Issue 38 - December 2022
IN THIS ISSUE 01 Getting Served with Legal Documents through your Cryptocurrency or NFT Wallet! 02 Using a Licence Agreement to Trade a Business During a Liquidation 03 Liquidator's Christmas Wish List 04 Safe Harbour Scan to read more articles
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Getting Served with Legal Documents through your Cryptocurrency or NFT Wallet!
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Andrew Allemand - Manager | Brisbane
s we learn more about the types of uses of cryptocurrency, some legal experts are taking advantage of the blockchain linked to one’s centralised wallet to serve legal documents, even if the person is deliberately avoiding service, flying under the radar, in a different jurisdiction or just incognito.
But how? Recently courts in both the United States and United Kingdom have allowed lawyers to serve documents by substituted service over the blockchain on parties to a proceeding by way of a nonfungible token (NFT). In these instances, the NFTs were air-dropped on wallets allegedly holding stolen currency. NFT is a digital identifier that is so unique that it is unable to be copied as it comprises of a uniquely identifiable asset, which is non-fungible and is recorded on a blockchain. NFTs can be sold or traded by the owner. Think of an NFT as artwork, music or other unique files. The most well-known NFT is the internet meme of Doge, an image of a Shiba Inu dog. In the US court case, the judge ordered that the Plaintiff’s attorneys: "shall serve a copy of this Order to Show Cause, together with a copy of the papers upon which it is based, on or before June 8, 2022, upon the person or persons controlling the Address via a specialpurpose Ethereum-based token (the Service Token) delivered-airdropped into the Address. The Service Token will contain a hyperlink (the Service Hyperlink) to a website created by Holland & Knight LLP, wherein Plaintiff’s
attorneys shall publish this Order to Show Cause and all papers upon which it is based. The Service Hyperlink will include a mechanism to track when a person clicks on the Service Hyperlink. Such service shall constitute good and sufficient service for the purposes of jurisdiction under NY law on the person or persons controlling the Address." The result of the order was that the legal claim documents acted as a service token in affect by way of NFT. The function of which, once accessed (opened) triggered the token and thus the plaintiff was able to demonstrate effective service. It has recently been discussed that service over the blockchain in New Zealand may come soon across the ditch as there have already been instances whereby NZL courts have allowed substituted service via email and social media. There are specific methods of serving legal documents, that is by providing or delivering a legal
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document to another party that satisfies the court the recipient has both received and has been made aware of the legal document. Traditionally it is by either personal or ordinary, that is by delivering it by hand after confirming the recipient’s identity or by email or post respectively. But what if the other party is avoiding such traditional means of service or located in a different jurisdiction? Well that’s where substituted service can come into play. This method requires the relevant court's permission for an alternative method of serving legal documents. Usually courts would take the following into account: •
whether you have taken reasonable steps to serve the document;
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whether your prior attempts to serve the document were likely to have made the person aware of the existence and nature of the document;
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whether there is an alternative method of service that would likely be successful in making;
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the person aware of the existence and nature of the document; and
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the likely cost of serving the document and your ability to meet this cost.
Given the current Australian civil procedure rules, it is quite possible that service of legal documents may be attempted by way of NFTs (subject to the approval of the court). Watch this space! With the gold standard being replaced by fiat money, it’s certainly exciting to consider how we will be placed in the future when (if) the world moves towards stable coins and or a gold-backed cryptocurrency! SV Partners has developed an in-depth understanding of the complexities and regulations impacting the industry through first-hand experience dealing with cryptocurrency businesses and exchange platforms facing financial difficulties, stress or insolvency. Our team have gained knowledge around the specific requirements that businesses and stakeholders face through our engagement in a variety of matters of varying scope and complexity. To find out how we can assist, contact our cryptocurrency team on 1800 246 801 or email us at contact@svp.com.au.
Using a Licence Agreement to Trade a Business During a Liquidation Victor Mackintosh - Graduate Accountant | Brisbane
W
hen directors suspect that a company is likely to become insolvent, but that they want to keep their business running, the best option may be to go through a voluntary administration (VA) process. Unlike a liquidation, the goal of a VA is to resolve the company’s future as quickly as possible and allows for a company to continue trading its business. However, trading on a VA is not without its risks to a company and/or its creditors, and does not guarantee that a business will start trading normally again at the end of the VA period. Depending on the complexities that arise when trading on a business, there is also the potential that the costs incurred by a company during a trading VA could be greater than the potential return, therefore, reducing the potential funds available to creditors. In the unique case of a formworks business, a strategic decision was made to continue to operate the
business under a licence agreement, whilst the company was in liquidation... The situation A labour hire formwork company (Business) provided services to the commercial construction industry. It was determined that it would be beneficial to creditors to trade the business in order to finish certain projects that were deemed profitable and to preserve the value of the company for a potential sale of the business. However, given the limited cash that was immediately available it was decided that trading the company in a VA would be too costly.
As the Liquidator was not directly involved in trading the Business, costs that would normally be incurred during a trading VA were not required to be incurred (including remuneration and disbursements). The outcome Trading the Business through the use of the Licence Agreement significantly reduced the cost of trading for the following reasons: 1)
There was no VA period, therefore, no VA creditor reports or meetings were required;
2)
The Director maintained control of the Business’ operations (for the purpose approved by the Liquidator), reducing the Liquidator’s fees; and
The solution The company was placed into Liquidation and a Licence Agreement was entered into between the company, its Director and the Liquidator. The Licence Agreement allowed the Director to use the company’s assets for the purpose of operating the Business.
3)
The company and the Liquidator were not liable to pay the costs incurred by the Director for the purpose of trading the Business from the date the licence agreement commenced
As part of the Licence Agreement, the Director was entitled to receive revenue derived from works completed from the date the Licence Agreement was entered into, but was required to pay the company a reciprocal weekly Licence Fee. The Licence Fee generated a significant amount of funds for the company and its creditors that would not have otherwise become available in the Liquidation without trading on the Business. The Licence Agreement was to stay in effect until (subject to some exceptions) the Business was sold by the Liquidator. Conclusion Depending on the situation, a licence agreement can provide significant benefits to both the company in question and creditors and ultimately provide a better outcome for all involved parties. For more information about Creditors' Voluntary Liquidation, visit svpartners.com.au or call us today on 1800 246 801.
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Liquidator's Christmas Wish List
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Matthew Hudson - Associate Director | Brisbane
or the last 4 years I have published a series of Christmas wish lists to guide the Federal Government in reforming the insolvency profession. As we move into another Christmas season, now is the best time to look again at how the laws and process that govern our profession can be improved, to create better outcomes for our stakeholders. Last year, the then Federal Government trumpeted the insolvency reforms released that year as being the “most significant reforms to Australia’s insolvency framework in 30 years." On reflection, I think it is safe to say that these so-called ‘reforms’ may be better described as “the biggest and worst reforms in 30 years.” Fortunately, the now Federal Government have released a Parliamentary Joint Committee (PJC) inquiry into our corporate insolvency laws, and we have taken the opportunity to submit a submission with our thoughts. A core principal to our submission is that any reform must seek to ambitiously place Australia in the same league as (or better than) other leading countries’ cross-border, insolvency and restructuring laws. We must be forward looking (not 5-10 years into the future, but 30+ years) and seek to arm insolvency practitioners with the best tools to deal with anything the future may send our way. Our current legislation is still stuck in the 20th century, yet we can do so much better. For example, Liquidators in Australia still have to send 50+ page reports to creditors on even simple liquidations (just to be paid). As another example, to obtain any information, a liquidator can report a person to ASIC for not providing books and records, but in reality it will take up to 6 months before ASIC will successfully prosecute the claim. Why is this not just automatic? This PJC inquiry is our best chance to push for a complete review of all personal and corporate insolvency laws. At SVP, we are proud to be a leading participant in this process; as we leverage our national, specialist experience in assisting SME’s and their owners in navigating the complexities when times get financially tough. The following is snapshot wish list of the key reforms SVP is seeking from the PJC inquiry below. On behalf of the directors of SVP, I extend our warmest greetings to you, Merry Christmas and Happy New Year!
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Safe Harbour
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Stuart Otway & Travis Olsen - Directors | Adelaide
n our roles as accountants specialising in insolvency work, we are often approached by directors of companies in a state of financial distress that means a formal administration is unavoidable. From time to time, companies will encounter financial difficulties – that is one of the risks of running a business. Identifying that the company is experiencing those difficulties promptly gives directors of such companies more options to fix the cause of the problems. Informal options exist that can be utilised to address problems causing financial distress encountered by otherwise viable businesses such as Safe Harbour and Turnaround Consulting. These options can be used to assist directors in rectifying issues in the business without the need for a formal appointment. The benefits of such engagements are: •
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Unlike a formal insolvency administration, there is no public record of such assignments, thus avoiding any reputational damage to the business and its directors; and Engaging an accountant specialising in these types of assignments may reinforce the message being provided by directors to affected stakeholders (such as banks, major suppliers etc).
Safe Harbour Section 588G of the Corporations Act 2001 (Act) provides that directors of a company have a duty to prevent a company incurring debts whilst insolvent. If a company is placed into liquidation, the directors can be held personally liable for those debts incurred whilst the company was insolvent which remain unpaid at the date of the liquidation. This obligation on directors usually meant that a formal insolvency process was required to save the company. In 2017, section 588GA of the Act was
introduced to encourage directors of companies that were insolvent or likely to become insolvent, to implement a plan to restructure the company informally (i.e. without a Small Business Restructure or Voluntary Administration). The formulation and implementation of such a plan must be “reasonably likely to lead to a better outcome for the company”. The elements of any plan should be compared to the likely result if the company were to be placed into a formal restructuring process. Requirements
For the purposes of (but without limiting) subsection (1), in working out whether a course of action is reasonably likely to lead to a better outcome for the company, regard may be had to whether the person:
b)
c)
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Ensure that all employee entitlements are up to date at the commencement of the process and remain up to date during the restructuring process (this mainly refers to superannuation contributions of employees); and
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Ensure that all tax reporting obligations are met.
Role of the Expert The role of an expert in a safe harbour engagement is to:
Section 588G(2) provides:
a)
In addition, to be able to commence and then implement such a plan, the company must:
is properly informing himself or herself of the company's financial position; or is taking appropriate steps to prevent any misconduct by officers or employees of the company that could adversely affect the company's ability to pay all its debts; or is taking appropriate steps to ensure that the company is keeping appropriate financial records consistent with the size and nature of the company; or
d)
is obtaining advice from an appropriately qualified entity who was given sufficient information to give appropriate advice; or
e)
is developing or implementing a plan for restructuring the company to improve its financial position.
Conditions If the directors implement an informal restructuring plan which later fails, they will be protected from personal liability for debts incurred whilst the company was insolvent if they can demonstrate the above matters.
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Assess the viability of the company and whether the company is eligible for a safe harbour restructuring plan;
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Assist the directors of a company to formulate and implement a restructuring plan;
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Assist the directors in ensuring that the company’s obligations with respect to payment of employee entitlements and taxation reporting are met;
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Manage communications with stakeholders (eg. key suppliers / financiers / ATO);
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Ensuring that sufficient documentation is maintained to support the decisions made by the directors; and
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Support the directors throughout the process.
An expert is a key element of a successful restructuring plan. An expert usually has a background in working with distressed companies and can often bring new ideas when formulating a restructuring plan. Early engagement with an appropriately qualified expert is likely to lead to better outcomes and relieve stress being experienced by directors by providing clarity as to the options available.
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