By Stewart Gough  |  Principal  |  9806 7483  |  stewartg@matthewsfolbigg.com.au

By Phillip Brophy  |  Senior Commercial Lawyer  |  9806 7452  | phillipb@matthewsfolbigg.com.au

Liability limited by a scheme approved under Professional Standards Legislation.

DISCLAIMER: This article is provided to readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as a definitive or complete statement of the relevant law.

Directors - Director ID Numbers are Coming

Company directors will be required to apply for a director identification number under changes to the Corporations Act.

The Treasury Laws Amendment (Registries Modernisation and Other Measures) Act 2020 (Cth) was enacted on 22 June 2020 and amends the Corporations Act 2001 (Cth) by implementing a system of director identification numbers (similar to ACN’s for companies).

Under the current system, companies supply personal information about their directors (such as their full name, date of birth, place of birth and residential address) to ASIC when those persons are appointed as directors.

A number of deficiencies have been identified with the current system including:

• ASIC does not vet the information supplied by companies

• although companies are required to have a signed consent to act form from each director, ASIC does not check this either, so a “dummy director” could be unwittingly or dishonestly registered as a director of a company

• the personal information of directors (including their residential addresses) is publicly available on the ASIC register, creating risks in terms of personal safety, identity fraud and privacy

• you cannot search the ASIC register by director name, so it is difficult to make inquiries in respect of “related parties” and potential “conflicts of interest”

To remedy these deficiencies, the director identification number system has been introduced. Amongst other things:

• the new register will be administered by the ATO

• directors will be required to apply for a director identification number within prescribed timeframes (to be specified in due course)

• it is expected that directors will need to submit personal information and identity documents to be verified (it is unclear to what extent personal information will be publicly available)

• further details will be provided in the regulations/legislative instrument

• the director identification number system is expected to commence in mid-2021

Each director identification number will be unique to the individual, and civil and criminal penalties will apply to any director who:

• fails to hold a director identification number or fails to apply for one within the prescribed timeframe

• knowingly provides false or misleading information about their identity to the registrar

• intentionally provides a false director identification number to a company or relevant authority

• knowingly applies for multiple director identification numbers

Action Item

Directors must ensure they comply with the new regime as significant penalties will apply for breaches.

Leasing – NSW COVID-19 Protections Extended

The NSW COVID-19 leasing regulations have been extended until 28 March 2021, albeit with some qualifications.

The Retail and Other Commercial Leases (COVID-19) Regulation (No. 3) 2020 (NSW) (Regulation) commenced on 1 January 2021. The effect of the Regulation is to extend the “prescribed period” to 28 March 2021.

Amongst other things:

• a landlord under an “impacted lease” cannot take any “prescribed action” against an “impacted lessee” (such as eviction, termination of the lease, or calling on any security provided by the tenant) due to non-payment of rent or outgoings during the “prescribed period”

• an impacted lessee has the right to re-negotiate their rent payable under an impacted lease, and the rent cannot be increased during the prescribed period (unless it is rent determined by reference to turnover)

However, the new Regulation has significantly narrowed the scope of these protections for tenants as:

• the Regulation only applies to retail leases and not commercial leases – previous versions of the regulation applied to both

• to qualify as an “impacted lessee”, the tenant must be eligible for Jobkeeper after 4 January 2021 (when new eligibility rules for Jobkeeper commence) and the tenant’s turnover (including corporate group turnover) for the 2018-19 financial year must be less than $5 million (previously this was $50 million)

The Regulation is not due to be repealed until 1 June 2021, leaving the door open for possible further extensions to the “prescribed period” depending on the state of the economy.

Action Item

Landlords and tenants should carefully review the new Regulation to determine whether it applies to their existing leases and ensure they comply with its terms as any non-compliance may have serious adverse consequences.

Businesses – Greater Exposure to Liability

The liability of a business for a consumer transaction (which can include business-to-business transactions) under the Australian Consumer Law will increase to $100,000 (up from $40,000).

This means that a broader range of commercial transactions will be afforded the protections of the “consumer guarantees” in the Australian Consumer Law which include amongst other things:

• goods must be of acceptable quality and fit for any disclosed purpose

• goods must match any description, sample or model

• services must be performed with due care and skill

• services must be supplied within a reasonable time

If a consumer guarantee is breached then, depending on the nature and severity of the breach, the consumer (which may include a business customer) may be entitled to:

• the repair, replacement or re-supply of the goods or services

• a refund

• termination of the contract for the supply of services

• compensatory damages

The consumer guarantees and remedies cannot be excluded by contract.

Action Item

Businesses must review and update their terms of trade to ensure they are compliant with the consumer guarantees and remedies available under the Australian Consumer Law.

Terms of Trade – Beware of Unlawful Unfair Contract Terms

The Federal Government has announced its intention to expand the scope of the unfair contract terms regime in the Australian Consumer Law.

To recap, a term in a “consumer contract” or “small business contract” (as defined in the Australian Consumer Law) is unfair if it meets all of the following:

• it would cause a significant imbalance in the rights and obligations of the parties under the contract

• it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term

• it would cause detriment (financial or otherwise) to a party if the term were to be applied or relied on

The Australian Consumer Law lists examples of unfair contract terms, such as a term which allows one party (but not the other party) to terminate the contract.

The planned changes include:

• making unfair contract terms unlawful and not merely voidable, thereby giving rise to penalties for businesses which include unfair contract terms in their standard form contracts (eg, in their terms of trade)

• expanding the definition of “small business contract” to a contract where one of the parties employs less than 100 people (previously it was 20 people) and has an annual turnover of less than $10 million

• removing the “upfront price payable” threshold for small business contracts (previously this was $300,000, or $1 million if the contract term was greater than 12 months)

• providing greater clarity about the meaning of a “standard form contract”

The proposed changes are designed to address the shortcomings of the current unfair contract terms regime which excluded too many small businesses on the basis of the “employee headcount” and “upfront price payable” tests.

The Commonwealth Treasury Department will now begin the process of preparing draft legislation for consultation.

Action Item

Although businesses must already ensure they comply with the existing unfair contract terms regime, if the proposed legislation is passed then it becomes even more imperative to remove/satisfactorily amend any unfair contract terms otherwise penalties will apply.

Terms of Trade – New Disclosure Obligations for NSW Businesses

NSW businesses must ensure they comply with the mandatory disclosure obligations in respect of their terms of trade.

The new section 47A of the Fair Trading Act 1987 (NSW) commenced operation on 1 July 2020 and, in essence, this requires NSW businesses to:

• take reasonable steps to ensure that consumers are aware of the substance and effect of any terms or conditions relating to the supply of goods or services which may substantially prejudice the interests of the consumer

• make this disclosure to consumers before the goods or services are supplied to the consumer

Examples of terms or conditions which “substantially prejudice” the interests of the consumer include but are not limited to:

• terms which exclude the liability of the supplier

• terms which impose a liability on the consumer for damage to goods which occurred prior to delivery

• terms allowing the supplier to provide personally identifiable information about that consumer to third parties

• exit fees, balloon payments and other similar payments which accrue upon the expiry or termination of an agreement

NSW Fair Trading has suggested that reasonable steps may include:

• using short, plain English summaries of onerous terms on the front page of a contract

• providing succinct information to consumers (eg, in information fact sheets or on the businesses’ online payments page)

• using scrollable pop-up text boxes for online purchases which the consumer can click “I accept” on

• using images to explain relevant information

• using prominently displayed signage at the supplier’s place of business

• obtaining the consumer’s express consent to the onerous terms (eg, having the consumer initial a contract or tick-a-box on an online form)

Whilst NSW Fair Trading applied a grace period between 1 July 2020 and 31 December 2020, as this has now ended businesses must ensure they comply with this regime.

Action Item

Businesses must ensure they properly disclose such contractual terms otherwise penalties and other detrimental and serious consequences for the business could arise.