Daniel Harris vs Stephanie Robinson, Seeking Advice on Issues of A Nursery Purchase - Law Assignment Help

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Re:  Daniel Harris vs Stephanie Robinson, seeking advice on seven issues of a Nursery purchase

First of all, I must acknowledge your attendance with us at our office this week. During this session, I have discussed your matter in-depth, and you have raised seven (7) main issues that you need some advice on. You have instructed us to write you a letter of advice to provide an explanation of these seven (7) main issues that are concerning to you.

 

Partnership

You have been thinking of forming a partnership with Clara Morton before buying the business. Ms Clara has successfully run small businesses in the past. You want to know if duty is payable on the formation of the partnership which holds no dutiable assets. For us to find this out, the Duties Act 2001, is the applicable Act relevant to our letter of advice.

These are the applicable sections that most relevant to your first issue.

In section 8 of subsection (2), state that transfer duty is imposed on the dutiable value of a dutiable transaction. Here are some basic concepts about partnership acquisitions, under Division 2-3 of the Duties Act 2001. Section 42 sums up some of the various partner’s partnership interest. In subsection 1(a) and (2) of the section, express these interests such as partners to share in the profits or obligation to contribute to the capital or losses of the partnership, from time to time.

In section 43 of the Act, a partnership has an indirect interest in dutiable property if there is a connection between the partnership and the dutiable property of the other partnership. Section 44 of the Act, noted that, for a person to acquire a partnership interest a partnership needs to be formed. A partnership may be formed on the merger of 2 or more partnerships. As stated under section 45(1)(b), the value of the acquisition worked out under section 46 or 47 of the Duties Act. In paragraph 5.1, that is referred to the partnership, it notes that in a creation of a partnership agreement is not, in of itself, an event that attracts duty.

 

Signange

It is my knowledge that you have been approached from Stephanie, and she has revealed a clause in the lease which prevents her from putting any signage on the building.  Both you and Clara feel that the location on the main road is great, however, having signage on the building to attract customers is a must. Due to this issue, your concern is what to do?

Well, the first clarification is that I have not yet seen or receive the lease at this present of time. However, let us rely on section 121 of the Property Law Act 1974 (QLD). This section may offer some assistance because it operates in a circumstance where the lease expressly forbids the tenant from Assigning, Underletting, Charging, or Parting with possession of premises, without first obtaining the landlord’s consent. Section 121 expects that landlord’s consent must not be “unreasonably withheld”, notwithstanding any contrary provision in the lease.

When will section 121 apply?

This section applies to all leases, and that includes lease category of a “Retail Shop”, such as this your current business. The only way this section becomes inapplicable to your lease, is if:

• The lease contains a series of conditions to the granting of the consent.

In the case where section 121 will be applicable despite of its list of conditions, is if the lease has reintroduced the concept of “reasonable consent” and those conditions satisfied “then the landlord’s consent must not be unreasonably refused”. Since you are a new tenant wanting to purchase a nursery business, you are entitled to observe specific disclosure obligations, in accordance with the strict time period, before entering into the assignment of the lease.

What if the landlord says “no” to the assignment?

There is a case of Tamsco v Franklins, Chief Justice Young observed that “the general attitude [of Franklins] was that they had done a commercial deal and the landlord really was not in a position to do anything else but consent. Whether the landlord has the ability to consent or decline will depend upon the relevant terms and conditions of the lease, including any terms implied by legislation.

 

Transfer Duty

Under this issue, you have raised up, three main questions on the topic of duty.

The first question asked:

Do you want to know how much duty will be payable on the purchase contract? Well, paragraph 10 of sub-paragraph 10.6 of the Sale and Purchase of a Business, stated that a contract should specify which party is to bear the duty on the transaction. Since you are the purchaser, it will be you. There is a stamp duty that will be payable on an agreement to acquire a business under the Duties Act 2001. In section 34 of the Duties Act 2001, it defines the business asset, and in section 35 of the Act, provides some lists of the business asset. In section 36, it specified the State of Queensland business.

The second question asked:

You would like to see the calculations and explanation of the Dutiable value

The current Nursery business purchase price is $ 348, 000.00. the dutiable value is from $ 75,000 to $ 540,000. The duty rate is $1,050 plus $3.50 for each $100, or part of $100, over $75,000.

The third question asked:

At this very stage I am not too sure of other advice to give to you about this very issue.

 

Doubtful Debts

Under this issue, I have been asked to explain if a provision for doubtful debts’ is the same as ‘bad debts written off’, and if not, state the difference.

The seller (in this case Stephanie), book debts are the account payable to the seller in respect of sales, or services performed by the seller itself. It is no brainer for you as the purchaser to take any assignment of book debts.

Stephanie Robinson, (as the seller) is not entitled to a deduction for bad debts arising after the sale. It will be in your best interest as the buyer to all for the seller (in this case Stephanie) to collect the book debts. On the other hand, it would be convenient for both you and Stephanie (the seller), as well as for the best interest of preserving the goodwill of the business, for you to collect the book debts as agent for the seller (Stephanie).

By collecting the book debts and acting for the seller (Stephanie). You may charge a fee for this service, and because of this, the seller will be able to secure a deduction in respect of debts that ultimately prove to be bad debts. There is clause 16.3, of the REIQ contract, which gives Stephanie (the seller), rights to notice of the debts owed at completion to the seller (Stephanie).

Each of the notified debts made by the seller (Stephanie), will remain the seller property. However, whenever, the seller (Stephanie) gives notice of the debt, she will be making you (as the purchaser), acting as the agent to collect the debt for 30 days, or any other period agreed upon , after completion. You (as the purchaser) can agree to use the best way to collect the notified debts and to account for the money recovered on a weekly basis or is not obligated to institute or continue any legal proceedings to recover a notified debt. Under the Income Tax Assessment Act 1997 (Cth), of section 8-1, it implies that general deductions assemble incomes from any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

In subsection 8-1(2) of the Act, informs you what cannot be deducted of a loss or outgoing, such as of capital, or of a capital nature. It cannot be of a private or domestic nature, or in relation to gaining or producing your exempt income or non-assessable non-exempt income. This subsection makes it very clear that this Act itself can prevent you from deducting it.

In section 25-35 of the Income Tax Assessment Act 1997 (Cth), it relates to bad debts. This section gives you the right to deduct a debt, or part of a debt that you write off as bad in the income year if, it was included in your assessable income for the income year or for an earlier income year. In subsection (2) of the Act, you can deduct a debt that you write off as bad in the income year if you brought the debt in the ordinary course of your business of lending money. In subsection (4b) of the Income Tax Assessment Act 1997, it sets the standard of the most that can be deducted for an income year that is the interest for the notional loan you took to have made to you (as the lease).

 

Restraint of trade

You have instructed us on this issue to draft a clause in the contract restraining the seller from opening a competing business. Under section 7-6 and 7-12 of the Sale and Purchase of Business, you can preserve the goodwill of your business. You should consider imposing a restraint of trade upon the seller (in this case Stephanie). Under the common law, including the Trade Practice Act,1974 (Cth), it imposes a certain restrictions upon the extent of such a covenant in restraint of trade.

Having a covenant, will restraint the seller (in this case Stephine) not only  as an individual proprietor but as a partner of officer of a company or as an employee or servant engaging directly or indirectly in competition with you (as the purchaser). Covenants in restraint of trade are only enforceable if they are reasonable. The onus of proving the reasonableness of the restraint is on the person seeking to enforce it.

When the court usually takes into account the enforceability, they usual take these three (3) main factors to determine if restraint is reasonable:

1. The geographic extent of restraint

This means that the interests of an employee in being able to earn a living by using his or her legitimately obtained skills, experience and knowledge.

2. A time limit of restraint, and

The interests of the public in being able to obtain the services of an employee, the freedom of trade and the freedom to engage in competition

3. Nature of activities restrained.

The employer’s interest in protecting confidential information, customer connections, staff and supplier connections, which the employer has spent much time, resources and money to develop.

In section 7-10 of the Sale and Purchase of a Business, noted that to ensure a greater chance of enforceability, a multiple variable restraint clause may be used. However, such a clause must be certain in its application and must allow the application of the severance principle. As noted, clause 12 of the REIQ, it provides for a single area and single time restraint only. It also, provides that it either of the nominated restraints shall be found to be excessive by a court then the purchaser may serve a notice on the seller specifying a reduced period and area and the parties agree to be bound by this variation. There is no provision allowing the purchaser to after the extent of the second selected restraints if these are found to be excessive. The clause does not prevent a court from reading down the area or period of restraint if the court is empowered to do so in order to make the restraints valid. At this present stage, courts in Queensland have not acknowledged they have this power.

Legitimate Business Interests

Employers must first be able to identify a particular business interest that is legitimately protectable. It is not enough to simply seek to stop former employees from becoming employees of a competing business (Stenhouse Australia v Phillips [1974] AC 391).

Generally, the following business interests have been identified by courts:

Confidential Information

Note that the mere fact that a former employee had access to confidential information is not, in itself, sufficient to justify a restraint.

The enforceability of the restraint of trade clause falls for consideration having regard to the nature of the confidential information, the duties performed by the employee, and his or her position overall in the organization (Sportsbet Pty Ltd v Carpanini & Anor [2014] VSC 166 at [28]).

Customer Connections

This will be protectable where the employee in question controls the employer’s customer connections and where the nature of the work is heavily reliant on client relationships (Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111. See also Wallis Nominees (Computing) Pty Ltd v Pickett [2013] VSCA 24 where it was held that the obligations of an employee under the non-solicitation provisions of a restraint clause are dependent on two factors: “First, that an employee must be in a position to gain trust and confidence so as to be relied on in a client’s affairs. Secondly, that the relationship between employee and client is such that there is a possibility that if the employee leaves the business of the employer he or she may carry away the client’s business with them.”).

 

 

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