Generally commercial dealings between parties enjoy the benefit of contractual freedom. However such dealings are also governed by key state and federal legislation which provide overriding consumer and contractual protections. In the same way, the operation of a corporate entity, a joint venture, partnership or trust is subject to scrutiny under key legislative provisions such as the Corporations Act 2001(Cth) and the Australian Competition & Consumer Act 2010 (Cth). Doing business or investing in Australia is rewarding however, should always be carried out with reference to the Australian legal framework.
- Key Contracts
When doing or considering doing business in Australia, it is important to have key commercial contracts in place such as Credit applications, Personal Guarantees, Dealer agreements, Terms of Trade.
Having agreements that set out key terms of business is crucial in minimising disputes and ambiguity. Deciding which terms are expressly or by implication incorporated into a contract is also an important consideration particularly, for example, when the clause you may be seeking to rely upon is an exclusion clause.
Courts in Australia prefer to uphold the contractual intentions of the parties, so key agreements reflecting such intentions are important. However, these can be subject to various legislative parameters. This is found in consumer legislation which provides for and implies key contractual guarantees into consumer contracts. In the same way, should a manufacturer be located overseas, an Australian distributor of goods may, for the purposes of legislative accountability, be deemed to be the manufacturer.
- Enforceability of Contracts
A common source of challenge to a contract is the question of its enforceability. This can arise either from the way a contract is executed to the lack of completion of key information within the contract. Contracts executed by an Australian company can be executed by two director or a director and company secretary under the Corporations Act 2001 (Cth). Execution in this fashion allows another party to assume proper execution of a document. Likewise, it is important to consider how documents or contracts will be executed by a company if some of the directors are non-residents of Australia. A Power of Attorney may assist the company in this regard. In the same way, execution of a contract or document in the form of a deed by an individual requires additional formalities to be met.
Often a question arises over electronic signatures on documents. It is common to rely on a hand signed document that is transmitted electronically (whether or not the original counterpart is requested afterwards and depending on what is agreed between the parties). However, It becomes more open to potential challenge where digital/ electronic signatures are applied, unless you are assured or have proof that there are security protocols established around the affixing of a digital signature.
- Guarantees
It is common for a party engaging with a corporate entity to require personal guarantees to be given either by the directors of the company or of of the entity's holding company. We see this particularly in relation to commercial contracts and property leases. Guarantees can contain clauses that require the guarantor to charge land and / or personal property that they own or may acquire in the future to support the liability they are undertaking. It is important to consider in giving a guarantee whether you wish to give such level of undertaking and, from a commercial perspective, how a failure to give such a guarantee will impact on the proposed engagement.
- Security Interests
In Australia, security interests can be taken over land or personal property. Security interest are generally those that secure payment or performance of an obligation. However they may also encompass other types of arrangement that do not fall within this definition but are nevertheless deemed to be a security interest under Australian legislation. For example, it is common in commercial trading arrangements for a business to take a security interest in goods they supply by retaining title until payment is received. If such interests are not perfected in some fashion, the interest will be void in an insolvency of your customer or may lose priority to another secured party who may have taken security over the goods you have supplied. Such security interests in personal property are governed primarily by the Personal Property Securities Act 2009 (Cth).
- Corporate Governance
The Corporations Act 2001 (Cth) is a lengthy and complex piece of legislation that, along with the common law of Australia, regulates the existence and activities of companies operating Australia and their directors and officers. Although a foreign corporation can register with the Australian Securities and Investment Commission (ASIC) to operate in Australia, many foreign entities choose the quicker, easier and cheaper option of setting up an Australian Subsidiary.
A private Australian Company must have at least 1 director (who must “ordinarily reside” in Australia) and a public Australian Company must have at least 3 directors (at least two of whom must “ordinarily reside” in Australia). The Australian laws are quite invasive as to who is considered to be a director and includes concepts of shadow and de facto directors such that overseas residents can in fact be classified as director even without being officially appointed. There are a very broad range of common law and legislative obligations on directors some of which create a personal liability for their actions/inactions as directors or office holders. In addition to the Corporations Act there are more than 700 Commonwealth and state statutes imposing personal liability on directors and officers covering areas such as Environmental law, Workplace Safety, Superannuation, Taxation, Heavy Vehicle Transport & the Fair Work Act
We can help the directors and officers of Australian companies prepare for and navigate through their requirements as office holders together with minimising the risks that they are exposed to.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
