Failing To Secure Can Secure Failure For Your Company

When starting a new business venture, especially an international one, there can be a lot of excitement. However, if proper agreements are not put in place from the outset, potential problems may arise sooner than expected. In order to ensure that your new business venture is set up correctly and that you are protected, it is important to consider three crucial matters: Governing Law, Enforcement, and Security.

Governing Law

One of the key considerations is the issue of governing law. This refers to the jurisdiction that will be used to enforce any agreements and contracts that are put in place. A governing law clause allows the parties to a contract to pre-select the relevant jurisdiction under which the contract will be enforced. This gives the parties discretion over where any potential disputes would be litigated, which is particularly important in international ventures.

To ensure that you are protected and that you are able to litigate in a familiar jurisdiction, it is essential to ensure that the governing law stipulated in the contract is the jurisdiction where your business or company is based. This way, if any legal issues arise, you will be able to navigate the legal system in a location that is familiar to you and your representatives.

Enforcement

In the event that the governing law clause is established, and a judgment is made in your favour within the specified jurisdiction, enforcing the judgment against a foreign company based outside of that jurisdiction may present challenges. Our laws may lack the necessary jurisdictional authority to compel compliance of the foreign company, and therefore, enforcement proceedings will need to be started in that foreign companies’ country of incorporation.

Observe the two following potential scenarios:

1. Assuming that you were able to obtain judgment in Australia and are now seeking to enforce that judgment overseas (where the international company is incorporated), that country will need to be listed in Schedule 1 of the Foreign Judgements Regulations 1992 (Cth) (FJR) in order to more easily (though not without court processes) enforce the Australian judgment.
2. However, to enforce an Australian judgment in a country not listed in Schedule 1 of the FJR, a judgment creditor would have to rely on the foreign jurisdiction’s principles of enforcement. As such, not only will you be required to expend resources such as time and money on litigating in Australia (which is already a timely and costly process), you will also potentially be required to start proceedings in a foreign country and inherently, engage further legal representatives in that country (in addition to the Australian legal practitioners).

Security

To prevent and circumvent the unnecessary usage of resources involved in litigating and enforcement judgments, you should seek to obtain sufficient and appropriate security from the international company. Security refers to an interest in certain assets that secures payment or performance of an obligation. Obtaining security can mitigate potential risks and protect your business in the event of a default by the other party to the business venture.

Some common forms of security in Australia include:

1. Real Property Mortgages
2. A type of loan which secures and prevents the transfer of legal estate in land.
3. Caveats
4. A statutory injunction that prevents the registration of dealings and plans on a title.
5. Bank Guarantees
6. An undertaking from a financial institution to guarantee payment of amounts owed.
7. Bond/Security Deposit
8. Money paid that is held by the secured party as security against loss or damage.
9. Charges on the Personal Property Securities Register (PPSR)
10. Legal claim or security interest over personal property that is registered on the PPSR.

As such, it is important to determine the most suitable form of security for your business venture and to ensure that the security adequately protects your business from losses in event of default.

It is important to ensure that proper agreements are put in place in order to protect your interests, commercial and legal. This includes considering the governing law in those agreements and issues with enforcement. However, a paramount consideration that will ensure your business is protected from unnecessary losses (either by litigating, enforcing or generally) is security. By taking the time to think through these matters, you can help ensure that your business is set up correctly and that you are adequately protected in the event of any defaults. To obtain more accurate and tailored advice for your business venture, ensure that you contact a legal professional.