What if I as a director knew or suspected that the company was unable to pay its debts when due and payable?
As a director you have duties and responsibilities to the company. There are both civil and criminal penalties as a result of the breach of those duties.
What is “insolvency”?

Insolvency is when a company is unable to pay its debts as and when they fall due.

Do I need to seek a legal advice when commencing proceedings?

You do not have to seek legal advice. However, it is strongly recommended that you do.

What is the time limit for enforcing a judgment?

It is six years from the date the judgment was obtained.

How can the judgment be enforced?

Judgment can be enforced in various ways, for example:

  • by seizure and sale of your property, if any,
  • by bankrupting you,
  • by redirecting the debt owing to you, or
  • by redirecting your earnings.
What happens if I don’t defend a claim?

The plaintiff usually obtains a default judgment against a debtor who does not file a defence. This means that the court had found that you owe a debt to the creditor.

How do I defend a claim?
You defend a claim by filing a defence in any of the above courts or the Small Claims Tribunal. The form of the defence will vary depending on the court in which you are filing the defence.
What if I am the debtor and I owe money to someone?
Your creditor will have six years from the date the debt was incurred to commence proceedings against you to recover the debt. If the debt is the one that is accumulating all the time, every time you make a payment, the time limit starts from the date you make the payment which is the confirmation of the amount owing.
Can I claim interest on the amount owing?
Yes. The interest that you can claim will either be in accordance with the agreement that you had with the debtor in relation to the debt. If there was no such agreement, the interest will be calculated at a prescribed rate.
Can I claim interest on the amount owing?
Yes. The interest that you can claim will either be in accordance with the agreement that you had with the debtor in relation to the debt. If there was no such agreement, the interest will be calculated at a prescribed rate.
What if the debt is owing to me for three years and I have not done anything about it?

You have six years from the time the debt was incurred to file any of the above documents in the court or Small Claims Tribunal.

How is the money recovered?

To recover a sum owing, you will have to litigate the matter. Litigation commences by one of the following:

  • claim and statement of claim in the Magistrate, District or Supreme Court (for unlimited amounts),
  • small claim in the Small Claims Tribunal (for amounts up to $7,500),
  • minor debt claim in the Magistrates Court (for debts under $7,500), or
  • statutory demand (for debts over $2,500.00).
What is debt recovery?
Debt recovery is the process of recovering monies owing to a company, business, former partnership or person.

Leasing: Commercial & Retail

What if I am already in a lease and require advice?
Your leasing lawyer will be able to review your current situation and advise you of your available choices, taking into account your lease, circumstances and the general law.
What legal costs are involved?
  • For landlords we quote a fixed fee for lease preparation and attending to the supporting documentation and other matters. If your lease is non-retail a landlord can pass lease preparation costs on to the tenant.

    For tenants we quote a fixed fee for reviewing the lease and advising you on the important terms and any areas of concern. You must then decide what clauses (if any) you wish to negotiate with the landlord. We will usually issue a second bill at the end of the matter which is based on the number of changes you wish to request and the amount of work required to complete the negotiations.

    If your premises are to be “retail” under the Act the landlord will be prevented from charging lease preparation costs to you.

    While costs is an important factor to consider when commencing business with a new lease, we submit that money spent obtaining the best possible lease in your circumstances can be a source of significant advantage in the future. For example, a good lease can:

    • improve the value of your business or land when you wish to sell;
    • minimise your long-term costs;
    • minimise the potential for lease disputes; and
    • ensure that you are in the best possible position in the event of tenant default.


Important Terminology
    • Lessee:Otherwise known as the ‘tenant’.
    • Lessor: Otherwise known as the ‘landlord’.
    • Assignment: The tenant handing over the lease to a third-party tenant. Assignment most commonly occurs upon sale of the tenant’s business to that third party. Assignment of a lease will require the landlord’s consent.
    • Assignor: The tenant who wishes to assign his/her lease to a third party.
    • Assignee: The third party who takes over the tenant’s obligations under a lease. Usually the business purchaser.
    • Outgoings: The landlord’s costs of the building and/or the land which are passed onto a tenant, often as a proportion of the tenant’s share of the lettable area.For example; a shopping centre may have annual outgoings of $1 million and a tenant’s proportion of a lettable area may be 1% of a shopping centre. The tenant would have to contribute $10,000.00 to the landlord’s outgoings per year.
    • Net Lease: A lease where outgoings must be paid in addition to rent.
    • Gross Lease: A lease where outgoings are included in rent.
    • Option: A fixed renewal period exercisable by the tenant if certain criteria are met.For example if the lease has a 3-year term with a 3-year option the tenant will usually be able to exercise its option by written notice between 9 and 6 months before the end of the lease.

      Option-exercise timeframes are usually time-critical.

      In a “Retail” lease the landlord has an obligation to remind the Tenant of its option-exercise deadline.

If the tenant breaches the lease, what is tenant's potential liability?

A tenant (and its guarantor/s if any) can be sued by the landlord for breaching a lease. The “high water mark” of the tenant’s potential liability is the sum of all of the rent that would be payable until the end of the lease. For example if the tenant breaches a three year lease at the end of the first year and the rent is $100,000.00 per annum; the tenant could be sued for $200,000.00 plus the landlord’s other costs. Depending on the circumstances the landlord could be required to mitigate (reduce) its loss by finding another tenant.

It is not common knowledge that if the tenant assigns the lease to a third party (for example upon selling the tenant’s business) the old tenant will often remain liable for any subsequent default of the new tenant. This “assignee’s liability” can be modified by the Act or by agreement depending on the circumstances. Given the enormous financial consequences of breaching a lease it is important that both landlord and tenant get proper lease advice and take all available steps to minimise their risk.

For example, it is important that a landlord obtains a suitable level of security and has a workable lease document in the event of a tenant’s default.

What important factors should I consider when negotiating a lease?
    • The following are examples of important factors that the landlord and tenant must consider when negotiating their lease:-

      • Term & Options – The mix of term of options (combined with other factors such as rent review) will be an important factor for landlord and tenant.

        A tenant will want the flexibility of a shorter term plus options while the landlord will want certainty in relation to the tenant’s tenure and to ensure that the rent increases at an appropriate level throughout the life of the lease.

      • Rent Review – The 3 most common rent review methods are Consumer Price Index (CPI), Fixed Increase and market review.
        CPI market review will be variable depending on economic trends.

        Fixed increase will give certainty but may not be reflective of economic and market conditions.

        Market review allows the parties to adjust the rent in accordance with local conditions but can be a time-consuming, expensive and uncertain process.

        If the lease is “Retail” the tenant may have the right to obtain an early market review (before exercising its option). This can be an economic and business planning advantage for the tenant.

        Many leases have a CPI or Fixed review every year except for the first year of each option period which will normally have a Market review.

      • Security Bond/ Guarantees – A landlord will want the maximum available amount of security from a tenant to protect against default by the tenant.

        It is common for a landlord to demand a security bond or bank guarantee to the value of between 3 and 6 months rent plus other costs.

        If the tenant is a Pty Ltd company the landlord may ask for personal guarantees from the Directors. A personal guarantee will put the assets of the Directors at risk.

      • Fit out matters – The lease will contain important clauses regarding the tenant’s initial fitout, further works during the lease and the tenant’s requirements at the end of the lease.

        As fitting-out and reinstating premises can be expensive undertakings open to dispute it is important to ensure the parties’ intentions are properly recorded in the lease.

      • Other matters – Your leasing lawyer will be able to discuss with you other important factors that apply to your situation.
What are the main steps when parties enter into a lease?
    • The main steps when a landlord and tenant enter into a lease are set out in the table below:-

      • Preliminary negotiations – Tenant and letting-agent/ landlord engage in preliminary negotiations regarding the availability of premises, the proposed rental amount, term and options etc.
      • Signing the “Agreement to Lease” – The landlord or its agent prepares a 2-4 page “Agreement to Lease” document setting out the important terms of the lease which landlord and tenant sign.

        This is usually prepared in anticipation of a formal full lease being prepared and signed.

        We recommend that you obtain legal advice on an “Agreement to Lease” before you sign it.

        Depending on the wording you could find yourself already bound to a Lease before the formal document is even produced.

        Likewise, a landlord could find itself bound to grant a lease to a tenant earlier than intended.

      • Landlord submits draft Lease – The landlord’s solicitors will provide the tenant (or its solicitor) with its draft lease and other requirements for review.

        The tenant’s solicitor will review the lease at this stage and advise the tenant of important clauses, including those that may require further negotiations.

      • Negotiation phase – The tenants’ solicitor advises the landlord’s solicitors of the changes the tenant requires to the lease.

        The landlord’s solicitor advises what requested changes are acceptable and what changes are rejected.

        Negotiation continues until there is an agreed form of lease.

        If the lease is “Retail” the landlord will also need to submit a “Lessor Disclosure Statement” which applies to the final version of the lease.

        The Tenant will also need to meet its disclosure obligations under the Act.

      • Execution and finalisation of Lease – The tenant signs 3 copies of the lease and submits these to the landlord (along with the landlord’s other requirements – e.g. insurance, security bond etc.).

        The landlord then signs the lease in triplicate and returns one copy of the tenant.

        A Landlord will often grant access to the premises at this stage.

      • Register Lease – The lease is registered with the Land Titles Office.

        Often this will require preparation of a Survey Plan in registrable form at the tenant’s cost.

        Registration of the lease is recommended to protect the tenant’s interests, although it is not compulsory.

Is my lease a "Retail Shop Lease" any why does that matter?
A lease will be a “Retail Shop Lease” if it meets the criteria set out in the Retail Shop Leases Act (“the Act“). If you are a retail tenant you will gain additional rights and protection under the Act providing that certain criteria are met. If you are a landlord you have a number of important obligations and limits under the Act which, if breached, can result in severe consequences (e.g. the tenant walking away in the first six months of the lease, your annual rent increases being ineffective, etc.). Your leasing lawyer will be able to assist with these important matters.
Why should I engage a lawyer to assist with a new lease?
The average lease is between 30 and 70 pages long. Some of the lease clauses will be relatively standard while other clauses may be unusual and detrimental to you. In addition, many short “standard form” leases are unsuitable for the parties’ requirements and do not contain important elements. Your leasing lawyer has experience with many leases and will be able to explain to you the important clauses and advise you of any undesirable clauses which should be amended. If you have any specific requirements your lawyer can ensure that these are inserted into the lease. Our leasing lawyers can engage in negotiation on your behalf as to any changes that you require and also assist in the finalisation of the technical requirements of your leasing relationship.
What is a Lease?
A lease is a detailed document setting out the relationship between landlord and tenant. A lease will contain key information such as the amount of rent and the length of the term (and any options). The lease document will also contain clauses that deal with other events such as default by the tenant, installing and removing the fit out.


What issues should I consider?

Make sure the term of any premises lease you enter into correlates with the term of the Franchise Agreement (“the Agreement”).

If there is a provision in the premises lease allowing the lessor to relocate the premises within a centre, make sure the Agreement also allows for the potential for re-location.

There is no obligation set out in the Franchising Code of Conduct (“the Code”) requiring the franchisor to offer an option or renewal term within the Agreement. Accordingly, if you require an option term then you need to make sure provision is made for this within the Agreement.

In addition to the Franchisor’s obligations under the Code, the Trade Practices Act 1974 (and the State fair trading legislation) provide broader consumer protection mechanisms such as in relation to misleading and deceptive conduct, false representations or unconscionable conduct and the like.
Make sure the Agreement is clear as to what are the franchisee’s expected performance obligations.

You should ideally obtain and review the Operations Manual and any related manuals prior to entering into the Agreement. At the very least before the cooling off period expires in case there is material in those manuals adverse to you.
Make sure that your territory is exclusive and large enough geographically so that franchisees with adjacent territories do not encroach on your territory.

Make sure the Agreement does not allow the franchisor to sell directly into your territory in competition with you.
Make sure you undertake proper due diligence, read the Disclosure Document, contact existing franchisees and gauge their opinion of the franchise system. Ultimately it is your risk and if proper due diligence is not undertaken you may lose not only the franchised business but risk bankruptcy or liquidation if the business fails

I have heard of the term “churning” – what does it mean?

In this situation a franchised business fails, the franchisor gets rid of the existing franchisee and either buys it back itself and then re-sells or just re-sells. The problem is this cycle repeats itself over and over again. A franchised business that is being sold over and over is a sign of:

  • Either poor management of the franchisor in not getting the right franchisee,
  • A deliberate strategy of the franchisor just to increase profits,
  • The target market or demographic for the franchised business in that territory not matching up with the product/service, or
  • Some other reason for poor performance. Do your due diligence and don’t get caught.
If I do terminate within the cooling off period do I get a refund of money I may already have paid to the franchisor?

If the franchisee terminates during the cooling off period, the franchisor must, within 14 days, return all payments made by the franchisee to the franchisor under the agreement.

However, the franchisor may deduct from the amount paid, the franchisor’s reasonable expenses if the expenses or their method of calculation have been set out in the franchise agreement.

If I do enter into a Franchise Agreement is there a cooling off period?

Yes, under the Franchising Code of Conduct a franchisee may terminate a Franchise Agreement (“the Agreement”) within seven days after the earlier of:

  • Entering into the agreement; or
  • Making any payment under the Agreement. The above does not apply to the renewal, extension or transfer of an existing Agreement.
What are some of the commercial considerations?

As with any business or investment there are risks involved and careful consideration and due diligence needs to be undertaken. There are a variety of ingredients that go into making a successful franchise, these include for example:

  • How long has the franchisor operated the franchise system?
  • Is the franchisor well known or do they have a good reputation?
  • Is the franchise system proven and does the system have a history of being profitable?
  • Are there already in place a number of franchisees whom have been in operation for some years?
  • Is the franchisor willing to give you the contact details of its existing franchisees so you can canvass their views of the system directly?
  • Do you have skills, education and experience in the industry relevant to the franchised business? If not, how thorough is the training that is going to be provided by the franchisor?
  • Do you have sufficient capital?
  • Is the franchisor prepared to give you financial information to assist you to budget for income, liabilities and profit? In particular, will the franchisor release the income/profitability statements of franchisees in similar territories to the territory you are acquiring?
  • Have you sought appropriate advice from a lawyer, accountant, business adviser and/or insurance broker?
  • Have you prepared a business plan?
  • Have you considered the commitment in hours needed to successfully operate the franchised business?
  • Have you sufficiently researched the franchise system, the franchisor and the market in which the products/services are sold? For example, is the product likely to be affected by seasonal fluctuations?
  • Have you researched the territory which you are interested in acquiring? Demographics and spending habits in one territory may differ from another. Have you considered engaging the services of a demographer to assist you with this aspect?
  • Do you have the personality to deal with a franchisor and comply with restrictions on your business management which may be imposed under the Agreement and operations manual?
  • Have you considered whether you will fit in with the culture of the franchised system and franchisor?
  • Have you completed a SWOT (strengths, weaknesses, opportunities, threats) analysis? Note: some of the answers to these questions will be set out in the franchisor disclosure document.
What are some of the disadvantages of franchising?

Restrictions as set out in the Franchise Agreement (“the Agreement”) and operations manual in relation to the way the business is operated.

For example:

  • Only dealing with franchisor approved suppliers,
  • Operating within a defined territory etc,
  • Commitment to pay fees and royalties to the franchisor on an ongoing basis,
  • Where a premises lease is involved the franchisee may be required to not only pay for initial fit out costs but there may be additional costs in the future to refurbish the premises to meet the franchisor’s new or updated shop layout,
  • Poor performance by other franchisees can impact on the reputation of the whole franchise system and thereby adversely impact on your franchised business;
  • Lack of communications/assistance or poor management of the franchisor can adversely impact on your franchised business;
  • The Agreement is limited to a term in years – you may not be able to renew that term, and
  • Default under the Agreement can lead to your franchise being terminated.
What are some of the advantages of franchising?
  • System is already functioning and typically proven there is less risk adopting that system as compared to a start – up business,
  • Because the franchise system has a consistency of service and product across its franchisees, customers know what to expect,
  • The size of a franchising network allows an increased brand presence and market penetration,
  • Access to the know-how, procedures, training, management skills and assistance of the franchisor helps the franchisee to better operate and grow the franchised business – the franchisee has someone to fall back on for advice,
  • The franchisor’s greater purchasing power with suppliers may result in rebates and savings for the franchisee,
  • A successful franchised business is more likely to attract purchasers of that business in the event the franchisee wishes to sell as opposed to a non-franchised business,
  • Franchising in Australia is regulated – there is in addition to mandatory disclosure obligations, both a dispute resolution process under the Franchising Code of Conduct and a complaints mechanism through the Australian Competition & Consumer Commission.


How do you know the business venture you are entering into is a franchise?
  • Franchising in Australia is regulated through the Trade Practices (Industry Codes – Franchising) Regulations 1998, known as the Franchising Code of Conduct (“the Code”).

    The Code applies to all agreements which satisfy the definition of a franchise agreement set out in the Code. There are essentially four elements which must all be satisfied:

    Is there an agreement? – This could be in writing, oral or implied (although in most cases it is written).

    Does the business incorporate the right to supply or distribute goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by another?

    Will the business be substantially or materially associated with a trade mark, advertising or a commercial symbol of another?

    Before starting the business or continuing the business, is there a requirement to pay to another person an amount of money by way of? For example:

    • An initial capital investment fee, or
    • A payment for goods or services, or
    • A fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee, or
    • A training fee or training school fee

    There are some exclusions under the Code as to amounts that can be taken into account.

    There are also certain other exclusions under the Code.

    So, if the criteria above is met any agreement you enter into (even if it is called a license) will be considered a franchise agreement and accordingly the Code will apply, which in turn will place certain statutory obligations and give certain rights in respect of the franchisor and franchisee.

What is franchising?
A lease is a detailed document setting out the relationship between landlord and tenant. A lease will contain key information such as the amount of rent and the length of the term (and any options). The lease document will also contain clauses that deal with other events such as default by the tenant, installing and removing the fit out.