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Hudson & Young Blog

Web Strategy 2.0

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tech“Online Automation” sounds like a business tool for major companies only… wheel re-inventing, therefore expensive with no guarantee of any success.

This is not necessarily true. Simple, effective and impressive automation of business processes can be surprisingly cheap, and if properly planned as part of an overall business strategy, very cost effective.

There are three basic outcomes to look for with online automation:

  • Allowing customers to use/buy or sample your service with little or no cost to the business.

This is sometimes referred to as the  “tyre kicker” effect. Potential customers might like to look at, try, play with or get comfortable with your service before they buy. Automation allows them to do this without using (or wasting) the business’ manpower resources.

  • Significantly reducing the expense of a repeated business process.

Are your customers ringing for the same thing or with the same question day in day out? This is often an opportunity to automate a process and free up manpower to look after more difficult, interesting and satisfying tasks.

  • Creating a novel or unique online experience to attract potential customers and/or create customer loyalty.

An SME can be seen to be “punching above its weight” when it has online automation processes. It is (incorrectly) seen as the bastion of big business.

McKinsey Quarterly quotes this classic example that achieves all three outcomes:

"During the late 1990’s FedEx and UPS linked data flowing through their internal tracking systems to the internet – no trivial task at the time – to let customers track packages from their Web sites, with no human intervention required on the part of either company. By leveraging and linking systems to automate processes for answering inquiries from customers, both dramatically reduced the cost of service to them while increasing their satisfaction and loyalty."

Hudson & Young consultants have worked on a range of online automation projects (from $3,000 to $1 million) so contact us and we can show you examples of simple online automation strategies.

All in the Family

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We all know that small and medium enterprises (SME's) are often a family affair but what are the issues specific to family operated business? Getting these strategies wrong, of course, has an effect beyond the four walls of the business.

Newscorp Ltd reports:

Family Business Australia chief executive Philippa Taylor says family emotions can create an exceptional business or tear both family and business apart.

"Family business is a mix of love, power and money," she says.

"Business decisions, like firing an under-performing offspring, can impact heavily on families, unless handled with excellent communication and clear policies."

We often advise that an independent advisor sit on the board of a family business to assist with difficult issues that may be awkward for family members to discuss.

Academic and advisor, Lucio Dana says family businesses often share non-business interests, plan for contingencies and transitions and make use of outside advisers all highly recommended practices for business growth and stability.

But other successful strategies such as setting a mandatory retirement age to turn over management regularly and setting merit-based policies for paying and promoting family members are often ignored, he says.

"Families in business on the whole prefer to be left alone to do their thing, the way they like and know how to do it," Dana says. "It is 'their' business after all and invariably they will run it the way they want to run it, the way they think will work for them. It is only in times of crisis that they sometimes seek outside assistance and then usually when it is too late for anyone to be of much help."

When setting structures for family businesses Hudson & Young look into these issues and others including: key man insurance, wills, nuptial agreements and trusts – particularly bloodline trusts (want to know about these – contact us.)

Business Documentation Audit

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Hudson & Young, in conjunction with one of our associated law firms, are able to offer clients comprehensive business documentation audits.

What does this mean?  Basically we look at all of the statutory requirements for your business and check for compliance. We find too many SME clients do not have correct documentation for many functions. Our documentation audit includes:

  •             Leases
  •             Permits
  •             Registrations
  •             Employment agreements
  •             Partnership/shareholder agreements
  •             Insurances
  •             Asset register
  •             Succession planning

The aim is to ensure our clients can be comfortable that all administrative aspects of the business are correctly registered and documented.

Rarely, do we find a business with everything completed and documented accordingly.

For more information, contact us.

Bankruptcy and Self-Managed Superannuation Funds

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It is becoming increasingly common for SME owners to take control of their own superannuation and operate a Self-Managed Superannuation Fund (SMSF). The ATO statistics suggest that the number of SMSF has more than doubled in the past 10 years and the total funds managed has multiplied by more than 5 times over that period.

The rules in relation to the control of a SMSF could not be considered simple; however, some basic principles apply. To be classed as a SMSF, all the individual members of the fund must either act as a trustee of the fund or be a director of the corporate trustee of the fund.

So what happens if one of the members becomes “disqualified person” by declaring bankruptcy or entering into a personal insolvency agreement with their creditors? The first consequence is that control of the SMSF is at risk. Peter McCrohon and Dung Lam from MBP Legal explain:

“When control is lost because an insolvent person becomes a disqualified person, then all members of the fund (even those who are not insolvent) may lose control of their member’s entitlements in that SMSF. A disqualified person cannot act as trustee of a SMSF or as a director of the SMSF’s corporate trustee. The rationale behind this disqualified person rule is to protect superannuation assets from being used to resolve a disqualified person’s financial difficulties – such use would be contrary to the SMSF’s intended purpose which is to fund its members’ retirement.”

So what happens?

“Where a member of a SMSF becomes a disqualified person, and they remain in the role of trustee or director of the corporate trustee of the SMSF, the trustee is required by law to notify the ATO immediately in writing of this occurrence. Failure to do so is an offence punishable by a fine. If a member of a SMSF is not a trustee or a director of a SMSF trustee company for a period exceeding 6 months, then control of the Fund will have to be yielded to an external registered superannuation entity (“RSE”) licensee (i.e. a government approved trustee). When a RSE is appointed the fund converts from being a SMSF into what is known as a small APRA fund.”

To avoid control of the fund reverting to a RSE, the innocent fund members have 6 months from the time a member becomes disqualified to restructure the fund. This may involve creating a new SMSF excluding the disqualified member, rolling over to an externally managed retail fund or exiting the disqualified member (and their funds) from the SMSF.

This will allow the innocent members to maintain control of their superannuation

Do Discretionary Trusts Really Protect Assets

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John Glover (Barrister and Professor of Law at RMIT) discusses the potential of courts ascribing the assets of a trust to an individual that controls the trust.

“An individual’s “control” of a discretionary trust may become “property” for the purposes of s79 of the Family Law Act 1975.

The issue is addressed in Kennon v Spry (2008) where French, CJ assumed the “coupling of three things:

  • The husband’s legal title as trustee
  • His power to distribute the whole fund to the wife; and
  • The wife’s equitable right to be considered

His honour stated that: “a beneficiary who effectively controls a trustee of a discretionary trust may have what approaches a general power and a proprietary interest in the income and corpus of the trust.”

This principle could apply to taxation law, social security law and bankruptcy law.

Glover explains:

“…the statutory definition of “property” applicable to the vesting of property in bankruptcy trustees under BA (Bankruptcy Act 1966) s58 goes beyond the general law. “The property of the bankrupt” in s5(1) means:

    1. Property divisible amongst the bankrupt’s creditors; and
    2. Any rights and powers in relation to that property that would have been exercisable by the bankrupt if he or she had not become bankrupt

Property for the purpose of defining what vests in bankruptcy trustees includes defined “powers”, which in turn imply “control”.

Hudson & Young have been able to establish trusts that avoid this issue of deeming control as property. Contact us if you would like to discuss the structure of your existing assets.

Tax Office getting aggressive

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News Ltd is reporting that record numbers of Australian businesses are going broke as taxman calls in debts

"Most of these were small businesses feeling the pinch as consumers reined in spending and the Australian Taxation Office started to call in breaks handed out during the global financial crisis, said Dissolve company liquidator Cliff Sanderson.

"The driver of a lot of the small liquidations is the Australian tax office and this is going to continue in 2012," Mr Sanderson said.

"Post-GFC the ATO went very, very light on business but now they're starting to ask companies to repay their debts."

The ATO brought in a number of new measures in 2009 to help small businesses that were being buffeted by the headwinds from the GFC, such as interest-free payments, deferred tax payments and other flexible repayment schemes."

We are also noticing this trend. The ATO is far more aggressive now than they have been in the past and we are noticing that lenders are taking a keen interest into any business borrower’s tax strategy to the point of insisting on separate tax withholding accounts to be established and used.

"As the ATO schemes have come to an end and the European debt crisis has continued to weigh on financial markets, smaller businesses are still doing it tough. Mr Sanderson said small retailers and "tradies" have been hit hardest by the downturn and were likely to suffer in the year ahead."

Web Strategy 1.0

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I have asked the IT Geeks to provide a monthly insight into what web strategy is all about - what ideas are out there that our clients can, might or are using. 

This is an interesting strategy for B2C (business to consumer) clients who have an existing customer base. Using consumers as innovators suits the online space. McKinsey Quarterly explains:

Companies that involve customers in design, testing, marketing (such as viral marketing), and the after sales process get better insights into customer needs and behaviour and may be able to cut the cost of acquiring customers, engender greater loyalty, and speed up development cycles.

and there are plenty of success stories:

OhmyNews, for instance is a popular South Korean online newspaper written by upwards of 60,000 contributing "citizen reporters." It has quickly become one of South Korea's most influential media outlets, with around 700,000 site visits a day. Another company that goes out of its way to engage customers, the online clothing store Threadless, asks people to submit new designs for T-shirts. Each week, hundreds of participants propose ideas and the community at large votes for its favourites. The top four to six designs are printed on shirts and sold in the store; the winners receive a combination of cash prizes and store credit.

This type of online strategy provides the business with cutting edge ideas, that its customers want, without the costs associated with product development, design and market testing. This strategy also encourages customer loyalty - who is not going to buy the T-shirt they voted for.

But...McKinsey Quarterly warns:

a company open to allowing customers to help it innovate must ensure that it isn't unduly influenced by information gleaned from a vocal minority. It must also be wary of focusing on the immediate rather than longer-range needs of customers and be careful to avoid raising and then failing to meet their expectations.

Rights of Minority Shareholders

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This issue is far more prevalent than it should be and there are options for minority shareholders.

A series of cases have clarified provisions relating to oppression of minority shareholders, what solutions are available and whether the oppressive conduct must be continuing at the time of trial. Mathew Harvey has written an excellent explanation in the Law Institute Journal October 2011 summarised as:

A cornerstone of corporations law is the protection of a company’s shareholders. Chapter 2F of the Corporations Act 2001 (Cth) sets out the rights and remedies available to them. In ss232 to 234 relief for minority shareholders is laid out. Courts have found that the following forms of conduct can constitute oppression, particularly in combination with one another:

  • The diversion of a company’s business to another company in which the applicant had no interest
  • Payment of excessive remuneration to directors
  • Payment of low dividends, when part of a plan by the majority shareholders to run a company in their own interests
  • Exclusion from participation in the management of a company or in a meeting of the company’s shareholders
  • Persistent denial of access to information about a company.

In Vadori v. AAV Plumbing Pty Ltd (AAV), the company owned a plumbing business established by three partners. In late 2006 the directors of AAV decided to divide up the business between them excluding Vadori.

The transfer of the business took place with no accounting for Goodwill. The essence of Vadori’s claim under the oppression provisions was that AAV’s business, including goodwill and work in progress had been a gift to her fellow directors. She also claimed that she had been excluded from decisions about the manner in which the AAV business had been dissolved. She further claimed that the directors breached statutory and fiduciary duties to AAV.

The court held that the directors had treated the business of AAV as if it were their own and proceeded without regard for the interests of the shareholders of AAV. It also held that Mrs Valdori’s had been excluded from determining how the business affairs of the company were to be dissolved. The court made an order under s232 that the majority shareholders purchase Mrs Valdori’s shareholding in AAV. In calculating the purchase price of the shares the court took into account a one third share of the buisness’ value on a nil goodwill basis; a one third share; a one third share of stock on hand; and an amount to compensate for the loss of one-third of the profit.

The order was for a payment of $190,800. This case is an example of a rather brazen act of oppression. It also serves as a useful reminder of what factors a court may consider in valuing a shareholding. In the 2009 case Vigliaroni v. CPS Investment Holdings oppressive conduct was categorized as including:

  • Exclusion from participation in the management of the company
  • Exclusion from information; and
  • Use of company funds to defend oppression proceedings

Conclusion

The decisions discussed in this article show that the limits of oppression provisions in the act may not have been reached. The law is still developing, with opportunities in future cases to resolve some of the more interesting questions.

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