Navigating the waters with franchisees who may be solvent. Ian Lockhart, Partner, MinterEllison Jason Bettles, Partner,Worrells

Transcription

1 Navigating the waters with franchisees who may be solvent Ian Lockhart, Partner, MinterEllison Jason Bettles, Partner,Worrells

2 Agenda Overview insolvency and risks for the Franchisor Different forms of external administration Restrictions on enforcement and setting aside loans and transactions Case study understanding the competing interests of franchisors suppliers landlords employees; and banks PPSA protections Other considerations Vulnerable workers Tax

3 Overview - insolvency Section 95A of the Corporations Act 2001 (Cth) Insolvency is described as being the situation where solvency does not exist. That is: a person is solvent if the person is able to pay all debts as and when they become due and payable a person who is not solvent is insolvent. Commercial realities are important Risks for franchisor unpaid amounts, loss of site, reputational risk, direct liabilities

4 Different types of external administration Voluntary Administration Liquidation Administrator controls company s affairs & investigates during a moratorium period Can lead to rehabilitation under a DOCA X Pty Ltd (administrators appointed) Solvent or insolvent winding up Ultimate outcome is de-registration X Pty Ltd (in liquidation) Receivership Enables secured creditors to take control of assets and/or the company for the purpose of recovering moneys owed X Pty Ltd (receivers and managers appointed)

5 Different types of external administration-cont d Scheme of arrangement Can be solvent or insolvent Restructuring purposes Process stipulated under the Corps Act, involves court applications and can be slow and expensive Mortgagee in possession Can be solvent or insolvent Company still under control for purposes of Corps Act (giving rise to reporting and other implications)

6 Enforcement in Insolvency General rule: Pre-insolvency rights are converted into the right to lodge Page proof of heading debt and participate goes in the insolvency here process as a creditor. Section 440B Restrictions on exercise of third party rights Section 440D Stay of proceedings in VA Section 471B Stay on proceedings and suspension of Section 500 No execution or civil proceedings in voluntary Set-off can be complicated and difficult PPSA and s553c

7 When can loans and securities Page heading be goes here set aside

8 Page heading goes here Competing Interests as a franchisee approaches insolvency franchisor interests Franchisor Franchisee Franchise Agreement and related arrangements Franchise and licence fees Equipment supply Stock and consumables Marketing fund payments Training fees

9 Competing Interests as a franchisee approaches insolvency third parties and employees Page heading goes here Lease Franchisor Landlord Entity Sub-lease or Licence Employees 3 rd Party Suppliers Franchisee Equipment Consumables Fit-out and maintenance Services (PPSA r.o.t. arrangements)

10 Protecting your position PPSR Personal Property Securities Act 2009 (Cth) (PPSA) An interest Page in personal heading property provided goes for by here a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property) (section 12) Deemed security interests consignment agreements and PPS Leases.

11 Protecting your position on the PPSR Take steps to evidence or protect your security interest. There are consequences Page heading if you don t: vesting goes or loss of here priority. Three methods of perfection : Registering an effective financing statement on the PPS Register Taking possession of the security property ( collateral ) Taking control of certain types of financial property eg: listed shares ( intermediated securities ), bank accounts, etc (section 23)

12 What if I haven t registered?

13 Registration considerations Prompt registration is critical limited powers of court to extend Page time heading goes here Forge Group Power Pty Limited (in liquidation) (receivers and managers appointed) v General Electric International Inc [2016] NSWSC 52 Defective registrations S164 PPSA S165 PPSA Make sure you claim PMSI status if it applies Subject to rules that may set the security aside Statutory priorities may prevail

14 The Story of the Food Store The company operated under a franchise selling organic goods comprised Page of: heading goes here various medicinal goods; a large quantity of dry goods; and Fresh and refrigerated goods (which are generally not saleable due to various potential health risks).

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16 Page heading goes here The Story of the Food Store

17 Competing Interests as a franchisee approaches insolvency third party financiers Lease Franchisor Landlord Entity Step-in deeds or co-operation agreements Step-in deeds, co-operation agreements Employees 3 rd Party Suppliers Franchisee Loan Security Franchisee s Bank Guarantee Guarantor (Director)

18 Other considerations ATO /government authorities Fair entitlements guarantee scheme (FEG) unpaid wages up to 13 weeks unpaid annual leave and long service leave payment in lieu of notice up to five weeks redundancy pay up to four weeks per full year of service NOT unpaid superannuation guarantee contributions. Vulnerable workers protection Legislation passed early September Potential direct liability for franchisors who exert significant degree of influence or control on franchisees Reasonable steps defence