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Business news, business advice and information for Australian SMEs | SmartCompany

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    Yet another well-meaning government initiative is going to have negative side effects for the Aussie startup and venture capital community. I want to make sure the right people in the government know about it and to do that I need your help.

    In July of this year superannuation funds will need to start disclosing all of their investments down to the root company level. The new law, passed by the previous government, is an attempt to make super more transparent to fund members.

    This is a good thing, which I fully support, however it is one of those well intended regulations which may work for the broader market, but will have negative side effects on the Australian startup and venture capital community.

    Under this new law, superannuation funds will have to disclose (on a public website) every asset and ‘final’ investment on a look through basis. This means that if a super fund invests in an Australian venture capital fund, they must disclose each company in which the venture capital fund invests. That’s probably not a big deal. The issue is that they must also disclose the value at which they hold each of these investments.

    So as an Australian startup, if you take (or have already taken) capital from an Australian venture capital fund which is backed by super funds, the value at which they hold their investment in your company will be on a public website. I predict this disclosure data will soon become a key source of information on the health of venture-backed startup companies.

    So what, you say? Well imagine your startup is working flat out to land an enterprise customer that will make your whole year’s plan. But one of your investors has written down their investment and your customer sees this? Think you’ll get the sale? Ditto if you’re trying to attract great employees, advisors or investors.

    What if you’re in acquisition talks with Google and they are able to see the history of your investors’ valuations to craft their offer?

    My point is that at these and many other times in a startup’s life, your investors’ valuation is not the best indicator of your success, or you are at a disadvantage if it’s made public.

    Remember that you have no control over the valuation that a super fund puts on their investment. They are subject to a number of regulations and codes of practice. In some cases a change in valuation may be only because of a currency fluctuation. However, when these regulations come into force this valuation will be one of the first indicators people look at to judge your business.

    The disclosure requirements are also an issue for the venture capital community. They mean the best Aussie startups will probably not want to take capital from an Australian venture capital fund that is backed by Australian super, or at least they will prefer to take capital from offshore sources that don’t have this obligation.

    This will shut out Australian venture capital funds, and our superannuation pool from many of the best startups in Australia. This is an obstacle we don’t need, at a time when we’re trying to rebuild the Australian venture capital industry to fill a big gap in the funding base for Australian startups. It will also shut off our Australian super funds from most of the best venture funds globally – something that is not good for super fund members.

    I fully support more transparency for the superannuation industry, but a blanket rule will cause unintended side effects for our venture capital and startup sector. A simple solution would be to make an exception based on materiality (a typical venture investment would be less than 0.05% of a typical superannuation fund’s assets) and/or confidentiality for venture capital investments.

    This would not take away from the goal of the regulations. In fact I would argue that by eliminating the long tail of tiny investments we are making disclosure more useful to superannuation fund members.

    It’s quite late in the process, but I believe the current government may be reviewing this right now, before it comes into force in July. My sources tell me that they may make some changes to the original requirements, including some exceptions to the blanket disclosure rule, but that the decision could go either way.

    We know the government is supportive of the startup community, but it would be great to reinforce this by writing a short email to the Minister for Finance, Mathias Cormann, and the Minister for Industry, Ian Macfarlane, to let them know how about the unintended side effect of these regulations (and if you happen to be in the government team that’s working on this, I would love the opportunity to talk directly, you can get me at

    By the way, Blackbird Ventures does not have any superannuation funds as investors, but we hope to someday.

    I’ve set out the situation in detail below, for those with more time to read:

    A little background: New regulation comes at just the wrong time

    Firstly a little background for those of you who are not involved day-to-day in Aussie startups. I want you to know about the momentum which is building in the Australian tech startup space. I wrote a blog about this last year which explains what’s driving this, and why we should all be excited. As a community we are building something brick-by-brick which in 10-20 years could be a powerhouse of our economy.

    There remains one big gap in the startup ecosystem here, and that’s a lack of local capital. The main reason for this is that the Australian superannuation funds are not investing any money into local venture capital. This is because the local venture capital industry has, on the whole, not delivered satisfactory returns.

    However, the Aussie venture community is rebuilding itself. There are a bunch of new funds such as Blackbird Ventures (which I co-founded) and Square Peg Capital, new seed stage funds such as TankStream Ventures and those backed by Artesian Capital, a whole bunch of angel syndicates, incubators and accelerators, and some of the existing players are re-grouping. We have a real opportunity to build a fresh new start for Australian venture capital.

    It’s the common goal of all of these people to earn back the trust of the superannuation funds over the next five-10 years. This is a really important long-term goal as venture capital is the only conduit for our national superannuation savings to trickle down into our technology sector.

    New superannuation disclosure regulations and side effects

    As part of the review of superannuation, the previous government enacted a new law to require all registered superannuation funds to publicly disclose all of their investments.

    Sounds like a good idea, right, and I am all for more transparency. At Blackbird, we’re going to be transparent about everything so long as it doesn’t harm our portfolio companies and founders. But blanket-enforced disclosure is a problem.

    Super funds will soon have to disclose (on a public website) every asset and ‘final’ investment on a look through basis. This means that if a super fund invests in an Australian venture capital fund, they must disclose each company in which the venture capital fund invests. That’s probably not a big deal. The real killer is that they must also disclose the value at which they hold each investment.

    Story continues on page 2. Please click below.

    This means that if, as a startup founder, you take capital from a venture capital fund that has an Australian superannuation fund as an investor, their investment and their valuation of that investment in your company will be open for the world to see.

    You might think this is a storm in a tea cup. Who will really look at these disclosure websites anyway? Lots of people. In the private equity industry they already do it with the data from the US public pension funds (which only have to disclose to the fund level – a far more realistic requirement).

    As soon as these websites pop up, people will start screen shotting them to build a store of data on companies, especially unlisted private companies and startups. I predict that this data source will become a standard way of judging the health of a startup for prospective investors, acquirers, customers and employees.

    This can have some very real side effects for your business. Remember that you have no control over how your venture investor or super fund values your company on their own books. They have valuation policies that are set and enforced by other regulations and codes of conduct and are subject to the opinions of their auditors. In some cases the revaluation may be solely due to currency movements as super funds often hold venture investments denominated in other currencies which flow back into Australia.

    Imagine any of the following:

    • You are trying to raise a new funding round at a reasonable valuation, but your venture capital investors or indirect superannuation fund investors have for some external reason decided to write down the value of their investment in your company. It’s going to be hard to raise that next round if this data is a starting point for every investor (US and Australia) to judge your company.
    • Ditto when you are trying to sell the company.
    • Your company is really starting to grow and you have a chance to raise a big funding round from an amazing Silicon Valley-based VC firm, but they decide not to do it because one of your existing Aussie indirect investors needs to disclose the progress of your company.
    • Imagine you’re a struggling enterprise software business, working hard to close that sale with a large corporate, but it’s taking a bit longer, and money is tight (anyone been in this situation?). That may well trigger a write down by your investors. Normally this wouldn’t matter – who cares how they value your company right now if you just can close that sale. But in this case, your potential customer is looking at the superannuation disclosure data, and seeing that you’ve just been subject to a write down in value. Think you’ll close that sale?
    • Ditto when you’re trying to build a team, attract that stellar a board member, or generally build the profile of your business.
    • It also works against you on the upside. When everything works out spectacularly for you, do you want everyone being able to calculate what the company sold for? Does the buyer want this disclosed? Could it be a reason someone doesn’t end up buying you, or isn’t willing to pay such a high price?

    At these and many other times in a startup’s life, your investors’ valuation is not the best indicator of success and should not be public. But under these new laws it will probably be one of the first things people look up about your company. At other times, it puts you at a disadvantage if your investors’ valuations are made public.

    So as a founder of the next big global tech company, do you want to take money from an Aussie venture capital fund that has Australian superannuation investors? More importantly if you had a choice between an offshore venture capital fund (without these obligations) and an Aussie one, which would you pick? If you are lucky enough to be a hot tech company and you’re pulling together a stellar investor syndicate for one of your rounds, do you want to let that Aussie venture fund in for a slice? My guess is probably not.

    So the logical conclusion of this is that Aussie venture capital funds that are funded by Aussie super funds will be shut out of many of the best Australian investments. This in turn means that we’re stuck where we are now … with almost no superannuation funding getting into Aussie startups. And US pension funds reaping the rewards of Australian innovation, as they have done for years.

    Another logical conclusion of the disclosure requirement is that the Aussie superannuation industry is effectively shut out from the best investments in the global venture capital (and part of the private equity) asset classes. I know from my friends in the industry that this is already happening.1

    A simple solution

    Firstly, let me emphasise that I think the concept of super funds being more transparent is a good idea. Surely we can come up with something that works without seriously inhibiting the growth of our venture and startup ecosystem.

    Here’s a simple exception based solution in two parts:2

    1. Create an exception based on materiality: Most of these investments will be a tiny portion of any superannuation fund’s assets. Take an average small super fund of $5 billion, say it makes an average investment of $20m in a $200m venture fund and the venture fund makes a $2m investment in a company. The indirect holding in a typical venture backed company for the super fund is 0.04% of the super fund. In many other cases it may be as little as 0.01%. This is immaterial for super fund members.

    2. Create an exemption based on confidentiality for venture capital investments: It seems crazy that we would create a regulation that kills the ability of Australian super to invest in a certain asset class. If there is a real need for confidentiality then the disclosure regulations should not apply.

    While I think that either condition should remove the need to disclose, an exception requiring both materiality and confidentiality would also be workable. Due to the asset allocation of all superannuation funds, these exceptions wouldn’t have a material effect on the benefits of disclosure. Some would argue that by limiting a long tail list of tiny investments, we are in fact making the disclosure information more valuable to super fund members.

    In any case the startup and venture community needs to jump on this and make sure the current government knows the unintended side effects it will have on our nascent, but rapidly growing sector.


    (1) I used to be responsible for venture investing at one of Australia’s largest superannuation fund managers.

    (2) I can’t take much credit for this – it has already been suggested by many within the private equity and venture capital industry. I think it works and hopefully can help by articulating it in a clear fashion.

    Rick Barker is a managing director at Blackbird Ventures. This post originally appeared on the Blackbird Ventures blog.

    This article first appeared on StartupSmart.

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    The Federal Court has dismissed a former EnergyAustralia employee’s $6 million adverse action claim against the company. The claim accused EnergyAustralia of harbouring a culture of sexual harassment so bad the human resources director had to actively monitor the managing director for anything inappropriate.

    Kate Shea, the former head of corporate and government affairs at TRUenergy – now EnergyAustralia – claimed she was sacked from her almost $500,000 a year position because she had complained of sexual harassment by the company’s former chief financial officer, Kevin Holmes, on a work trip to Hong Kong. 

    The claim was based on an incident following a night at a Hong Kong bar where Shea claims Holmes stroked her hair, neck and thighs in an “unwelcome sexual advance”, but Holmes claimed he put his arm around or touched Shea’s back or neck in a “consoling manner” after Shea confided to him details of her husband’s serious illness.

    Shea was later made redundant and she claimed this was a result of her complaint about Holmes’ behaviour, but Justice Julie Dodds-Streeton found “no reasonable basis” for Shea’s allegations and found Shea was not an “impressive, persuasive or reliable witness”.

    In contrast, Holmes was “credible and dignified” and chief executive Richard McIndoe was “impressive, conscientious and credible”. 

    Shea sought reinstatement of her position but Justice Dodds-Streeton found the trust and confidence necessary to the employment relationship between Shea and EnergyAustralia had broken down and could not be sufficiently restored.

    Rachel Cosentino, practice group leader at law firm Slater & Gordon, told SmartCompany under the Fair Work Act, Shea needed to establish that the unlawful reason for her termination was a substantial and operative reason.

    “Shea’s claim was the reason for her dismissal was that she made a complaint, but it is not every communication to an employer that will constitute a complaint for the purposes of the Act,”   Cosentino says.

    “That was essentially the problem that Shea had.”                           

    Cosentino says the lesson for businesses is to ensure they have grievance procedures in place in case an employee does make a complaint or believes they have been wrongfully made redundant. 

    “It’s always important for businesses to keep the lines of communication open with employees,” she says.

    “Communication needs to be transparent about decisions which are made that affect employees, they need to be objectively justified.”

    EnergyAustralia said in a statement it was pleased with the Federal Court decision which validated its view that the business “acted with integrity and respect” at all times during Shea’s redundancy.

    “It has been extremely disappointing to hear and read the claims made about individuals and our culture, all of which the court has today dismissed,” the statement said. 

    “We have a robust Code of Conduct in place so every employee knows what is expected of them and the processes and channels available to them. We are focused on putting this behind us.”

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    An Australian bikini designer has lost her appeal to the Federal Court against swimwear giant Seafolly after the court found she falsely claimed on Facebook the swimwear giant had stolen her designs.

    Leah Madden, the designer of White Sands Swimwear, posted pictures on her Facebook page under the heading "The most sincere form of flattery?" containing photos of models wearing Seafolly bikinis alongside photos of models wearing White Sands bikinis.

    She then posted comments including, "Seriously, almost an entire line-line ripoff of my Shipwrecked collection," and emailed the Facebook page to a range of media organisations.

    The Federal Court initially found Madden had falsely accused Seafolly of plagiarising her designs and awarded Seafolly $25,000 in damages

    Madden appealed this decision but the full bench of the Federal Court found even though Madden’s comments were made on her personal Facebook page they were still in trade or commerce. 

    “The evidence showed that a substantial number of those who made comments on the personal Facebook page were in the fashion industry,” the court found. 

    The Federal Court also took into account the number of friends Madden had on Facebook and said over 500 friends could be regarded as significant in evaluating the loss Seafolly suffered.

    The court found Seafolly was entitled to repel the attack of plagiarism by Madden, but calling Madden’s conduct “malicious” overreached.

    Intellectual property lawyer Natalie Hickey told SmartCompany the lesson for business is that Facebook is public not personal. 

    “[Madden’s] comments on Facebook were intended to be personal and in 2014 for someone to still have that view, even though it reflects what many people think, is just not true.”

    Hickey says the full bench seized on Madden’s reference on Facebook to “buy my line” and were able to extrapolate from that comment that Madden was engaged in commercial activity and could be construed as “trade or commerce” under consumer law.   

    “When you are engaged in business when using social media you will be treated as a business even though it’s Facebook and it’s not a traditional marketing avenue,” Hickey says.

    “There is a lesson in separating out what is your business and what is personal.”

    Hickey also highlights the full bench’s criticism of Seafolly for labelling Madden’s conduct as “malicious”.

    “[Madden] was reckless in that she clearly got her dates wrong as many of her designs post-dated Seafolly’s designs, but many people can be passionate and misguided but that does not mean you are malicious,” she says.

    “Before if you use language like ‘malicious’ or language that indicates ill intent like ‘fraud’, be very careful about using it at all, or have facts to back it up,” Hickey says. 

    The full bench asked the trial judge to assess damages and Hickey says it will be “very interesting” to see what sort of assessment the court will make regarding Madden’s loss as a result 

    SmartCompany contacted Seafolly and Madden for comment but did not receive a response prior to publication. 

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    Small Business Minister Bruce Billson yesterday launched the long-awaited competition policy review, but a conflict has erupted over its scope.

    The root and branch review of competition policy is the first since 1993 and will be headed by Deloitte Access Economics partner Professor Ian Harper.

    Others on the panel include Regional Australia Institute chief executive Su McCluskey, barrister Michael O’Bryan and former chief executive of the Australian Chamber of Commerce and Industry Peter Anderson.

    Council of Small Business of Australia executive director Peter Strong told SmartCompany McCluskey would be a good representative for small business.

    “She gets small business in a very real way and that’s just one of her skills. She’s also great with policy development and she’s got a strong connection with regional Australia,” she says.

    “She used to do a lot of work with the Farmers’ Federation as well and she understands the supply chain issues. She’s not one to miss unintended consequences of policy and has a working knowledge of a lot of sectors.”

    Strong is also meeting with Harper next week to discuss the needs of small business and says Anderson also understands SMEs.

    The COSBOA head has applauded the terms of reference of the review for being wide-ranging. However, the Australian Industry Group said in a statement yesterday it believes it should be narrowed.

    “The draft terms of reference cover a vast amount of ground. They seem to combine at least two reviews in one,” Ai Group said.

    “It will be very important for the Review to narrow things down fairly quickly. The alternative is to have on the table every issue that could be touched by the very broad terms of reference. That is unrealistic in a 12-month review and, as Minister Billson has indicated, there is a need to zoom in on areas that will have broad impact.”

    This view is in opposition to that of COSBOA, which believes the review needs to be wide-ranging in order to be effective.

    “One of the things we’re hearing is the terms of reference is too broad. This makes us worry a bit… we need to ensure it’s not watered down just because some people think it’s too broad.”

    Launching the review, Billson said the previously released draft terms of reference had been largely welcomed.

    “We’ve been very encouraged by the overwhelming positive response that has come from states and territories and other stakeholders about the comprehensive nature of the terms of reference that we have released,” he said.

    “We want to make sure that the learnings from the last 20 years are applied and to help bring about microeconomic reform, to improve our productivity and to support our competitiveness as a nation and as an economy.”

    Billson says it’s important for the policy environment to support big and small businesses. He says the review will also work to identify gaps in the law, particularly around anti-competitive pricing “where the laws have been tested and in some respects, found wanting”.

    Strong says this anti-competitive pricing is a key area of reform needed to help boost small business.

    “We need it to be better defined. At the moment it’s difficult to pin someone down under this charge,” he says.

    “We also want urban planning to be considered. It’s very important to our people and the performance of the supply chain. When there are too many retail monopolies, it limits the choice of the consumer and for the small business.”

    The review will also look at provisions which have not been used in years and consider whether or not they’ve been poorly drafted or are now superfluous.

    Within the next 12 months an issues paper, a draft report and a final report will be delivered.

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    A Melbourne property developer has pleaded guilty to raising more than $1 million from fraudulent behaviour.

    Carlo Cini, 56, appeared before the Melbourne Magistrates Court yesterday and pleaded guilty to 22 offences following an ASIC investigation. These included 10 counts of obtaining property by deception, 11 counts of obtaining a financial advantage by deception and one count of fraudulently inducing a person to invest money.

    The charges related to the former property developer and mortgage broker’s conduct as the sole director of Williamstown-based C Cini & Company, which is now in liquidation.

    Between 2007 and 2008 Cini raised more than $1 million from seven investors on the basis the funds would be used for property development being undertaken by his company. However the investments were subsequently used for other purposes, including personal expenses and other company-related payments.

    The court also heard Cini obtained a financial advantage by evading debts due to investors. This was because of the issuing of valueless cheques to the investors with a value of more than $700,000.

    A number of other charges were withdrawn by the prosecution as a result of Cini’s guilty plea.

    Brett Warfield, chief executive of fraud investigations firm Warfield and Associates, told SmartCompany investors need to be conscious of how they are approached by developers.

    “These approaches can be a cold call over the phone or an email that comes through,” he says. “The approach is one of the giveaways and these sorts of things often affect people instead of big companies.”

    Warfield says once investors have invested their money they should be receiving regular updates.

    “You would expect open and transparent communication,” he says. “You would also expect to be able to meet with them and track the progress of the investment.”

    The easiest way to avoid getting caught in these situations, according to Warfield, is to have a sound financial education.

    “A lot of people out there just don’t understand risk versus return. If you don’t understand that you shouldn’t be doing it by yourself. You should be going through good financial advisors with businesses that have been there for many years with good returns.”

    Cini will appear before the County Court of Victoria on July 31 for a plea hearing. The matter is currently being prosecuted by the Commonwealth Director of Public Prosecutions.

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    ASIC has issued a permanent ban to West Australian former accountant Arden Rodrick Wittensleger, 44, of Menora, disallowing him from providing financial services and engaging in credit activity.

    Wittensleger was investigated by the Western Australia Police and subsequently found guilty of submitting fraudulent loan applications, which resulted in a benefit of $6.5 million.

    He was convicted on 23 August 2013, on 86 counts of gaining a benefit by fraud, and in October 2013 was sentenced to an eight-year imprisonment term.

    The West Australian previously reported that he submitted 86 fraudulent fee-funding loan applications between 2009 and 2010. This was to short-term provider Hunter Premium Funding. They noted that of the $6.5 million involved, more than $2.5 million remains missing. These were business loans.

    ASIC noted a persistent pattern of deception to gain a financial advantage, with commissioner Greg Tanzer noting that the functions and duties of a person providing financial services and engaging in credit activity require honesty and integrity of a high standard.

    “Those who engage in serious, repeated fraud have no place in the financial services industry,” he said.

    Wittensleger has the right to appeal to tribunal for a review.

    Mr Wittensleger has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC's decision.

    In 1994, Wittensleger was also found to have been soliciting funds from clients for the purpose of share and property deals through a separate company who did not look into his dealings. The company, Personal & Business Financial Planning Pty Ltd had provided authority to Wittensleger to act as a representative between 1993 and 1995.

    His business collapsed in 1995, owing debts of more than $700,000. He advised a number of clients to pay funds directly to himself, which he then misappropriated or used for failed investments. He was then sentenced to four years in prison in September 1996. At this time, 36 people had lost money.

    The company said they didn’t know what he was doing, and so did not accept responsibility.

    “Securities dealers and advisers have a high responsibility to know what their representatives are doing. Personal & Business, as a Victorian-based company, should never have appointed a Western Australian representative if it was not able to oversee his activities,” ASIC WA Regional Commissioner Jamie Ogilvie said at the time.

    More recently, Wittensleger was involved in a development application to the City of Swan under, now liquidated, Nirranda Pty Ltd, of which he was director.

    He had also sat on the Surveys QA board, a company that picked up clients of telephone marketing campaigner Vocon who were placed in liquidiation in 2004 with debt levels at more than $2 million. There were plans to investigate this situation in 2004, particularly as another call centre he was involved in, called AWDM, had also ended up in liquidation previously in 2003.

    This article first appeared on Property Observer.

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    Staff of embattled discount retailer Dimmeys have been made redundant via letter, following the business going into administration in January.

    A report in The Age said an unknown number of Dimmeys employees received a letter in the mail on Friday saying their employment was ceased.

    It was not clear how many of the retailer’s 500 staff were impacted; however, the paper reported an estimate that at one Dimmeys store 40% of jobs were gone.

    It is understood the staff were told their employment ceased due to new ownership of the business, as it had been bought by a company called Cool Breeze.

    Shop, Distributive and Allied Employees Victorian Branch secretary Michael Donovan told SmartCompany he understood that staff returned home from work on Friday to the news in their letter boxes.

    “We are trying to work out what went on,” he says.

    “It was an extremely poor way to handle it. They should meet with staff, redundancies are not pleasant but they should do it face-to-face.

    “A good employee would offer an independent counselling service to staff…and would allow the union to be present.”

    He says the union, of which a number of Dimmeys staff are members, was not notified of the redundancies.

    Donovan was also uncertain of the number of staff made redundant, but had heard it was around 86.

    He says staff were told they would receive some of their entitlements this week, while the rest would be paid later.

    Donovan says the SDA will be seeking to ensure those entitlements are paid in full and will offer independent counselling to members in need.

    “A lot of the staff are in their 30s and 40s, which is the height of needing a solid income with family and mortgages,” he says.

    Dimmeys went into administration in January, following a $3 million penalty for breaching product safety laws late last year. The multimillion-dollar penalty was handed down after a Consumer Affairs Victoria investigation uncovered 14,000 unsafe items being sold by the retailer.

    Administrators Richard Cauchi, Peter Gountzos and Michael Carrafa were appointed from SV Partners.

    At the time, Cauchi told SmartCompany the administration was likely due to the large penalty.

    “It’s safe to say it’s probably as a consequence of the fine… All the stores will continue to trade as normal and we intend to keep them under control for the time being,” he said.

    “In essence, neither the stores nor the business had a large debt. The principal debt is really to the related parties for stock supplies. There are very few external creditors.”

    Cauchi said he would look to sell the business.

    “I will continue to trade the business with a view to assess its operations and then look to advertise for the sale of the business,” he said.

    The administrators were contacted by SmartCompany this morning for comment but no reply was received prior to publication.

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    Scammers in white vans are targeting Melbourne consumers, offering cheap goods such as home theatre systems and stereo equipment, conning people into purchasing fake products.

    The ruse tricks people and businesses into thinking they’re purchasing reputable electronics for a bargain price.

    The goods are being sold from the back of a van, but the conmen have established an official-looking website, fake invoices and uniforms for the con artists.

    They’ve also placed courier signs on their vehicles in an attempt to give their scheme an air of legitimacy.

    Consumer Affairs Victoria is warning consumers about the scam, which has been reported across Melbourne.

    The products on offer are placed in boxes with familiar-sounding brand names; however, Consumer Affairs Victoria warns on closer inspection it will be a spelling variation of a well-known brand.

    Consumer Affairs Victoria has received a number of complaints about the scam, including from one consumer who was approached twice on a single trip to the Essendon shopping centre.

    The scam is just one of many in recent days where con artists adopt the appearance of a legitimate-looking business.

    Last month SmartCompany reported on a Queensland business Strongguard Roofing which had its business identity stolen by conmen who would trick Victorian homeowners into paying them for subpar home repair services.

    The men would target people at their homes and pressure the consumers to pay up front for their services and then perform shoddy work or not finish the job.

    Australian Competition and Consumer Commission deputy chair Michael Schaper previously told SmartCompany the first warning sign is an unsolicited approach from a business.

    “The first thing you want to ask is where they come from and how they have the contact details,” he said.

    “The second is the pitch for money or information. They’ll often say you can validate them independently by going to a URL they provide, but you should do your own searches.”

    Schaper suggests looking for the business in the phone book and personally searching for the company online, rather than trusting the link provided by the possible conmen.

    Consumer Affairs Victoria says it’s important not to be tempted by “unexpectedly cheap deals” and to only buy from established retailers.

    “If it sounds too good to be true, it probably is,” it said.

    “Be very suspicious of anyone conducting business from the back of a van, or by the side of a road. If you decide to buy something from a white van scammer, you may not get a receipt – and if you do, any contact details provided could be false, making it impossible for you to get a refund or repair if something goes wrong.”

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    Flight Centre will appeal the $11 million in penalties ordered by the Federal Court last week after the chain repeatedly tried to enter into price fixing arrangements with three airlines. 

    In the proceedings brought by the Australian Competition and Consumer Commission, the Federal Court found Flight Centre guilty of six counts of attempting to induce competitors to enter into price-fixing arrangements with it.

    The competition watchdog argued that on six occasions between 2005 and 2009, Flight Centre attempted to induce Singapore Airlines, Malaysian Airlines and Emirates to agree to stop offering prices cheaper than those offered by Flight Centre (all three airlines rejected the advances).

    Justice Logan found in imposing the penalties “there is no doubt in the present case that commercial profit was the “driver” in Flight Centre’s contravening conduct.

    “Further, it is the nature of such conduct that it is not engaged in in public. Its detection is almost invariably difficult and its investigation and related litigation involves the allocation of considerable public resources”.

    Flight Centre says it will appeal the judgment and may appeal the penalties.

    Flight Centre managing director Graham Turner said in a statement the outcome was “disappointing” and the travel agency chain had already made changes to its business which the judgment required.

    “While we are comfortable that we comply with the law, we consider it appropriate to test the decision at appeal,” he says.

    Sally Scott, partner at law firm Hall & Wilcox told SmartCompany this is an area of the law where there are huge penalties such as the $36 million penalty imposed on Visy in 2007. 

    “The reason we see large penalties in this area is that they can be linked to the size of the company and the size of the transaction involved,” she says.  

    Scott says this allows the ACCC and the court to ensure the penalty sufficiently hurts the company that has done the wrong thing and sufficiently deters others from doing the same thing.

    “Given the huge penalties, and also the potential for the case to affect the way it does business, I believe that Flight Centre has no choice but to appeal.”

    Scott says the lesson for businesses is to be wary of any dealings with competitors, whether they are about price, restricting supply or other matters.

    She is seeing this issue arise more and more in business as there is a tendency for suppliers, franchisors and dealers to want to control price.

    “Most suppliers are aware that you can’t force businesses to sell at a certain price,” Scott says.

    “However, there is less awareness of the fact that you can’t tell businesses not to sell or advertise below a certain price, such as below the recommended retail price.”

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    The federal government has set in motion far-ranging changes to franchise law this morning, including introducing a duty to act in good faith and penalties of up to $51,000. 

    The changes follow on from the recommendations made in the 2013 Wein Review and are set to be enacted on January 1, 2015.

    The exposure draft legislation introduces a general duty on franchisors and franchisees to act in good faith during their dealings with each other, enables the Australian Competition and Consumer Commission to issue infringement notices of up to $8500 and to seek penalties of up to $51,000 from courts for serious breaches of the Franchise Code of Conduct.

    The legislation also aims to improve the disclosure and transparency of marketing funds and online sales arrangements and to provide prospective franchisees with short form, easy to understand, information regarding the risks and rewards of franchising at an early stage before they become emotionally and financially committed.

    The proposed legislation is available on the Treasury website for public feedback until April 30, 2014.

    Small Business Minister Bruce Billson says the changes will also remove unnecessary provisions from the Franchise Code of Conduct to reduce red tape and compliance burdens on business.

    “This red tape reduction for the Franchising Code is estimated to save businesses $8.6 million annually and will allow more opportunities for resources to be invested back into franchise systems to drive productivity, innovation and jobs,” Billson said in a statement.

    “The proposed changes strike the right balance between the needs of franchisors and franchisees and the unique nature of the relationship between the two.”

    Jason Gehrke, director of the Franchise Advisory Centre, told SmartCompany the changes appear to implement most of the Wein Review recommendations, meaning there is not a lot of difference between the government’s position and that of the former Labor government.

    “That makes sense because franchising is not really a political issue,” Gehrke says.

    Gehrke says the “biggest surprise” in the proposed changes is the implementation time frame.

    “A 1 January 2015 commencement date strikes me as a significant delay given the level of preparation for the draft bill already in place,” he says.

    “There was a feeling that something was going to happen and it was going to happen soon and that if it did, it would have lent itself to a July 1 commencement.”

    Gehrke says international franchisors will not like some of the changes and may question “how badly” they want to enter the Australian market.

    “But the predictions that Australia would be undesirable for international franchisors started circulating in 1998 when the code was first introduced but that hasn’t stopped them coming,” he says.

    “If the market conditions are right they will come.”

    Gehrke disputes Billson’s claim the changes will save $8.6 million in red tape and says it is “really difficult” to put a figure on the changes outlined in the proposed legislation.

    “In addition, that’s not a net figure as there are going to be compliance costs involved in people adapting to the amendments under the Franchising Code of Conduct,” he says.  

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    A former Australian MasterChef contestant turned mining company chief executive is in court, alleged to have embezzled over $US7 million ($A7.5 million) to pay for his lavish lifestyle.

    Aaron Thomas appeared on the first season of MasterChef when he was 21, before becoming chief executive of United Kingdom mining company Oakmont Trading.

    Thomas is alleged to have embezzled more than $US7 million from the company between 2010 and 2013, spending the money on a high-class lifestyle for himself and his girlfriend.

    An investigation by Oakmont, assisted by forensic accountants, resulted in the suit being filed in the New York Supreme Court on Monday against Thomas and his Brazilian fiancée Thaiana Rodrigues.

    The cook turned mining executive is said to have spent the money on private jets, designer watches and a $US171,000 Tiffany’s engagement ring.

    The pair is also alleged to have rented a $US14,500 a month apartment in Manhattan with company cash.

    They also took luxury holidays, with the suit revealing Thomas supposedly spent $US30,000 of Oakmont funds on a chartered yacht and private jet during a holiday in the Caribbean. A further $US53,000 was spent on a luxury vacation to Australia and $US91,000 was spent on a Las Vegas trip.

    The Oakmont board fired Thomas in January this year and has since launched legal action against him in the UK and in the US. He’s been charged with breaching his fiduciary duties, fraud, unjust enrichment and conversion.

    Thomas originally founded the company, which focuses on iron ore and owns operations in Brazil, in 2010.

    Speaking to the New York Post, Thomas said the lawsuit was an attempt by the board to take hold of his remaining shares, and he pledged to file a countersuit.

    Thomas appeared on the first Australian season of MasterChef in 2009, but was eliminated after losing a test to fellow contestants Sandra Morena and Julie Goodwin, who went on the win the show.

    At the time, Thomas’s overconfidence was said to be his downfall, as he failed to taste the paella he was cooking and did not achieve the right balance of spices.

    Warfield and Associates chief executive Brett Warfield told SmartCompany maintaining lifestyle standards is a common motivator of fraud.

    “Research from our Million Dollar Fraud report found enhancing lifestyle was the underlying factor for every one in three million-dollar frauds,” he says.

    “The only motivating factor which was more prevalent was gambling. Across frauds of all monetary value, this is pretty consistent, although a desire to improve one’s lifestyle often comes ahead of gambling.”

    Warfield says company directors and chief executives sometimes take advantage of the responsibility given to them.

    “What I’ve seen is if someone is doing a very good job for the company, is making them money and is getting along well with the board, they’re often given a lot of latitude in how they run the company,” he says.

    “This can sometimes lead to them taking advantage of corporate governance and if they get away with it they start to feel like the company is theirs.”

    Warfield says this is just another instance of “someone going off the rails”.

    “The embezzling will often start small and then grow exponentially. They will get arrogant, lazy and often do it in several ways,” he says.

    “Some of them even start to brag about their purchases and holidays, this is the real warning sign, particularly if it doesn’t make sense when viewed in line with how much they’re earning.”

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    Three former directors of collapsed whitegoods distributor Kleenmaid will stand trial on 20 criminal charges, including a $13 million fraud against Westpac and 18 charges of insolvent trading.

    The Australian Securities and Investments Commission is also alleging two directors, Andrew Young and Gary Armstrong, dishonestly withdrew more than $300,000 from the company’s bank accounts two days before it was placed in administration.

    The other director to stand trial is Bradley Young.      

    The case comes after years of controversy, as Kleenmaid was placed in administration in 2009 and liquidators reported consolidated debts of almost $100 million.

    In 2012 SmartCompany reported the trio had been charged with 18 counts of insolvent trading of debts more than $4 million, after the business became insolvent in 2008.

    A date for the court case is yet to be fixed, but after years of delays the three men were committed to stand trial on March 31, 2014 by the Maroochydore Magistrates Court.

    In its prime Kleenmaid operated 22 outlets Australia-wide (including 15 franchise stores) and employed 200 staff.

    The number of people impacted by the collapse of the company was estimated to be upwards of 10,000.

    Up to 6000 Kleenmaid customers were said to have lost up to $27 million in the collapse. Many customers were left without goods, and those who had purchased faulty products were unable to claim on the warranty.

    Creditors of the company were angry about the collapse, and in April 2009 a group confronted Andrew Young armed with a sledgehammer, in the hours after it was placed in administration.

    At the time of the collapse both Andrew and Bradley Young told the Sunshine Coast Daily they wanted to continue to be involved with the company in the long term.

    “The easiest thing for us is to pull up stumps and say ‘see you later',” Andrew Young said.

    “But it is up to the creditors. It would be disappointing not to be part of the future.”

    Soon after the company’s collapse, the intellectual property was bought by Sydney private equity firm Compass Capital Partners, which opened a clearance store to sell the remaining goods in early 2010.

    Warfield and Associates chief executive Brett Warfield told SmartCompany the trio, if found guilty, will receive a sizeable sentence in relation to the fraud and insolvent trading charges.

    “Looking at a $13 million fraud alone, according to research in our Million Dollar Employee Fraud in Australia report, the average sentence for a fraud of this amount would be a non-parole period of four years and six months,” he says.

    “However, there have been some more recent cases where the sentences have been even heavier than that.”

    Warfield says it’s uncommon for there to be collusion between company directors.

    “The majority of fraud cases I’ve investigated tend to be individuals. There isn’t usually a lot of collusion inside the business at such a high level,” he says.

    “Perhaps the cases of fraud where there is collusion in the upper ranks don’t get found out because they’re responsible for covering it up, where as if it’s an individual who is lower down the hierarchy, it’s easier for a person to spot.”

    Warfield says when it does occur, it’s often because the company has hit financial troubles.

    “When the directors and management can’t find a way to turn it around, people sometimes start to dip their fingers into the till and then start taking money for personal gain. Often fraud doesn’t lead to the demise of a business, it’s the other way round,” he says.

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    People who commit white collar crime in Australia are getting off lightly compared with those found guilty of similar offenses in other countries, a report has found.

    Thousands of Australians have lost millions of dollars or been put at risk by the actions of financial planners and credit brokers who have committed fraud, provided inappropriate advice and operated without an appropriate license.

    A report by the Australia Securities and Investments Commission has found the penalties that can be imposed for such offenses in Australia are limited in some cases compared with those available to regulators in other jurisdictions.

    For example, people who provide financial services without a license in Australia can only be fined up to $34,000. In contrast, the report found that people guilty of the same offenses in the US face maximum fines of $5.6 million. In the UK, the maximum fine is unlimited.

    The maximum civil penalty in Australia for giving inappropriate advice is $200,000, while in the UK the maximum is unlimited, and in Hong Kong it is the greater of $1.4 million or three times the benefit gained by the wrongdoer. 

    Individuals who broke corporate rules in the US could be sentenced to prison terms of up to 20 years. In Australia, and most other jurisdictions studied, the maximum prison term was 10 years for criminal penalties such as fraud and insider trading. The maximum prison term for providing financial services without a license in Australia is just two years.

    The report compared maximum penalties in Australia to penalties imposed for similar offenses in Hong Kong, the United Kingdom, the United States and Canadian province, Ontario.

    It found that regulators elsewhere could, in addition to imposing fines and prison terms, remove financial benefits that wrongdoers had obtained through illegal profits or avoided losses. ASIC does not have that power, although it can ask other agencies to bring an action to confiscate the proceeds of crime.

    The relatively low fixed fines that ASIC can impose and the fact that it cannot remove the proceeds of crime itself meant that wrongdoers may still profit from their conduct and not be deterred by the penalties, the report warned.

    “The maximum fine that may be imposed may be substantially lower than the financial benefit obtained as a result of the wrongdoing,” it said.

    The report also found inconsistencies between penalties that could apply to similar offenses under different pieces of legislation within Australia. For instance, offering a financial service without a license attracted a criminal penalty under the Corporations Act with individuals fined up to $34,000, while someone giving unlicensed credit advice could be subject to the same criminal penalty, or a civil penalty of up to $340,000.

    Civil penalties in the Corporations Act have been eroded by inflation as they have not increased since they were set in 1992 for individuals and 2004 for corporations. In 2007, it was suggested that the penalties should be lifted following a Treasury review, although no increases were made.

    The report is the first of its kind in over a decade and ASIC has recommended further work be done.

    Its findings will be fed into ASIC’s submission to the Financial System Inquiry, which closes for comment on Friday, March 28.

    This article first appeared on Property Observer.

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    Scammers are targeting aged care businesses, offering a free advertisement in a directory, but concealing a fee in the fine print.

    Consumer Affairs Victoria has received several reports from aged care businesses affected by this unauthorised advertising scam.

    In one case, the business was offered free entry in a directory and artwork for the advertisement.

    Later, the scammer sent the artwork to the business for proofing and asked it to fax a confirmation, but a note in the fine print said the listing would cost the business $1995 plus GST and the business was then invoiced for this amount.

    ACCC deputy chair Michael Schaper previously told SmartCompany small businesses are often targeted by these types of scams because they generally have less sophisticated record-keeping systems than bigger businesses.

    “Small business owners are generally honest souls and think if they receive a bill they should pay it. The small businesses owner is usually paying the bills late at night or on a weekend and often doesn’t have anyone to raise the alarm,” he says.

    Schaper says it’s always important to read the fine print.

    “There have been several scams like this in the past few years, where the fine print says you’re actually agreeing pay money,” he says.

    The scam is similar to the long-running ‘Yellow Page’ scam, where businesses receive a fax seeking confirmation of their contact details by a company pretending to be the Sensis Yellow Pages directory. While the fax looks to be seeking contact details of the business, in the fine print the business is actually agreeing to pay $99 a month for a minimum of two years.

    In this latest scam, aged care businesses have reported also receiving invoices for an advertisement which has not been ordered, for a publication that doesn’t exist and a contract of services disguised as an invoice.

    In one case the business also received details of an advertisement it had previously ordered, but for a different publication.

    According to the Australian Competition and Consumer Commission businesses lost more than $93 million to scams in 2012 and 84,000 were reported to the watchdog.

    However a study by Curtin University published in June last year found for small businesses the financial cost of a scam often greatly exceeds the scammed amount.

    The time small businesses spend rectifying scams can be up to 100 hours.

    Consumer Affairs Victoria is urging businesses to organise filing and accounting systems to detect bogus accounts or invoices, check to see if the publication asking for information is genuine and ensure the invoice has been authorised.

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    Smart50 finalist, Paid International, has been fined $30,600 by the Australian Securities and Investment Commission for misleading representations in its online advertisements.

    The lender was listed fourth in last year’s Smart50 and hit the headlines again this month when it revealed plans for an initial public offering.

    Paid International stated that it offered ‘instant decisions’ and loan approvals ‘within minutes’ for small amount loans on websites operated by Paid International at, and

    ASIC was concerned the ads were false or misleading because the lender’s assessment of a loan application was not ‘instant’ or completed ‘within minutes’.

    In some instances, loan applications took up to 72 hours to be assessed.

    ASIC deputy chairman Peter Kell said credit licensees, such as Paid International, must make reasonable enquiries about the consumer, verify their financial situation and assess the suitability of the loan for that particular consumer before providing them with a loan.

    Kell said it is not appropriate or possible for a small amount lender or any other credit licensee to make an instant decision or approve a loan ‘within minutes’ if they are complying with their obligations.

    “This is another example of a small amount lender making statements on its website that indicate a concerning lack of awareness about the responsible lending laws, and an apparent disregard for their responsibility to avoid making misleading statements in their advertising,” he said in a statement.

    ‘ASIC is committed to ensuring lenders adhere to their obligations, to help reduce the risk that overcommitted consumers find themselves in a debt spiral.’

    Tim Dean, chief executive of Paid International, told SmartCompany the websites involved in the fines are no longer in operation and haven’t been for “many months”.

    “It’s a past issue,” he says.

    “As a business we take steps to make sure everything we do is compliant, we work with ASIC in all instances and this is an example of that.”

    Dean says Paid International is committed to “absolute compliance” with responsible lending laws while providing fast credit solutions.

    Dean says when Paid International was informed wording on its website advertisements was inconsistent with those obligations it immediately corrected the advertising text so it remained compliant with its regulatory requirements and accurately represented the company's lending practices.

    In addition, Paid International developed and implemented systems to ensure it would not reoccur and welcomes the resolution of the matter through the payment of infringement notices to ASIC.

    “These issues happen from time to time and we take the view we always learn from everything that happens,” Dean says.

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    A Sydney businessman is facing court after he allegedly decided not to pay his staff more than $870,000 when three companies he operated had cash flow difficulties.

    The Fair Work Ombudsman has commenced legal proceedings against Kia Silverbrook and the businesses Primary Matters, Geneasys and Superlattice Solar for allegedly underpaying 21 employees between February and August last year.

    Fifteen employees from patent application processing company Priority Matters are owed $452,997, five staff members from medical research company Geneasys have allegedly been underpaid $362,973 and one employee from solar research company Superlattice Solar is owed $55,969.

    Silverbrook was responsible for the overall direction, management and supervision of operations at the businesses and is a respondent in each of the cases.

    TressCox Lawyers partner Rachel Drew says the only way to have accumulated such a large underpayment sum would have been to not pay some of the employees at all.

    “It looks like he had a number of people working for him who were prepared to work without being paid for a number of months,” she says.

    “It’s possible the employees continued to work for so long as a way of keeping their jobs.”

    Court papers allege when some of the employees queried Silverbrook about their wages, he told staff the three companies did not have the necessary funds to pay the wages.

    One of the companies, Geneasys, has since been placed into liquidation, after a winding up order was filed for the company in November last year.

     As a result the Fair Work Ombudsman’s proceedings against this business have been stayed, but Silverbrook is still to face court over the underpayments in relation to this company.

    The employees worked as engineers, scientists, patent assistants and patent design assistants. They were allegedly underpaid their wages, public holiday pay, casual loadings, annual leave entitlements, termination entitlements, redundancy pay and safety net contractual agreements.

    One employee is allegedly owed $166,914.

    SmartCompany attempted to contact Silverbrook, but received no response prior to publication.

    Drew says employers in financial difficulties will often be late paying wages by “a week or two”, but it’s unusual to see employees go for months without pay.

    “The larger the underpayment, generally the higher the penalty will be. It will be dependent on the circumstances though… the level of cooperation with the FWO will be a relevant factor in deciding the appropriate penalty,” she says.

    “If it’s genuinely a case where the companies were in financial difficulty, this could have reduced the penalty, but if they’ve failed to cooperate the penalty will be significantly higher.”

    Fair Work Ombudsman Natalie James said in a statement the businesses failed to rectify the underpayments despite efforts by the inspectors to resolve the matter.

    M+K Lawyers partner Andrew Douglas told SmartCompany people under solvency pressures are often led to “cutting corners”.

    “The first things affected will usually be superannuation payments and tax debts,” he says.

    “The risk of prosecution for underpaying staff is incredibly high. It will lead to a complaint, as when workers aren’t paid the correct amount, they start raising the alarm.”

    Douglas says the fact a business has solvency issues does not mitigate the need to pay wages.

    “People deserve to be paid for their work. There is no excuse to have someone at work and not pay them.”

    Drew says when a business opts not to pay its staff, it simply “racks up the debt for later on”.

    “Silverbrook now also has personal liability. Underpaying the employees will not pay off in the long run, it just results in a personal debt and a company debt.”

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    The Australian Securities and Investments Commission has launched legal action against Investment company Mariner Corporation and its past and current directors over an attempted takeover bid for Austock in 2012.

    ASIC is also pursuing the company’s chief executive Darren Olney-Fraser, current director Donald Christie and former director Matthew Fletcher for allegedly breaching their duties.

    ASIC alleges the directors breached their duties by approving a bid for broker Austrock Group in June 2012 when the company did not have enough money to fund the takeover.

    The corporate watchdog is alleging Mariner was reckless as to whether it could perform its obligations under the proposed bid because it did not have the financial resources to fund it, nor any commitment or assurance from another party to provide finances at the time of the announcement.

    “The announcement was misleading because the proposed bid was at a price less than Mariner was permitted to offer and because it misled the market as to Mariner’s ability to fund the bid,” ASIC says in a statement.

    “The directors breached their duties by failing to give sufficient consideration to the steps that needed to be taken before making the announcement.”

    When Mariner made the bid in 2012, ASIC raised concerned about the company’s funding of the offer.

    To make matters worse for Olney-Fraser, on Thursday the Federal Circuit Court permitted the Australian Taxation Office to proceed with a bankruptcy petition against him over unpaid company tax.

    SmartCompany contacted Mariner and Olney-Fraser, but no comment was available.

    The attempted takeover of Austock was just one of a series of failed takeover bids by the company at the time. Its attempts to takeover retailer Globe International in 2012 and broker Wilson HTM were not supported by shareholders.

    On June 25, 2012, Mariner made an offer to acquire all of Austock Group’s shares for 10.5 cents a share, subject to a 50% acceptance of the offer.

    “The offer price represents a 5% premium to Austock’s current trading price and its one-month rolling VWAP (volume-weighted average price), each being 10 cents per share at the time of our bid,” Mariner said in a statement to the ASX.

    Later in the month Mariner upped its bid to 11 cents a share, on the back of a letter sent by Austock to the company outlining its concerns with its formal bidder’s statement.

    In August 2012 it was announced Mariner Corporation had decided to withdraw its proposed takeover bid.

    According to The Sydney Morning HeraldASIC’s statement of claim revealed Mariner had tried to obtain funding for the acquisition from Morgan Stanley, IOOF shareholder Bruce Neil and Macquarie Bank.

    But despite supposedly not receiving support from Morgan Stanley, the directors opted to move ahead with the announcement of the takeover bid on June 25, 2012.

    ASIC alleges Mariner would have needed $14 million to buy all of Austock’s shares, when its total assets were just $1.8 million and it had liabilities of $1.6 million.

    Hall and Wilcox partner Deborah Chew told SmartCompany when a company makes a takeover bid, it’s legally required to basically have the finance before making the bid.

    “Presumably what would have happened in this particular case is Mariner might have overstated their ability to get financing,” she says.

    “If ASIC is making an argument that they engaged in misleading and deceptive conduct, there would have been a difference between what the company said was available in terms of financing and what their financial position actually was.”

    Chew says the outcome of the case will depend on how the company represented its finances and what steps it had taken to secure financing.

    “You need to look at the circumstances and see if the company was stretching the truth, if the financing fell through for reasons they had no control over, or if there were market conditions at the time which weren’t the fault of the company which caused its funding to fall through. It’s all dependent on the circumstances and what was happening in the market at the time,” she says.

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    A 16-year-old girl has been referred to the Australian Securities and Investments Commission for emailing out a fake press release on behalf of gas drilling company Metgasco, The Age reports.

    The bogus press release, which The Age reports was part of an April Fools’ prank, claimed Metgasco was pulling out of New South Wales. As a result the company was forced to issue a statement of their own, informing shareholders and investors that the press release was in fact a hoax.

    “Metgasco Limited has been made aware of a hoax media release suggesting that Metgasco will cease conducting unconventional gas activities in the Clarence Moreton Basin,” the statement said. “There is no substance to the hoax media release. Metgasco intends to continue its conventional and unconventional gas exploration and development activities.”

    The prank follows the Whitehaven Coal hoax in January last year. NSW anti-coal activist Jonathan Moylan has been charged over allegedly sending out a false press release on behalf of the company, which claimed the ANZ Bank had withdrawn a loan to the open-cut coal mine worth more than $1 billion. The fake release temporarily wiped $314 million from Whitehaven Coal’s share value.

    Under corporation law, false or misleading statements can result in 10 years in jail or a whopping $765,000 fine. Matthew McLennan, partner at Allens, says he thinks the teenager in question over the Metgasco press release would not be given such a harsh sentence.

    “It’s unlikely that anyone would ever be prosecuted to that degree,” he told SmartCompany.

    McLennan says it’s important that businesses react quickly to address the issue of false or misleading statements. His advice comes in three simple but effective steps.

    “Number one: issue a corrective statement,” he says. “Number two, report the perpetrator to ASIC. Three, put people who are or might republish the false statement on notice that it is false.”

    Exposing the false press release is a good move, says McLennan, because it draws attention to the person spreading false information.

    “Exposing it as a prank or hoax is effective because the story itself becomes that rather than ending up as a debate about what is and what isn’t true, which could give more airtime to the hoax.”

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    Businesses are being warned to review their employment arrangements with contractors to ensure they’re not in breach of legal obligations, or risk facing court for sham contracting.

    Holding Redlich partner Alistair Salmon told SmartCompany there have been no cases, in memory, where courts have found in favour of the employer in a sham contracting case.

    “There have been sham contracting cases where the employer was fined more than $250,000, when you consider the penalty against the company and individuals,” he says.

    “Employers need to seek advice to ensure they haven’t misclassified employees as contractors.”

    In July last year a New South Wales transport business and its operators were fined a record-breaking $286,704 for sham contracting.

    The Newcastle-based company Happy Cabby and its operator and sole director, Graeme Paff, were fined $238,920 and $47,784 respectively for underpaying seven workers $26,082.

    To avoid attracting such substantial penalties, Salmon gave SmartCompany three tips to protect your business from sham contracting charges.

    1. Review your contractors and employees

    Salmon says businesses currently employing contractors need to assess whether or not this classification is correct.

    “They need to consider if they really are contractors, of if these workers would normally be covered by a modern award,” he says.

    “If there are independent contractors, consider on what basis they are true contractors. The business should then seek advice to ensure this classification is correct.”

    Salmon says businesses at the hiring stage must follow the same process in order to ensure workers are contractors, not employees.

    2. Does your employee work for themselves?

    The courts take into account a number of considerations when determining if someone is an employee or an independent contractor, but it essentially comes down to whether or not the person is self-employed.

    “Workers may well have attributes of both,” Salmon says.

    “The courts use a number of indicia to make a determination; it’s not one point or another. But the essential premise is the consideration of whether or not the worker in the business works for themselves.”

    Salmon says jobs such as being a retail assistant of a supermarket trolley collector clearly mean the worker is an employee.

    “The guiding light question is whether or not they’re in business for themselves,” he says.

    3. To avoid legal action, seek advice

    Salmon says if the business owner seeks legal advice regarding whether or not someone is a contractor, this can offer a legal defence.

    “One of the provisions is that the employer wasn’t reckless in classifying the worker, and if you’ve sought legal advice, you haven’t been reckless,” he says.

    “Seeking advice is kind of like taking out an insurance policy.”

    Salmon says for small businesses where cash flow is tight, it’s worth considering the financial consequences of misclassifying an employee before deciding not to seek advice.

    “It doesn’t cost you that much in the scheme of things to get advice, and the amount you’ll save compared to if you get it wrong far outweighs the costs,” he says.

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    A Victorian small business owner has been banned from managing corporations for five years, after his company was found to have accepted payment for goods and services it didn’t provide.

    Mark Bailey was the sole director of Bailey Designed Engineering, a clean energy business, and on April 2 the Ballarat Magistrates’ Court disqualified him from managing a corporation until July 1, 2019.

    Consumer Affairs Victoria commenced legal action against the company and Bailey in February this year, following complaints the business had failed to supply goods and services.

    The consumer watchdog also commenced proceedings in late February for the company to be wound up and liquidators from Worrells have since been appointed.

    SmartCompany contacted Worrells for comment, but has not received a response.

    The Ballarat Magistrates’ Court has also ordered Bailey and his employees or agents to not request or accept money or other consideration on deposit, payment or consideration before delivery or installation of appliances or components or any payment or other consideration before completing promised services until July 1, 2024.

    The business sold wind turbines and solar systems and had previously appeared in the Victorian Civil and Administrative Tribunal and found guilty of similar allegations.

    Bailey has been ordered to issue a public notice of the order and pay $8666 in costs.

    TressCox Lawyers partner Alistair Little told SmartCompany the courts will take into consideration an individual’s ability to pay a penalty.

    “The maximum fine for accepting payment when you intend not to supply goods and services is $220,000, but there’s no point imposing a fine of this magnitude on a person when they have no prospect of paying it,” he says.

    “It is quite possible Bailey’s financial circumstances could have come into account, or he might have argued the conduct wasn’t deliberate, but the fine could have been a lot more substantial.”

    Little says the act of taking money but not delivering goods or services is “unusual”.

    “It’s unusual simply because it’s so transparently dishonest. It’s not something which happens often, but it’s not unheard of.”

    Little says failing to supply goods and services is a breach of a number of provisions in the Competition and Consumer Act.

    “It exposes you to fines and various other penalties under the act,” he says.

    “It’s possible to take action not just against the company, but against an individual personally. The consumer has rights against the company and the responsible individual.”

    In May last year Bailey Designed Engineering was also ordered to pay Emma and Adam Ellis $12,900 by VCAT member Elisabeth Wentworth after goods they paid for were not of an acceptable quality and incurred a major failure.

    In August last year, Ballarat paper The Courieralso reported a story of a Bailey Designed Engineering customer who had paid nearly $28,500 for a five kilowatt wind turbine, a solar panel and an off-grid batter bank in October 2011, but the system was allegedly not installed until almost June 2012 and was faulty.

    In addition to this incident, The Courier had uncovered seven other Bailey Designed Engineering customers who were also in dispute with the company.

    Little says if a company goes into liquidation, it’s unlikely consumers will ever receive their money back.

    “If you’ve been mucked around by a company, report it to consumer affairs bodies, fair trading bodies or the Australian Competition and Consumer Commission,” he says.

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