Tammy McLeod (BA LLB) is a director at Davenports Harbour and a trust and asset structuring specialist. Tammy leads the Davenports Harbour Trust Team and enjoys providing clients with advice and assistance on a broad range of issues involving the structuring and establishment of asset plans, interpretation of trust deeds, the management and administration of trust funds and trust disputes. An important part of Tammy’s practice is reviewing existing asset holding structures to ensure they achieve the needs and requirements they were established to meet. She is also experienced in Property (Relationships) Act issues and advises clients on both contracting out agreements and separation. Tammy is a past president of the Auckland Woman Lawyers’ Association and is the current vice-president of the North Harbour Club.
Jack was tired of his job. He had been working for the same boss for years, earning the same money and all his ideas were constantly passed off by his boss as being his boss’s ideas.
Jack decided he wanted to work for himself. For some time he and his wife Lisa had talked about establishing a boutique bakery – a place where you could buy the kind of bread and pastries they had loved when they had travelled through France. Jack and Lisa agreed to put their savings into this new venture, they found some premises with a suitable commercial kitchen and they were on their way.
Jack and Lisa sought some legal advice on setting up the business and entering into the lease on the new premises. But they didn’t have many spare funds – all of their money was going into equipment and set up costs. Their lawyer did suggest that they might want to set up a family trust to put their family home into, but Jack and Lisa’s funds wouldn’t stretch that far. They didn’t want to borrow any more money from the bank and the business was going to be in a limited liability company, so they thought that would protect their personal assets.
Initially things went well for the new boutique bakery. Jack and Lisa paid for all supplies up front, but as their bakery began to expand, they decided to enter into some credit arrangements to help cashflow. Jack and Lisa as directors of the company signed a series of terms of trade with their suppliers. They didn’t read the terms as they were assured that they were standard – plus if they didn’t sign, they wouldn’t get the credit.
Unfortunately for Jack and Lisa after 18 months, they realised that bigger was not necessarily better – while they were struggling to keep up with demand, they were also struggling to pay their bills and got behind on some of their monthly accounts. They also quickly learned that the terms of engagement they had signed weren’t as simple as they had been lead to believe and in fact contained personal guarantees, putting their family home on the line.
Jack and Lisa learnt the hard way – if only they had spent just a little bit more money at the start of setting up their business to get the structure right – they may still have given personal guarantees to their creditors but if their assets had already been in a trust, those guarantees would not have meant the loss of their family home.
