With the contraction of the Australian mining industry, many small enterprises who built the current mining infrastructure have been sent to the wall. In resource states like Western Australia, some have lost their family homes as well as their livelihoods.
Small businesses now risk-averse
Bank lenders currently demand that small business borrowers use their house as security and insist upon tough, non-negotiable and standardised contracts, which mean that if a business fails or gets into trouble, the family assets can be taken.
As a result, entrepreneurial business families have virtually stopped borrowing money to expand. No amount of interest rates cut will change their mind.
The current risk-averse nature of business is, in fact, a global problem and one reason why low-interest rates no longer stimulate economies.
‘Unfair contract’ legislation to be introduced
Australia is introducing some initiatives designed to promote entrepreneurialism and overcome this problem. One is the introduction of unfair contract legislation which will come into operation on November 12 this year.
This new law will mean that many of the onerous clauses in the current standardised agreements – bank overdrafts, loans, leases and consumer goods included – under $300,000 will be void. And if the contract extends a year, then the limit will increase to $1 million.
What contracts are covered?
The law will apply to most standard form contracts entered into or renewed on or after 12 November 2016, where:
- It is for the supply of goods or services or the sale or grant of an interest in land
- At least one of the parties is a small business (employs less than 20 people, including casual employees employed on a regular and systematic basis)
- The upfront price payable under the contract is no more than $300 000 or $1 million if the contract is for more than 12 months.
A standard form contract is one that has been prepared by one party to the contract and where the other party has little or no opportunity to negotiate the terms. It may include unfair terms that enable one party (but not another) to:
- Avoid or limit their obligations under the contract
- Terminate the contract
- Vary the terms of the contract
- Penalise one party for breaching or terminating the contract
What does this mean for small businesses?
The law aims to provide additional protection for a small business where they have limited opportunity or power to negotiate the terms of a contract before entering into it. The law does not apply to existing contracts.
An opportunity exists for small business to defer entering into, or renewing, contracts until after the 12 November 2016, to benefit from the new legislation.
If you think a term in your contract is unfair:
- Ask the other party to remove the term or amend it so it is no longer unfair
- Talk to a lawyer
- Contact your local state or territory consumer protection agency
- Contact the ACCC.
For unfair terms associated with financial products and services, contact ASIC.
If you require further introductory information or wish to discuss the new law, contact your local Accru Office.
