Get your Disclosure Documents ready…. or pay the price

 

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Forget to update your disclosure documents at your peril.

Franchisors must update their disclosure documents within 4 months of the end of their financial year. That means that most franchisors who operate on a standard financial year ending on 30 June must finalise their update by 31 October.

The annual update is an important part of running a franchise system and is mandatory under the Franchising Code of Conduct. It should never be overlooked lightly.

What does the annual update involve?

You should consider the following:

1. Financial reports for the previous 2 financial years must be prepared in accordance with the Code’s guidelines. The disclosure document must include copies of these reports or an independent audit report of them.
2. All details within your disclosure document should be up-to-date, including:

• The list of current franchisees. Have there been any new franchisees, sales of existing businesses, franchise agreements which have terminated or franchisees who have ceased to operate?
• The list of franchisees who have left the system within the last 3 financial years, including a contact email and/or phone number.
• If you operate a marketing or advertising fund, then details of the fund’s expenses for the last financial year.
• Financial information and payments required under the franchise agreement. Have there been any fee increases?
• Changes to the intellectual property. Have you rebranded, introduced a new logo or registered any new trade marks?
• Major capital expenditure expected to be incurred by franchisees. Does your disclosure document sufficiently cover everything, for example, the expenses involved in a store upgrade? An upgrade can include a lot of different things including new software and point of sale systems, signage, furniture and fit-out.

3. Once updated, your disclosure document must be signed by a director or company officer, along with a statement confirming your solvency and ability to pay your debts.

What if you fail to update? Is there an exemption?

Failure to comply with disclosure obligations under the Code can attract penalties of up to $63,000 in each instance, and these breaches may lead to infringement notices issued by the ACCC for $10,500 per breach.

The exemption to the annual update requirement is:

1. no franchise agreements were entered into during the previous financial year (which includes new franchise grants, renewals, transfers or variations to existing franchise agreements); and
2. in your reasonable opinion, you will not be entering into any new franchise agreements, renewals, transfers or variations within the next 12 months.

Ok, the update is complete, now what?

The updated disclosure document won’t sit in a draw untouched until the next annual update. It will need to be provided to franchisees in the following situations:

1. To a prospective franchisee on the grant of a new franchise.
2. To a buyer on the sale of an existing franchisee’s business.
3. To a franchisee who desires to renew their franchise agreement.
4. To a franchisee varying, extending or extending the scope of their franchise agreement (for example, extending the term, changing the territory or any other material provision of the franchise agreement).
5. To an existing franchisee who has requested a copy of your current disclosure document. The right to make this request is limited to once every 12 months. You must provide a copy within 14 days of the request. However, if you have not undertaken your annual update (per the exemption discussed above), you must then update your disclosure document and provide it to the franchisee within 2 months of the request.

Is the update only required once per year?   

Whilst the update is only required once per year, you are still obliged to notify all your current franchisees within 14 days of the occurrence of any ‘materially relevant’ facts, which can be found under section 17 of the Code and include:

1. Investigations by a public agency (e.g. ASIC) or judgments against you.
2. Legal proceedings instituted against you by at least 10% or 10 franchisees (whichever is lower).
3. Change of ownership or control of the franchisor, your intellectual property or the franchise system.
4. The franchisor becoming externally administered.

This doesn’t mean you are automatically required to provide a copy of your current disclosure document to all franchisees. You are only required to provide details of the ‘materially relevant’ facts.

However, if any of these ‘materially relevant’ facts occur between your annual updates, and you become required to provide a current disclosure document to a franchisee (for example upon request or the other situations discussed above), then details of the ‘materially relevant’ facts must be provided to the franchisee in a separate annexure to the disclosure document.

Disclosure of these ‘materially relevant’ facts is essential. The courts have set aside franchise agreements and awarded compensation to franchisees in some situations where franchisors have failed to provide adequate and up-to-date disclosure. This is when the franchisee can establish they would not have entered into the franchise agreement had they received adequate disclosure.

Finally, don’t forget to audit your marketing fund

If you operate a marketing or advertising fund, unless 75% of your franchisees who contribute to the fund vote otherwise, the fund must also be audited within the same timeframe to update your disclosure document. This will be an audit of the fund’s receipts and expenses for that financial year. The audited statement and audit report must be provided to franchisees within 30 days of its preparation.

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By Luke McKavanagh, Rouse Lawyers

This article was previously published on the Inside Franchise Business website.

The post Get your Disclosure Documents ready…. or pay the price appeared first on Rouse Lawyers.

Should your Franchise Agreement be Negotiable?

“Take it or leave it” is the traditional response given to a prospective franchisee asking to negotiate a franchise agreement. Whilst franchisors may sometimes agree to special conditions such as reduced fees or other concessions while the franchisee establishes their customer base, franchisors generally don’t negotiate the key provisions of a franchise agreement.

Despite tradition, franchisors should always carefully consider a request to negotiate an agreement.

Are you in a position to say no?

Franchisors of new systems may see negotiating as a quicker way to grow their franchisee numbers. However, being too eager to negotiate or too willing to part with your brand standards could devalue your system in the long run.

Generally, the older and larger the franchise system, the more reluctant a franchisor will be to negotiate. The franchisor’s template franchise agreement will often be tried and tested, and in the franchisor’s opinion, strikes a reasonable balance between the interests of franchisee and franchisor.

Franchisors of established systems don’t need to negotiate their agreements in order to grow their system. If a prospective franchisee is unsuccessful at negotiating and decides not to proceed, there will usually be someone else willing to take the same franchise agreement as-is. This is not to say that franchisors shouldn’t negotiate if a franchisee raises a valid request.

Some reasonable requests may include changing the term of the franchise agreement to match the term of the franchisee’s lease or granting the franchisee the first right of refusal to buy a neighbouring territory. What’s reasonable will always depend on the circumstances.

Be mindful of promises and representations you make to prospective franchisees. If you have previously promised something, then it may be unreasonable for you to then refuse to reflect that promise within the franchise agreement.

Maintaining uniformity

Franchise agreements are inherently drafted in the franchisor’s favour because you have established a successful business model that you have chosen to replicate through franchising. A franchise model’s benchmark of success is uniformity and consistency of quality and standards. Consider whether it’s in your brand’s best interests for one franchisee to operate differently to other franchisees.

From an administration-management point of view, franchisors prefer all franchisees to be on substantially the same contractual terms. If each franchisee has a franchise agreement tailored with different provisions, you can easily lose track of what rules each franchisee must follow. Uniformity removes the need for checking the particular agreement each time you answer a franchisee’s question.

Good faith obligations

The Franchising Code of Conduct requires the parties to a franchise agreement to act in good faith towards each other. This includes during negotiations. You must therefore act reasonably when considering an amendment request.

Importantly, good faith doesn’t prevent a party from acting in their own legitimate business interests. If you have a legitimate commercial reason for not agreeing to a particular amendment, then you are not necessarily acting in bad faith.

Remember that if you grant a concession to one franchisee but not another, you could be accused of failing to treat your franchisees equally. Giving an exclusive territory to one franchisee but not another in the same circumstances can easily lead to accusations you are acting unconscionably.

Unfair contract terms

Under the Australian Consumer Law, contracts entered into or renewed from 12 November 2016 will be subject to the ACL’s unfair contract term protections if that contract meets the ACL’s criteria of a consumer or small business contract. The criteria are strict and whether the protections apply will depend on the circumstances.

If the criteria for a consumer or small business contract are satisfied, then a court could find a particular provision in a franchise agreement to be unfair and unenforceable if it:

• would cause a significant imbalance in the parties’ rights and obligations arising under the agreement;
• is not reasonably necessary to protect the legitimate interests of the stronger party who would be advantaged by the term; and
• would cause detriment to the weaker party if applied or relied upon.

A provision in a franchise agreement which satisfies these criteria and is not necessary to protect your legitimate commercial interests has the potential to be unenforceable. If you have not already done so, you should carefully review your template franchise agreement.

Importantly however, if the franchise agreement meets the criteria for a consumer or small business contract, but if the franchisee has had the ability to genuinely negotiate the agreement, the franchisee’s future ability to argue unfairness is reduced.

Takeaways

Always be mindful of the legal reasons behind many provisions in a franchise agreement. Carefully consult with your lawyer before committing to any change to avoid unintended consequences.

Whether or not you’re a new or established franchise system, franchisors must weigh up whether a request to negotiate is justifiable and reasonable against the protection of your system, and the enforceability of the provision in the future.

 

By Luke McKavanagh, Rouse Lawyers 

This article was previously published on the Inside Franchise Business website.

The post Should your Franchise Agreement be Negotiable? appeared first on Rouse Lawyers.

What is in a Disclosure Document?

If you are considering buying a franchise, the disclosure document is a key part of the process that aims to ensure prospective franchisees can make an informed business decision.

Under the Franchising Code of Conduct, all franchise systems in Australia must maintain a disclosure document, which must be provided to prospective franchisees at least 14 days before entering into a franchise agreement.

The purpose of a disclosure document is to supply key information about the nature of the franchise system and to help the franchisee make an informed business decision about entering the franchise.

Despite being tailored to each franchise system, disclosure documents must comply with the code’s prescribed format. Key elements in a disclosure include:

1. A WARNING

The warning statement on the first page cautions prospective franchisees that franchising is a serious undertaking. It recommends they obtain independent legal, accounting and business advice, but also highlights their cooling-off rights.

2. SPECIFIC DATES

Disclosure documents must specify their preparation date and be signed by an officer of the franchisor. Franchisees can reference this date to ensure currency.

Franchisors must update their disclosure document annually within four months of the end of their financial year (with some exceptions). Therefore, franchisors working on a standard July-to-June financial year must complete their update by the end of each October.

3. FRANCHISOR’S DETAILS

The business experience of the franchisor’s officers and the duration the franchise system has been active in Australia provides an insight to the stature of the system. Prospective franchisees can judge whether the franchisor has a satisfactory level of knowledge and experience in the industry, which is especially important for the new systems.

4. FRANCHISEE DETAILS

Contact details for all current franchisees within the system and those who have left during the previous three years (and the reason for doing so) are an essential element of a prospective franchisee’s due diligence. Current and former franchisees should be contacted to assess satisfaction with the franchisor’s training, support and systems.

If large numbers of franchisees have had their agreements terminated or have left the system, it may indicate unhappiness with the system.

5. INTELLECTUAL PROPERTY

Franchise agreements give franchisees the right to use the franchisor’s intellectual property. This can include copyright (trade secrets), trademarks (business names and logos) and patents (inventions), which will be detailed in the disclosure document.

The ownership structure of the intellectual property must also be disclosed. In many systems, a separate holding company owns the intellectual property and licences as part of an asset-protection strategy.

6. SITE AND TERRITORY

Franchisors must disclose whether a franchisee is granted an exclusive territory or if their rights are limited to a particular location. Some systems give franchisees the exclusive right to work in a set geographical area, while others can grant the right to work only from a specified store. Franchisees can use this to determine the risk of competition from within the franchise system itself.

If the franchisor has site-selection criteria, then details must be disclosed. Regardless of whether the franchisor nominated the site, it is crucial that franchisees do their won independent investigations as to whether the demographics of the site or territory can support the business.

Details of previous franchisees who have worked in the site or territory within the past 10 years must also be provided. A high turnover of franchisees in the one location could indicate a problem.

7. GOODS AND SERVICES

In most franchise systems, franchisees must obtain good and services from the franchisor or an approved supplier to ensure uniformity across the system. The disclosure document should detail how these arrangements will work, along with the franchisee’s right (if any) to do business online.

Franchisors must also provide details of any rebate arrangements in place with suppliers.

8. PAYMENTS

The franchisee’s establishment costs and all the expected payments during the course of the franchise must be disclosed. Franchisors will often provide large ranges, so the franchisees should undertake a careful analysis. The cost of establishing a store within a shopping centre will be much higher compared to a quiet street corner.

Unforeseen capital expenditure is also important to note. This could be the franchisee’s costs to refurbish their store, or upgrade and replace equipment and signs.

Franchisees should be able to use these figures to estimate what the total costs will be to set up and run the business, and whether the business model can reach and sustain profitability. A franchisee’s accountant will play a key part in this analysis.

9. MARKETING FUNDS

If the franchisee has to contribute to a marketing fund controlled or administered by the franchisor, then details of the payments and how the fund will be used must be disclosed.

10. END-OF-TERM ARANGEMENTS

Franchisors must clearly disclose whether the franchisee has an option to renew or extend the franchise agreement at the end of its term. This includes whether franchisees are entitled to compensation if they do not renew, and arrangements for unsold stock and equipment.

It is important for franchisees to understand that once the term of the franchise agreement ends, and if they walk away from the business, they generally lose the right to receive compensation for goodwill.

11. FINANCIAL DETAILS

Finally, a disclosure document must contain a statement confirming the franchisor’s solvency, along with their financial statements for the previous two financial years or an independent audit report.

It is imperative the financial figures are up to date. If the figures indicate the franchisor is struggling financially, then this is a rea flag.

TAKEAWAYS

While disclosure documents can seem a lengthy and burdensome read, they contain a wealth of information invaluable to a prospective franchisee trying to choose the right franchise system. Reading the document from cover to cover is essential.

After considering the disclosure document and making proper inquiries, franchisees will better understand the risks involved in the franchise and how their future relationship with the franchisor will work.

 

LUKE MCKAVANAGH

Rouse Lawyers

Luke McKavanagh is a commercial lawyer specialising in franchising and business law.

Read the official release of the article HERE from the Franchise Business Magazine website!

The post What is in a Disclosure Document? appeared first on Rouse Lawyers.

What should I do if I receive a breach notice from my franchisor?

Breach notices must be taken seriously because failure to act can put your business at risk.

Formal breach notices are generally issued once a dispute escalates and a conciliatory resolution cannot be achieved. However, this is not always the case because some franchisors may resort to issuing a breach notice straight away.

What is a breach notice?

Under the Franchising Code of Conduct (Code), a franchisor is permitted to terminate a franchise agreement if they provide you a breach notice and you fail to remedy your breach in accordance with the requirements of the notice. It is essentially Step 1 in the termination process and used as a formal warning that your business is non-compliant.

A breach notice must:

1. specify the provision of the franchise agreement which has been breached;
2. set out what you are required to do to remedy the breach; and
3. provide a reasonable time for you to remedy the breach.

If the franchisor wishes to rely on the breach notice to terminate the franchise agreement, the notice must also state that the franchisor proposes to terminate the franchise agreement if the breach is not remedied.

If you fully remedy your breach in accordance with the requirements of the breach notice, then the franchisor cannot rely on that breach to terminate your franchise agreement. Otherwise, if you fail to comply with all conditions of the breach notice, the franchisor is entitled to terminate your franchise agreement.

Remember that there are certain circumstances under the Code which entitle a franchisor to immediately terminate a franchise agreement without following the breach notice process, such as fraudulent behaviour.

What should I do? 

Receiving a breach notice can be distressing, but don’t panic. 

You should read the breach notice carefully together with your franchise agreement, and diarise the deadline that has been given to remedy the breach.

The breach notice should clearly specify what you have allegedly done wrong and how that constitutes a breach of the franchise agreement. Ensure you fully understand exactly what the franchisor requires you to do – if they require you to do 2 things but you only do 1 of those things within the deadline, that’s still grounds for the franchisor to terminate your franchise agreement because a breach must be remedied in full.

Sometimes remedying a breach is simple – overdue payments can be remedied by paying the arrears, whereas failing to stock approved products can be remedied by stocking those products.

If the breach is an ‘easy fix’ then you should fix it immediately. As the saying goes, pick your battles, because refusing to remedy a breach on principle because you are trying to prove a point will place your business in jeopardy.

Once you remedy the breach then you should provide the franchisor with evidence of your actions.

If you dispute the alleged breach, or don’t believe the action required or the time given to remedy is achievable, then that’s when you should try to negotiate a resolution with your franchisor, and/or seek legal advice.

What is a ‘reasonable’ time to remedy a breach will depend on the circumstances. 7 days may be reasonable to pay an overdue account, but 1 day may be reasonable to clean a dirty store. In any case, the franchisor does not need to give you more than 30 days to remedy a breach (which can be problematic if the breach relates to failure to achieve ongoing KPIs or meet minimum performance criteria).

If you don’t think the franchisor has provided enough information in the breach notice to substantiate their allegations, then you should immediately ask them to provide more information.

If you are unable to resolve the issue with the franchisor, then you are entitled to invoke the dispute resolution procedure under your franchise agreement or under the Code. This procedure means that you and the franchisor must endeavour to resolve the dispute, failing which, either of you can call for a mediation. Be mindful that invoking this procedure does not prevent a franchisor from terminating a franchise agreement in the interim if the breach notice isn’t complied with.

No matter what you decide to do, communicating with the franchisor in a conciliatory manner is key. Sometimes breach notices are the result of simple misunderstandings, but sometimes they can be intended to trigger an aggressive response. Remain reasonable and professional.

Is the franchisor acting in good faith?

The Code requires both franchisors and franchisees to act in good faith towards each other. Importantly, ‘good faith’ does not prevent a party from acting in their legitimate business interests. Just because the franchisor has issued a breach notice does not necessarily mean they are failing to act in good faith.

Remember that when you signed the franchise agreement you agreed to comply with the terms of the agreement and the franchisor’s policies, systems and procedures, and the franchisor is entitled to enforce this.

What are the consequences?

Failing to remedy a breach in accordance with a valid breach notice will entitle the franchisor to terminate your franchise agreement. This will normally mean you lose your right to operate (or sell) the franchised business. The franchisor may have grounds against you for damages. It also puts your personal assets at risk if you’ve provided a personal guarantee to the franchisor.

Be mindful that a breach notice can impair your future ability to renew the franchise agreement. It’s a condition under many franchise agreements that the franchisee ‘substantially complies’ with the franchise agreement to be entitled to renew the agreement. Even if you remedy your breach, the fact that you breached the franchise agreement in the past could entitle the franchisor to refuse to renew it in the future.

Takeaways

Unless you genuinely dispute the validity of the breach notice, maintaining your ongoing working relationship with the franchisor should be prioritised. A breach notice will often be a wakeup call that your business values are not aligned with those of the franchisor.

Showing your franchisor that you are taking the issue seriously and that you are actively taking steps to rectify performance issues will not only assist in salvaging this business relationship, but will also help your position should a dispute arise from the situation.

This is not to say that you should necessarily submit to a franchisor’s demands if you believe they are acting unreasonably, in bad faith or outside the parameters of the franchise agreement. Again, seeking legal advice from a specialist franchise lawyer is key if you don’t believe a breach notice is warranted. Time is of the essence, so don’t wait until the day the deadline under the breach notice expires to obtain professional advice. Act early.

Sometimes the damage to the business relationship may already be done once a breach notice is issued, but often the relationship can be salvaged if you and the franchisor are both genuinely committed to resolving the issue.

 

By Luke McKavanagh, Rouse Lawyers

The post What should I do if I receive a breach notice from my franchisor? appeared first on Rouse Lawyers.

The ACCC & Negative Online Reviews

A representative of the Australian Competition and Consumer Commission (ACCC) recently noted that consumers engage with online reviews to make decisions on whether to purchase a product or use a service (‘Wisdom to remove unfair contract terms’, ACCC Media Release 104/18, (located at: https://www.accc.gov.au/media-release/wisdom-to-remove-unfair-contract-terms)).

Two recent ACCC actions indicate that attempts by businesses to control online reviews may not go unnoticed.

Attempting to Control the Opportunity to Provide Online Reviews

In ACCC v Meriton Property Services Pty Ltd, Meriton Property Pty Ltd (Meriton) was held by the Federal Court of Australia to have engaged in misleading conduct and misleading conduct in relation to the nature or suitability for purpose of services due to the practices undertaken by Meriton in relation to TripAdvisor online reviews through its use of TripAdvisor’s Review Express.

The Review Express service enabled Meriton to send the email address of guests who stayed at Meriton properties to TripAdvisor. TripAdvisor would then send invitations to the Meriton’s guests to complete a TripAdvisor review. The conduct Meriton engaged in to inhibit the completion of negative online reviews were as follows:

• the withholding of guest emails from TripAdvisor if there was a major disruption at a property; and
• putting the letters ‘msa’ in the email address of guests who made a complaint or were considered to be unlikely to give a positive review so that the email sent by TripAdvisor to that guest would not be delivered.

This conduct prevented guests likely to provide a negative review from making that review. The Court considered that the practices engaged in by Meriton had the result of generating the impression that the quality of Meriton properties was more complimentary and positive than it would otherwise have been had conduct not been engaged in.

The Court also noted that the wording of the Australian Consumer Law sections relevant to this case were drafted “in simple language capable of potential application to new circumstances that arise through developments in technology”. Which is an important indicator from the Court that compliance with these, and other, Australian Consumer Law sections, is essential regardless of new technology being available.

Preventing Negative Online Reviews by Contract

The standard home building agreement of Wisdom properties Group Pty Ltd (Wisdom) imposed non-disparagement obligations on its customers to restrict and preclude negative public statements, including online reviews. The ACCC considers that a standard form contracts attempting to ‘prevent or limit a customer form making public comments about goods or services are likely to be unfair under the Australian Consumer Law’.

Additionally, if customers made disparaging public statements the contract also allowed Wisdom to defer the building of a customer’s home and to hold that customer liable for loss connected with the public statement.

Wisdom has agreed not to enforce these clauses and has accepted court enforceable undertakings, including ‘publishing a corrective notice on its website, contacting affected customers, and establishing an Australian Consumer Law compliance program.’.

Each of these examples demonstrate that using methods to prevent negative online reviews is likely to contravene Australian Consumer Law.

How to Protect the Value of your Registered Trade Mark

 

You’ve developed your trade mark, thought about the design, considered how your trade mark can promote your business and finally received confirmation that your trade mark is registered. It’s a great feeling!

Your trade mark is valuable to your business. Customers recognise and connect your business with your trade mark. For this reason, protecting your trademark after it is registered is vital in preventing its value from diminishing.

 

Similar Trade Marks
The value of your trade mark may diminish if a competitor’s trade mark is substantially identical or deceptively similar to your trade mark. The use of similar trade marks by competitors may result in your trade mark not being as easily distinguishable in the industry, or in customers becoming confused about which company is associated with which trade mark. If this occurs you may lose your market edge and the promotion of your brand and business may not be as effective.

What can be done?

If a competitor applies to register a trade mark that is substantially identical or deceptively similar to your trade mark there is a limited window in which you can oppose the registration of the trade mark. The window commences on the advertisement of the trade mark in the Australian Official Journal of Trade Marks and ends two months later. To oppose the registration of the trade mark you will need to file a notice of opposition during this window. As this window is small it is important to check the Australian Official Journal of Trade Marks regularly.

If your trade mark right is being infringed by the use of an unregistered trade mark that is substantially identical or deceptively similar to your registered trade mark you may be able to commence an action for infringement. Note though that there are exceptions to commencing an action, including, if the user of the similar trade mark used the trade mark prior to the registration of your trade mark. You may also have an action for passing off under the Competition and Consumer Law 2010 (Cth), which can also be used to protect unregistered trade marks in contrast to the Trade Marks Act 1995 (Cth).

Assert & Protect your Trade Mark
Once your trade mark is registered it is prudent to use it in conjunction with the ® symbol. Using ® with your trade mark is a declaration that your trade mark is registered and alerts others that it is protected.   Your use of the ® symbol may also benefit you by strengthening your position in a trade mark dispute, on the basis that you have alerted others to the registration of your trade mark by using the ® symbol.

Caution though, it is illegal to use the ® symbol for unregistered trade marks. Consequently, you may only use the ® symbol once your trade mark is registered and not from the commencement of your application to register your trade mark. However, using the ™ symbol is not an offence and you can use this with your trade mark during the trade mark registration application process.

Another way to protect your trade mark is to only use your trade mark as registered and avoid varying it. For example, if you have only registered your trade mark has a main word with two small words directly underneath it, avoid moving those two small words to sit beside or above the large word. As this is not the trade mark you registered and being inconsistent with the registered trade mark may weaken your assertion that use of your trade mark is protected.

Avoid becoming Generic
Trade marks can become the word used by consumers as the generally accepted name for a product or service. This may diminish the value of your brand and, if also used this way by others in your industry, may result in an application to have your trade mark deregistered. Under the Trade Marks Act 1995 (Cth) if, within an industry, a trade mark becomes generally accepted as the name of a product or service a court may determine that the trade mark owner no longer has the exclusive right to use that trade mark.

If you notice your trade mark being used as a generic word assert the protection afforded to your trade mark by using the ® symbol. You can also consider using the actual generally accepted name of the product together with your trade mark. This may assist the public to realise or note that your trade mark is not the generally accepted name of the product and discourage such use.

Don’t Lose your Trade Mark, Use it!
You’ve registered your trade mark but you haven’t used it yet. If you don’t use your trade mark in connection with trade in goods or services after the trade mark is registered a person may apply to have the trade mark removed. Timing is an important consideration in registering trade mark, not only to prevent removal for non-use but also to support a trade mark application in the event a trade mark examiner requests examples of trade mark use to support your trade mark application. Balancing these considerations with commercial strategies for launching products or services is vital.

Administration – Simple and Necessary
It may seem simple but remember to update your address for service if it changes so that you receive notice of renewal fees and any other notices provided to you by IP Australia. You have built the value of the trade mark, you don’t want the value to diminish by missing the opportunity to maintain registration of your trade mark for a further 10 years.

Takeaway
Registering your trade mark is only the first step. After registration it is crucial to maintain the value of the trade mark associated with your business by being vigilant to the use of similar trade marks, being consistent in your use of the trade mark and asserting the protection afforded to your trade mark, and don’t forget to update your address for service!

 

I’ve received an unfair preference claim, now what?

 By Eloise Pawley and Callan Peach

So, you’ve recently received payment from one of your customers for goods or services provided by your business, only to receive a letter from a liquidator demanding you to pay it back on the basis it was a ‘preferential’ or ‘unfair preference’ payment?

You may be wondering how you respond to the demand, and most importantly, will you have to pay the money back.

What is an unfair preference payment?

An unfair preference payment occurs in circumstances where a debtor company (or person) makes a payment to a creditor in satisfaction of a debt, shortly before that debtor company is placed into liquidation.

Section 588FA(1) of the Corporations Act 2001 (Cth) (the Act) sets out the elements that must be established in order to satisfy an unfair preference claim:

(a)   The company and a creditor are parties to the transaction (even if someone else is also a party); and

(b)   The transaction results in the creditor receiving from the company, more than they would have received had the transaction been set aside and the creditor were to prove for the debt in a winding up of the company.

If proven, a liquidator will have a claim to void the transaction and reclaim the payment.

What is the relevant period for an unfair preference claim?

An unfair preference payment can include all payments made from a company to a creditor in a 6-month period prior to the company being placed into liquidation. This is known as the “relation back period”.

For example, if a liquidator is appointed to a company on 25 August 2016, then the liquidator may seek to void all payments made to the company dating back to 25 February 2016.

Defences

Before making payment of the amount set out in the liquidator’s demand, it is critical to assess whether or not your circumstances may give rise to a defence to the unfair preference claim.

Section 588FG of the Act allows a creditor to rely on various defences to a claim made by a liquidator that the transaction was an unfair preference.

Good faith defence – As an unsecured creditor, you may be able to rely on the good faith defence. In order to do so, you will need to prove that:

(a)     you became a party to the transaction in good faith;

(b)     you had no reasonable grounds to suspect the company was insolvent;

(c)     a reasonable person in your circumstances could not reasonably suspect the company was insolvent; and

(d)     you provided valuable consideration.

Running account defence – this defence can be used in situations where there is a continuing business relationship between the debtor and creditor. The essential feature of this relationship is that it is predicated on the idea that there is an expectation for further debits and credits to be recorded. Note that this is not a complete defence to the unfair preference claim, but may reduce the amount payable to the liquidator.

Often the Good Faith Defenceand the Running Account Defence are used in conjunction to oppose against an unfair preference claim.

What should you do?

Dealing with unfair preference claims from a liquidator can be tricky. It is important to understand the nature of your relationship with the debtor company, as there may be various options available to you in defending these types of claims.

If you have any questions about unfair preference claims, contact Rouse Lawyers on 07 3648 9900 for an obligation-free discussion.