkey solution with established support and a recognisable brand, but they come with higher costs and stricter regulations. License agreements, on the other hand, provide more independence and lower upfront expenses but may require the licensee to take on greater responsibilities for the business’s success.

Ultimately, prospective buyers must assess each agreement based on their individual preferences, circumstances, resources, and long-term business objectives to make an informed decision. At Felicio Law Firm our professional team regularly provide expert advice on the benefits and drawbacks of both franchising and license agreements, and can help clarify the issues involved for you, so contact us today.

The small business sector is one of the engine rooms of the Australian economy, driving economic growth and employment for millions of people. But running a small business can also be highly challenging in an environment where bigger picture events such as Covid-19 and rising inflation can present a threat to the sector’s growth and survival.

In response, the Australian government introduced the Small Business Restructuring (SBR) process in 2021, aimed at providing a simplified and efficient framework for debt restructuring. SBR allows a small business to create and propose a plan to its creditors to restructure its debts while the directors remain in control of the business and still trading.

In this article we’ll look in more detail at the SBR debt restructuring process and how it empowers entrepreneurs to regain control of their financial future.

Understanding the Small Business Restructuring process

The SBR reform introduced as part of the Australian government’s insolvency reforms allows eligible small businesses with debts up to $1 million to reorganise their financial affairs and operations while continuing to trade. The primary objective of the SBR process is to provide struggling small businesses with a chance to turn around their operations and avoid insolvency, thereby preserving jobs and fostering economic stability.

To qualify for the SBR process, small businesses must meet specific eligibility criteria, including:

• being incorporated in Australia;
• having liabilities of $1 million or less (exclusive of employee entitlements)
• being insolvent or likely to become insolvent;
• with none of its directors having been a director of another company that has gone through another Small Business Restructuring or a Simplified Liquidation process within the last seven years;
• and, the company is up to date with its tax lodgements and all employee entitlements..

Upon meeting the eligibility requirements, the small business appoints a registered restructuring practitioner to assist in formulating and implementing the restructuring plan. The ASIC website maintains a list of Registered Liquidators, including those who can only take the work of a small business restructuring practitioner.

Developing a restructuring plan: The appointed restructuring practitioner works closely with the small business to develop a restructuring plan tailored to its unique circumstances. The design of the plan should propose strategies and actions to address the company’s financial challenges and give insight into how it can secure future sustainability.

The plan may detail the need for the directors to negotiate with creditors for extended payment terms, debt forgiveness, or partial debt repayment. Under the SBR process, the restructuring plan must be presented to the creditors within 20 business days of the appointment of the restructuring practitioner.

Voting and approval by creditors: Once the plan is presented, the creditors hold a meeting to vote on approving its terms within 15 days. To be accepted, the plan must receive support from a majority in both value and number of the creditors. If the plan is approved, it binds all unsecured creditors, and the small business can proceed with its implementation.

If creditors accept the plan, the company pays what is agreed in the document then is free of the balance of the debt. SBR has quickly become a popular alternative to negotiating a payment arrangement with the Australian Tax Office.

If creditors don’t accept the plan, the company can proceed to choose its preferred course of action, such as another company liquidation process, voluntary administration or other actions.

Effects and benefits of the SBR process: The SBR process provides several advantages for small businesses facing financial distress. Firstly, it offers a cost-effective alternative to traditional insolvency processes, reducing the financial burden on the business. Secondly, it allows business owners to retain control and continue operating, preserving jobs and maintaining relationships with suppliers and customers. Furthermore, SBR facilitates open communication between the small business and its creditors, fostering collaborative solutions and better outcomes for all parties involved.

Seek expert legal advice for more detail on the SBR process

The SBR process in Australia provides a vital lifeline for struggling small businesses, offering a simplified and efficient debt restructuring framework. In uncertain times where the economy is still shakily emerging from the shock of the Covid-19 pandemic, SBR provides a cost-effective and time-saving way for a business owner to try and regain control of their finances and get the enterprise back on its feet.

If you need some expert guidance on utilising the SBR process, contact our friendly team at Felicio Law Firm. We have the skills and experience to offer you the right advice on restructuring debt for your small business.

Most business ventures are entered into in good faith and with hope and expectation for success among the parties involved.

Unfortunately, original intentions are not always realised. Companies and other corporate partnerships such as joint ventures can often turn into acrimonious affairs when the vision for the business is not realised, the people involved wish to go their separate ways or some other dispute arises.

These situations can be avoided if the shareholders or partners in the business enter into a properly drafted agreement at the start of the venture. But where such a document doesn’t exist or is contested, the dispute can become intractable with threats of legal action which can leave all parties to the venture worse off.

One way to avoid such an expensive and lengthy resolution of the issues involved is to appoint a liquidator to assist the parties to exit the business in an orderly fashion. It’s important to note that a company or partnership between companies does not need to be insolvent for it to be placed in the hands of liquidators.

What situations are suitable for the appointment of a liquidator?

There are a number of scenarios where corporate partnerships or shareholders may apply for the appointment of a liquidator:

• Where there is a dispute between directors/shareholders or partners that is adversely affecting the company’s business or assets and can’t be resolved through dispute resolution or by agreement;
• Where a creditor of the venture has fears that directors or partners are inappropriately dealing with assets or removing them from the company;
• Where a shareholder or partner has concerns that other executives may be acting in their own interests and diminishing the venture’s financial position.

In any of the scenarios outlined above, the appointment of a liquidator is designed to protect and preserve the company’s assets until the dispute can be resolved or the venture wound up. An independent arbiter in the form of the liquidator can manage the ongoing affairs of the company, and also protect the interests of the aggrieved party who applied for their appointment.

How does the process work?

Once appointed, usually by agreement of the shareholders or partners and even when the company is solvent, the liquidator’s role becomes to:

• realise the company’s assets;
• maximise the return on those assets to repay the company’s creditors;
• pay any surplus funds to creditors.

The liquidator’s role is to provide parties to the dispute with solutions in order to realise a ‘just and equitable’ outcome. One solution may be to sell the business either privately or via an open market process, using the proceeds to repay creditors and distribute the remainder to shareholders or partners. In other circumstances, a structured wind-down of business operations might be undertaken, with creditors repaid as assets are realised and remaining value in the business distributed to shareholders/partners.

The provisional liquidation option

Applications to the court for the appointment of liquidators can occur on various grounds under sections 459Q and 461 of the Corporations Act 2001.

Court-appointed liquidation – where the Court orders that a company be wound up and a liquidator be appointed – occurs on application by a creditor, director or shareholder of the company, or the Australia Securities and Investments Commission (ASIC). Once this application is made, a further application can be made to the court for a provisional liquidator to be appointed prior to any winding up of the company or joint venture. The provisional liquidator operates in the period between when the liquidation application is made and the winding up application is heard by the Court, and generally happens when there is a dispute between shareholders or partners.

This is appointment will be made by the court on ‘just and equitable’ grounds to the parties involved. Such an application should only be made once all avenues of dispute resolution and mediation are exhausted.

A court may make this appointment if on the evidence available it is satisfied that the business’ assets are at risk of being diminished. The liquidator will be charged with maintaining the status quo of the business or partnership and preserving its assets, meaning it is not empowered to conduct investigations into the venture’s affairs, recover voidable transaction of distribute funds to creditors. The provisional liquidator may also, however, have the power to sell a business and/or its assets.

Meaning of ‘just and equitable’ outcome

Consideration of what is a just and equitable outcome for those involved in the business is complex and the court will only consider liquidation as a last resort where the business is solvent.

But it will order the company to be brought to an end through liquidation where the dispute is at a deadlock and can’t be resolved through normal dispute resolution. In some cases, the possibility of winding up the company will change the minds of the disputants and force them to the negotiating table.

The need for expert legal advice

This can be a complicated area of law and legal advice from professionals with experience in corporations law is essential. At Felicio Law Firm we have advised many clients on the advantages and drawbacks of appointing a liquidator to try and end an impasse in the operation of a business, both for shareholder disputes and corporate partnerships. Consult one of our Erina lawyer’s experts in this field if anything in this article applies to your situation.

The power of Google, with more than four billion users of the search engine around the world, is now unquestionable.

A bad review of a business posted as a review on its Google listing can be highly damaging to the enterprise’s reputation.

There have now been a number of cases brought in Australia by those adversely impacted by a negative or defamatory Google review by a disgruntled client or vexatious reviewer.

The costs of legal action mean not every business has the funds to bring a defamation action. Additionally, the owner who brings such an action will need to demonstrate actual loss or harm as a result of the negative review.

This article takes a closer look at what options are available to a business the subject of a bad Google review. You should always seek the guidance of experienced central coast family lawyers with specialist knowledge in this area, such as Felicio Law Firm, before embarking on a defamation action over a negative Google review.

How does defamation work in relation to Google reviews?

A business that believes its reputation has been damaged by a negative Google will most commonly take legal action in defamation.

Defamation relies on the accusation that the review in question opened the business to hatred, contempt or ridicule.

It’s important to note not all companies can take action for defamation. Under NSW’s Defamation Act, an action for defamation is only possible by an ‘excluded corporation’. That is one that employs fewer than 10 persons and is not related to another corporation. The corporation must also not be a public body.

There are other causes of action a company can take, such as injurious falsehood, to combat the effects of a Google review, though they are generally more difficult to prove.

It’s open to a director or officer of a company to take personal action for defamation against a reviewer provided they are identified with sufficient certainty in the review that allegedly carried the defamatory imputation.

Significantly, a Google review can still be defamatory even if it does not specifically name a person or business. A reference in the review that is specific enough to allow identification – ‘the men’s hairdresser on Smith Street’, for example – can sustain the defamation action. Similarly, if there is a reference to a class of people such as ‘Everyone working at the fish and chips shop on Smith St’, may also support a claim for defamation.

Some recent case examples

In the recent case of Dean v Puleio [2021] VCC 848, Ms Puleio wrote four Google reviews on the business listing of Dr Dean, a periodontist who owns Kew Periodontics and Dental Implants. Ms Puleio had been a client at the clinic until Dr Dean terminated the relationship due to Ms Puleio’s manner and constant cancelled appointments.

Ms Puleio then posted reviews that levelled accusations at Dr Dean including being unprofessional, overcharging, failing to diagnose illness, and being someone who bullied patients. Another post stated that Kew Periodontics provided ‘unprofessional and undermining service’.

Two further reviews stated other accusations about Dr Dean’s ethics and falsely stated the doctor had apologised to Ms Puleio.

Evidence supporting Dr Dean’s defamation application included the number of times the review had been viewed online, including the ‘grapevine effect’ when posts are shared, as well as data on the downturn in the page views on Kew Periodontics’ website and a drop in new patient referrals after the negative posts.

The court accepted the reviews had damaged Dr Dean’s reputation amongst her peers and in the eyes of the broader community, plus had an effect on her wellbeing.

It awarded damages in the amount of $170,000. That figure included aggravated damages because Ms Puleio had published the statements solely to harm Dr Dean’s reputation. She also refused to apologise, take down the reviews, attend mediation or participate in the court process.

Around the same time in February 2020, Melbourne dentist Matthew Kabbabe took Google to the Federal Court in order to force the search engine giant to identify a person who anonymously posted a bad review about his practice on his Google business page. Google had refused to either take down or reveal the identity of the poster, ‘CBsm 23’.

The Federal Court justice made an order compelling Google to turn over any identifying information of the reviewer, including names, phone numbers, IP addresses, location metadata, and any other information about the person’s Google accounts so that Mr Kabbabe could pursue a defamation action against the reviewer.

Can Google itself be liable? The Dylan Voller case

International social media platforms such as Google and Facebook have for many years strenuously resisted the idea that they are ‘publishers’ of reviews hosted on their platforms.

The High Court of Australia’s recent decision in the case of Dylan Voller, a former detainee of the Northern Territory’s juvenile detention system, where it dismissed an appeal from Australian news outlets who claimed they were not responsible for third-party comments on their public Facebook pages, may also have implications for Google reviews.

Voller is seeking to pursue an action for defamation against the news organisations for allowing defamatory material about him to be published in comments on their Facebook pages.

The High Court rejected the appeal, finding instead that by creating a public Facebook page and posting content, the media outlets facilitated, encouraged and assisted the publication of comments from third-party Facebook users. These actions made them, therefore, the publishers of those comments.

Similar reasoning could be applied to Google’s facilitating of business reviews which are defamatory in nature.

In April 2020, Melbourne lawyer George Defteros won $40,000 in damages from Google by arguing it had defamed him as the publisher of Google searches on his name which linked him to Melbourne gangland figures.

Call Felicio Law Firm for further advice

If you believe your business has been harmed by the appearance of a negative review on Google or another social media platform, call Central Coast Family Lawyers today.

In this fast-changing and evolving area of the law, we are always up-to-date on the latest developments to be able to advise clients on the most sensible and practical course of action to combat a negative review.

Contact our Erina Family lawyers friendly team today at (02) 4365 4249.

The COVID-19 pandemic has affected every area of the way we live. And at the moment, we are not sure how long our changed circumstances will last, or what the legacy of this disease will be.

One group in society most obviously and directly affected has been those who operate businesses. Shut-downs, stand-downs, and the sudden disappearance or inactivity of customers and clients has had – and continues to have – a dramatic and damaging affect on business owners and operators.

As a law firm embedded in its community, with many long-term relationships with valued business clients, we at Felicio Law Firm are particularly aware of the challenges our friends are facing. We are here to help during this unprecedented time, which the subject of this article is addressed to.

How we can help

With many business clients facing severely reduced revenue and even insolvency, it’s important for them to know that there are legal options which are affordable, accessible and effective in helping protect and aid their business during this trying time. But these options do require placing your trust in us by providing necessary information we can utilise to assess your business position and what might be done to ensure it survives the pandemic.

Some of the records we might request in order to give you informed legal advice on your options might include:

• Details on the business’ current operations, including active contracts, and any planned acquisitions or divestitures.
• The company’s most recent financial statements. The most important details within these are:
•  a depreciation schedule, if available;
•  any recent valuations relating to plant, equipment and intellectual property owned by the business;
• debtors’ and creditors’ ledger;
•  details of related party creditors;
•  current balances in all business-related bank accounts;
•  details on employee entitlements.
• Whether any payment arrangements have been entered into between the business and other agencies, such as the Australian Taxation Office (ATO).
• ATO balance and income tax account details.

Provision of these details by your business’ financial adviser is certainly a great start in helping us understand the financial position of the enterprise and our capacity to suggest useful legal avenues for protecting your position.

What else could be provided?

In addition to those documents listed above, our legal help can be provided where a director of a business may have provided a personal guarantee in order to make sure the business meets its debt and financing obligations.

This process may require you to furnish us with the details of any insurance policies held by the company, particularly those that relate to the liabilities of directors and other company officers.

In these times of economic contraction, it’s advisable our business clients contact us as soon as possible if they receive any statements of claim, default judgement or applications to wind up as part of insolvency proceedings. Equally, if there are creditors of the business demanding payment, provide us with details of any payments made as soon as you’re able.

At Felicio we can help where the business has secured creditors. By providing us with information on the amounts owing to secured creditors, the extent of the charge they hold, and any details of repayment plans to meet obligations, we can help advise on cost effective ways to protect your business.

Likewise, where suppliers retain title over stock or goods of the business which are registered on the Personal Property Security Register (PPSR), or there are rental assets held by the business which may be subject to charges by the bailor under the PPSR, we can help you understand the legal position. This will require you providing details on current rental/lease agreements held by the business, including the lease period and the amount and frequency of repayments.

Why legal advice is crucial

These are trying times. Many experienced economic commentators have openly predicted many businesses won’t survive the effects of the global downturn caused by COVID-19.

Many businesses are also unaware of their legal rights and obligations, or what they can legally do to protect their interests. We understand all of these issues and are here to help our business clients through these difficult times.

Call us Erina Lawyers today (02) 4365 4249 for an initial consultation to discuss any of the issues raised in this article. Our firm is dedicated to long-term relationships with clients where we listen with compassion and understanding and then act in your best interest to ensure your business is protected.

Incompetence. Mismanagement. Bad luck. Some combination thereof. There are lots of reasons businesses experience catastrophic financial difficulties. There are also lots of consequences, including liquidation. Here’s what all business owners should know about liquidation, and how it differs from the other repercussions of crushing debt.

What is liquidation?

To understand liquidation, one most first understand the concept of insolvency. A business (usually a company) goes into insolvency or becomes insolvent when its debt is such that the company is incapable of meeting past, current or future financial obligations.

Depending on the circumstances, insolvency can lead to receivership, administration, bankruptcy (generally applicable to individuals/sole proprietors) and liquidation. Each of these includes different protocols and mechanisms for the resolution of debt, which we will discuss briefly here.

Receivership

This happens when a secured creditor or creditors enlist the help of someone called a “receiver” to recover money owed.

The receiver’s job is to oversee the sale of any business assets and/or the business and the distribution of the proceeds to the secured creditors, followed by any unsecured creditors and other relevant parties in accordance with applicable rules. The receiver is also responsible for notifying the Australian Securities & Investment Commission (ASIC) about any related  offences.

There are two things to keep in mind here. The first is that receivership can be implemented without a court order. The second is that receivership does not change the legal status of the company; your directors can carry on, but the scope of their power will be restricted.

Administration

Administration is similar to receivership, in that someone is recruited to put things right. This person is called an administrator, and he/she has two responsibilities. The first is to ensure that outstanding debts are paid and the second is to see that the sale of the business/business assets goes smoothly.

Depending on the situation, administration may result in liquidation or restoration of control to the company’s directors.

Bankruptcy

As we have noted, bankruptcy does not apply to companies. Instead, it applies only to individuals/sole proprietorships. Accordingly, it is carried out on a much smaller scale.

Instead of an administrator or receiver, a trustee is chosen to oversee the process. In this role, he or she may coordinate the sale of assets, secure your income for a given period for the repayment of debts, or secure property wrongfully given or ‘sold’ to someone else in an effort to prevent its sale for repayment of debts.

Another consequence of bankruptcy is placement of your name, along with a mark, on the National Personal Insolvency Index (NPII) for up to five years. The NPII is a widely accessible database that includes the individual/business names and addresses of anyone who has declared bankruptcy.

What happens when a business is ‘liquidated’?

Liquidation – the process whereby which the business is done away with and all of its assets are sold – usually applies only in the most dire situations. It includes the following steps:

1. The conversion of the company’s assets to cash (through sales).
2. Distribution of the proceeds to creditors.
3. Distribution of any remaining funds to shareholders.
4. Formal request to ASIC to remove the company from the register, thereby ending its legal existence.

You should also be aware that this process is carried out by someone called a liquidator and that it can happen after the business has gone through receivership and/or administration.

How to tell when liquidation is forthcoming

Insolvency – particularly liquidation – may be warranted when a business:

• Cannot meet its monthly expenses;
• cannot sustain fair market salaries for its employees;
• can no longer afford to pay its taxes or make required contributions to employee superannuation;
• cannot recoup sufficient funds from its debtors or ongoing work to meet the cash flow demands.

There are other warning signs that should also be taken into consideration. For example, liquidation may be imminent if your business is hemorrhaging so much money that the bank secures a mortgage on your home to ensure it can recover the amount owed. It may also be forthcoming if growing business debt prompts a creditor or creditors to obtain personal guarantees. Liquidation may be on the cards if your business continues to incur debt after it is declared insolvent and goes through receivership or administration. Finally, liquidation is likely inevitable if you (or any other director) receives a Director Penalty Notice from the Australian Tax Office that the company is incapable of paying.

Ignorance is not bliss

One of the more unfortunate aspects of human nature is our tendency to ignore unpleasant situations. But as we all know, wishing something away doesn’t work. If your business is facing financial difficulties, the best thing to do is seek advice from qualified legal and financial professionals as soon as possible. Our Central Coast lawyers is here to help so contact us by phone on (02) 4365 4249 or through our website, today.

Commercial law is also known as the area of Business and Corporate law.

This aspect of law focuses on commerce, trade, sales alongside individuals and businesses who conduct particular financial activities. At Felicio Law Firm, we will support you in navigating and addressing issues you face in respects to your business affairs.

Uncovering Unclaimed Money

Do you have unclaimed money waiting to be retrieve in an account somewhere?

In Australia alone, there is over $1 Billion dollars’ worth of lost money waiting to be claimed by its rightful owner at any given time. This is due to the fact that the money has become unclaimed for a number of years. Keeping track of different accounts from superannuation, shares, insurance policies, bank accounts and investments can be quite hard, however if not tracked properly, it can lead to the result of your own money becoming unclaimed and lost.

When money in these accounts convert as unclaimed, the funds are then paid to the Australian Securities Investments Commission. Once unclaimed money is received by the ASIC, it is then transferred to the Commonwealth of Australia Consolidated Revenue Fund where the legitimate owner can request for the money at any given time.

Felicio Law Firm is a registered agent to the ASIC, and we able to conduct the lodgements and searches for any unclaimed money in Australia linked to you. We will be able to assist you in finding unclaimed money you may have lost, and conduct the correct procedure in claiming this money back for you.