Cordato Partners, Business Lawyers, Property Lawyers, Tourism Lawyers

Questions and Answers

Question - What asset protection recommendations do you have for a small business?

Hello, I run a small business.

I seek your assistance regarding the wording of our trading terms (which we have been using for several years), possible improvements to it and various associated matters.

I would also like your advice regarding the creation of appropriate safeguards to my personal assets in case my business faced financial or legal trouble (especially in case the latter led to the former). There are no current legal or financial issues associated with the business but it seems a prudent step to take.


Your enquiry has two parts –
  1. Better Business Practice, in terms of ensuring that your trading terms are doing the job they are intended to do, and are up to date.

    If you provide me with a complete copy of your quotation form and your invoice form, I will be able to give you a quotation on what fee I will charge to upgrade and update them.
  2. Asset protection, in terms of quarantining business risks.
    In terms of asset protection the key is the legal entity through which you are carrying on business.

    As a general rule, you need to carry on your business in a company or company/trust that only carries on your business, and nothing else, and holds no assets other than business assets. That way, you isolate your business risk in terms of external claims. This isolation does not extend to any creditors to whom you have given your personal guarantee, because the personal guarantee is a bridge to your personal assets.

    Having made those general comments on asset protection, I am happy to provide more specific guidance if you provide me with an outline of how you see your business risk and the structures that you have in place for asset protection.


Question - Do you have any information about selling a business with vendor finance?

We are in the process of attempting to sell our business. We purchased the business 10 years ago ourselves under vendor finance terms.

Any information which you think could assist us, we would be grateful to receive. Selling Price is still to be negotiated around 300 to 400 thousand. We own the building, which can be rented to the purchaser.

We will be seeking advice next week to find out more information on the purchaser.

Thank you.


Businesses are often sold with vendor finance. The rationale is that the vendor achieves a better price as a trade off for vendor finance, or widens the field of potential purchasers to purchasers who don't have enough cash or borrowing capacity to buy the business for cash.

You are in a good position to offer vendor finance because you own the building, and can therefore act to take back possession of the business if the lease payments and vendor finance payments are not made.

The standard vendor model is a sale, with part of the price paid in cash on completion, and the remaining part of the price is carried back by the vendor, to be paid at a pre-agreed future date.

The ownership of the business is transferred to the purchaser on completion, and the remaining part of the price is secured by a Mortgage Debenture over the assets of the business, and if possible, by a Caveat over real estate.

The main criterion a vendor must use in deciding whether or not to give vendor finance is the business ability of the purchaser - there is no sense in vendor financing a purchaser whose business skills are poor and will send the business broke!

For legal assistance in documenting a sale of business with vendor finance, please contact me.

For information on the sale of properties with vendor finance, go to my website.

Kind Regards
Tony Cordato


Question – Letter or Demand or Creditor’s Statutory Demand?

Hi Tony,

I was talking with a friend last night in Sydney and they suggested a course of action and I just wanted to touch base with you and run it by you and get your thoughts.

They have recently gone through trying to get money back from a raft of people and have found that the letter of demand, followed by statement of claim etc course of action has taken a long time.

They suggested a form 509H ? Apparently it relates to 459e of the corporations act, and is a creditor statutory demand for payment of debt? Any thoughts or feedback about utilising this approach as opposed to the course of action we discussed yesterday?




Yes, the form 509H Creditor’s Statutory Demand is an accepted alternative a solicitor’s Letter of Demand (followed by a court claim) where the debtor is a company. Various considerations apply when choosing between the two.

Under Form 509H Creditor’s Statutory Demand, the period given is 21 days, at the end of which a Summons to Wind Up the company procedure can be pursued. There is a twist, if a form 509H is contested or defended, then you will need to go through the Statement of Claim procedure before you can proceed with a Summons to wind up.

The cost is $440 for the Form 509H and $4,400 for the Summons to wind up procedure, if it is undefended. If payment is not made, the debtor company goes into liquidation. It takes 2 to 3 months.

This procedure is not available for claims against individuals, for example, under a personal guarantee.

Under the Letter of Demand, the period given is 14 days. After that, a Default Statement of Claim is issued in a court, and if not defended a court judgement is available. This process takes 2 months, if undefended. The cost is $330 for the Letter of demand process and $1,400 for the Statement of claim procedure, if it is not defended.

The court judgement must then be enforced, by Bankruptcy process if it is an individual or by a Summons to Wind Up if it is a company..

I regard the initial demand, be it in the form of a form 509H or Letter of Demand as ‘testing the waters’ to see if there is a response from the debtor. Depending on the response (or lack of response) you decide on your next move.

If there is a response, it will be to dispute payment of the debt. If so, you must use the Statement of Claim procedure to make sure the amount claimed is ‘rock solid’ before you issue a Summons to Wind Up.

If there is no response, you can jump directly to a Summons to Wind Up, provided the debt is more than $2,000.

Kind Regards

Question – How do trust structures offer asset protection?

Hi Tony

As you know we have been in the process of establishing a business while we continue to search for investments for retirement.

I was hoping you could answer some questions regarding the protection of assets that are currently in my name and / or my wife's name.

1. I believe that for new assets that are registered in the name of a trust on acquisition that those assets will be protected by law. However I have been told that if we transferred assets that are currently held in our name to a Trust for example that those assets are not protected should we be subsequently sued. Is this correct and if so is there some other way to protect the assets?

2. From an investment point of view, are assets held by a trust subject to the same sort of deductions and tax breaks as those held in an individual's name or at least an alternative set of tax breaks?

3. Is a testamentary trust a suitable alternative for passing on assets to family members without huge stamp duty or other tax concerns for the beneficiaries?

Your assistance in this regard would be most appreciated. Thanks and regards.



You are right to review your asset protection from time to time.

I can only give you broad direction as I do not have the benefit of reviewing your full financial circumstances and business to determine the nature and extent of your risks.

1. Insurance is a cost effective mechanism for covering risks.

Building and Public Risk Insurance cover property risks of damage and injury Comprehensive Motor Vehicle Insurance covers the risk of damage to vehicles, Business Insurance covers the risk of loss or damage to equipment and injury, and Professional Indemnity insurance covers many claims against the business owners.

2. Legal Structures can limit claims and losses to the structure, leaving other assets protected.

Trust Structures are commonly used for holding assets - particularly family trusts (discretionary trusts) with a corporate trustee. Their advantage is that no-one really 'owns' the assets in the trust - all of the beneficiaries have the right to be considered for trust distributions, but no right to the assets of the trust. Therefore who receives the annual income can be selected according to best tax advantage.
Unit trusts are the other popular form of trust. Their advantage is that each of the beneficiaries holds units which entitle the beneficiary to an agreed share of the profits and the trust. There is no choice as to who receives the income.

Superannuation funds are a special form of family trust structure, with tax advantages in the form of a lower tax rate, and with a person's entitlements protected from their bankruptcy.

Testamentary Trusts are sometimes used to create a trust for the future protection of family assets when the assets are bequeathed in a will, as distinct from leaving the assets to a beneficiary under a will. These trusts are used for assets which are to be retained as family assets, as opposed to being broken up and sold. There are no stamp duties or inheritance taxes applicable to assets left under a will.

Companies (not being trustees of a trust) also provide legal protection from claims, and are often used either as stand alone or as trustees of a discretionary or unit trust to carry on business because they are separate and distinct from the directors and shareholders of the company.

3. Personal loans and personal guarantees are a 'lightning rod' in terms of liability to a lender.

Personal guarantees might be given to a lender as security for a loan to a trust structure or a company - if so, the giver of the guarantee exposes their personal assets to the debt.

There are particular dangers of personal guarantees when running a business such as signing credit applications with suppliers where a personal guarantee is often included.

Turing to your queries -

Transferring assets between related parties is fraught with danger, and is usually not recommended. The dangers include triggering capital gains tax liability, paying stamp duty and illegality (most asset transfers to a super fund are illegal).

The other danger is that such transfers can be 'clawed back' in the event of the bankruptcy of the person who transferred the asset.

The best method is to sell the asset, then contribute the money to the trust as a loan or with a super fund, as a contribution.

Therefore I look to place newly purchased assets into a suitable structure, rather than transferring existing assets into the structure, with the purchase price paid in cash or a mixture of cash and borrowings.

In terms of asset protection when running a business, all of the three rules set out above should be observed.

I hope this outline helps. To take this discussion further, I would need to go into the specifics with you.

Kind Regards

Question – In what name do I buy property where I have a trust structure?

Hi Tony,

I spoke to you a few months ago and you said, if I understood you correctly, that we can use our individual name on a property sales contract as we are agents of the company.

In our case we have a bucket company that is the trustee of a property trust. Do I now just put my name as trustee for the property trust on the transfer documents ie Bob Smith as trustee for "123 property trust" or do I just put "XYZ Pty Ltd as trustee for 123 property trust"?



Thank you for the opportunity to clarify.

There are two related concepts.

The first is that every trust must have a trustee. In your case, XYZ Pty Ltd is the trustee for 123 property trust. Therefore, when buying a property for the 123 property trust, the purchaser described in the Contract will be XYZ Pty Ltd, or as some accountants prefer, XYZ Pty Ltd as trustee for the 123 property trust (my view is that XYZ Pty Ltd is sufficient, and does not alert the Land Tax office to the existence of a trust).

The second is that an individual can purchase a property in their name, but with the purchase money supplied by someone else. If so, the individual is purchasing as a nominee or as the law puts it, as a bare trustee for the person or entity that supplied the money. The way it works is that the property is shown as an asset, and the income and expenditure are shown in the books of the person or entity that supplied the money.

In your case, you put XYZ Pty Ltd as purchaser on the contract, or if you wish you put XYZ Pty Ltd as trustee for the 123 property trust as purchaser on the contract.

Kind Regards


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