Crisis Management in the Shadow of Coronavirus

March 11, 2020 Edward Dever

Amid the chaos surrounding Coronavirus and its impact on the travel sector in Asia and elsewhere, a familiar problem has reared its head. The inability of some governments such as the Thai Government to speak with one voice.

This was particularly apparent during the 2011 Bangkok flood crisis where there was complete inconsistency in Government messaging on a daily basis. Would Bangkok flood or not? How bad would the flooding be? A tech company which volunteered to partner with the Thai Government to assist with online flood awareness messaging quit the arrangement in disgust.

And so to 2020 and COVID-19.

In recent days, the Government has shifted gears on quarantine measures and created yet more confusion. The Health Minister issued an updated quarantine notice on particular foreign countries only to quickly withdraw it and deny he had signed it.

Last week, France, Germany, Japan, Singapore and Taiwan were dropped from the quarantine list by the Thai Ministry of Health so many international schools lifted quarantine measures on people with recent exposure to these countries. The Ministry of Education then intervened, advising that these countries remained on their quarantine list resulting in the closure of a number of schools who had acted on the Ministry of Health's earlier advice.

The Thai government has now announced that visitors from quarantined countries (currently China including Macau and Hong Kong, South Korea, Italy and Iran) need a doctor's certificate before they will be issued a boarding pass for their flight.

The form to be completed indicates that the doctor signing the form must have observed the patient for 14 days before travel and that a COVID-19 test has been administered and returned a negative result. The form must be signed no more than 48 hours before travel.

In practice, anyone travelling is unlikely to be able to comply with these requirements. Testing in places such as Hong Kong is only available in certain places and is not currently being undertaken by GPs.

To add to the confusion, Thai Airways says the requirement applies to returning Thai nationals; Cathay Pacific says it does not.

How does a person travelling frequently between Hong Kong and Bangkok comply with the 14 day observation requirement? Is a fresh COVID-19 test required before each flight?

In these circumstances, client updates must emphasis the fluid nature of government advice. The best approach is to anticipate government messaging flip flops and confusion and hold messaging until different government departments have had time to issue contradictory advice. In the time sensitive tourism sector, this is not particularly easy in practice.

Govt risks being the next casualty of COVID-19 https://lnkd.in/fMJtJWu

PELEN

March 2020

The content of this publication is intended to provide a general overview on matters which may be of interest. It is not intended to be comprehensive. It does not constitute advice in relation to particular circumstances nor does it constitute the provision of legal services, legal advice or financial product advice.

Six Ways To Save Money On Your Strata Costs

February 19, 2020 Edward Dever

With the Australian economy stagnating, shopfront retail in the doldrums and the added economic impacts of the recent bush fires and coronavirus, it is harder to increase residential property rents. Not impossible in some markets but generally rents are pretty flat.

At the same time, council rates, water rates, land tax and other property related expenses are all increasing, putting a squeeze on property owners.

The only way to increase yields is to carefully manage expenses.

Here are six things you should be doing to keep a lid on strata expenses:

1. Get involved in the management of your strata community. You are an owner, it's your money they are spending, so you should be aware of how it is being spent.

2. Review your strata building insurance. It is quite likely that you are not getting the best deal. Shop around. Also, update your building valuation and check the appropriate valuation is being used in your insurance. I have seen one example where the (much higher) building valuation used was from a different building.

3. Get quotes and get them often. I have lost count of the number of times I have seen competing quotes which are thousands of dollars apart. If you have the time, talk to the contractors. Get to know which contractors have a good reputation and are genuinely interested in the work. Not all contractors will be interested and may be submitting high quotes that reflect their level of interest.

4. Find a reliable handyman. Worth their weight in gold and may save you just as much. A reliable handyman can fix a lot of the little common property issues that often get farmed out to the large contractor agencies. They operate on a different cost platform and will invariably cost more. That's not the fault of your strata manager. They need to streamline work orders and the large contractor agencies allow them to do this. I recall an example where a handyman's $90 fix solved a problem a contractor agency wanted to solve by a partial demolition and rebuild.

5. Don't over fund your administrative and sinking funds. While you need to ensure annual expenses are met and the sinking fund is adequate, it doesn't need to be over funded. Remember, it's your money and you won't get it back if you sell. I don't know of an instance where there was an adjustment at settlement to reflect a generously funded administrative or sinking fund.

6. Stop talking to your strata manager. At least minimise the discussions and have a single person act as point person. Many of the larger strata managers charge on an hourly basis for dealing with your building's file. If you are discussing every issue in minute detail with them (or several owners are separately), the cost will add up.

This list is by no means exhaustive.

PELEN

February 2020

The Joy of Trees on Property Boundaries

February 8, 2020 Edward Dever

QCAT's view is quite clear:

"The Tribunal has consistently found that the droppage of vegetation in this regard is a fact of life in suburban neighbourhoods and not of itself cause for the intervention of the Tribunal by way of an order."

"The dropping of leaves, flowers, fruit, seeds or small elements of deadwood by urban trees ordinarily will not provide the basis for ordering removal of, or intervention with, an urban tree."

Neighbours (including bodies corporate with shared boundaries) should work together to find equitable solutions. It will save time in the long run.

It is worth noting that the Applicant in this matter did not help themselves by failing to provide evidence to back many of their claims.

Melvaig Pty Ltd v McMillan-Kay [2020] QCAT 21

PELEN

February 2020

Coronavirus and the Potential Decimation of Asia's Tourism Sector

February 5, 2020 Edward Dever

Some time ago, I wrote a post on business survival using a cash flow waterfall. (Cash Flow Waterfalls.)

In the past few weeks, we have seen the emergence of the Coronavirus (2019-nCoV) in China. Airline travel has led to the spread of the virus to numerous countries, including Australia. Strict air travel policies are now in force restricting travel from China and requiring self-quarantine measures by Australians returning from China.

South East Asia is in the middle of its tourism high season. Typically, this runs from November to March in places such as Thailand, Vietnam, Cambodia and Myanmar. Cash flow from the high season allows tourism operators to get through low season when less travellers visit these countries.

Travel restrictions on flights from China and Chinese travellers are likely to have a catastrophic impact on tourism operators relying on outbound tourism from China.

The 'fear factor' will impact other markets who normally visit South East Asia at this time. Traditionally, the US market is hyper-sensitive to disaster and medical-related events in Asia (think SARS, MERS, 2004 Tsunami). Expect significant cancellations.

Most tourism operators would now be throwing their 2020 sales forecasts in the bin. Thailand's tourism authority is pessimistically forecasting a drop in tourism of 80% year-on-year for January to April.

It is not clear how long it will take authorities in China and elsewhere to reach the point where new Coronavirus infections plateau and decrease.

For any tourism operator or ancillary business, it is essential to look at adopting a cash flow waterfall to manage creditor payments over the coming high season months and then over low season.

For those around during SARS, we remember the impact on tourism and companies asking employees to take leave or reduce to 3 or 4 day work weeks. There is always a light at the end of the tunnel but there will be some juggling of business cash flow between now and then.

PELEN

February 2020

Squeezing the last cent out of a dead tenant?

January 29, 2020 Edward Dever

A recent article highlights the timing of the end of a tenancy when a tenant dies - Woman’s estate ordered to pay three weeks’ rent after her death

As a landlord, you hope that tenants don't die. But it does happen. In Qld, generally the tenancy ends two weeks after notice of the death (Qld RTA - death of a sole tenant).

I view the date of death as the end of the tenancy. I see no point requesting written notice from the deceased tenant's relatives at a time when they should be focused on other things. While formalities need to be addressed, a landlord should make things as easy as possible for the deceased's relatives.

There are ways of trimming costs from property ownership without trying to squeeze the last cent out of a dead tenant. Not every landlord would agree with that.

You can make the property ready for the next tenant in a way which makes the process as simple and helpful as possible for the deceased tenant's relatives. An agent who genuinely shows empathy in these situations is also helpful.

A simple rule of thumb is how would I like to be treated in similar circumstances.

PELEN

January 2020

Presentation Slums Mission Bangkok - Plaque Presentation - January 2020

January 21, 2020 Edward Dever

Brian Cranston's character, Jack O'Donnell, in the film Argo says at one point: "If we wanted applause, we would have joined the circus."

It is a sentiment I often agree with. However, the recognition of my efforts over many years by the Presentation Sisters is happily accepted.

The plaque was presented at a breakfast recently at the Sofitel Hotel in Bangkok.

A less known fact - apart from all the mission work they do in Asia and other places, the Presentation Sisters operate 141 schools in Australia and four in New Zealand.

All the volunteers who helped Sister Joan and her Presentation Slums Mission Bangkok over the years were able to witness something quite special.

PELEN

January 2020

Queensland Residential Tenancy Reform Proposals

January 8, 2020 Edward Dever

Set out below are the Queensland Government's preferred residential tenancy reform options:

1. Minimum Housing Standards

Option 5: Prescribe minimum housing standards for rental accommodation supported by enhanced repair and maintenance provisions

2. Renting with pets

Option 4 – a range of amendments to the RTRA Act to strengthen a tenant’s options regarding the keeping of a pet on rental property, but also to safeguard the ability of the property owner to refuse to accommodate a pet where there are reasonable grounds to do so.

Option 6 – The RTRA Act would be amended to allow a specific pet bond to be charged and kept separate from the general bond.

3. Minor modifications

Option 3 – Establish mechanisms to manage minor modifications with appropriate safeguards. A definition for a ‘minor modification’ would be introduced to the RTRA Act. Owners would be required to seek a pre-emptive QCAT order to refuse minor changes required for health, safety, accessibility and security reasons.

4. Domestic and family violence

Option 3 – Tenancy law protections for people experiencing DFV would be improved to support them to end tenancies quickly and safely, limit their liability for end of tenancy costs, streamline access to their bond contribution, and more easily install safety and security measures.

5. Ending a tenancy fairly

Option 5 - Remove the ability for owners to end tenancy agreements without grounds but introduce a number of additional grounds to end tenancies under the RTRA Act

The deadline for submissions was 8 January 2020.

PELEN submitted a detailed submission dealing with a number of these issues.

https://www.yoursayhpw.engagementhq.com/give-feedback-renting-in-qld

PELEN

January 2020

When declining new vehicle sales became a crisis

December 31, 2019 Edward Dever

New vehicle sales are often regarded as a good barometer of the economy.

As at November 2019, new vehicle sales in Australia were down 8.2% on 2018 figures, the worst figures since 2011. (https://www.caradvice.com.au/811764/vfacts-november-2019-sales-results/). The overall 2019 figures are unlikely to be any better as consumers and government reduce purchases.

As 2019 becomes 2020, 2019-manufactured vehicles become old stock and dealers will be desperate to quit them. (A number of vehicle manufacturers would still be stuck with 2018-made vehicles.)

Australian new vehicle sales are clearly hurting vehicle importers. Mazda's decision to relocate part of its production from Thailand back to Japan can be partially explained by the high Thai Baht. Another factor would be weak demand in Australia. Mazda sales in Australia were down 30.7% in November (https://www.caradvice.com.au/811764/vfacts-november-2019-sales-results/_).

The dismal state of vehicle sales reminds me of a story from Thailand's restructuring era.

In the lead up to the 1997 financial crisis, the head of Thailand's main Mercedes-Benz importer had continued to make vast orders for vehicles. With sales slowing, he failed to heed Stuttgart's pleas and kept order levels at boom-time levels.

When the financial crisis hit Thailand and the dilemma facing Mercedes-Benz in Thailand was revealed, there were over 20,000 brand new Mercedes-Benz vehicles stored in warehouses throughout Bangkok. Some of these were SKD or semi-knocked down units which required partial assembly in Thailand and afforded the importer a partial tax exemption. Many of these vehicles were manufactured several years earlier and were rapidly depreciating.

Quickly selling these vehicles would have affected sales of newly imported Mercedes-Benz vehicles and also impaired the brand's image in Thailand. So a decision was made to lease large numbers of the vehicles to the hotels in Thailand on favourable terms through Mercedes-Benz's newly-established local vehicle leasing operation. This company had largely escaped the crisis hitting other companies offering vehicle leasing and hire purchase and, over time, was able to assist with clearing the vast vehicle inventory.

It is highly unlikely one of the Australian vehicle distributors has a similar number of vehicles hidden in warehouses in places like Sydney or Melbourne. However, it would be surprising if the new vehicle sales figures are completely accurate and there is not some form of continued fudging of the sales figures through dealers registering "cyber cars" and other arrangements (https://www.abc.net.au/news/2018-12-04/car-dealers-over-reporting-number-cars-sold/10580478).

December 2019

Why Don't More Landlords Install Fire Blankets?

October 18, 2019 Edward Dever

I was recently asked for my suggestion on the best risk minimisation factor for residential rental properties.

A number of managing agents have been circulating their annual fire safety tips and none has touched on this issue. Yes, you should have adequate insurance and you must comply with the relevant state legislation on smoke alarms and, in Queensland, start gearing up for the more stringent smoke alarm requirements effective in January 2022.

However, beyond the legal requirements on landlords, you should install a fire blanket in the kitchen of any residential rental property you own. It simply makes good sense.

One of the main fire risk danger areas in any residential rental property is the kitchen and the risk of stove top or hot plate fires. Any fire needs to be extinguished quickly to prevent the spread of flames, damage to the property and the risk of injury to the tenant. In the unfortunate event of a fire, ready access to a fire blanket may enable a tenant to smother the flames and minimise damage to the property and risk to themselves.

Fire blankets are a sensible pro-active approach to fire risk management and should be considered an essential addition to any residential rental property. They are inexpensive (less than $10.00 each from retailers such as Bunnings) and should be checked between tenancies to determine if a replacement is needed.

I am always amazed when I talk to managing agents that more landlords do not install fire blankets in their residential rental properties. There are times when it makes sense to think beyond the strict legal responsibilities of a landlord. I expect any landlord who suffers a fire in one of their kitchens would regret their decision not to spend the cost of a couple of cups of coffee on this measure.

To date, I have only ever had one fire blanket used but its availability at the time doubtless saved money and minimised the risk of harm to the tenant and neighbouring tenants.

Of all the measures that landlords can take to protect their investments, one of the best measures is also one of the least expensive.

Make sure you put one in your own kitchen as well.

PELEN

October 2019

Australian Companies in Asia - Getting Stuck in Asia's Corporate Quicksand

February 17, 2019 Edward Dever

The reported plight of Australian casino operator Donaco at the hands of the vendor of one of its main assets highlights the risks associated with investing in countries where the rule of law is scarce and corruption is rife.

Donaco's disclosed problems in the Cambodian border town of Poipet (See - Article) show how foreign companies can often end up in cascading legal problems when Asia ventures involving local operators turn sour.

While it may appear sensible on paper to purchase a business in a foreign country and then provide incentives to the local party to continue to operate it on your behalf, what often occurs is the local party continues to treat the business as their own - regarding the purchase price as a windfall gain. I often refer to this as the absent owner syndrome where foreign companies expect levels of governance and adherence to contract terms that they would find in their home countries.

Where the business being purchased is a significant player in an industry and country known for corrupt practices, it is likely that the local party has significant political connections. Any foreign company hoping to succeed would need equivalent or superior political connections which may fall foul of their home country's foreign corrupt practices regime. Seeking to rely on the local party's political connections increases the risk that those connections may be used against the foreign party in the event of a dispute.

Where disputes arise, foreign companies can expect several things, some of which seem evident in the Donaco example.

First, do not expect non-compete terms to be very helpful. In some parts of Asia, they are rarely enforced or are enforced in only limited respects. Often, the damage has been done before the foreign company either notices something has happened or is able to take any action.

Where, due to local laws or other reasons, the vendor retains control over the land on which the business is situated, expect unreasonable attempts to interfere with the foreign company's rights. This can include wrongful termination of any leasehold interest, cutting off all access or cutting off electricity and water. Where possible, ventures should be located on land independent of the local party where the foreigner is legally entitled to exercise control. While not feasible in all cases, anything less than freehold control increases the risk of adverse action in the event of a dispute.

Expect counter attacks. On multiple fronts. Defamation proceedings are often used as a weapon in any dispute or negotiation. Where defamation in particular countries constitutes a criminal offence, criminal proceedings may be brought against the foreign company's directors or local foreign representatives. Such action may mean foreign directors have to avoid visiting the jurisdiction until the matter is resolved. For local foreign representatives, it may mean lengthy meetings with lawyers and court proceedings which dilute the time available to deal with the main dispute. Laws such as Thailand's Computer Crime Act can be used to great effect to distract and derail a foreign company's attempts to deal with the original dispute. Even local work permit laws can be used as a weapon to harass local foreign representatives or foreign company directors visiting for negotiation purposes.

By forcing the foreign company to battle legal proceedings and harassment on multiple fronts, the local party may hope to reach a point where the foreign party will do almost anything just to resolve the dispute. It is at that point that the local party may be willing to negotiate a resolution. In some cases, this involves the foreign party virtually giving the business back to the local party and writing off the whole experience. An exception is where the local party considers a loss of face is involved. In such a case, there may be no prospect of negotiation at all.

While there is always the possibility of stellar investment returns in parts of Asia, foreign companies need to enter negotiations with their eyes open to the risks which are inherent in this region. A failure to do so can cost the company's shareholders dearly.

This article highlights the general risks to foreign investors investing in Asia. It uses the recent disclosures by Donaco Ltd to highlight those risks. Neither PELEN nor Edward Dever are involved in the matters involving Donaco Ltd.

PELEN

February 2019