Tuesday, June 30, 2020

Keeping it real** on 30 June – the rise and rise of share sales

View Legal blogpost 'Keeping it real** on 30 June – the rise and rise of share sales ' by Matthew Burgess

Given that it is 30 June, it seemed like an appropriate day to focus on the impact of the introduction of the 50% general discount on business succession.

Since its introduction (and certainly with the various evolutions of the small business capital gains tax concessions), we have seen an ever-increasing number of merger and acquisition transactions take place by way of share sale.

Historically, many (if not all) of these transactions would have taken place by way of asset sale.

Due to the difficulties with accessing the various tax concessions when assets are sold by a company, the attractiveness of a share sale has become significant.

The additional issue in this regard can often be that the share sale will legitimately avoid any stamp duty consequence, which is still in some states not the case in relation to a business sale.

One of the key ramifications of the increased number of share sales is that many vendors will actively embark on a 'vendor due diligence' exercise.

Broadly, this involves, sometimes many months before any sale transaction is entered into, the vendor prepares a complete set of due diligence material from its own perspective.

Such an approach can help to significantly reduce the overall costs and risks that might otherwise be associated with a share sale transaction.

Next week’s post will further explore two other key aspects to consider in relation to share sale arrangements.

** for the trainspotters, the title here is keeping it very real by being riffed from a line in the Hannah Montana song ‘Let’s get crazy’.

Tuesday, June 23, 2020

Have I lost you?** - Lost company constitutions

View Legal blogpost 'Have I lost you?** - Lost company constitutions ' by Matthew Burgess

Previous posts have considered the key issues in relation to lost trust deeds (let me know if you want access to any of these). A related issue that comes up regularly is the loss of other essential documents, and in particular, the constitutions for companies.

In most instances, the ramifications of losing a constitution for a company (or as they were formally known the 'memorandum and articles') are normally not as problematic as with the case with discretionary trust deeds.

This said, we would always normally recommend that, if possible, at least a copy of the constitution be located, and particularly for older companies, this can often be achieved via the microfiche records retained by the ASIC.

As many advisers will be aware, up until around the 1990s, all company constitutions had to be lodged with the ASIC on registration of a company.

Where no copy can be found, there is also a process available to adopt a replacement constitution, however some difficulties (particularly from a tax perspective) can arise in this regard if there is uncertainty as to the rights attaching to the shares on issue in the company.

** for the trainspotters, the title here is riffed from the Supremes song ‘Have I lost you’.

Monday, June 22, 2020

Excepted trust income changes for testamentary trusts: the numbers** and details matter

The one (very key) change to the excepted trust income rules this week for distributions to minors via testamentary trusts is shown by the redline version of the legislation passed this week attached.

The redline version shows what the final rules state, as compared to the exposure draft ... thankfully the wacky approach originally to make two thirds of the rules turn on the "Commissioner’s opinion" was removed ...

** For the trainspotters, the title of today's post is riffed from the Kraftwerk song ‘Numbers’.

View here:

Tuesday, June 16, 2020

What I am** and should I be the appointor?

Today’s post considers the above-mentioned topic in a ‘vidcast’.

As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below.

The Richstar case has featured in many previous posts. As usual, if you would like access to those posts, please contact me.

In terms then of who should be an appointor, despite what Richstar says, which was that the appointor is highly critically important from an asset protection perspective, that’s not actually the law. Richstar has been rebutted. Therefore, we would argue that in the ordinary course, it does not matter who the appointor is.

Now as with all trust areas, I would argue there is an exception to that general rule.

The exception to the general rule is do not set your client up to fail unnecessarily.

Therefore, you want to have at least two other things on your list when you’re looking at an appointor I would argue at the bare minimum.

Point number 1, make sure that embedded into the trust instrument, there is an automatic disqualification of the appointor if they commit any act that allows the court to look at the act. By crafting the provisions that way, you do a couple of things.

First, it sets the rules of the game before the trust is even started. It’s therefore almost impossible for anyone to argue that that was some sort of inappropriate strategy because it was there from the very start.

The second thing is that if any court comes in, the bankruptcy court, the family court, etc., before they come in, the deed self-executes and makes sure that the appointor is automatically removed.

The next point is just thinking about who you actually want as your appointor. Maybe it isn't the smartest thing to have the at-risk individual. Not because of itself is going to cause the trust assets to be exposed, but why even raise a question when you can actually avoid the issue.

The one thing I would flag on that is that having a non-at-risk person as appointor can be a lot easier said than done. The appointor has the ability to hire and fire the trustee in its complete discretion.

The person needs to be someone you can completely trust in order to deliver that role in a way that actually is going to align with what the people behind the trust are actually striving for.

As always thanks to the Television Education Network for the video content here.

** for the trainspotters, the title here is riffed from the Edie Brickell song ‘What I am’.

Tuesday, June 9, 2020

This is how to do it** - To disclose or not to disclose trusteeship?

View Legal blogpost 'This is how to do it** - To disclose or not to disclose trusteeship?' by Matthew Burgess

The issue of whether the existence of a trust relationship should be disclosed to third parties, including banks and Titles Offices is one that comes up regularly.

The strict position from a trust law perspective is that the existence of a trust relationship does not need to be disclosed.

This said, there are a number of other factors that often need to be taken into account, including the following:
  1. the Tax Office, in relation to superannuation funds, is of the view that the existence of a trust relationship should always be disclosed;
  2. in some jurisdictions (New South Wales is a classic example), it is in fact not possible to disclose the existence of a trust on Titles Office records;
  3. from an evidentiary perspective (for example, if the Tax Office is querying the way in which assets are held), it is often of significant benefit to have the trust arrangements supported by third party documentation;
  4. where the trust instrument is lost, disclosing the trust and lodging a copy of it with a third party can often prevent significant costs and administrative difficulties that otherwise arise when a trust instrument cannot otherwise be located; and
  5. finally, however, the non-disclosure of a trust relationship can be commercially important from a privacy perspective.
** for the trainspotters, the title here is riffed from the Katy Perry song ‘This is how we do’.

Tuesday, June 2, 2020

Mine, all mine** - Trustees and SMSF borrowing arrangements

Over the last couple of weeks, the posts have focused on the various issues that arise in relation to having the one company act as trustee for multiple trusts.

One area of the law where the ability to have the same company act as trustee for multiple trust relationships is prohibited is in relation to the limited recourse borrowing arrangements that self-managed superannuation funds can enter into.

Briefly, we confirmed to an adviser recently that in relation to these types of borrowing arrangements:

(a) the need to have a separate bare trust is driven by the requirement under section 67A of the Superannuation (Supervision) Industry Act that the borrowing arrangement relates to a ‘single acquirable asset’, meaning a separate trust must be established for each acquisition; and

(b) the bare trust needs to have a different trustee to the super fund because under trust law, if the sole trustee is also the sole beneficiary, the trust ‘merges’ and ceases to exist.

** for the trainspotters, the title here is riffed from the Portishead song ‘All Mine’.