A business may also restructure in order to grow or change direction. It can be a catalyst for positive change, especially when executed with a clear understanding of numbers and purpose.

The positive results of a restructure may be:

• Increased cash flow
• More manageable debts
• Better control of expenses
• Greater flexibility to operate in the current market
• A more competitive position in the market
• Increased profits
• A more compliant business

To start the process, your legal and financial team will do all or some of the following:

• Analyse current and recent performance (across sales, profits etc)
• Conduct forecasting and predict future outcomes
• Review a range of strategies and solutions
• Develop an action plan to move forward

This is why some clients reach out to us for help to restructure their business:

Change in market conditions

Market conditions are constantly evolving and companies must adapt to remain relevant. Changes in consumer spending or demand and the emergence of new competitors can significantly affect a business’s performance.

If a business is struggling to keep up with these changes, it might be time to restructure. For example, if a business is experiencing declining sales due to new technology being introduced to the market (think Blackberry vs iPhone), restructuring can help it realign its operations to meet these new demands.

Declining sales or financial difficulties

Financial difficulties can arise for many reasons, such as poor management, high debt levels or an unexpected downturn in sales. If a business is struggling financially, it may need to restructure to address these issues.

Restructuring can involve cost-cutting measures such as layoffs or reducing expenses, to improve the company’s financial position. In some cases, a company may need to restructure its debt or seek new financing options.

Expansion, diversification or strategy

As a business grows, it may need to restructure to support its expansion or diversification efforts. For example, if a business wants to start operating in new markets or launch new products, it may need to restructure its operations. This could involve hiring new staff, investing in new equipment or reorganising the company’s management structure.

A company might restructure in order to take on more debt and limit the personal liability of the director/owner. For example, it may make sense for a business that was originally operated as a partnership to move to be a more formal company, so the entity stands alone.

Changes in ownership or leadership

Changes in ownership or leadership can also be a catalyst for restructuring. If a business is sold or acquired, the new owners may want to restructure to align the business with their strategic goals. Similarly, if there is a change in leadership, the new management team may decide to restructure to improve the company’s performance.

Regulatory compliance

Regulatory compliance is a critical aspect of doing business in Australia. Companies must comply with a range of regulations, including tax laws, employment laws, and industry-specific regulations. If a company is struggling to comply with these regulations, restructuring may be necessary to address these issues. For example, a company may need to restructure its payroll system to ensure compliance with employment laws or reorganise its operations to meet new industrial regulations.

If any of the above apply to your business and restructuring is an option, Reach out to Legal Affairs Lounge today.

Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for legal advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.

In multiple proceedings handed down in August, the Federal Court held that nearly all deductions amounting to several million dollars claimed by three entities controlled by one individual should not be allowed.

This is a case referred to as Melbourne Corporation of Australia Pty Ltd v Commissioner of Taxation. It also involved a business called the Anglo American Charitable and Cultural Trust (the AA Trust).

What’s the story?

The case came about because the Tax Commissioner issued amended assessments of income tax and penalty assessments in relation to the above-mentioned companies. These were in relation to tax deduction claims for management fees and interest said to be incurred in respect to purported loans.

The question arose as to whether the alleged management fees were actually incurred.

In addition, there were queries around whether purported loans were actually made, whether the proceeds of the loans were used in producing assessable income or whether the interest claimed was in relation to the alleged loans.

The case concluded with the court upholding that the value of “management fees” and interest were “no more than ex post facto constructions designed to be fiscally convenient for tax purposes”.

Basically, the claims were not valid.

In one of the cases, as shared by Senior Content Analyst Heidi Macguire from Wolters Kluwer Tax and Accounting, “The lead appeal in this decision was in relation to Melbourne Corp which, over the 2001 to 2014 income years, claimed deductions in respect of management and consulting fees as well as interest expenses in relation to arrangements with various Australian entities.

The Commissioner disallowed the deductions and imposed penalties at the rate of 75% for intentional disregard, increased by 20% for the years after 2001.

The assessments resulted in Melbourne Corp’s taxable income increasing from $168,018 to $2,431,071, with penalties of $589,225 and shortfall interest charge of $175,746 imposed.”

You can read further details and evidence from the trial here.

A caution for all business owners

There are many ways to minimise tax as a business or individual but if your accountant goes beyond what is legal, there will always be the risk of a response and investigation from the ATO, and subsequent legal action.

In terms of writing off management fees or loan expenses, it is important to have documented evidence of everything. At the very least, the ATO needs to see the flow of money between bank accounts as a way of proving tax-related claims.

The term ‘wilful blindness’ was mentioned many times during the Melbourne Corporation cast. In his findings, Justice Logan stated that the taxpayer’s directors conduct (and his evidence) was not dishonest, but he was mistaken to the point of wilful blindness to the obvious in fixing and then causing the amounts to be claimed.

Justice Logan stated that the accountant in question, “Appears additionally to have convinced himself, seemingly based on a mistaken understanding of the proposition, that it is not for the Commissioner to dictate to a taxpayer how to run a taxpayer’s business or one controlled by a taxpayer.”

For penalty purposes, this behaviour was classed as ‘reckless’ rather than ‘intentional disregard’. However, as Heidi McClure wrote in the conclusion of her lengthy article about the trial:

“An act of will, no matter how genuine, does not overcome lack of documentation, contradictory evidence, unreliable ledger entries or transactions devoid of any plausible explanation.

Second, making ex post facto (after the fact) constructs or “closing adjustments” after the end of an income in order to achieve a fiscally convenient outcome does not serve to minimise tax but rather leads to a finding of sham.”

Long story short… tax returns require an honest approach based on documentation and evidence. If you’re a business owner, this means keeping your receipts and records of all interest, loan and other transactions. If you make a claim that the ATO notices as outside of standard benchmarks, you must be able to prove it is genuine.

Legal Affairs Lounge provides legal advice for individuals and business owners on the Legal Affairs .

Disclaimer: The information contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for legal advice. Whilst the information is considered to be true and correct at the date of publication, changes in circumstances after the time of publication may impact upon the accuracy of the information.

Trademarking can be complex and it makes sense to complete the process with the help of a legal professional who understands how it all works.

Wondering how to trademark and why you need to? Here are some essential facts.

1. Why trademark?

Businesses brand themselves so they can be easily recognised and stand out from the competition. The trouble is it’s simple for someone to look at what you’re doing and then copy it.

Trademarking gives you ‘ownership’ of a phrase, logo, image, brand name or even a scent and prevents others from replicating what you do in order to make money.

For example, the phrase ‘I’M LOVIN’ IT’ is trademarked by McDonald’s. Paris Hilton trademarked the expression she became known for; “That’s hot”. This doesn’t mean nobody is allowed to say those words out loud… just that they can’t be used for commercial purposes. The lighting on the Eiffel Tower is trademarked so people can’t sell images of it lit up at night. And athletes are officially prevented from copying sprinter Usain Bolt’s signature victory pose.

If you forget to trademark, it’s possible for someone else to trademark your name/logo etc and then take action against you, even though you were the first to market.

2. Not everything can be trademarked

For example, you can’t trademark the word ‘lawyer’. It is far too broad and there are other operators who have the right to use this term.

When you go through the trademark process, you’ll first need to make sure what you want to trademark isn’t already protected from use by someone else. Many businesses have gone a long way down the branding path before they realise they can’t use the name or slogan they want.

With that being said, if you find a trademark similar to yours, you might still be able to claim it for yourself — if your business is very different. For example; Straight Line Graphic Design vs Straight Line Business Coaching. These businesses would not compete with each other and therefore may both be able to apply for a trademark around the wording ‘Straight Line’.

Facebook has trademarked the word ‘face’. However this only applies to social media companies that may be considered competitors.

3. Trademarks aren’t automatically approved

The trademark process involves application, review and approval. You may be asked to provide evidence that you require the trademark and you may need to supply a logo as well as a business name, plus additional information about your business and what you do.

There is also a period where other operators have the right to object to your trademark before it is finalised.

Because the process takes a while and involves a review process, there are costs involved. You’ll have to pay to apply for a trademark and to register it.

There are also costs involved with engaging a lawyer who knows how to trademark. However, when you consider that following the process correctly can save your business from being eclipsed by a competitor, it’s worth the money.

4. Trademarks expire

Businesses come and go and trademarks don’t last forever either. Generally, the validity of a trademark is ten years from approval.

5. Trademarks aren’t patents (or copyright)

Trademarks protect a name, logo, jingle etc that separates your brand from other operators and gives you the rights to use it exclusively.

A patent is more around a concept or invention. You may come up with a new computer program innovation and patent it so that nobody can take it to the market before you.

The term copyright covers the content your business creates. For example, if you write a guidebook, it counts as original work and can’t be recreated by others.

Need help to figure out how to trademark? The team at Legal Affairs Lounge will help you figure out if your application will be approved and streamline the experience so you can focus on other things. Reach out to us today.

Disclaimer: The content contained in this news post is general in nature and is intended to provide a general summary only and should not be relied on as a substitute for legal advice.