Advice on Legal Rights - Article Example

Law Name Student Number Institute Course Code Instructor Date Part A: Advice on Legal Rights This case analysis involves critical advice for Tanya and Boris in respect to repaying of Olga’s loan in which they are guarantors at Eastpac Bank. Olga secured a loan with Eastpack Bank with the help of Tanya and Boris, but her salary is uncertain and thus, the guarantors are at the risk of being compelled to pay for the defaulted loan. However, during the signing of the loan by Tanya and Boris (guarantors) who are also not conversant with the English language, were not made aware of the uncertain salary of Olga’s employment. Thus, the two were not privy to the fact the salary enshrined to service the loan was not sufficient to continuously make continuous or certain payments. Thus the two might be made to pay outstanding sums on Olga’s loan in the event of any default on the payment. Unfortunately, upon commencing the work, Olga’s earnings are insufficient to service the loan and the bank wants to enforce the guarantee against Tanya and Boris. Being a guarantor, one commits to pay the debts of the borrower by signing a written and legally binding agreement termed as a guarantee.1 The signee becomes a guarantor and henceforth responsible for the loan at hand in the case the borrower defaulting the loan. Thus, Tanya and Boris are obligated by law to pay Olga’s loan in the event she defaults to pay her loan as agreed. Nevertheless, the two guarantors; Tanya and Boris are also entitled to full disclosure of the terms and conditions of the loan being borrowed.2 In this context, it is evident that Eastpac Bank failed to give Tanya and Boris the conditions surrounding the payment of the loan. Subsequently, the guarantors acted out of ignorance and compassion without the full knowledge of the implications of their commitment. The reason behind Olga’s failure to meet her obligations of promptly paying the loan is brought about by the fact that she is being paid as per the sales and distance of delivery. However, the sales are not sufficient to maintain the car, as well as service the loan accordingly. There is disconnect in respect to how the terms of payment were achieved keeping in mind that Olga was not aware of what amount she would be getting per month. To conclusively look into the issues surrounding the loan issuance and subsequent signing of the guarantee, the guarantors ought to have a clear understanding of the conditions attached to the loan.3 Further, full disclosure is inevitable with respect to the requirements of the guarantor and circumstances where the guarantor might be called upon to service the loan upon default by a borrower. Thus, since there appears to be credible ground for Tanya and Boris to argue their case, it is necessary to report the case to the Commonwealth Bank by making a formal complaint on the conduct of the bank during the application and signing of the guarantee.4 Banks are supposed to honest and open with their information as outlined by the proceedings of the case between National Australia Bank and the Walter Family5 in respect to a loan given to their business operations for restructuring. Thus, based on the fact that Tanya and Boris were denied crucial information regarding their responsibility in the event loan repayment was defaulted without clear emphasis on the condition of the servicing salary. In that context, the bank has the obligation of not only making all parties aware of the conditions imposed on the loan, but also bring up issues surrounding the loans repayments and the viability or probability of a default in the near future.6 From a critical point of view, Tanya and Boris also have to review their relationship with Olga and establish the genuineness of her request for guaranteeing the car loan without clear emphasis on the working conditions. Amid the fact that the bank has the mandate to hold the guarantors responsible for the defaulted loan,7 the defaulter is also liable for legal implications for short changing the old couple and taking advantage of their vulnerability.8 This is in the sense that they are not proficient in English and consequently not privy to all the terms of the loans being granted. Since the responsibility of repaying a defaulted loan squarely falls on the hands of the guarantors,9 Tanya and Boris are faced with a challenge of evading the bank’s step of enforcing the guarantee on the two. Thus, to effectively safeguard their interest and ignorance, Tanya and Boris should initiate a legal proceeding to include the bank as the main defendant on the basis of failing to disclose the situation of the loan repayment and the condition of the salary and employment scheduled to service the loan.10 Ogla should be enjoined to the defendant on the basis of not making open the conditions of the loan and the uncertainty of her salary agreement with the employer to enable effective servicing of the loan. The main point of action ought to withdraw from being guarantors based on the fact that the two were not privy to all the conditions attached to the loan applied.11 This should be commenced right away before the loan progresses and makes the bank to take action against the guarantors. These actions will ensure the guarantors are heard in a court of law and a ruling made by a judge, as well as inquiry by the Commonwealth Bank into the conduct of the Eastpack Bank as pertains to withholding some terms of the loan repayment that affects the guarantors due to their ignorance. Part B: Paper on the Benefits of Investing in Start-up Companies Either by Way of Debt or Equity Start up companies have the potential of growing and increasing their base capital share, while at the same time have the risk of encountering situations of going under.12 However, insights are consistent with respect to success of major upcoming start up companies. These are based on the securities available which incorporate the financial instruments. The context of debts and equity instruments are crucial within investment schemes and potentially contribute greatly towards effective implementation of success strategy among new businesses (Pierre, 2008). This paper evaluates the benefits of investing in start-up companies by way of debt of equity with critical evaluation of the two instruments. Debts instruments refer to ways in which markets and participants follow in order transfer in an easier manner the debt obligations ownership from one party to another (Arsiraphongphist, 2008). They take various forms ranging from short-term commercial paper to long-term bonds. In context, debts securities refer to negotiable financial instruments that serve as debt indication. Types of debts involve term loans, leases, debentures and bonds. Term-loans are monetary in nature are regularly repaid over a set time of period.13 These are very effective for start-up small business operations and involve great prospects and effective small term payment durations. Their advantage in respect to investment is based on the fact that they are crucial ways of increasing capital raising business capabilities.14 Term loans have interests rates that are either fixed or floating and various institutions offer diverse repayment plans for a given term loan given out (Salas, 2008). Lease debts instruments involve a contractual agreement where a given party that owns an asset provides it for use to a second party or transfers the rights of usage to the equipment to another person referred to as the lessee for an agreed period of time for subsequent periodic payments. Leases are mostly long-term in nature and involve various types like; operating, financial, sales and lease back, and leveraged leases.15 Debentures involve debt securities that are issued by a given company that offers to pay interests of borrowed money for a given period of time (Arsiraphongphist, 2008). They involve long-term instruments that are offered by private sector companies and the various types involve a number of categories. These categories are basis of convertibility like non-convertible and convertible debenture, basis of security involving secured and unsecured debentures, basis of redemption involving redeemable and non-redeemable debentures.16 The last category of debts instruments involves the bonds which investments in form of investor loans of money to given entities like companies or government entities. The entities borrow money for a given period of time at fixed interest rates and eventually utilise the cash as capital start-ups to make profits. The capital start-up is utilised in business development and increased share capital base (Salas 2008). Generally, bonds are utilised by companies, states, municipalities and foreign governments to give financial might to various projects implementation and other activities for economic and infrastructural development. Bonds are categorised on basis of maturity like callable and convertible bonds; basis of principal repayment like amortising bond and bond with sinking fund provision.17 The final category involves classification based on coupon like zero coupon rate and floating rate bonds. In general, according to Arsiraphongphist (2008), the various types of debts instruments present attributes that can be exploited for making more investments for growth and development. Business entities, government bodies, states and federal governments have the need to service their operations through finance and build their investment for future growth and development. This is made possible by borrowing funds in the event they encounter situations of insufficient funds (Pierre 2008). The trend involves borrowing funds from investors where in exchange the investor, the issuer is made to make obligations to repay the face value of the loan coupled with a set rate of interest up the time the entire loan is fully settled. Start-up businesses engage with short term commercial paper debts whereby they are signed as contractual agreement to repay the debts with respective interests. This means continuous repayments, as well as monitoring and full realisation of funds given out unlike long-term debts instruments, like bond which may take a number of years presenting greater uncertainties.18 Equity securities refer to the ownership funds by business entities. In the event a business enterprise has a loan assigned to it, the firm’s repayments represent the equity of the given firm (Abbey, 2004). A good example involves the mortgage where the value paid refers to the equity of the owner; that is the value of the property less the amount owed to the lending institution. In context, equity instruments refer to the assets that ensure value addition to the net worth of the business entity.19 With respect to start–up businesses, equity instruments give the strength of business development with regard to the fact that the amount owed is less and overall repayment is targeted over a short period. The aspect of comprehending the various types of equity investment instruments that are available is crucial to an investor in the eventual realisation of probable options for investing effectively and making great returns (Salas, 2008). Equity markets are full of risks and volatile requiring tenacity and vigilance to ensure making greater prospects. Having effective insights into the various equities ensures that the overall investment process realises profitability in respect to start-up business investments and eventual business operation growth and development (Levinson, 2003). Equity instruments involves making projections, taking the risks and eventually following a path towards yielding huge earnings for both the lucky and wise business operators (Abbey 2004). For an investor, it is prudent to engage with business operators with prospects to make greater returns and whose equity operations are not in a position to go under. The various types of equities involve equity shares, preference shares and warrants whereby they are categorised in respect to how they are floated into the market (Arsiraphongphist, 2008). Equity shares refer to ownership capital like equity shareholding that collectively owns the company. Preference shares stand for forms of shares that are entrenched in between pure equity and debt and do not have the capacity to vote (voting rights).20 Finally, warrant equity instruments involves certificate giving the holder rights to buy securities as per set prices within a specified time limit. It is also probable for warrants to be offered at times with securities as inducements to purchase (Annotated Outline, 2004). In general, the warrant acts as the attraction to the holder of the warrant who has the right but has no obligation of investing within the equity and the given rate. The buying of preferred stock involves diverse benefits in the business operations markets. The buying of stock cannot be equated to the buying of common stock as it entitles the owner being paid dividends in a regular process (Salas, 2008). The dividends are integral to the investment process within an independent market. They inherently resemble bonds in nature and are hybrid investment instrument in respect to corporate bonds and common stock shares (Abbey 20040. Preferred shares are termed as stable in respect to investment and ensure regular government and ensure greater claim to assets in comparison to common shares in the event of bankruptcy. Nevertheless, owners of preferred shares do not have any say with respect to the company decisions (Arsiraphongphist, 2008). The investment process within common stock is the essence of the equity market and shareholders have ownership to a part of the company and from the point of purchase having a similar crucial goal of particular firm for making proceeds. In general, whenever a company makes more proceeds, the shareholders profits increases prior to selling to losing their value (Abbey, 2004). The releases of dividends are based on the strength of earnings but are not guaranteed. Stock equity investments fail to give an investor some in the structure and decisions of the business, but the power is minimal for majority of the shareholders (Arsiraphongphist, 2008). Common stock investment involves one of the most risky business investments, but at the same time presents greater prospects. Money is earned at quick rates and can also be lost at a very fast rate due to the dynamic nature of the equity markets (Annotated Outline, 2004). A number of stocks can be predicted relatively with subsequent rises and steady ones while others can appear very unpredictable with both the probability of bankruptcy. Looking at warrants in the equity market and are unique instruments within the equity markets.21 The instruments offer the rights of purchasing common stock at given price during a pre-determined set of time. In case the stock fails to be purchased, then the worth of the warranty becomes useless. The warrant investment market gives the potential to better return in the future and enhances capital based with the issuing firm (Salas, 2008). The latter attribute of increasing the capital base building stock markets within corporate investments and eventually are crucial in respect to start-up investments. Increased share capital ensures business growth and eventual development of business enterprise the target market. Warrant equity entities usually normally offered to the existing shareholders or in conjunction with stocks and bonds (Levinson 2003). Investments procedures are sensitive and witty investors will always evaluate and chose the right equity investment instrument. This ensures business growth and subsequent increased capital base and profitability.22 In respect to equity investors, there are various options to choose from with preferred shares being the most stable stock. Further, common stock has high potential and warrants ensure provision of an investment in the future. Due to the risks and uncertainties involved with the three types of equity stock markets, it is crucial to evaluate all financial opportunities and eventually settle for the most viable one (Levinson 2003). In this regard, the evaluation involves establishing the most potent returns in regard to increased profitability; high chances of increases the capital which is core target of any business investment with a long term vision of sustenance. Apart from evaluating the returns, it is also crucial to evaluate the potential loses and probable ways of buffering the loss occurrence (Pierre 2008). Nevertheless, equity investment is critical in the capable risk handling and mostly with regard to the ones that have awareness on the business capabilities. Consequently, they are also essential components in regard to the diversified investment portfolio but majorly, the equity investments may work perfectly as a solid plan for a strong investment plan (Salas 2008). In conclusion, investing in start-up business with regard to debts and equity markets has its benefits and uncertainties. Nevertheless, there is increased potential pertaining to the overall realisation of better returns and effective capital base maximisation. With increased financial uncertainties, it is prudent to embrace the fact that equity and debts investments involves risks and eventual management towards building a business thrive to make more profits with the investment markets. Hence, there is need for concerted efforts aimed at maximising the prospects of equity stock investment with a clear focus on the best markets for making profits and expanding the market share capital base. Every business operation aims at increasing its profitability, as well as a strong foundation and overall thriving within the market by establishing links for growth and development. Further, enhance the operations to cover better prospects for making greater returns with the equity and debt security markets. References Abbey, P. (2004) Aspects of the debts and equity tests. Journal of Australian Taxation. 7(1): 72-93. Annotated Outline (2004). Chapter 5: Classification: Financial Instruments, functional categories, maturity, currency, and type of interest rate. April 2004, 58-91. Arsiraphongphist, O. (2008). The information conveyed by debt and equity announcements in Australia. International Journal of Banking and Finance. 5(2): 61-86. Australian Securities and Investments Commission (ASIC) (2015). Loans Involving Family and Friends. . Commonwealth Bank (2015). Guarantor Information Sheet. Australian Credit License (ACL) 234945. Sydney: Commonwealth Bank of Australia. Jones, J. (2007). The National Australia Bank v Walter/Palatinat: A Case Study in the Adverse Small Business Environment in Australia. Levinson, M. (2003). The Economist: Guide to Financial Markets. 3rd ed. New York: Bloomberg Press. Pascoe, J. (2006). Statutory Unconscionability and Guarantees, Bond Law Review. 18(2). Pierre, J. (2008). The stock market reaction to Australian convertible debt issues: New evidence. Investment Management and Financial Innovations. 5(3): 90-100. Salas, C. (2008). The Bloomberg 20, Bonds, Bloomberg Markets. 66-69. Read More