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  • Potato, potahto; tomato, tomahto: an assignment and a novation, the same thing … right?

    Potato, potahto; tomato, tomahto: an assignment and a novation, the same thing … right?

    Okay, you’ve become a party to a contract and that contract requires you to pay money; but then you sell your business (or whatever) and you “assign” the contract  you are free and clear, right? Wrong!

    There are a number of reasons why you might want to transfer part or all of an existing contract to another party; it could be part of a sale of business, the contract might be valuable or you might not be able to perform the work anymore. As part of that process, the terms ‘assignment’ and ‘novation’ are often bandied about interchangeably. Unfortunately, they do not mean the same thing, and it is actually important to understand the difference so you get the outcome you are bargaining for.

    At the most basic level:

    • an “assignment” transfers the rights and benefits of the contract, but does not free you from the obligations; in that respect the original agreement remains unchanged; and
    • a “novation” is where you want to transfer both the rights and obligations under an agreement; it ends both your benefit and your burden (unless the “new” contract (ie; “novation”) states otherwise).

    Looking at some of the important differences between the two:

    Assignment

    If you want to keep performing your obligations under the agreement but give away some rights, you should seek an assignment. In simple terms, you cannot “assign” your obligations or liabilities. The original agreement will otherwise remain unchanged and will remain enforceable against you.

    With an assignment, you will remain a party to the agreement and liable for performance under the contract. Even if you have contracted with some other person to perform the contract on your behalf, unless the terms of the original contract require it (including through some implied term that you had been engaged to perform the contract personally), there is typically no requirement to obtain consent of the other parties to achieve an assignment. But there is a requirement to give the other party “notice” of the assignment, so practically speaking most people either seek consent or there are terms drafted into the contract that set out when an assignment is allowed and on what conditions.

    Assignments must be documented in writing to clearly identify what rights are being transferred; they must be unconditional and the assignment, to be effective, must be “notified” to the other contract parties.

    Novation

    If you want to transfer all of your rights and be relieved of all your obligations under a contract (essentially removing yourself from the contract, then you must do so through a “novation”. A novation ends the original contract between the original parties, and creates a new contract; this is usually achieved through a single deed of novation. The novation has the effect of substituting one party for another without necessarily changing the rights and obligations under the original contract (although such changes might be agreed).

    For a novation, given you are trying to remove yourself from a contract, consent is an essential element. All parties (new and old) must consent.

    Unlike an assignment, a novation can be in writing or can be oral.

    A court will take into account what the parties have said to each other, their conduct and course of dealings in determining whether there was an agreement to novate or simply and attempt to assign or something altogether different (perhaps a subcontract? or an agency?).

    Proving any form of contract requires clear proof of terms and intention. Proving that there was an oral agreement to “novate” can be a lengthy and expensive process, as the reason you might need such proof will be for reason that the other party refuses to acknowledge that is had agreed to what you are asserting, thus claiming you are still bound by the contract. Proving terms and intention is best done through a written document.

    Similarities

    Both an assignment and a novation will “transfer” rights under a contract. A document might be called “an assignment” but if it seeks to transfer all rights and obligations of a party, to effectively substitute one party for another and if all parties have consented to that substitution, then, despite the name, it may actually be a “novation”.

    As you can see, despite the similarities, there are fundamental differences between assigning and novating. Arm yourself with this knowledge before you start the process of ‘assigning’ or ‘novating’ to ensure you are not giving away too little or too much.

    A short example: I have used finance to buy my six tractors; I sell the tractors and assign the finance with the consent of the financier. If the assignment is in not writing, then there is no “assignment” at all. If there is an “assignment”, I am still liable to the financier, but now so is the assignee.

    If you have any questions about how an assignment or novation works, please get in touch with our Business team.

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  • BAL Estates Team Listing in Doyles Guide 2018

    BAL Estates Team Listings in Doyles Guide 2018

    The 2018 Doyles Guide listing of leading Wills & Estates Litigation and Wills, Estates and Succession Planning lawyers and law firms has just been released and details solicitors and law firms practising within those areas who have been identified by their peers for their expertise and abilities.

    Congratulations to our Estates Team for their 2018 Doyles Guide listings.

    Keith Bradley AM

    • Preeminent, Wills & Estates Litigation Lawyers – Canberra
    • Leading, Wills, Estates & Succession Planning Lawyers – Canberra
    • Recommended, Wills & Estates Litigation lawyers – Australia

    David Toole

    • Recommended, Wills & Estates Litigation Lawyers –Canberra
    • Recommended, Wills, Estates & Succession Planning Lawyers – Canberra

    Golnar Nekoee

    • Recommended, Wills & Estates Litigation Lawyers –Canberra
    • Recommended, Wills, Estates & Succession Planning Lawyers – Canberra

    Ellen Bradley

    • Rising Star, Wills, Estates & Succession Planning – Australia

    BAL Lawyers has been listed as a First Tier Firm in Wills & Estates Litigation Law Firms and Wills, Estates & Succession Planning Firms – Canberra.

    Full listings for all categories can be found here.

    Our Estates Team take a holistic approach to estate planning, considering your broader personal, family and financial circumstances to ensure your wealth is passed onto the people you wish to benefit in an efficient and tax-effective way.

    If we can assist you with a making a will, appointing a power of attorney, estate litigation or helping you set up a business succession plan, please contact us.

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  • Business Breakfast Club - Illegal Phoenix Activity

    Business Breakfast Club September Summary - The Phoenix and the Regulators: A Liquidators Perspective

    This month at Business Breakfast Club, Lachlan Abbott and Fergus McFarlane of Ernst & Young provided the liquidator’s perspective on legal and illegal phoenix activity. Owing to growing concerns around phoenix activity there has been an increase in regulatory attempts to deter and disrupt illegal phoenix activity.

    What is Phoenix Activity?

    Phoenix activity involves registering a new company to take over the failed or insolvent business of a predecessor company. This is legitimate where there is genuine company failure and liquidation. Directors may responsibly manage a company, but the company may be unable to pay its debts. If the directors then hand the insolvent company over to a liquidator and register a new company after liquidation to continue the previous business, this will constitute legal phoenix activity.

    What is Illegal Phoenix Activity?

    Phoenix activity involves registering a new company to take over the failed or insolvent business of a predecessor company. This may constitute a legitimate business restructure where there is genuine company failure and the assets are sold at market value and in the best interests of creditors

    Directors may responsibly manage a company, but the company may still be unable to pay its debts. If the directors then hand the insolvent company over to a reputable liquidator and the assets are sold at or above market value (before or after liquidation) this would normally constitute legal phoenix activity, even if the assets are sold to a related party.

    Regulatory Approaches for Reform

    In the 2018-19 Budget, the Government announced several proposed reforms to corporations and tax laws to deter and disrupt illegal phoenix activity. The draft legislation includes reforms to:

    • make it an offence for directors to engage in transfers of company assets that prevent, hinder or significantly delay creditors’ access to those assets;
    • make it an offence for pre-insolvency advisers and other facilitators of illegal phoenix activity to incite, induce or encourage a company to make these creditor-defeating transfers of company assets;
    • prevent directors from backdating their resignations to avoid personal liability;
    • prevent sole directors resigning and leaving a company with no director;
    • extend the director penalty provisions to make directors personally liable for their company’s GST and related liabilities;
    • expand the ATO’s powers to retain refunds where there are outstanding tax lodgements;
    • introduce a Director Identification Number (DIN) to allow enforcement agencies to verify and track the current and historical relationships between directors and the entities they are associated with; and
    • restrict the voting rights of related creditors of the phoenix operator at meetings regarding the appointment or removal and replacement of an external administrator.

    For more information, please contact Shaneel Parikh. The next Business Breakfast Club will take place on 12 October 2018. If you would like to attend, please contact us.

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  • Baiting Buyers The Risks of Underquoting in the ACT

    Baiting Buyers: The Risks of Underquoting in the ACT

    You’d be hard pressed to find a real estate agent who is unfamiliar with the term ‘underquoting’. Indeed the practice of underquoting has become a significant problem in NSW and Victoria, where the average difference between the sale price and the agent’s quote in some suburbs can be as much as 30%.[1] Thankfully, the practice of agents deliberately undervaluing the selling price of a property to ‘bait’ buyers has been relatively infrequent in the ACT, although not without precedent.[2] It is in such a climate of high scrutiny being placed on agents however that you must be aware of the potential penalties of underquoting.

    The current law in the ACT

    Real estate agents in the ACT who underquote the likely sale price of a residential property face liability under two statutory regimes: the Agents Act 2003 (ACT) and the Australian Consumer Law, found in Schedule 2 of the Competition and Consumer Act 2010 (Cth). Interestingly, these statutory regimes could also apply to an agent over quoting the sale price of a Property.

    The Agents Act 2003 makes it an offence for an agent to make a statement about the agent’s business which is false or misleading or to make a dishonest representation (to the Seller or the Buyer) about the agent’s estimate of the selling price of the property. These offences apply to any advertisement published by an agent and cast a wide net in capturing potential dishonest conduct. There are also significant penalties for a breach, being 100 penalty units ($15,000 for an individual or $75,000 for a corporation).

    This is supplemented by the misleading and deceptive conduct provisions of the Australian Consumer Law, which make it an offence to engage in misleading and deceptive conduct in the course of trade and commerce (including a specific offence which applies this to conduct in connection with the sale of an interest in land). The potential penalties for being found to have engaged in misleading and deceptive conduct include fines of up to $220,000 for an individual and $1.1 million for a corporation.

    In addition to this, agents face a potential disqualification under the Agents Act 2003 should the offence be sufficiently serious.

    Cracking down – the response to underquoting in NSW and Victoria

    Despite similar penalties being present, in recent years NSW and Victoria have introduced legislative reforms imposing more comprehensive obligations on agents when estimating selling prices and harsher penalties for those who make misrepresentations. Although these types of reforms have not yet been introduced in the ACT, they may be on the agenda of the Legislative Assembly.

    In NSW, agents are now required to keep records substantiating selling price estimates and are prohibited from publishing an indication of the sale price less than the estimated selling price for the property (this even extends to advertisements that indicate a sale price of “offers above” or use similar words or symbols). Similar restrictions apply in Victoria, where agents are also required to prepare a statement of information (taking into account at least three properties considered most comparable) available for inspection by prospective buyers.

    Conclusion

    While the current ACT regime provides for significant penalties should agents be found to have made false or dishonest representations in underquoting the selling price of a property, legislative amendments in other Australia jurisdictions pose the possibility that a more direct and stricter regime may be legislated in the ACT in the near future.   Property agents should ensure that they are aware of these implications.

    [1] https://news.realas.com/underquoting-frustrating-home-buyers/

    [2] See http://www.canberratimes.com.au/act-news/canberra-real-estate-agent-investigated-for-underquoting-20180412-p4z94y.html

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