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  7. Know your Counterparty: The Power of Public Searches
16 Nov 2021


Whether you are deciding if you should form a new business relationship or if you should cut your losses at the end of one, it is important to consider the financial position of the other parties involved.

Working out the financial position of a person or entity can feel like guesswork. But you may be surprised to learn that simple searches of some basic public records will typically tell you most of what you need to know.

If you are looking into a company’s affairs, a good place to start may be a company extract, publicly available for a fee from the Australian Securities and Investments Commission (ASIC). From that simple search, you can see, for example:

  1. Whether and how often the company’s directorships have changed and so, how dedicated and stable its leadership is;
  2. Whether the same people who direct the company are also its shareholders and so, have “skin in the game”;
  3. How long the directors and shareholders have been in business;
  4. How close the directors and shareholders are to retirement;
  5. Whether older director/shareholders who may be headed towards retirement nonetheless have an interest in preserving and growing their enterprise for their children and grandchildren which may be inferred, for example, from the holding of shares by, or movement of shares to, a Self-Managed Super Fund or the Trustee of a Family Trust; and
  6. The volume of business the enterprise is turning over, which may be inferred from the number of credit searches that actual or prospective creditors have done over the previous 12 months.

One kind of ASIC search that may prove useful when investigating a (non-corporate) individual’s financial affairs is a Personal Name Search. This search will reveal all the private (i.e. non-ASX-listed) companies in which an individual owns shares or is a director (or both). You may then decide to drill deeper into their commercial affairs by searching some or all of the companies that a Personal Name Search reveals. You may even find some interesting connections between the entities in which the person you are investigating has an interest. Such connections may give you comfort about your target’s financial means and security (such as where they point to a well-coordinated and protected family enterprise), or it may put you on your guard (such as where it points to a possible attempt to hide cash and assets from creditors or directors treating company money and assets as if they were their own).

The Personal Property Securities Register (PPSR) may also be a useful resource in assessing the financial viability of a person or company with whom you are thinking of entering, or exiting, a business relationship. A grantor search on the PPSR will identify the other party’s secured creditors, what property they hold security against and what kinds of security interest they hold. If, for example, a PPSR search shows that a trade supplier connected with your counterpart’s business holds a current Purchase Money Securities Interest against the goods or materials that it supplies, you may take comfort in inferring that your counterpart is turning over a good trade. If, on the other hand, you find a series of All Present and After Acquired Property Securities Interests (a favourite of financiers) being progressively passed down from the Big Four banks to second-tiers lenders to “Loan Sharks are Us”, you may wish to rethink that joint venture arrangement with your counterpart!

Last but not least is the Land Titles Search. It is rare for companies to own land: not so for individual traders or the individuals that are the shareholders and directors of companies. And it is not just a person’s current landholdings that these searches reveal. They can also tell you such things as:

  1. Whether your counterpart’s landholding is encumbered by a mortgage or other charge;
  2. How long any mortgage has been registered against the title (which may allow you to infer how much equity your counterpart has accrued in the asset); and
  3. Whether, when and how often any loan secured by mortgage or other charge has been refinanced (and so, whether there is any cause for concern about the possibility of financial distress, either on the part of the landowner or of a company that the landowner may be trying to prop up with their own money or borrowings).

These are just a few observations on only some of the searches that can be made.  Conducting and interpreting due diligence searches into individuals and companies is often a more complex task than clients expect.  Legal and accounting advice is essential to get the full picture and so that all issues and potential inquiries can be made before taking a step that depends on the financial position of the other party, be it a business venture, an investment opportunity, debt recovery, negotiation or litigation.

Our team is highly skilled and experienced in advising on all aspects of Commercial Law. Contact us today if you need advice or representation in this area.    

*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

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