ByLawyers News and Updates

A By Lawyers Full Commentary

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A full commentary is a practical discussion on an area of law which covers not only the theory of conducting such a matter but also the practical aspects too.

By Lawyers commentaries are written by lawyers, barristers and conveyancers all with one thing in common – they are practicing professionals. This provides a level of practicality to the commentaries which truly assists practitioners in the conduct of a matter.

Commentaries have largely been written to meet the needs of small to mid-size firms.

Every By Lawyers commentary is designed to serve three main purposes:

Keep firms up to date

All By Lawyers commentaries are updated in line with the most recent developments in legislation and case law. Practitioners using the commentary can be assured that any recent developments that affect their clients and area of practice are covered.

Provide guidance at a glance

A By Lawyers commentary is designed to help a practitioner navigate a matter by combining best practice advice with relevant information. Each commentary is structured to follow the progression of a typical matter, ensuring that practitioners start and stay on the right track. By Lawyers commentaries are also written with a strong practical focus which ensures that users are easily able to locate the information they need to get the job done.

In a small law firm this is a valuable resource as it allows practitioners to delegate work to paralegals and other support staff with confidence.

Dive deeper when needed

Some complex matters can call for additional in-depth analysis and research and By Lawyers commentaries offer the perfect starting point with detailed links to legislation and case law. In addition, By Lawyers also publishes articles and in-depth Manuals on popular areas of practice such as family law and property law ensuring that users can gain an in-depth understanding of unfamiliar areas of practice.

Out-of-hours employee misconduct and social media misuse

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Author Brad Petley, Principal of Acumen Lawyers, and the By Lawyers employment law specialist.

Social media use by employees has brought many headaches for employers.

Plenty of sobering warnings have been written by the experts.

A social media issue affecting your workplace can happen in an instant – as today’s hypothetical shows.

An employee heckles a golfing superstar then takes to social media

This article is actually based on an incident reported earlier this year when a golf spectator at the Valspar Championship in Florida heckled well known PGA Tour professional Ian Poulter: See Ian Poulter Heckler from Valspar Fired from Job at Florida Southern – Golf.com (17 March 2016).

After the heckling, the spectator took to twitter, boasting:

“…Ian Poulter is making the walk from 12 to 13. I yell ‘you will NOT make the Ryder Cup team!’ Followed by a ‘YOU WILL HIT IT IN THE WATER!’ Ian turns to a rules official and asks that my friend and I be removed from the premises. We talk to the cops, rules official and they ask us to wait until Ian moves on to the next hole and we could return to the Hooters tent. Ian hit his tee shot on the the (sic) par 3 into the water, thins (sic) we got kicked out, and we’re still boozing! I’m swimming circles in Ian Poutler’s (sic) brain and might (probably) kept him off the Ryder Cup Team..LETS GO!”

Unfortunately for the spectator, he got more than he bargained for when his tweet came to the attention of Poulter.

Poulter tweeted back and at the same time tagging the twitter accounts of the spectator’s employer:

“I’m sure @FSC_Athletics & @FscSports are really proud of your professionalism. I wish you the very best Ian”

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Events then took an unfortunate turn for the heckling tweeter as within days his employer (in response to media enquiries) issued this blunt statement:

“He’s no longer employed at the institution.”

So, let’s apply the circumstances of the heckling spectator story as a hypothetical under Australian workplace laws – could you take disciplinary action?

What if it happened in Australia?

The starting point is to bear in mind that the hypothetical employee’s conduct occurred outside of working hours so it may be genuine private activity (no matter how distasteful) with no connection to the employment.

In certain circumstances an employee’s out of work activities (including social media activity) may breach an implied or explicit term of their employment contract thus permitting disciplinary action.

As to the out-of-hours conduct that would justify dismissal, the courts have said:

  • An employee may be validly dismissed because of out of hours conduct – BUT that conduct must be such that:
  • it is likely to cause serious damage to the employment relationship; or
  • the conduct damages the employer’s interests; or
  • the conduct is incompatible with the employee’s duty as an employee.
  • In the absence of such considerations an employer has no right to control or regulate an employee’s out of hours conduct.

See Rose v Telstra Corporation Limited Print Q9292 [1998] AIRC 1592 (4 December 1998)

Could disciplinary action be taken against our hypothetical employee?

It is fair to say that the employee’s conduct raises serious issues about his continuing employment.

However, today’s hypothetical cannot cover all of the issues and arguments that could be put forward in an unfair dismissal case.

Cases will always turn on their individual facts.

What are some of the key facts and issues?

Remember – in our hypothetical the adverse publicity risk is high and the employee is identified on social media as an employee of your organisation.

The out-of-hours behaviour is given wide public exposure by the heckled golfer (who has more than 2 million followers) in his twitter retort and making your organisation’s identity clear by tagging its twitter account name.

There’s the issue of the impact on your organisation’s interests by the employee’s conduct.

You would need to consider the following factors:

    • What is the potential impact of adverse publicity?
    • Could the employee’s actions harm relationships between your organisation and its clients, suppliers or sponsors?
    • Could commercial arrangements with those parties be cancelled as a result?
    • Could there be an impact on the organisation’s ability to source new customers, clients or sponsors?

By engaging publicly in disruptive, hooligan-like behaviour at an international sporting event, our hypothetical employee would certainly raise questions as to whether his actions had damaged the relationship of trust and confidence.

The courts have recognised when it comes to the relationship of employer/ employee:

  1. trust and confidence is a necessary ingredient and
  2. there must be sufficient trust to make the employment relationship viable and productive: See Perkins v Grace Worldwide (Aust) Pty Ltd (1997) 72 IR 186. A common question explored by our industrial relations tribunals in unfair dismissal cases about misconduct is about whether the relationship trust and confidence was irreparably damaged by the employee’s actions.

Relevant to trust concerns would be the employee’s boastful statements on social media about his antisocial behaviour.

The impact would become more grave if the employee held a senior position of greater trust such as a management or supervisory role.

Takeaway points

    • In certain circumstances an employee’s out-of-work conduct can justify disciplinary action (including dismissal).
    • The courts have issued guidance principles for when such behaviour would justify dismissal.
    • Even if there is a valid reason to dismiss, don’t forget the impact of unfair dismissal laws; fairness principles may impact to make a dismissal harsh, unjust or unreasonable.
    • A social media policy is recommended for all workplaces to aid the prevention of misconduct involving social media.
    • If in doubt as to your rights to discipline an employee, seek advice before acting

Off the Plan Sales – Best Endeavours – Part 2

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Summer2012_BuyingOffThePlan_landingThe April 2011 column considered the case of Joseph Street Pty Ltd v Tan, a decision at first instance reported at [2010] VSC 586. The case has now been reversed on appeal, reported at [2012] VSCA 113.

The effect of the Court of Appeal decision would appear to make the entering into of a s 173 Planning and Environment Act 1987 Agreement compulsory for developers in all circumstances where the municipal council is prepared to enter into such an Agreement.

The case involved a ‘villa unit’ style development of 6 single storey units in Box Hill.  Units were sold off the plan with settlement to be after registration of the plan in accordance with common practice.  The builder that the developer had contracted to undertake construction failed to do so and the developer was forced to find another builder.  As a result, construction was not completed within the time allowed by the contract for registration of the plan (the sunset period) and the developer rescinded the contract.

The purchaser refused to accept rescission and sued for specific performance of the contract on the basis that the vendor had failed to use ‘best endeavours’ to have the plan registered.  It had been established at first instance that this obligation consisted of both an express contractual obligation and also as an implied obligation.

The Full Court identified that registration of the plan could only be achieved when the council had issued a Certificate of Compliance, but that there were two methods by which the developer could obtain that Certificate and thus fulfill the contractual obligation to secure registration of the plan:

  1. the developer could complete all the building works to the satisfaction of all relevant service authorities; or
  2. the developer could enter into a s 173 Agreement with Council after entering into agreements with service providers.

Evidence given on behalf of the developer suggested that the s 173 Agreement option was limited to ‘greenfield’ developments and had not been contemplated by the developer as an option.  However evidence from the council suggested that s 173 Agreements were common in ‘smaller’ developments and indeed the planning permit issued in respect of the development had referred to the possibility of just such an Agreement.

The effect of the s 173 Agreement is to give the council the ability to register on the ‘parent’ title (the title to the unsubdivided land) the requirement that the development be constructed in accordance with the planning permit issued in respect of the development.  If council has the benefit of such an Agreement then, subject to the satisfaction of other relevant authorities, council is able to be satisfied that the development will be built in accordance with the permit and council’s planning responsibility in relation to supervision of construction is thereby satisfied.  If construction is not in accordance with the permit, council is entitled to enforce thes 173 Agreement against the developer and all subsequent registered owners.

The s 173 Agreement process appears to be a shortcut to registration of the plan, as a certificate of compliance may be issued by council well in advance of completion of all construction and infrastructure works.  The requirement that the developer enter into satisfactory agreements with infrastructure providers is a pre-condition to a s 173 Agreement and such arrangements may be tedious to negotiate, but once achieved registration of the plan can quickly follow.

This might cause concern for a purchaser if the only requirement on the vendor is registration of the plan.  As can be seen from the above, this could be achieved well before construction is complete, but no purchaser is going to want to pay for a half finished property.  Thus a purchaser needs to be satisfied that settlement will only be due after both registration of the plan and issue of a certificate of occupancy.  Whilst there is much to be said against a certificate of occupancy being a true reflection that all works have been completed, it is at least an objective confirmation that most works have been completed.  A better test is a satisfactory report from the purchaser’s building consultant, but few developers are prepared to countenance such a hurdle.

Whilst the Court of Appeal in Joseph Street may have identified a shortcut that was open to the developer, it is interesting to note that the developer was not aware of that possibility and there is no suggestion that the purchaser ever suggested to the developer that such a process was available, let alone that the developer refused to follow that course.  Apparently, the mere fact that the option was available and not taken was enough to satisfy the Court that the developer had failed to use his best endeavours.  A true case of ignorance is no excuse.

Whilst written for Victoria, this article has interest and relevance for practitioners in all states. 

See also: Off the Plan Sales – Best Endeavours – Part 1

Agreement to lease

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

‘An agreement to lease is as enforceable as a lease’

Property lawyers deal with leases all of the time; sometimes in the context of a relationship between landlord and tenant, sometimes where a property that is to be sold is leased and sometimes in more obtuse ways, such as in relation to the assessment of duty or tax.

Generally speaking, such leases will be in a written form and the terms of the lease will be readily identifiable. However, unlike contracts for the sale of land which the law requires to be in writing and signed by the parties, the law has long recognised that a lease relationship can be created in a less formal way than a written and signed lease. Hence, courts will enforce a lease if the court can be satisfied that the parties reached an agreement to lease and this has given rise to the mantra of ‘an agreement to lease is as enforceable as a lease’.

Walsh v. Lonsdale (1882) 21 Ch D 9 is the historical authority for this proposition and Waltons Stores (Interstate) Ltd v. Maher [1988] HCA 7 restated the proposition in the modern language of estoppel and unconscionability, concluding that a court will enforce a written agreement to lease where it would be unconscionable for a party to the agreement to resile from that agreement.

2016 has seen something of a flurry of cases, at all levels, concerning agreements to lease:

North East Solutions P/L v. Masters Improvements Aust. P/L [2016] VSC 1 analysed the obligations of parties who entered into a written agreement to lease which included a term that the parties would negotiate in good faith to resolve any disputes that arose during the term of the agreement. The enforceability of the agreement to lease was never in doubt; the issue was the meaning and extent of the ‘good faith’ obligation and whether one party had breached that obligation.

Risi P/L v. Pin Oak Holdings [2016] VCAT 1112 also related to a written agreement to lease but found that the lease prepared pursuant to that written agreement should be varied to comply with an oral agreement that the parties made prior to entering into the written agreement to lease. The landlord had sought to include a demolition clause in the written lease and the Tribunal ordered that the demolition clause be removed as it had not been a term of the agreement that the parties had concluded.

Crown Melbourne Ltd v. Cosmopolitan Hotel (Vic) P/L [2016] HCA 26 saw the issue return to the High Court in a slightly different form. The tenant entered into a 5 year lease with an expectation that the tenant would be offered a further term. No promise to do so was included in the written lease nor specifically offered to the tenant – all the tenant could rely on were words to the effect that the tenant would be ‘looked after’ when the lease came up for renewal. The Court was not satisfied that these words meant to there was an agreement for a new lease or even an obligation on the landlord to submit terms for a new lease to the tenant for negotiation.

The concept of ‘business efficacy’ has also crept into the language of these cases with courts apparently prepared to analyse the conduct of the parties through the ‘business efficacy’ prism.

Tips

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Courts will enforce informal agreements to lease.
  • Adequate proof as to the terms of any such agreement remains essential.

Off the Plan Sales – Best Endeavours – Part 1

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off the plan

The sale of land ‘off the plan’ is a common occurrence in the property market. Its principal virtue is that it provides certainty to both vendor (as to the sale) and purchaser (as to the eventual purchase) of the subject property. Whilst there may be some delay in relation to the eventual settlement, which cannot occur until the proposed plan of subdivision is registered at the Land Titles Office, both parties can be confident that, upon registration, the contract will proceed to settlement on the agreed terms.

Off the plan sales are common in a variety of circumstances, but the two principal scenarios are:

  1. sales of vacant land; and
  2. sales of homes.

Land sales

These sales generally fall into one of two categories:

  1. small-scale subdivisions, perhaps only creating as few as two lots; or
  2. large-scale subdivisions, including ‘greenfield’ sites, creating multiple lots.

Whilst projects in these two categories can have enormous differences in scale – from 2 lots to 1000 or more lots – the same legislative framework guides the subdivisional process (Subdivision Act 1988 (Vic)) and the same legislative framework regulates the vendor’s obligations, and purchaser’s rights, on sale (Sale of Land Act 1962 (Vic)).

Pursuant to the Subdivision Act, the vendor is required to satisfy the local council, acting in a supervisory capacity, that the proposed plan satisfies all of the subdivisional requirements of council and service authorities; and, when satisfied, council will seal the plan and provide a statement of compliance. These documents are then lodged with the Land Titles Office and, in the normal course of events, the plan is registered and settlement may take place.

The Sale of Land Act prohibits completion of the sale until registration of the plan, imposes pre-contract requirements and creates during-contract rights, which are essentially designed to protect purchasers.

The 2008 contract of sale, widely used for sales generally, adopts these broad guidelines; and it is possible to create a contract for an off the plan sale relying on the particulars of sale and general conditions alone, without the need for any special conditions or annexures. This is particularly so for small-scale developments, although larger-scale subdivisions involving substantial earthworks may require the inclusion of a plan showing ‘works affecting the natural surface level’: s 9AB Sale of Land Act.

Home sales

Again, these sales generally fall into one of two categories:

  1. small-scale subdivisions, creating just a few lots for sale; or
  2. multi-unit subdivisions, including high-rise developments.

The same subdivisional and registration processes apply to these developments, with the added complication that councils generally will not issue a statement of compliance until construction of the development is complete.

Such contracts envisage the construction of improvements on the land during the contract, and a special condition will usually be added to the effect that the contract is not a major domestic building contract and that the vendor will enter into a major domestic building contract with a registered builder. The extent of detail provided to the purchaser in respect of the improvements to be erected is not regulated and may vary from reliance by the purchaser on a glossy brochure provided by the vendor (which is not included in the contract) to a full copy of the major domestic building contract (including specification) that the vendor has or will enter into. It is fair to say that purchasers ‘take on faith’ that the vendor will ultimately deliver to the purchaser at the expiration of the contract the product, in all its glory, that was touted as being sold when the purchaser entered into the contract.

Once the contract has been signed and the project is underway, the purchaser enters purgatory – a state of perpetual waiting. Even if the project is a mere land subdivision, ages can pass before the plan is registered. If a home is being constructed, long periods of inactivity cause concern. The default period between contract and settlement (14 days after notification of registration of the plan) is 18 months, but contracts can adopt another period and contracts spanning 60 months are common.

A recent case has considered the vendor’s obligations in terms of completion of the project within the required period: Joseph Street Pty Ltd & Ors v Tan & Anor [2010] VSC 586. The project was a relatively small development by the vendor of six units. The contract completion, or sunset, period was 15 months, and the vendor had entered into a contract with a registered builder for construction of the units. Regrettably, the builder ‘went broke’ and the project was substantially delayed while the vendor put other construction arrangements in place. The sunset period expired, the vendor rescinded the contract and the purchaser sought specific performance. No doubt, given the rising housing market, the property had appreciated and both parties sought to take advantage of that situation.

To succeed, the purchaser had to establish that the vendor was in breach and thus not entitled to rescind. The purchaser sought to do so on the basis of a breach by the vendor of an express contractual obligation to use ‘best endeavours’ to complete the contract within the sunset period. It was also agreed that such an obligation was an implied term of the contract. The court concluded that the true cause of the delay was the collapse of the builder, an occurrence that was beyond the control of the vendor. The vendor had therefore fulfilled its contractual obligations to use best endeavours and was entitled to rescind, thereby retaining the (more valuable) property.

Off the Plan Sales –  Best Endeavours – Part 2

Bankruptcy and Other Options

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bank

Bankruptcy

This article summarises the basic information conveyed in conference to insolvent individuals (‘debtors’) who, as a means of solving their debt problems, need to decide between becoming a bankrupt or entering into an arrangement with their creditors.

Introduction

Bankruptcy is a legally declared inability by an individual to repay debts. The applicable legislation is the Bankruptcy Act 1966 (‘the Act’). It applies to individuals, partnerships, joint debtors and deceased estates. The bankruptcy is administered by a Trustee in Bankruptcy who is either the Official Receiver (a public servant) or a private trustee.

Becoming a bankrupt

There are two ways a debtor can become bankrupt, namely:

  • Debtor’s petition – Where the debtor presents his or her own petition to the Official Receiver; or
  • Creditor’s petition – When a creditor presents a petition to the court, a sequestration order may be made against the estate of a debtor.

For a petition to be presented, the debtor will need to have committed an act of bankruptcy, the most common being non-compliance with a bankruptcy notice, and be indebted to the creditor for an amount of at least $5,000.

In the case of a debtor’s petition, the debtor can nominate a trustee as compared with a creditor’s petition where the creditor can nominate a trustee. The role of the trustee is to investigate the financial affairs of the bankrupt; realise all available assets including transactions that may be voidable, and distribute to creditors realised funds in accordance with the Act without undue delay.

The period of bankruptcy

A bankrupt is automatically discharged three years from the date the bankrupt files with the Official Receiver a statement of affairs. However, if the conduct of the bankrupt is unsatisfactory, then the period of bankruptcy can be extended by up to five years upon an objection being lodged by the trustee. Alternatively and at any time before discharge, the debtor can:

  • seek an annulment pursuant to section 73 of the Actby submitting a proposal to creditors;
  • seek an annulment pursuant to section 153A of the Actby paying out all creditors in full plus the costs of the bankruptcy; or
  • in the case of a creditor’s petition, seek an annulment pursuant to section 153B of the Actby making an application to the court.

Consequences of bankruptcy

The main consequences of becoming a bankrupt include the following:

  • A bankrupt will be recorded on the NPII (National Personal Insolvency Index) for life;
  • A bankrupt’s credit rating will be affected for seven years;
  • Creditors are unable to commence or continue any further action for recovery of their debts against the bankrupt;
  • A bankrupt’s property including after-acquired property will vest in the trustee during bankruptcy and continue to vest with the trustee after discharge if the property remains unsold. Certain property of the bankrupt is excluded from vesting in the trustee;
  • A bankrupt is required to make contributions from income to his or her estate if the income exceeds prescribed limits;
  • A bankrupt cannot, without disclosing that he or she is an undischarged bankrupt, obtain credit (including the lease or hiring of goods) for an amount greater than an indexed amount;
  • A bankrupt cannot carry on business alone or in partnership under a name other than their own unless he or she discloses their real name and the fact that he or she is an undischarged bankrupt;
  • A bankrupt is allowed to travel overseas but only with the written consent of the trustee. However the bankrupt is required to deliver his or her passport(s) to the trustee;
  • A bankrupt is disqualified from acting as director and managing a corporation;
  • On discharge from bankruptcy, the debtor is released from all debts provable in the bankruptcy including secured debts. There are a number of exceptions such as fines imposed by a court and debts incurred by fraud.

Property the bankrupt can retain

The bankrupt is able to retain certain property including:

  • Property held in trust for another person;
  • Necessary clothing and household property and such other household property that creditors may resolve;
  • Items of sentimental value, including awards of sporting, cultural, military or academic nature, as creditors may resolve;
  • Property that is used by the bankrupt in earning income by personal exertion whose aggregate value does not exceed an indexed value and such other equipment as the creditors may resolve or the court may order;
  • Property used primarily as a method of transport up to an indexed value;
  • Subject to certain conditions, life assurance and endowment assurance policies and proceeds from the policies in respect of the bankrupt and the bankrupt’s spouse and the bankrupt’s interest in superannuation policies and proceeds thereof;
  • Any right of the bankrupt to recover compensation, damages and right of action for the death, personal injury or wrongs to oneself, their spouse or any family member;
  • Property purchased from the proceeds received from endowment and annuity policies, compensation/damages claims or rural adjustment schemes.

Income contributions

If the debtor receives or is deemed to have received income above indexed amounts, then the debtor is liable to make contributions to his or her bankrupt estate. The definition of income is quite broad and includes income from personal exertion, certain benefits provided by third parties, income from trusts and superannuation funds, loans and so on.

The amount of the contribution is calculated by using the following formula:

Assessed Income – income tax – a statutory threshold amount – child support payments
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Arrangements with creditors

There are three types of arrangements that debtors can make with their creditors, namely:

  • formal arrangement under Part X of the Act;
  • formal arrangement under Part IX of the Act;
  • informal arrangement.

Part X – Personal insolvency agreements

Introduction

Part X of the Act offers an alternative to bankruptcy by providing a debtor in financial difficulty with a formal but expensive mechanism to reach a binding arrangement with his or her creditors. The arrangements are individually tailored to suit the debtor’s unique financial circumstances. The debtor is able to negotiate a settlement with creditors that most likely involves the payment of less than 100 cents in the dollar. A typical arrangement will usually provide for money to be paid by the debtor or on account of the debtor either by way of lump sum or by instalments over a certain period of time. The arrangement can also provide for sale of specified assets with the remaining assets to be retained by the debtor.

The process

The provisions of Part X are invoked by the debtor signing what is called a section 188 authority, authorising either a registered trustee, a solicitor or the Official Trustee (who is then referred to as the controlling trustee) to call a meeting of his or her creditors and to take control of his or her property. At the same time, the debtor must provide the controlling trustee with a proposal, including a draft personal insolvency agreement (‘PIA’), and a statement of affairs outlining all known assets and liabilities of the debtor. A PIA takes the form of a deed and must include specified terms as set out in the Act.

The controlling trustee immediately takes control of the debtor’s property and undertakes certain investigations into the affairs of the debtor. In addition, the controlling trustee is required to issue a report to creditors detailing the results of his or her investigations. This report is also required to contain a statement as to whether or not the PIA proposal is in the best interests of creditors.

The meeting to consider the debtor’s proposal must be held not more than 25 working days after the appointment or 30 working days if the appointment was made in December. At the meeting, creditors may resolve by special resolution that the debtor be required to execute a PIA. Under the Act, a special resolution requires 50% in number and 75% in value of creditors present at the meeting voting in favour of the motion. If the proposal for the PIA is not accepted by creditors, then the most common outcome is for creditors to pass two special resolutions: one that the debtor presents a debtor’s petition within seven days, and the other that the debtor’s property be longer subject to control.

In the event that the proposal is accepted by creditors, then the deed must be executed by the debtor and the controlling trustee within 21 days from the day on which the special resolution is passed. Once all the terms of the deed are satisfied, the PIA is terminated. The Act also provides for the termination of the PIA if the debtor defaults on its terms. Alternatively the PIA may be varied. In addition and in specific circumstances, the court may also set aside a PIA and make such orders as it sees fit.

The effect on the debtor

Obviously, on signing a section 188 authority, the debtor will lose control of his property. Control of property that is excluded under the PIA will revert to the debtor on execution of the PIA. In addition and pursuant to subsection 206B(4) of the Corporations Act, a person is disqualified from acting as a director of a corporation if that person has entered into a PIA and the terms of the agreement have not been fully satisfied.

The effect on creditors

The effect of appointing a controlling trustee is that creditors are unable to commence or continue any further action for the recovery of their debts from the debtor until the outcome of a subsequent meeting of creditors is known. The rights of a secured creditor remain intact.
Once the PIA has been signed, creditors, whether present at the meeting or not, are bound by the terms of the PIA and cannot take any action to recover their debts outside the PIA.

Commentary

Unfortunately, entering into a PIA will not be an appropriate alternative for all debtors, especially those with no resources (or access to limited resources) and relatively nominal debt exposure. The main reason for this is that the cost of proposing an arrangement under Part X of the Act can be prohibitive. In this regard, the controlling trustee is obligated to carry out the tasks detailed earlier herein and will incur significant time charge in doing so. As there is no guarantee that the proposal will be accepted by creditors, the prospective controlling trustee will normally seek a cash advance (or some other form of security) to meet his estimated costs in acting in that role. Furthermore, the debtor will need to fund the cost of preparing a formal deed setting out the provisions of the arrangement.

In considering whether or not to put a proposal to his or her creditors, a debtor should also take into account the likelihood of the proposal being accepted, bearing in mind that under the Act a special resolution is required being 50% in number and 75% in value of creditors voting on the motion. From experience, we have found that some creditors will vote against a proposal on the basis of policy, notwithstanding the commerciality of the proposal.

Nevertheless, entering into a PIA does have its advantages, some of which are summarised hereunder:

  • The debtor avoids the stigma of bankruptcy;
  • A PIA provides for the flexible administration of the debtor’s affairs including the opportunity to carry on business, which is difficult for an undischarged bankrupt;
  • The execution of a PIA avoids court process;
  • The return to creditors under the PIA is invariably greater than that if the debtor was made bankrupt;
  • Subject to the terms of the PIA, there is no requirement to contribute after-acquired property or income;
  • The PIA will normally terminate within the short to medium term.

Part IX – Debt agreements

Part IX of the Act provides another alternative to bankruptcy by providing debtors who have a relatively low income, minimal assets and low debt levels with an inexpensive mechanism to reach a binding arrangement with their creditors to release them from their debts. This part of the Act is only available to be utilised by those debtors who have:

  • not, within the previous ten  years, been bankrupt, a party to a debt agreement or given an authority under section 188 of the Act;
  • unsecured debts that are below the specified threshold amount;
  • property, which would be divisible among creditors in a bankruptcy, that is below the threshold amount;
  • after tax income that is below the adjusted threshold amount in the year beginning at the proposal time.

The current threshold amounts are set out in the table below.

 Unsecured debts  $92,037.40
 Property  $92,037.40
 After Tax Income  $69,028.05

The process

To initiate a debt agreement, a debtor must give the Official Receiver a proposal for a binding agreement between the debtor and his or her creditors. Any such proposal must be in the approved form and identify the property to be dealt with under the agreement; specify how it is to be dealt with; and authorise the Official Receiver, a registered trustee, or another person, to deal with the property as specified.

The proposal must be accompanied by a statement of the debtor’s affairs. If the proposal is accepted by the Official Receiver, the Official Receiver must write to creditors asking them whether the proposal should be accepted. The proposal is accepted if the majority in value of creditors who reply state that the proposal should be accepted.

The debt agreement ends when all the obligations that it created have been discharged. At that time the debtor is released from all debts that would be provable in a bankruptcy. This release from debts will not occur if the debt agreement is terminated by the debtor, creditors or the court, or if the debt agreement is declared void by the court. The Act also provides a mechanism to vary a debt agreement.

The effect on creditors

All creditors with provable debts are bound by the debt agreement, even those who voted against the proposal. While the debt agreement is in force, creditors cannot take or continue action against the debtor for recovery of their debts. A debt agreement does not affect the rights of a secured creditor to realise or otherwise deal with the creditor’s security.

Commentary

Readers requiring further information about the administration of debt agreements should access the web site maintained by the Australian Financial Security Authority at www.afsa.gov.au.

Informal arrangement

An informal arrangement is simply an arrangement not made under the Act that a debtor makes with his or her creditors to settle his or her debts. Normally an adviser such as the debtor’s accountant would firstly write to creditors summarising the debtor’s financial position and putting forward a settlement proposal. Follow up contact by either the debtor or the advisor is recommended, with the aim of addressing any concerns creditors may have and reinforcing the benefits of the proposal. Preferably any agreement reached with creditors should be documented by way of deed.

Informal arrangements are more likely to proceed in circumstances where there are a small number of creditors involved and some goodwill still exists between the parties. The difficulty is that just one hostile creditor can make the arrangement unworkable.

A Bankruptcy and Liquidation publication is available on the By Lawyers website.

Personal Property Securities Act and conveyancing

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Conveyancing is concerned with the transfer of land and improvements from one owner to another. The doctrine of fixtures means that the improvements on the land are considered by the law to be part of the land and therefore a contract for the sale of real estate simpliciter does not involve the sale of personal property and the Personal Property Securities Act (PPSA) has no application to such a contract.

Vacant land

Subject to what is said below in relation to corporate vendors, a vendor’s response to an inquiry from a purchaser about the PPSA in the sale of vacant land is to simply confirm that the contract does not relate to personal property and the PPSA is not relevant.

Residential sales

However, it is traditional for land contracts to include a provision for the sale, in addition to the land, of chattels – or now, goods – that pass with the land. In the residential context this includes such things as carpets, blinds, light fittings and the like which add no real value to the land but which vendors generally leave upon departure and purchasers, often vehemently, expect will remain with the property. It is estate agents who traditionally complete this part of the contract and, in a rush to make a commission, little care is likely to be taken to distinguish between chattels and fixtures. It is therefore not unusual to find “stove, hot water service and swimming pool pump” listed as goods, whereas they are truly fixtures and not subject to the PPSA.

Items that are in fact goods will almost invariably fall within the exemption in s 47 PPSA that excludes personal or domestic items valued at less than $5000. Therefore, the vendor’s response to a request for release in such circumstances should again be that there is no personal property sold pursuant to the transaction that is subject to the PPSA.

The PPSA may be applicable in contracts for the sale of land that also include the sale of a substantial item of personal property. Generally, this will be in the context of a substantial commercial or industrial property and the parties will be alive to the possible application of the PPSA. In that case the quite complex provisions of general condition 7 of the contract of sale guide the release procedure.

Company charges

Prior to the introduction of the PPSA a charge against an asset of a company could be registered at ASIC (Australian Securities and Investments Commission). These charges were ‘migrated’ to the PPSA. Registration was not limited to personal property owned by the company and could in fact extend to a fixed and floating charge over all of the assets of the company, including real estate. The significance of registration of such interests and the need for their release was recognised in Naval and Military Club v Southraw Pty Ltd & Anor [2008] VSC 593, and it is best to conclude that the safest course of action is to search the PPSA register and insist upon release of such charges.

The purpose of release is to prevent a claim after settlement by a third party claiming an interest under the charge. However once the purchaser is registered as proprietor of the land the principle of indefeasibility will mean that the purchaser takes the property free of any such interest. Therefore, the only concern relates to the period between settlement and registration, during which time the dispute would be between two unregistered interests, the first of which (the charge) would have priority in time. However, the purchaser would be entitled to argue that the chargee was entitled, indeed obliged, to register the charge on the title by way of caveat and failure to do so constitutes postponing conduct.

The chargee might argue that a caveat would only have achieved notice and that the purchaser had notice (or constructive notice) from registration on the PPSA. However, s 300 PPSA specifically provides that registration on the PPSA register is not to be deemed constructive notice so a purchaser who does not search may be in a better position than one who does.

Release

The predecessor to general condition 7 acknowledged the possibility of a letter of comfort in relation to such charges but general condition 7 now only envisages a formal release of PPSA charges. The purpose of release in this context is to overcome ‘notice’ and it would appear reasonable that, should the purchaser search the PPSA register and thereby gain notice of a charge, then obtaining a letter of comfort (as distinct from a formal release) should mean that the secured party would be unable to argue that the purchaser should be subject to the secured party’s interest when comfort has been given by that secured party in respect of that interest.

This article has interest and relevance for practitioners in all states.

A Personal Property Securities publication is available on By Lawyers.

Workers Compensation QLD

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Workers Compensation

OCTOBER
  • Costs Agreements
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
AUGUST
  • Commentary updated to comply with the National Injury Insurance Scheme (Queensland) Act 2016. The purpose of the Act is to ensure that anyone who sustains serious personal injuries in a motor vehicle accident in Queensland, may be eligible to receive necessary and reasonable lifetime treatment care and support under the National Injury Insurance Scheme.
  • Reference to National Injury Insurance Scheme added to the following precedents: Initial letter to applicant client all claims with costs disclosures, Retainer instructions, Initial letter to applicant client lump sum claims with costs disclosures, and Letter to plaintiff with enclosures.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
FEBRUARY 
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.
  • Recent changes to common law threshold – Summary of the recent legislative changes brought in by the Workers’ Compensation and Rehabilitation and Other Legislation Amendment Act 2015 included in the Workers Compensation QLD publication commentary.

Conveyancing TAS

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Conveyancing

OCTOBER
  • Added commentary discussing valid clearance certificates for foreign residents.
  • Costs Agreements
    • Clause added on payment of fees when purchaser not proceeding
    • Added client and firm fields company execution clause trust account details solicitor’s lien.
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
AUGUST
  • Sale of Real Property – commentary updated to include discussion on bringing co -ownership arrangements to an end via partitioning.
  • Sale and Purchase of Real Property commentaries – further content on Foreign Resident Capital Gains Withholding Payments added.
MAY
  • Foreign resident capital gains withholding payments amendments made to Commentaries and Retainer instructions.
  • Include foreign resident capital gains withholding payments when over $2 million to all necessary precedents and to do lists.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH
  • New section included in the commentary on powers of attorney for land transactions to accompany power of attorney precedents.
FEBRUARY
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.

Conveyancing SA

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Conveyancing

OCTOBER
  • Sale and Purchase of Real Property – added in commentary discussing foreign resident clearance certificates.
  • Purchase of Real Property Commentary – clause added on payment of fees when purchaser not proceeding.
  • New Precedents
    • To do list – Sale of real property
    • To do list – Purchase of real property
  • Costs Agreements
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
    • Clause on recovery of fees added when purchaser not proceeding.
AUGUST
  • Sale of Real Property – commentary updated to include discussion on bringing co-ownership arrangements to an end via partitioning.
  • Sale and Purchase of Real Property commentaries – added further content on Foreign Resident Capital Gains Withholding Payments.
MAY
  • Foreign resident capital gains withholding payments amendments made to Commentaries and Retainer instructions.
  • Include foreign resident capital gains withholding payments when over $2 million to all necessary precedents and to do lists.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH 
  • New section included in the commentary on powers of attorney for land transactions to accompany power of attorney precedents.
FEBRUARY
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.

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