There are a number of mechanisms which can be considered for asset protection for a family or farming business. These can include:
1. Establishment of a company
2. Unit trust or discretionary / family trusts
3. Self-managed superannuation funds and
4. Testamentary trusts
It depends upon your individual circumstances which asset protection structure will suit your needs.
Our team of lawyers have extensive experience in advising clients on the most appropriate structures for their circumstances. They will assess your individual circumstances and work with you and your financial advisor to help you determine the best structure and provide assistance in establishing a structure that will best meet your needs and objectives, now and in the future.
Loan Agreements and Finance (Solicitor’s Certificate)
Business structure, financing facilities and cash flow management are a major focus in Farming and Agribusiness. Without access to finance it can be very difficult to grow a business or have access to adequate working capital.
Flexibility is required when financing a farm or agribusiness as there are many factors that may affect growth which are beyond control, such as variations in the weather with drought, floods and fire, market demand, fluctuating prices, running costs and environment issues with pests and diseases.
Farms are considered specialised commercial properties by lenders and can be viewed as a risk, due to the fragile nature of the industry. Because of this lenders will often take more collateral than required to secure finance. For example, in addition to securing the property, lenders may require the borrower to grant a security over any existing or future product of the Property, any machinery, plant, or water right on or relating to the Property.
Lenders also often require a personal guarantee and indemnity to be provided by a director or key party. There are many risks associated with providing a personal guarantee and indemnity which may also affect asset protection.
Our firm takes a holistic view when reviewing and preparing documents relating to finance. We understand the complex needs of intertwined family entities and the concept of cross collateral.
We have experience in drafting loan/ security agreements and reviewing security documents from independent lenders. We are also equipped to provide Solicitors Certificates for both borrowers and guarantors and review trust deeds to ensure they have provisions to borrow or lend.
An up-to-date and carefully drafted Will is a vital component of succession planning for your farming enterprise or agribusiness – this is the document which provides instruction on how your personal assets, and the aspects of your enterprise over which you have personal control, are passed to the next generation upon your death.
Most importantly, for your Will to be effective in passing your personal and business interests in accordance with your wishes, and without causing significant complexity, animosity or unintended consequences, each aspect of your current personal circumstances and the agribusiness enterprise must be considered, and the Will must be regularly updated to reflect any changes in these.
A well drafted Will should consider and, where necessary, provide instructions regarding the following matters:
- Appointment of executors/trustees who, ideally, have a working understanding of the your personal assets, the enterprise, and the intersection between the two, and whom you trust to carry out the instructions contained in your Will accurately and independently;
- Gifting of specific personal and/or farming assets – this can include personal items, plant and machinery, livestock, and individual parcels of land. As detailed below, it is vital when gifting land to consider any borrowings which are secured against that parcel of land which may affect its net value and the ability of the recipient to take ownership of and retain that land. Other attaching interests should also be considered, including water rights and licences, leases and agistments, and any other relevant rights, restrictions or agreements;
- Provision for the care, accommodation and maintenance of a surviving spouse, and how this may be managed alongside the continued use of productive land. This should also include provision for the funding of supported accommodation should they be unable to continue living independently at the subject property;
- Succession of roles personally held in the agribusiness enterprise – this will include the appointment of successive appointors and/or trustees to replace you in any trust utilised to operate the enterprise. You may also provide instructions or wishes for the continuing operation of the trust. This should be considered in light of any other trust succession measures undertaken;
- Transfer of company and/or partnership interests – any shares held in a company or a partnership interest held in your personal name can be gifted by your Will, however it is important to consider the impact of any relevant shareholders or partnership agreement on the transfer upon death;
- Borrowings should also be carefully considered, particularly those for which you are a primary borrower or guarantor, and any land or other assets against which the borrowing is secured;
- Other relevant matters – the tax or duty consequences of transfer, making proper provision for any dependents and transfer of assets or interests during your lifetime (as opposed to upon your death) should all be considered.
Your Will should be an evolving reflection of your wishes and the current position of your personal and agribusiness interests, and should be reviewed regularly to account for the changes which may affect the eventual outcomes upon your passing.
Powers of Attorney
All adults should have Enduring Powers of Attorney in place, to ensure that there is somebody appointed to make important decisions on your behalf should you become incapable or unable to do so yourself.
With regards to your personal assets and personal care and medical decisions, an Enduring Power of Attorney and Appointment of Medical Treatment Decision Maker are required. Find out more here
As Enduring Powers of Attorney only relate to personal decision making, how does a company continue to operate if its sole director becomes incapable or unable to make decisions? Depending on the Company Constitution, most companies are able to, via the existing director/s, establish a Company Power of Attorney, which in effect delegates the decision-making power of the director/s on behalf of the company in specific circumstances where the director/s are not available or capable of making decisions. This is particularly important for companies with a sole director.
Every succession plan should include a contingency plan should the agribusiness owner die prematurely, become disabled or otherwise become unable to operate the business. A contingency plan answers the question, “What would happen to my family and business if I’m not here tomorrow and the succession process commenced immediately?”
Because a contingency plan considers the immediate present (rather than dealing with death as a distant possibility), it should be monitored and adjusted regularly to accommodate current circumstances. A business owner leaving behind a child/children intended to take over the business but too young at the owner’s death, for example, might have a contingency plan to sell the business, or provide interim management by trusted individuals until the child becomes old enough and capable of operating the business.
Liquidity to provide for your family’s needs should something unexpected happen to you is also an important consideration. Appropriate insurance, along with other mechanisms, can be utilised in this planning.
How can Coulter Roache assist you?
Using a holistic approach, our firm can assist you in designing a personalised contingency plan to include:
- Periodically review of your Will to ensure assets are transferred in accordance with your wishes in the event of an untimely death;
- Determine your family’s liquidity needs in the event of death or disability;
- Identify prospective interim managers if the contingency plan is to wait until a child or other successor is capable of assuming management responsibilities;
- If there are multiple successors, consider buy-sell agreements to address ownership succession in the event of your death;
- Consider death, TPD and/or key-man insurance where there are multiple owners to resolve any dispute over disability or death and funding arrangements.