Mergers and Acquisitions

Looking to acquire a competitor? Here’s a recent example of an ACCC merger clearance process

Dometic’s acquisition of Aircommand “OK”, says ACCC

On 10 April 2015, the Australian Competition and Consumer Commission (“ACCC”) announced that it would not oppose the acquisition of Aircommand Australia Pty Ltd (“Aircommand”) by Dometic Group AB (“Dometic”).

The ACCC commenced an informal review of the acquisition in September 2014, after several market competitors expressed concern about the loss of competition between the two companies.  At the time, Dometic and Aircommand were the two largest suppliers of caravan heating, ventilation and air-conditioning systems, holding more than a 75% market share.  Upon the review commencing, Dometic gave an undertaking under section 87B of the Competition and Consumer Act 2010 (Cth) that it would hold its interest in Aircommand separately from the Dometic company group, pending the outcome of the review.

The ACCC was satisfied that the acquisition was unlikely to substantially lessen competition in any relevant market and, therefore, would not lead to an increase in prices or a reduction in services within the market by these companies.  If Dometic did seek to increase prices or lower services after the acquisition, ACCC Commissioner, Dr Jill Walker, believed customers would still be able to bypass it in favour of competitors.

In assessing the proposed merger, the ACCC assessed the expanded product range being offered by existing competitors, Coleman and Gree, and decided that the expanded range would enable these brands to compete with the merged entity.

Competitors also raised concerns about the potential for Dometic to bundle or package products to foreclose competition in the sale of other products, such as hot water systems, for use in caravans and other RVs.  The ACCC took the view that Dometic’s capacity to bundle products relied on it securing a significant market share.  Having concluded that Dometic would be sufficiently constrained in this market, it found that a substantial lessening of competition through bundling was unlikely.  Also relevant to the ACCC’s decision was that the merged entity would face countervailing power from Australia’s largest RV manufacturers, such as Jayco, whose purchasing choices may impact on competition in upstream markets.

It is vital to consider the implications of mergers and acquisitions under competition and consumer law. Please contact Rohan Harris, Andrew Parlour or Jonathan Teh for further information on how competition and consumer law can impact on a proposed merger or acquisition.

To view ACCC’s media release, click here.

Trusts and Taxation

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Considering transferring property to your SMSF? Be aware of stamp duty implications

Avoiding duty when transferring property out of trusts

There are considerable tax advantages to transferring property out of trusts and into self-managed superannuation funds (“SMSF”), but you should be aware of the duty implications of such transfers under the Duties Act 2000 (Vic) (“Duties Act”).

Transfers from unit trusts to discretionary trust unit holders:

Section 36B of the Duties Act provides an exemption from duty for transfers from a unit trust to various classes of unit holders without consideration, including where unit holders are individuals or trustees of discretionary trusts.

The following pre-conditions must be met for the exemption to apply:

  • the Commissioner must be satisfied that the transfer is not part of a sale or other arrangement under which there is consideration for the transfer;
  • the trustee paid duty in relation to the property when it was first acquired by the unit trust;
  • the unit holder held units in the trust when it first acquired the property (any exemption received will be proportionate to the amount of units held by the unit holder when the property was acquired);
  • the dutiable value of the property transferred does not exceed the value of the units held by the unit holder; and
  • the value of the unitholder’s unit holding in the unit trust is reduced by the same amount as the dutiable value of the property transferred.

For transfers to unit holders who are discretionary trusts, beneficiaries of the trust must be natural persons or corporations whose shareholders are natural persons, and who were beneficiaries when the property was acquired by the unit trust.  These beneficiaries must hold their interest in the discretionary trust in their own right.  If the beneficiaries do not meet these requirements, the discretionary trust deed can be amended prior to the transfer to exclude the relevant beneficiaries.

Transfers from a discretionary trust to an individual beneficiary:

Section 36A of the Duties Act provides an exemption from duty to transfers of property from discretionary trusts to beneficiaries, including individuals, without consideration.

Similar pre-conditions to those identified above must be met, including that the beneficiary must have been a beneficiary when the trust acquired the property, and the transfer must be absolute and for no consideration.

Contribution of property from an individual to a SMSF:

A further exemption applies under section 41(1) to transfers from an individual to an SMSF, with the following pre-conditions:

  • the transfer of dutiable property is made without monetary consideration;
  • the contribution is made to a complying SMSF; and
  • there is no change in the beneficial ownership of the property.

A contribution of property to a SMSF, where the benefit of the property is allocated to the member account, will not result in a change in beneficial ownership.

In transferring property from a trust to a SMSF, consideration should be given to:

  • whether the transfer is a breach of fiduciary duty (for directors of corporate trustees);
  • whether the transfer is prohibited under the trust or SMSF deed;
  • whether the transfer triggers capital gains tax;
  • the treatment of the transfer for GST purposes;
  • whether the transfer exceeds the contribution cap ($180,000 per annum from 1 July 2014 before taking into account the “bring-forward rule” and small business tax concession); and
  • whether the transfer can be accepted under the Superannuation Industry (Supervision) Regulations 1994 (Cth).

While transferring dutiable property to SMSFs could have significant tax benefits, these transfers involve a range of complex issues.

Please contact Adam Colabufalo, Jonathan Teh or James Murrie if you require assistance drafting or amending a trust deed.

New laws to be aware of if you supply goods online from overseas

Treasury announces intention to extend GST to overseas intangible goods

Federal Treasurer, Joe Hockey, and his State counterparts have agreed, in principle, to push ahead with plans to apply GST to intangible goods purchased online from overseas, which are valued at less than $1,000.

Mr Hockey commented that imposing GST on online purchases would mean that the cost of downloading movies, music, books and other media from overseas providers would jump by 10%.

Mr Hockey would not name the companies that could be targeted, but promised to work “as quickly as possible” to introduce legislation in relation to these intangible goods.

Mr Hockey stated that extending the tax to intangibles and online goods from overseas is an “integrity measure for the tax base, not a broadening of the GST or an increase of the GST”.

Consumers

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If you conduct door to door sales, there are many legal obligations you should be aware of

Door-to-door sales tactics in breach of ACL

The recent Federal Court decision of Australian Competition & Consumer Commission v Origin Energy Electricity Limited [2015] FCA 278 found Origin and its marketing company, SalesForce Australia, breached the Australian Consumer Law (“ACL”) when conducting door-to-door sales for the supply of electricity to consumers.  The breaches of the ACL included misleading or deceptive conduct, false or misleading representations, unconscionable conduct and unsolicited consumer agreements.

In the judgement handed down on 27 March 2015, the Federal Court found that, in each case, the sales representative deceived consumers in order to secure their purchase.  It was found that, in most cases, the sales representatives lied about the reason for the visit and failed to advise the customer that the representative was obliged to leave the premises immediately upon request.

Further, it was held that the sales representatives preyed on the vulnerable and ill-informed.  For example, a Tamil speaker who could not read English was taken advantage of and unduly influenced to sign a contract for the supply of electricity.  The Court held that the sales representative knew or ought to have known from observations and conversation with the consumer that he could not understand the documents and might be susceptible to unfair influence.

In another instance, a sales representative disregarded a sticker on the front door of the premises which read “Please do not knock”.  The visit occurred after 6.00pm and the sales representative persisted, despite being told it was not a good time.  

In a further instance, the sales representative engaged in harassment or coercion of a consumer.

Principal, Rohan Harris, was quoted in SmartCompany as stating:

“If you’re dealing with consumers on an unsolicited basis, if you’re making appeals to them, you need to understand all the laws that apply to that sort of conduct.”

Rohan suggested that the ACCC was likely to have included Origin’s past breaches of consumer laws in its submission and the Court would have considered these when determining the fines.

Origin was fined $2 million and SalesForce Australia was fined $325,000.

This case highlights the requirements under the ACL concerning permitted calling hours, the need to inform consumers of the reason for the call and the need to give consumers the option to ask the sales representatives to leave.

For more information, please contact Rohan Harris.

To view the decision, click here.

To view the SmartCompany article, click here.

Case study – alleged misuse of market power

ACCC dismisses allegations of misuse of market power

On 25 February 2015, the Federal Court held in Australian Competition and Consumer Commission v Pfizer Australia Pty Ltd [2015] FCA 113 that the ACCC had failed to establish that Pfizer Australia Pty Ltd (“Pfizer”) had breached sections 46 and 47 of the Competition and Consumer Act 2010 (Cth) (“CCA”).

The ACCC alleged that Pfizer misused its market power to deter or prevent competitors from engaging in competitive conduct.  ACCC argued that Pfizer had been offering heavy discounts to pharmacists on the condition that they acquire Pfizer’s generic atorvastatin product and agree to restrict their continued supply of competing generic atorvastatin products.

Atorvastatin is a medication used to lower cholesterol.  Pfizer’s originator brand of Atorvastatin, Lipitor, was the highest selling prescription medicine under the Pharmaceutical Benefits Scheme for several years.

The ACCC further alleged that these discounts were offered shortly before Pfizer was to lose its patent over Lipitor in 2012, which would lead to cheaper, generic versions of the medicine entering the market.  This conduct meant competitors were prevented from selling their generics to pharmacists and was anti-competitive.

The Court dismissed the ACCC’s claims, stating it was unable to establish that Pfizer engaged in the alleged conduct for the purpose of deterring or preventing a person from engaging in competitive conduct, or for the purpose of substantially lessening competition.

The ACCC has lodged an appeal of the Federal Court’s decision.

To view the decision, click here.

Privacy

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New data retention laws for telco’s and ISPs

Controversial data retention Bill passed by Parliament

On 26 March 2015, the Telecommunications (Interception and Access) Amendment (Data Retention) Bill 2014 (Cth) was passed in the Senate with bipartisan support.

The Bill introduces a compliance obligation on telecommunications and internet service providers to preserve metadata for 2 years.  “Metadata” includes information about the source of the communication, the destination of the communication and the date, time and duration of the communication.  It does not include the actual contents of a phone call or internet browsing data.

The Bill also allows certain law enforcement and intelligence agencies to gain access to stored metadata without a warrant.  These agencies include the ATO, ASIC and the ACCC.  A warrant would still be required to access content data; that is, the substance of a communication or internet browsing history.

The new regime will have financial impacts on service providers who will be required to meet minimum data retention obligations.  It remains unclear whether some of the costs will be passed onto consumers in the form of higher telephone and internet services charges.

Despite the controversy surrounding the Bill’s level of interference and intrusion into the privacy of Australians, the Explanatory Memorandum to the Bill stated that the legislation is necessary on national security grounds.

We note that the Government accepted a recommendation to introduce a mandatory data breach notification scheme by the end of 2015, which could result in more onerous privacy compliance for all entities subject to the Privacy Act 1988 (Cth).

Please contact Andrew Chalet, Craig Subocz, Jonathan Teh or James Murrie for further information on data retention laws.

To view the Bill, click here.

Information and Communications Technology

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Dallas Buyers Club wins landmark copyright case in Federal Court

On 7 April 2015, the Federal Court of Australia handed down its decision on whether Dallas Buyers Club LLC (“Dallas Buyers”) was permitted to force iiNet and other internet service providers (“ISPs”) to discover the owners of 4,726 unique IP addresses, which could lead them to identifying those involved in the illegal downloading of the movie Dallas Buyers Club.

The Court found that, under Rule 7.22 of the Federal Court Rules, Dallas Buyers was permitted to seek discovery on the basis of a reasonable belief that, once the ISPs identified the unique IP address owners, this would enable further investigation to identify the illegal downloader/s.

Initial consideration was given to whether the software (used to identify the IP addresses from which the breach of copyright originated) was actually capable of identifying the unique IP addresses.  Expert evidence verified this capability and this was not disputed by the ISPs.  The Court determined that both Voltage Pictures LLC (“Voltage”), the parent company of Dallas Buyers, and Dallas Buyers had a reasonable belief that they might have a claim for infringement.  On this basis, they were permitted to make an application for preliminary discovery.

The Court considered that, even though in some cases only a small portion of the film may have been uploaded from the identified IP addresses, this was enough to enliven the copyright infringement laws in Australia.

The Court cited two NSW Court of Appeal decisions in which preliminary discovery was permitted where the supposed respondent would be identifiable if the NSW Roads and Traffic Authority provided the applicants with the identity of the car owners who would inevitably have known who was driving the cars at the relevant time.

The ISPs raised concerns that Voltage had engaged in “speculative invoicing”; the practice of sending letters to account holders demanding large sums of money for a breach of copyright, or alternatively offering to settle for a smaller sum (though still excessive when considering the breach).  The Court ordered that the ISPs provide the identities of the owners of the IP addresses, and that Voltage not send any letters unless the Court had signed off on them.

The ISPs also raised concerns about privacy.  The Court determined that balancing privacy rights with the need for discovery was essential and restricted the use of the personal details provided by the ISPs under the discovery order, to the following:

  • seeking to identify end-users using BitTorrent to download the film;
  • suing end-users for infringement; and
  • negotiating with end-users regarding their liability for infringement.

Please contact Andrew Chalet, Craig Subocz, or James Murrie for further information on copyright infringement.

To view the decision, click here.

Personal Property Securities

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Important PPSR ruling reinforces need for clarity and proper registration of security interests

Competing priority interests – NSW Supreme Court denies one injunction but grants another

In the recent case of Citadel Financial Corporation Pty Ltd v Elite Services Pty Ltd (No 3) [2014] NSWSC 1926, Justice Brereton allowed an interlocutory injunction restraining the sale of goods supplied by one of the applicants to continue until the final hearing of the matter.  A second applicant sought the same orders, but their application was denied.

The dispute relates to the ownership of (and priority of) security interests over several thousand tonnes of scaffolding following the liquidation of Elite Services Pty Ltd (“Elite”).

Citadel Financial Corporation Pty Ltd (“Citadel”) initiated the proceedings alleging that a verbal agreement with Elite was made in November 2013 for the supply of scaffolding.  Citadel claimed that the agreement included terms that Elite would grant Citadel a security interest over the equipment until the full purchase price of $2.171 million had been paid.

In early December 2014, Citadel obtained orders from the Court that Elite’s receivers be prevented from selling the scaffolding until the resolution of the dispute.  When the matter came before the Court again on this occasion, Citadel sought delivery up of the remaining scaffolding and that the restraining orders be extended.

The second applicant, Skyline Apartments Pty Ltd and Pacific Hoardings Pty Ltd (“Skyline”), sought delivery up of 900 tonnes of scaffolding supplied to Elite and, alternatively, damages to the value of that scaffolding.  While both Skyline and Citadel had registered their respective security interests on the Personal Property Securities Register (“PPSR”), both parties failed to register their interests as a Personal Money Security Interest (“PMSI”).  As a result, neither party could claim the superior priority given to PMSI creditors.

The Court took into account how priority disputes under the Personal Property Securities Act 2009 (“PPSA”) should be resolved.

First, for a security interest to have priority over another registered security interest there must be a security agreement under section 10 of the PPSA.  Such an agreement need not be in writing.

Secondly, the security interest must have attached to the collateral under section 19 of the PPSA.  The Court was satisfied that Elite acquired proprietary rights in the scaffolding when it was delivered and Citadel had given value for its security interest by providing the goods.

Thirdly, the security interest must have perfected according to section 21 of the PPSA, meaning that it is enforceable against third parties and an effective registration is made against the collateral.  Section 20 of the PPSA provides that a security interest is enforceable against a third party when the security agreement providing for the interest covers the collateral.

In this case, the Court was not satisfied that the agreement between Citadel and Elite covered the collateral.  There was no evidence that Elite adopted the invoice for the scaffolding.  Further, the Court found that an exchange of emails two months before the relevant writing, evidencing the agreement, did not satisfy the requirements of section 20.

While Elite had retained the scaffolding after receipt of the invoice, the Court said this could not amount to adopting an invoice created months after the sale and delivery of the goods.

Skyline’s fortunes were vastly different.  When considering the correspondence between Skyline and Elite, the Court was satisfied that it was “seriously arguable” that the 900 tonnes of scaffolding had been acknowledged and the invoice for those goods adopted.  As a result, Skyline had a security interest enforceable against third parties, which gave it priority over other competing secured interest holders.

Having decided that there was a sufficiently serious question to be tried, Justice Brereton had to determine whether the balance of convenience favoured preserving the status quo or permitting the sale.  On balance, the Court decided that there was less risk of prejudice in wrongly granting an injunction than in wrongly refusing one, and orders were made accordingly for the injunction to continue until the substantive hearing, only in relation to the goods supplied by Skyline.

Please contact Paul Gleeson or Adam Colabufalo for further information on registering security interests on the PPSR.

To view the case, click here.

Russell Kennedy Procurement Advice Series

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Too many tenders

One of the best possible surprises in a procurement process is discovering that your approach to the market has been wildly popular, and you have received 2 or even 3 times the number of tenders you expected. 

But elation can quickly turn to despair once you realise that your evaluation process has not been designed to accommodate the number of responses received, and the 5 days set aside in your timetable for tender evaluation now looks woefully inadequate.

Follow this step by step guide to salvage your evaluation timetable, without sacrificing probity or efficacy.

To view the full article, click here.