In the last year or so, how many of your family, friends, clients, colleagues or acquaintances have got married? And of those newlyweds, was reviewing their estate planning at the forefront of their minds, as something they should attend to before or soon after the nuptials?  Would they be aware that the act of getting married could drastically affect what happens to their estate if they die?

Some recent statistics on Marriage

The Australian Bureau of Statistics (ABS) reported in November 2018, that there were a total of 112,954 marriages registered in Australia in 2017, with 30,129 of these being registered in Victoria. The figures from previous years are around the same, give or take a few thousand.

However, the total number of marriages taking place each year could be expected to increase in the future, now that marriage is no longer limited to heterosexual couples. In just the first six months after the amendment in December 2017 to the Marriage Act 1961 (Cth), allowing marriage between two persons regardless of their gender, the ABS reported that 3,149 same-sex marriages took place across Australia. 

What could this mean?

Subclause 13(1) of the Wills Act (Vic) 1997 (“the Wills Act) states that marriage revokes a Will, the entire Will. This could mean that the minute they “tie the knot”, over 224,000 people each year (regardless of their gender) could be joining the ranks of those in Australia who don’t have a valid Will in place.

One exception in the Wills Act is that, a marriage that was contemplated in the Will does not revoke the Will. This gives couples the chance to plan well in advance.

There are some further exceptions in the Wills Act, including that if you make a gift to someone to whom you are not married to at the time of making your Will or appoint them as your executor, the gift or appointment will not be revoked if you are married to that same person at the date of your death.

However, unless the Will is made in contemplation of marriage, all gifts to any other people or appointments of other people as the executor will instantly be revoked by the marriage.

If a person either dies without a valid Will in place or their Will does not dispose of their entire estate, the assets not effectively dealt with become subject to the “intestacy rules” in the Administration and Probate Act (Vic) 1958. The intestacy rules set out who receives the estate of someone who dies without a valid Will.

Where a Will has been revoked due to marriage, this could mean that loved ones such as children from the relationship or other family members or friends, could miss out entirely on an intended gift.

Whilst children from a previous relationship may still receive some benefit under the intestacy rules, it could be far less (or perhaps far greater) than what was intended.

What to do?

The happy couple should preferably consult an estate planner and a wedding planner at the same time. If this doesn’t happen, they should take steps to ensure that they have a valid Will in place as soon as possible after the marriage.

How we can help

We have specialised estate planning lawyers who can advise and assist anyone who has recently married or is preparing to marry.  Please do not hesitate to contact us.

The team at Moores recently delivered a highly topical seminar on the issue of challenging school enrolments and the growing complexity between interactions with parents and students. During this seminar, our team carefully guided our clients through an engaging session with information to equip Schools to effectively deal with problem parents, tricky enrolments, discrimination and school building funds.

Challenging Enrolments

Many independent and Catholic schools have great stories to tell about the increasing complexities of enrolments. Not only are families becoming more complex, many parents are growing in their willingness to assert their position and challenge schools regarding enrolment decisions. 

We are seeing a high level of activity from parents in the areas of waitlist jumping, illusory sibling priorities and discounts, breaches of scholarships terms and conditions, claims of discrimination, and plain old bad behaviour.

What we also see is that many schools are not equipped with robust documentation which allows them to assert their position.

Given that the VRQA has mandated the online publication of enrolment documents with effect from 1 July 2019, now is the time to review and upgrade any documents which may contain ambiguity or lack of compliance.

Our key tips are:

• Ensure your enrolment policy is clear on waitlists and sibling priorities and discounts, but ensure you retain an ultimate discretion;
• Ensure your scholarship terms and conditions are clear on:
  • The expectations on the student in order to retain the scholarship; and
  • If you expect parents to “re-pay” foregone fees on breach or early departure:
    • Your terms clearly state this expectation; and
    • You can actually support the fact that the School has foregone fees to provide the scholarship.
• Re-calibrate your enrolment documents to appear in the Enrolment Trifecta of policy, terms and conditions and parent code of conduct;
• Ensure you make the parent code of conduct enforceable and sufficiently clear on termination of enrolment (many are too vague and therefore do not assist);
• Ensure any payment plans for fees are well documented, including the implications of breaching the plan; and
• Noting schools can lawfully discriminate against current and prospective students if an exception applies, but these are very limited, consider adopting a structured framework to assess prospective students against your ethos.

Lastly, the VRQA Guidelines will require boards, management and compliance to implement new documentation by 1 July 2019.  Please see our article here for more information.

School Building Funds

The ATO are reviewing school building funds, here are our top tips:

School Building Fund:-

• Can’t be used to pay for things that are not ‘fixtures’ of the building, such as furniture, computers and lab equipment.
• Can be used to pay for the administration costs of the fund, such as bank fees, accounting costs and reasonable remuneration for the fund’s administrator and staff.
• Must be registered as a charity or operated by a registered charity.  Rule of thumb – if there is a separate trust deed, the fund itself needs to be registered as a charity.
• If the School requires parents to pay a compulsory levy to the fund, the parent cannot claim a tax deduction – the payment must be made voluntarily to be deductible.
• The fund must be controlled or administered by a majority of people who have a degree of responsibility to the community – eg principal, lawyer, doctor, pastor.

How we can help

If you have any questions or would like more information on navigating the new VRQA Guidelines and School Building Funds, please do not hesitate to contact us .

Feedback from the seminar

“...it was engaging and informative“- Risk and Compliance Leader, Independent School in Melbourne

“Thanks for the briefing today, it was one of the best I have attended…” – Corporate Services Manager, Independent School in Melbourne

“Your sessions are always so valuable and helpful. You are all so warm and welcoming and don’t speak ‘legal jargon’ that we can’t understand!” – Enrolments Manager, Independent faith-based School in Victoria

Following on from Part 1 & Part 2 we conclude with summarising how NFP directors can protect themselves:

How can directors protect themselves?

Indemnity:

Many organisations indemnify their directors against any liability incurred in good faith by the director in the course of performing his or her duties.

Of course, an indemnity is only effective to the extent that the organisation has sufficient assets to cover the loss. This is where Director and Officer Insurance is important.

Director and Officer Insurance:

Director and Officer Insurance (D&O Insurance) is designed to protect directors and officers against personal liabilities, in relation to claims that arise from decisions they make while carrying out their roles (and in the scope of their authority).

The coverage will vary depending upon the policy obtained, will generally contain limits and will exclude loss resulting from certain conduct (such as dishonest breaches of duties).

An insurance broker will be able to clarify what is and is not covered in a particular policy.

Other protections:

Avoiding any breach in the first place is the best protection against personal liability. Some important ways of avoiding a breach is to:

• Take the time to understand what laws apply to the organisation.
• Encourage a culture of compliance.
• Encourage a culture where breaches can be reported.
• Exercise independent judgement and interrogate information that you are given. In particular, don’t simply rely on another director to read relevant material and understand information relevant for decisions.
• Have the right skills on the board, and where there are skills that are lacking, or where otherwise appropriate, seek expert advice.
• Have strong risk management processes. This can include having a risk register which allows the organisation to identify current and potential risks and find ways to mitigate those risks.
• Have good compliance policies and processes.

Click here for Part 1 – Introduction and duties and liabilities of directors

Click here for Part 2 – Tax and superannuation, Occupational Health and Safety Laws (OH&S Laws),Employment laws, Child safety laws, Competition and Consumer Laws

Contact us

For more information or not-for-profit legal advice, please do not hesitate to contact us.

Following on from Part 1, we continue to summarise the key duties of a NFP director based on the standards in Victoria. Directors should ensure they are familiar with the rules in their states, which may vary.

Tax and Superannuation:

Directors should always take reasonable care to ensure that the tax affairs of the organisation are in order. While NFPs do not generally pay income tax, there are other tax obligations that may apply.

In particular, directors should ensure that the organisation is meeting its obligation to pay superannuation and pay as you go withholding tax (PAYGW). In certain circumstances, the ATO can require a director to pay for outstanding superannuation and PAYGW liabilities.

Directors may also be liable where the organisation is found to have committed a tax offence (such as making false or misleading statements to the ATO). This will generally only occur where the director was involved in the offence, including by aiding, abetting, counselling or procuring the act or omission that led to the offence.

Occupational Health and Safety Laws (OH&S Laws):

Broadly, the organisation, as an employer, has obligations to eliminate or minimise the risk of harm to the health and safety of workers.

Directors should take steps to make sure that the organisation is complying with its OH&S obligations. For example, by understanding the risks and hazards associated with the organisation’s operations and making sure that it is properly resourced to eliminate or minimise those risks.

If the organisation breaches that duty because a director failed to take reasonable care, the director may be guilty of an offence.

Breaches of OH&S laws can lead to civil or criminal penalties as well as personal liability for any loss suffered and imprisonment in very serious cases.

Employment laws:

Directors should be aware of laws regarding the responsibilities of employers and the rights of employees.

The Fair Work Act 2009 (Cth) covers a range of employment issues, including unfair dismissal, the National Employment Standards, adverse action and redundancy.

Generally, a board is not directly involved in the daily considerations of work conditions and pay. However personal liability may arise where a director is involved in a contravention (e.g. by aiding, abetting, inducing or being knowingly concerned with the contravention).

Child Safety Laws:

In Victoria, organisations that exercise care, supervision or authority over children have a responsibility to reduce the risk of child abuse. Broadly, if a person knew of a substantial risk of child abuse by someone associated with the organisation; and had the power or responsibility to reduce or remove the risk, but negligently failed to do so, that person may be charged with a criminal ‘failure to protect’ offence.

Competition and Consumer Laws:

There are various protections for consumers under Australian consumer laws including prohibitions on price fixing, cartel conduct or engaging in false or misleading conduct.

A director may be liable where they were in some way involved in the contravention (for example, if they aided or abetted, induced or were knowingly involved in the contravention).

To read more…

Click here for Part 1 – Introduction and Duties and liabilities of directors

Click here for Part 3 – How can directors protect themselves?

How we can help

For more information or not-for-profit legal advice, please do not hesitate to contact us.

The Royal Commission into Institutional Responses to Child Sexual Abuse shone a light on the failure of a number of not-for-profits to properly protect children in their care.

Late last year, Commissioner Robert Fitzgerald publicly stated that through his involvement in the Commission, it became clear that three elements were vital to the proper functioning of an organisation: governance, leadership and culture.

In our view, these three elements are of particular relevance for directors. Directors bear ultimate responsibility for the governance of an organisation. They support the organisation by providing leadership, strategic vision and oversight. Well-functioning boards set the tone and culture of the organisation. All of this has a significant impact on how effective the organisation is in achieving its mission.

Because directors have such control over the proper functioning of an organisation, the law imposes a range of duties upon them. The duties are not intended to be burdensome, but require people in a position of authority, to act reasonably and responsibly, both in relation to their obligations and the obligations of the organisation.

Many of these duties are aimed at ensuring that the organisation is properly governed, with effective leadership, and with a culture of transparency and accountability.

Following the Royal Commission, it is likely that there will be increased scrutiny over whether NFP directors understand and comply with those duties, alongside existing obligations under the Australian Charities and Not-for-Profits Commission (ACNC) and its Governance Standards.

While directors should ensure they are familiar with the rules in their states, which may vary, here’s a brief summary of key duties based on standards in Victoria.

Don’t forget, if a director breaches those duties, there can be consequences for the organisation, the director personally, and – as the Royal Commission has shown – for others associated with the organisation.

Duties and liabilities of directors

The term “directors’ duties” generally refers to a number of overlapping principles imposed on directors by virtue of the position of trust and power that they hold. These principals, from a number of sources – including ACNC governance standards, common law and legislation – are summarised below.

Use of position and information:

Directors must not use their position, or information that they gain as a director, to obtain an advantage for themselves or another, or to cause detriment to the organisation.

Reasonable care, skill and diligence:

Directors must exercise their powers and discharge their duties with a reasonable degree of care, skill and diligence.

An important part of this duty involves making sure that the director has all the information required for making a decision. This includes reading board papers and any reports provided by management, being engaged in board discussions, and proactive in their role.

This duty also includes taking steps to make sure the organisation is complying with its obligations and having appropriate financial controls in place to ensure that the assets of the organisation are being used appropriately.

Good faith, best interests of the organisation and proper purpose:

Directors should act honestly, fairly and with loyalty to the organisation. When making decisions, the interests of the organisation must always be the principal consideration for the board. Additionally, directors must only exercise their powers for a proper purpose.

In the context of a charity, this involves a clear understanding of the charitable purpose of the organisation. The board should ensure that decisions are made and actions are taken in order to further that purpose.

Disclose (and manage) conflicts of interest:

Conflicts of interest often arise for directors. The mere existence of the conflict is not generally a problem. Rather it is how the conflict is dealt with that is important.

If a director identifies a conflict (or even a perceived conflict), they should disclose it to the board (and in some cases, the members) as soon as possible. The conflict should also be recorded (for example, in a conflicts of interest register).

As a general rule, directors who have a conflict in a matter being discussed by the board should not be present while the matter is being considered and should not vote on the matter.

The board minutes should reflect that the director left the room and did not vote.

Insolvency:

Directors have a duty to prevent an organisation from trading while insolvent. This requires directors to take steps to be satisfied that the organisation will be able to pay its debts when they become due. Some steps that directors can take to comply with this duty (ASIC guidelines here) are:

• Staying informed about the financial affairs of the organisation and regularly assessing solvency.
• If any concerns about the financial viability are identified, immediately taking positive steps to confirm the financial position of the organisation and assessing the options available to deal with any financial difficulties.
• Obtaining appropriate advice.
• Considering and acting appropriately on advice received in a timely manner.
• Where directors breach this duty, they may be personally liable for some of the organisation’s debts.

To read more…

Click here for Part 2 – Tax and superannuation, Occupational Health and Safety Laws (OH&S Laws),Employment laws,  Child safety laws, Competition and Consumer Laws

Click here for Part 3 – How can directors protect themselves?

How we can help

For more information or not-for-profit legal advice, please do not hestitate to contact us.

The increasing governance burden requires greater sophistication…

Particularly in smaller organisations, directors and committee members (referred to as ‘directors’ from here on) are often volunteers chosen primarily for their connection to the organisation’s mission rather than their governance experience.

Unfortunately, good governance requires an increasingly sophisticated skill set and understanding. In 2019, directors may need to consider the impact of matters on their organisation as diverse as: recommendations from the banking royal commission; the new ACNC External Conduct standards; changes for deductible gift recipients that are not registered charities; and a potential change in government.

Each organisation should consider whether the level of experience of its committee or board is appropriate for the complexity of the organisation and the regulatory environment in which it operates. It may be appropriate to provide professional development to current directors or recruit additional directors with specialist governance qualifications.

Managing culture is a governance responsibility

The recent royal commissions have caused significant reputational damage to organisations and the individuals responsible for their governance. Almost invariably, those investigations found cultural failures had allowed misconduct to thrive.

The lesson for directors is not only that culture is important, but that the public considers that setting and overseeing the culture of an organisation is a key part of good governance. Culture is no longer a solely operational issue – if it ever was.

Directors need to ensure that their organisation’s values meet changing community expectations and meaningfully translate into day to day operations.

The cresting Baby Boomer wave

Baby Boomers make a disproportionately large contribution to the bottom line of many not-for-profit organisations. But the boomer wave is cresting. – By the end of 2019, almost half of the Baby Boomers will have retired, and will no longer be earning a regular income.

The window of time within which not-for-profit organisations can engage with their most rusted-on and generous donors is starting to close. Directors need a strategic,  segmented fundraising strategy to engage with retiring boomers, Generations X and Y and the emerging Gen Z workforce.

Options for organisations wanting to get onto the front foot

• Tell your story
  Many organisations are so focused on what they do, that they fail to step back and consider why they are doing it. Worse, they fail to articulate the ‘“why” to their internal and external stakeholders. Today’s culture is far more energised by authentic purpose than annual reports. Great directors will ensure not only that their organisation’s story is told well and often, but that it informs and guides the organisation’s values, mission and operations.
   
• Collaboration: Work with others for more impact
  Collaboration with other organisations can create benefits including economies of scale, increased opportunity to attract government funding and shared know-how. Mergers continue apace in the sector, but are not always necessary,  or appropriate. Strategic alignment through activities such as joint ventures, co-branding or colocation can offer many of the same benefits. This can also provide a good opportunity to investigate cultural “‘fit” for a potential future merger.
   
• Protect the vulnerable
  This may not be an opportunity in the traditional sense, but it is fast becoming an imperative. Vulnerability can affect any stakeholder in an organisation, – from the single mother receiving services, to the employee with a physical disability or the community director with depression. Both not-for-profit and for-profit organisations risk a severe backlash if they fail to engage compassionately with vulnerable individuals.
  
  For registered charities, the protection of vulnerable beneficiaries is an ACNC compliance focus for 2017 – 2019. It is also an express requirement of the new External Conduct Standards.
  
  Not-for-profit organisations that get this right have an opportunity to differentiate their organisation in a crowded marketplace. But the real reason to protect vulnerable individuals is not about risk management or branding,  – it is simply the right thing to do.

For more information on the issues facing NFPs in 2019, please do not hesitate to contact us.

This article was first featured in the Community Directors Intelligence newsletter in February 2019.

New Guidelines will come into force on 1 July 2019 in respect of every School registered in Victoria. 

These set out the new evidence requirements under each Minimum Standard and set out detailed hoops for schools to jump through.

The focus is increased student welfare and outcomes, and more transparency for boards and management.

Whilst some existing requirements have been removed, many requirements are new and specific.

Here are our Top 5:

1. Transparency – Online publication of enrolment agreements

This is a new requirement. The guideline requires the enrolment agreement to be publicly available and include specific clauses, including fees and codes of conduct.

In my experience, many enrolment agreements do not contain these items. Many also contain potentially discriminatory content and (wrongly) form part of enrolment applications.

Unfortunately, the guideline requirement is named “enrolment policy”, but requires publication of the “enrolment agreement”.  These are not the same, and should not be in the same document.

If you have not already separated your enrolment documents into the best practice Moores Enrolment Trifecta, now is the time. 

2. More Scrutiny regarding services to students with a disability

One new requirement is that the school must show evidence that, in respect of lands and buildings, reasonable adjustments have been made. This, along with the new requirements to demonstrate how a school “enacts its philosophy”, suggest that the area of discrimination will be scrutinised. Schools are also advised, in light of the focus on enrolment documentation, to check their enrolment policy is consistent with legal requirements regarding discrimination, including reasonable adjustments. Many schools believe they can rely on exemptions in legislation. These are typically much narrower than is widely believed.

3. Student Behaviour Management and Procedural Fairness

From 1 July 2019, grievance procedures will need to include a statement as to how the school manages “procedural fairness”. Note that policies are required here, as is a statement of the school’s approach to behaviour management. Please also review your parent code of conduct. You will need to include this in the enrolment agreement to be published online. If it does not include procedural fairness, or is used as a “stick” when it is not binding on parents, this will be non-compliant. I’ve seen many parent codes of conduct, and many which are introduced and managed badly. They can be enforced, and can be extremely useful, but need to be correct and compliant.

4. Not for Profit Purpose and Governance

As discussed at many an education law conference last year, and on my school board, new guidelines have been introduced regarding board transparency and relationships with third parties. The VRQA requires, for example, board delegations of authority, and a conflict of interest register, but the largest compliance requirement relates to third party arrangements. Copies of a range of funding and other contracts are required in order to ensure there are no “prohibited arrangements” – ie school funds being applied for purposes not related to the school. Whilst “uncommercial” and “mates” deals are a focus here, religious schools in particular need to carefully consider financial and other relationships with faith bodies which may form part of the school’s community.

5. Overseas Students

The significant evidence requirements relating to international students (including prescribed documents and training) remain in place. These do not form part of these guidelines, but are in separate documentation, including a specific evidence guide and evidence portfolio.

If you are not already familiar with these, it’s important to become familiar as you review these new guidelines. You are probably expected to publish your international student enrolment agreement online, as part of these new requirements. This, therefore, must also be up-to-date. We have Moores guides on these international student requirements.

Please contact Cecelia Irvine-So below if you would like a copy or for more information regarding the new guidelines.

At Moores, we work extensively with schools in the independent and Catholic sectors. If you have any queries about these guidelines, or any other matter, please do not hesitate to contact us.

The Final Report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was delivered by Commissioner Hayne on 1 February 2019. The recommendations focus on financial advice (fee arrangements, conflicted remuneration and quality of advice) as well as the banking industry – in particular, consumer lending. 

While the financial services industry, mortgage brokers and the banking sector are abuzz about the scope of the recommendations, elderly bank customers garnered no specific mention in the final report. This is despite evidence having been given by elderly bank customers in relation to inappropriate lending, inappropriate financial advice and (to some extent) the targeting of these consumers by product hawkers. 

Financial Advice Reforms – where did we get to with FOFA?

Post-GFC FOFA reforms resulted in the legislating of a “best interests” duty, grandfathering of commission arrangements and giving of renewal notices/fee disclosure obligations.  While these reforms have imposed a compliance burden on financial services businesses, they went a long way to protecting consumers’ rights – inappropriate advice given to clients pre-FOFA which may have been motivated by commissions no longer necessarily complies with the “best interests” duty.  Nevertheless, the banking royal commission heard evidence of post-FOFA advice that arguably did not meet the “best interests” requirement. 

Future Reforms and Consumer Protection

The Hayne recommendations will result in further reform and the end to grandfathered commission arrangements. While this change will have a significant impact on a number of businesses, an end to these arrangements is an important step for consumer protection and perhaps one that ought to have been included in the FOFA reforms.

A major development will be the creation of a compensation scheme of last resort. The legal profession has the “Fidelity Fund” which is a compensation scheme of last resort, the National Guarantee Fund operates in respect of the Australian Securities Exchange. A financial advice sector compensation scheme would protect consumers with a meritorious claim who are otherwise unable to recover losses because the licensee no longer exists, has insufficient insurance coverage or if their insurance will not respond (due to e.g. the timing of when a claim is made). 

It is worth noting that AFCA will have an extended jurisdiction to consider financial advice compensation claims. The time period for claims that AFCA can deal with will be extended beyond the current 6 year limitation period to 10 years. That means those with potential claims against financial advisors for losses during or immediately post-GFC can lodge an application (if they did not raise their complaint within the existing statutory time limit).

What about Banks?

Do the recommendations go far enough to protect consumers from inappropriate financial advice, or from advice that is not in their best interests? We will see. What the recommendations do not deal with is whether and if so, how, banking practices can or should be amended to protect vulnerable elderly customers. Various jurisdictions in the United States have implemented banking reforms to allow banks to suspend suspicious transactions and to report concerns around vulnerable customers (and eg, intra family loans). 

When dealing with your clients, it is important to bear in mind that:

1. The time limit for financial advice compensation claims has been extended – consider whether your new clients’ existing portfolio might be the result of actionable inappropriate advice.
2. Older clients who seek assistance with intra-family loan arrangements (whether funded by a bank or funded by family) or substantial gifts to family members should be referred for legal advice to ensure their interests are documented and protected.
3. When you are retained by new clients, consider whether their existing estate planning and structuring is appropriate and whether their investment portfolio is appropriate. If you have concerns, raise those concerns with your client, your licensee or refer your client for independent advice.

For more information, please do not hesitate to contact us.

New Guardianship and Administration Legislation

The Guardianship and Administration Bill 2018 (“the Bill”) was introduced on 19 December 2018 and is currently before the Legislative Assembly for debate. It is expected to be passed in its current form in due course, and come into effect on 1 March 2020, unless proclaimed earlier.

This is the first in a series of articles that will provide an explanation of the new legislation. Here, we provide an outline of the Bill and key changes.

Why new legislation?

The Bill was introduced to bring guardianship and administration matters in line with changing legislation and more contemporary views on disability having regard to the United Nations Convention on the Rights of Persons with Disabilities among other things.  

The Bill now expressly acknowledges the gradations of impairment and disability, as opposed to a binary view on capacity. This brings it in to line with other recent legislation such as the Mental Health Act 2014 (Vic), the Powers of Attorney Act 2014 (Vic) (POA Act), and the Medical Treatment Planning and Decisions Act 2016 (Vic) (MT Act).

What are the key changes?

Criminal offences:

The Bill creates new offences for guardians or administrators who dishonestly use their powers to obtain a financial advantage, with penalties of up to 5 years imprisonment or 600 penalty units. The same offence exists for officers of body corporates.

While a represented person is and remains entitled at common law to claim compensation for an administrator’s dishonest use of powers (or oversight), incorporating new criminal offences is welcome. The next article in this series will address this in more detail.

The offence provisions are in response to the Victorian Law Reform Commission’s concerns of rising rates of elder financial abuse. These concerns have also led to the creation of a new Elder Financial Abuse and Elder Law practice at Moores, led by Jessica Latimer.

Changes to VCAT’s powers and procedures:

While VCAT has retained its powers in relation to making guardianship and administration orders, there will be significant changes under the new legislation.

This includes the ability for VCAT to make more flexible and tailored orders, in order to promote the person’s personal and social wellbeing. The Act provides that a person’s personal and social wellbeing is promoted by:

• recognising the inherent dignity of the person; and
• respecting the person’s individuality; and
• having regard to the person’s existing supportive relationships, religion, values and cultural and linguistic environment; and
• respecting the confidentiality of confidential information relating to the person.

The act also includes a new definition of decision making capacity consistent with the POA Act and MT Act, where capacity is presumed unless there is evidence to the contrary.

The third article in this series will address VCAT’s powers and procedures in greater detail.

Supported decision-making:

Supported decision-making is an emerging concept that is also in the POA Act and MT Act. It recognises that individuals may have decision making capacity if they are given additional support. The Bill allows VCAT to appoint a supportive guardian or administrator (with consent of the represented person), who will be authorised to do things such as collecting information, communicating information and giving effect to decisions.

The fourth article in this series will look at supported decision making.

Transitional provisions

Orders made under the old Act will continue to remain in force unless revoked or set aside by a Court or VCAT. The provisions of the old Act will continue to apply and the powers and duties of guardians or administrators will continue to be dictated by the old Act. 

However, some provisions of the new Bill, if passed, will apply such as the provisions regarding resolution of disagreements, enforcement orders and offences. If an order is required to be reassessed, it will be reassessed under the new Act.

What next?

Individuals and organisations that are involved with guardianship and administration matters or represented persons should take the following steps.

1. Organisations should review their advice on the feasibility of guardianship and administration orders for individuals with decision making impairments, particularly in light of new provision regarding supportive guardianship and administration orders and tailored orders.
2. Organisations should be aware of the new offences under the Bill and officers should understand their obligations for the actions of the body corporate and their potential liability.
3. Individuals currently appointed under guardianship and administration orders should be aware of the new offences and ensure that they are carefully recording financial transactions and not mixing finances with their own.
4. Individual family members of people who are showing signs of diminished capacity, and don’t have existing powers of attorney, should consider the new definition of capacity and more flexible options now available to assist them.

How we can help

If you seek further advice about these matters, please feel free to contact us.

This article is part of our Guardianship and Administration Bill series:
Guardianship & Administration Bill 2018 – Administrator liability and new offences
Guardianship & Administration Bill 2018 – Supported Decision-Making

The recent High Court case of Commissioner of Taxation v Tomaras determined the Court has the power to shift a tax liability from one party to another.  Lawyers, accountants and financial advisors and their clients with substantial tax considerations should take heed.

The case determined if the conditions of section 90AE(3) are satisfied, a transfer of a tax debt from one party to the other may be on the cards.  While this case was limited to a tax debt, it could apply to any debt.

So what happened in the High Court case?

The case of Commission of Taxation v Tomaras considered whether the Family Court could substitute the husband to be solely liable to the ATO for a tax debt in the wife’s name.

The basic facts of this case are:

1. During the relationship, the Commissioner of Taxation obtained default judgment against Mrs Tomaras for $127,669.36 consisting of outstanding income tax, Medicare levies, penalties and general interest charges.  The debt remains unpaid and given further general interest charges now stands at nearly $260,000.00.
2. Subsequently, Mr Tomaras became bankrupt.
3. In the next month Mrs Tomaras initiated proceedings in the Court seeking a family law property settlement. In particular she sought an order that the husband be responsible for her tax debt.   The Commissioner of Taxation also became a party to the proceedings.

The question put to the High Court

Section 90AE(1)-(2) of the Family Law Act grants the Court the power to order, during their family law case, that a debt – any debt – of one party, be paid by the other party.    Importantly, this is binding on creditors. The Question for the High Court, was whether the ATO was exempt as a Commonwealth revenue authority and had Crown Immunity from such general provisions of legislation? 

The unanimous decision of the High Court was that the Family Law Courts do have the power to bind the ATO.  

Question answered, the matter has now been referred back to the Federal Circuit Court for adjudication of the competing claims.  It is critical to note that even though the High Court has confirmed that the lower Court can make an order directing that one party to a marriage be substituted in the place of the other as a debtor to the ATO, it does not mean that the  Court will in fact follow that course of action. 

Section 90AE(3) of the Family Law Act sets out the conditions which must be satisfied for an order of substitution to be made.  In a nutshell the Court must be satisfied that:

• The making of the order is reasonably necessary;
• It is not foreseeable that the order would result in the debt not being paid in full;
• The third party debtor has been accorded procedural fairness (in other words, they have been given the opportunity to be heard by the Court);
• The Court is satisfied it is just and equitable to make the order; and
• The order takes into account the taxation effect on the parties to the marriage, the third party and social security, the administrative costs and the capacity of the party of the marriage to repay the debt after the order is made.

Judges, Kiefel CJ and Keane J commented that:

‘Given that, so far as it appears from the record in the present case, the husband is a bankrupt and the wife is solvent, it is not possible to see how the condition in s 90AE(3)(b) could be satisfied in this case.  More generally, it is difficult to see how any case where there is a real prospect that the substitution of one spouse for another as a debtor of the revenue authority would create or enhance a risk of non-payment would not fall foul of Section 90AE(3)(b) of the Act.’

In other words, since the husband is bankrupt he won’t be able to pay the debt and there is no real chance that the order the wife wants will be made.

Other Considerations

Before seeking an order or coming to an agreement in a family law dispute that shifts the liability for a debt, the implications would need to be carefully considered.  These can include:

• The impact on deductibility of the interest;
• The impact if the underlying security is no longer with the party who holds the debt;
• The estate planning implications.

In practice, this question does not regularly arise.  

A more common issue with debt in the Family Court is where one party is failing to meet their obligations which mean the asset put up as security is at risk.  In this case, the approach may not be to move the debt, but instead to stop the creditor from recovering the debt for a defined period.

Moores Case Study

Moores applied under this law to restrain a creditor from pursuing a debt until a family law case was finalised.

In a case Moores ran last year, our client sought to keep the family home which had a large mortgage on it.  It was in the other party’s sole name and he had not been paying the mortgage. The bank was threatening to foreclose. 

Moores successfully got an injunction to stop the bank proceeding, and ultimately got a very good result.  This enabled our client to keep the home and catch up the arrears of the mortgage payments.  Importantly, at all times our evidence was clear that the bank was not at risk of being out of pocket as there was plenty of equity in the home to cover their debt.

Contact Us

If you have any questions regarding this article, taxation matters or family law settlements in general please do not hesitate to contact us.