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Co-owners – Joint tenancy or tenancy in common

1 January 2011 by By Lawyers

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The recent decision in Sacks v Klein [2011] VSC 451 considered the well known distinction between joint tenancy and tenancy in common and the impact of the death of a co-owner. It confirmed that whilst co-owners may be registered as joint tenants (legal joint tenants) equity may nevertheless impose an equitable tenancy in common by way of a trust.

Generally speaking, VCAT (Victorian Civil and Administrative Tribunal) has almost exclusive jurisdiction over applications relating to co-owned land under Part IV of the Property Law Act 1958. However, pursuant to s 234C(2) the courts retain jurisdiction in relation to co-ownership disputes in de facto property situations, testator’s family maintenance claims and partnership disputes. This dispute potentially came within one or both of the latter two categories, although the issue of jurisdiction was not discussed in the judgment. Indeed, no reference was made to the Property Law Act and the proceedings were conducted as an application for a declaration of trust.

The important distinction between joint tenancy and tenancy in common presents upon the death of one of the co-owners. In a joint tenancy, the deceased’s interest in the property passes to the surviving owner pursuant to the right of survivorship. In a tenancy in common, the deceased’s interest passes to the deceased’s estate.

In Sacks v Klein, two brothers (D aged 30 and M aged 29) purchased a property in 1994 as an investment and were registered as joint tenants. M died in 2005 and D lodged a survivorship application and became registered as sole proprietor by survivorship. M’s administrator issued an application on behalf of M’s estate for a declaration that D held the property on trust for himself and the plaintiff as tenants in common in equal shares.

Hargrave J. set out various principles discerned from previous cases:

  1. Where property is conveyed to two or more persons who are named as transferees without further specification as to whether they are to hold the title as joint tenants or tenants in common, they are deemed by operation of s 33(4) of the Transfer of Land Act 1958 (Vic) to hold the legal estate as joint tenants. However, s 33(4) of the Act does not preclude the operation of equity.
  2. Unless there is evidence to indicate the transferees held a different intention, equity will follow the law.
  3. Irrespective of the position on the certificate of title, equity may intervene to impose a tenancy in common.
  4. Equal provision of purchase money points to a joint tenancy.
  5. Where the co-owners are partners or participants in a joint undertaking, tenancy in common will prevail.
  6. A common intention by the co-owners to acquire the property as joint tenants is not conclusive.

Analysing the evidence, Hargrave J. concluded that the brothers had purchased the property as a joint undertaking. The mortgage loan was made to them jointly and severally. The fact that it was D’s idea to invest in the flat was not to the point. He chose to invite M to participate in a joint purchase of the flat with the express purpose of long-term profit being made by each of them. Likewise, the fact that D assumed responsibility for the investment and arranged for the property to be leased, maintained and renovated was not to the point. Notwithstanding that M had lived overseas the entire time the property was jointly owned, he was to be regarded as a ‘silent partner’ in a joint undertaking, a conclusion that would point to a tenancy in common, even if no formal partnership existed.

However, Hargrave J. accepted that there was evidence that at the time of purchase the difference between joint tenancy and tenancy in common was explained to D and that he in turn explained it to M, who agreed that the property should be purchased as joint tenants. On this basis His Honour concluded that at the time of purchase the co-owners intended to hold the property as joint tenants.

Thus His Honour was faced with a subjective joint tenancy, based on the stated preference of the co-owners as revealed by their registration on the title, as opposed to an objective tenancy in common, based on the nature of the relationship between the co-owners. In such a situation the stated intention (as revealed on title) of the parties will prevail unless ‘there is evidence, even slight evidence, to indicate an intention to divide the property between the joint tenants’. His Honour found that there was evidence of such an intention, being:

  1. the property was an investment;
  2. the income and expenses were divided equally; and
  3. M had acknowledged a ‘moral obligation’ to D’s family in the event of D’s death.

The plaintiff’s application for a declaration of trust was successful.

Tip Box

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

Filed Under: Articles, Conveyancing and Property, Victoria Tagged With: conveyancing, Conveyancing & Property, property

The impact of Bamford on trust deeds and trust resolutions

1 January 2011 by By Lawyers

By Greg Vale, Binetter Vale Lawyers

Subscribers to our Companies, Trusts, Partnerships and Superannuation product, and LEAP Office users, will be acquainted with the content written by Greg Vale, a By Lawyers author.

Following the Bamford decision Greg circulated a letter to his clients, which is reproduced below for your information.

Our trusts take into account this decision.

Getting it right – the impact of Bamford on trust deeds and trust resolutions

On 30 March 2010 the High Court handed down its much awaited decision in Commissioner of Taxation v Bamford; Bamford v Commissioner of Taxation [2010] HCA 10.

In response to Bamford on 2 June 2010 the ATO released a Decision Impact Statement (‘DIS’) and Practice Statement Law Administration PS LA 2010/1, which outlines how the ATO will treat the determination of trust income.

The High Court decision and ATO response are significant and affect every trust in Australia. In particular they affect how trust deeds and income distribution resolutions must be drafted to obtain the optimum tax outcome.

The significance of the High Court’s reasoning in Bamford is that it confirms that it is possible to define and modify ‘trust income’ through the drafting of one’s trust deed. The advantage of being able to define and modify trust income is that it can create circumstances which remove adverse tax consequences or even allow more beneficial tax outcomes to be achieved.

Although the ATO accepts that Bamford means that trust deed clauses can be used to define trust income and can thus influence how the net income of a trust will be taxed, it provides a series of caveats, including the potential application of the general anti-avoidance rule or trust stripping rules in circumstances involving a deliberate mismatch between income entitlements and tax outcomes.

Great care is required in the drafting of the yearly income distribution resolutions. Following Bamford, there is a clear benefit in ensuring that one’s trust deed confers sufficient powers to allow a trustee to determine trust income in each income year. Accordingly, in relation to the 2009/2010 income year and onwards, we consider that all trustees should undertake the following steps in light of Bamford.

Step 1 – Trust deed review

Trustees should review the trust deed in conjunction with their tax and legal advisors to determine whether:

  1. The trust deed defines trust income and if so, how the definition operates to determine its capacity to minimise adverse tax consequences going forward;
  2. The trust deed provides the trustee with adequate powers to modify trust income, including the power to reclassify items as income or capital and vice versa and allocate expenses and losses as appropriate;
  3. There are appropriate streaming provisions and whether they are adequate going forward.
Step 2 – Consider amending the trust deed

Where the trust deed does not contain an adequate definition of trust income or powers to enable the trustee to stream or modify what constitutes trust income, then trustees should consider whether it is beneficial to amend the trust deed to resolve these deficiencies. Tax and legal advice should be sought prior to amending the trust deed so as to avoid any adverse tax consequences. For example, the ATO have already flagged the issue of trust resettlements in this context.

Step 3 – Review the drafting of the trustee resolutions

Trustees should review how they draft their distribution resolutions to ensure that an appropriate tax outcome will be achieved.

Binetter Vale Lawyers can carry out the necessary review of your client’s trust deeds and provide advice as to the appropriate amendments in the wake of the decision in Bamford and considerations to take into account when drafting income distribution resolutions for a total of $250 (unless advised otherwise in advance). Separately, for an additional charge to be advised as part of the trust deed review, we are able draft the relevant deeds of amendment and provide tax and legal advice on the issue of resettlement as appropriate.

Further, any deeds of amendment will be accompanied with advice as to the types of resolutions appropriate for that deed.

Tip Box

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

Filed Under: Articles, Business and Franchise, Federal Tagged With: trustees, trusts

Land tax – Part 2

1 January 2011 by By Lawyers

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Last month’s column considered the imposition of land tax and its adjustment at settlement of a conveyancing transaction.

Land tax is distinguished from other outgoings by four attributes:

  • thresholds, below which tax is not imposed;
  • aggregation of ownership;
  • an increasing rate of tax based on value; and
  • exemptions.

The combination of aggregation and the increasing rate of tax expose a purchaser to a liability to contribute to ‘excessive’ land tax in some circumstances, and last month’s column explained how the ‘single holding’ basis of adjusting protects purchasers in this regard.

Principal place of residence exemption

Land may be exempt from land tax on the basis of the principal place of residence (PPR) exemption. A property owned and occupied by a ‘natural person’ is exempt from land tax. This is irrespective of the land value of that property and means that land tax is rarely a factor in residential conveyancing. But ‘unusual’ transactions present from time to time, and it is probably the unfamiliarity with land tax in the residential environment that creates problems.

The key to understanding this exemption is that it is based on the current use of the property, not an intended use. If the current use is as the vendor’s PPR, then the property is exempt for the current year. The upside of this for a purchaser is that, if the vendor has established the PPR exemption, it will not be taken away in the current year and no adjustment is necessary, even if the purchaser does not intend to use the property as a PPR. The purchaser will be liable for land tax in the subsequent year, but not in the year of acquisition.

The downside is that, if the vendor has not established the PPR in the year of sale, the purchaser will still be obliged to adjust land tax (on a single holding basis) even if the purchaser intends to occupy the property as the purchaser’s PPR. The exemption will not be available until the subsequent year.

This scenario can also arise if the vendor has purchased before selling. The vendor settles their purchase and advises the State Revenue Office that their new property is their PPR. If they retain ownership of their ‘old’ property beyond 31 December in that year, the old property is likely to be assessed for land tax as it is no longer exempt as a PPR. Disputes may arise at settlement of that property in the new year as the vendor’s statement, prepared at the time of sale, will very likely not reveal a potential land tax liability as it was prepared in anticipation of the sale of the PPR in the previous taxing year.

Special land tax

Land tax at a premium rate is imposed on some properties owned by trustees, and the land tax threshold in respect of such properties is $25,000 rather than $250,000. This means that a purchaser of such a property would, perhaps unexpectedly, face an obligation to adjust land tax in the year of acquisition, notwithstanding that the purchaser is a natural person and would not ordinarily be liable for land tax. This situation is covered by GC 15.2(c) of the 2008 prescribed contract of sale, which provides that adjustments are to be effected on the basis that ‘the vendor is taken to own the land as a resident Australian beneficial owner’. On that basis the premium rate does not apply and the threshold is $250,000. Adjustments would therefore be effected on a single holding basis, with the normal threshold and standard rates. In this manner, the burden of special land tax falls on the vendor, not the purchaser.

Special conditions

The 2008 contract of sale is an industry standard, but its use is not compulsory. It is permissible for a vendor to change the method of adjustment of land tax by special condition, and purchasers must be careful to check whether this has been done in any particular contract. Property developers in particular may seek to transfer responsibility for land tax to a purchaser from the date of contract rather than from the conventional date of settlement. This can have the effect of requiring the purchaser to bear an unexpected land tax burden and, if coupled with removal of the ‘single holding’ basis of assessment, can have a significant downside for a purchaser, particularly in the case of a long settlement period that may extend beyond 31 December. This exposes the purchaser to a share of land tax in the year of contract and the whole of the land tax, at the vendor’s rate, in the year of settlement – often a nasty surprise.

Tip Box

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

Filed Under: Articles, Conveyancing and Property, Victoria Tagged With: conveyancing, Conveyancing & Property, land tax, property

Subdivision – Owners corporations

1 January 2011 by By Lawyers

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The Owners Corporations Act 2006 took effect on 1 January 2008. In some respects it is a radical change; in others it is just like a holiday – more of the same in a different place.

Owners corporations (OCs) are creatures of subdivision. Land may be subdivided into separate parcels and share nothing with its neighbour other than a boundary. But some subdivisions adopt a more ‘community minded’ approach and add on to ownership of the land an interest in land owned ‘in common’ with adjoining neighbours. This is essential in multistorey developments, where all owners need to share common points of access, and is also common in lifestyle developments that include enhancements such as tennis courts and swimming pools. Ownership of these common areas is shared amongst the owners and the concept of a ‘body corporate’ was developed to provide a legal entity to act as owner. These developments are primarily governed by the Subdivision Act and the nuts and bolts of this governance were previously set out in the Subdivision (Body Corporate) Regulations.

The new Act retitles these entities as owners corporations but their role remains fundamentally the same – to act as a legal entity to own common areas in subdivisions. The most significant change is the move of the legislative basis for these entities from the low level of statutory rules into the higher plane of legislation. Most of the substance previously contained in the regulations now lies in the Act, and whilst there are still some regulations (Owners Corporations Regulations 2018) these are far less significant. In this regard however the changes are more as to form than substance and the essential governance provisions relating to owners corporations are fundamentally the same as those relating to bodies corporate, albeit in a slightly more salubrious garment.

Substantive changes introduced by the new Act are:

  • 2-lot plans are treated slightly differently to other plans (s 7)

2-lot plans are exempt from some requirements, notably the obligation for the owners corporation to provide public liability insurance in respect of common property. Most ‘strata’ insurance policies extend cover to the owner’s liability in respect of common property so this change will probably not be significant, but nevertheless it seems strange from a policy viewpoint.

  • large subdivisions will need to establish maintenance plans and funds (s 36)

Subdivisions of over 100 lots or that levy fees over $200,000 per annum are obliged to establish 10-year maintenance plans and dedicated maintenance levies to fund these plans. This will re-open the debate in relation to adjustment of levies on sale, which have traditionally not been adjustable.

  • insurance (ss 59-61)

Insurance obligations remain fundamentally the same. Owners corporations must insure any buildings on common property (s 59) and must have $10 million public liability insurance in respect of common property (s 60). Multistorey developments must also insure all buildings and have public liability insurance that covers the lots (s 61) as well as the s 60 public liability insurance in respect of common property. This is logical as damage to one lot in a multi-storey development is likely to impact on other lots (above or below) so a joint insurance policy makes sense.

  • managers (s 119)

Recognizing that owners corporations arising from intensive inner-city developments are likely to be big business, a registration regime has been introduced for managers. No particular qualifications are required.

  • model rules (s 138)

A new set of model rules (set out in the regulations) have been prescribed. These apply in default of other rules and may be changed by adoption or resolution. Rules of a pre-existing body corporate continue, presumably even if they were simply the previous standard rules.

  • dispute resolution (s 152)

The ubiquitous VCAT (Victorian Civil and Administrative Tribunal) has been given jurisdiction to resolve disputes, at the end of a formal dispute resolution process.

  • Subdivision Act (s 206)

Substantial amendments, but mainly as to form, have been made to Part 5 of this general supervising Act.

  • limitation of actions (s 222)

Owners are prohibited from claiming adverse possession of common property.

  • Sale of Land Act (s 217)

Amendment of s 32 Sale of Land Act is the most significant practical effect of the new Act. Vendors must now include an owners corporation certificate (OCC) in pre-contract disclosure. Owners corporations must provide an OCC within 10 days of application and may charge up to $150 (including GST). There is no prescribed form of OCC but there is prescribed information that must be included and prescribed documents that must be attached.

2-lot plans are not exempt from this requirement. The vendor of a 2-lot plan must provide an OCC.

Tip Box

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

Filed Under: Articles, Conveyancing and Property, Victoria Tagged With: conveyancing, Conveyancing & Property, Owners Corporations Regulations 2018, property

Land tax – Part 1

1 January 2011 by By Lawyers

By Russell Cocks, Solicitor

Published in 2011, First published in the Law Institute Journal

Land tax is imposed by the state government as a source of revenue. In this respect it is similar to stamp duty or taxes on gambling, and it is undoubtedly an important revenue stream for government. Essentially it is a wealth tax designed to raise revenue from taxpayers who own valuable, commercial land. Thus land tax:

  • has a threshold, so that ‘cheap’ land is not taxable;
  • is calculated on the unimproved value, so that the value of improvements to the land, such as buildings, is not taxable;
  • is calculated on the aggregate of all land owned by the vendor;
  • is calculated on a sliding scale, so that more valuable land attracts tax at an increasing rate, known as an ad valorem rate; and
  • has a number of exemptions, so that the principal place of residence (PPR) and farming land, amongst others, are not taxable.

These aspects may be contrasted with other outgoings, such as municipal rates, that are generally based on the improved value, apply universally and are at a fixed rate. Thus land tax provides a special challenge in respect of adjustment of outgoings at settlement of a conveyancing transaction.

Adjustments

Adjustments are meant to result in the vendor and purchaser each paying a fair share of the outgoings relating to a property in the year of sale/purchase. Thus rates and charges need to be apportioned between the vendor and purchaser at settlement, so as to result in the vendor paying those outgoings up to and including the day of settlement and the purchaser being responsible for outgoings after settlement. The process is therefore governed by the agreement between the parties – generally general condition (GC) 15 of the 2008 contract – and the provisions of legislation establishing those outgoings, the Land Tax Act 2005.

Conceptually the adjustment process is simple and, in the case of most outgoings, remains so in practice. The current rate or charge is apportioned over the year between vendor and purchaser. If the charge is paid as at the date of settlement, the apportionment will result in an increase in the amount paid to the vendor at settlement. If the rate or charge is unpaid, the usual way to adjust is to treat the outgoing as paid, resulting in the same increase in the amount due at settlement to the vendor as if the rate or charge had have been paid, and then draw a cheque from the amount due to the vendor for the full amount of the outgoing and forward that cheque to the rating authority after settlement in payment of those rates, thus complying with s 175 Local Government Act 1989. In this way the parties have contributed to payment of the outgoings in proportion to their length of time of ownership in the year of acquisition.

Adjustment of land tax

The fact that land tax has a threshold – currently $250,000 – means that land tax will not be a factor in the sale of ‘cheap’ land. The fact that it is calculated on the unimproved value of the land, ignoring the value of improvements, effectively extends this threshold so that, whilst a property may have a capital improved value of $1 million because of the improvements erected on the land, it will not be subject to land tax if the land itself has a value below $250,000.

The distinguishing feature about land tax when compared with other outgoings is its ad valorem nature. Thus a vendor of land that exceeds the threshold will pay land tax at a higher rate as the value of the land increases (0.2% above $250,000, increasing to 2.25% over $3 million). Further, land tax is calculated on this increasing scale on the aggregated value of the vendor’s land and then apportioned across the vendor’s total land holdings. Thus a vendor whose total land holdings are valued at $3 million will pay much more tax on one lot valued at $250,000 than a person who only owns one lot worth $250,000.

A purchaser is therefore exposed to being obliged to adjust land tax at an ‘inflated’ rate simply because the vendor owns other land. GC 15.2(b) of the contract recognises this possibility and requires adjustment of land tax to be on the basis that ‘the land is treated as the only land of which the vendor is owner’ – the so-called ‘single holding’ basis. The property sold is isolated from the vendor’s other land holdings; and a calculation of whether, and how much, the purchaser must contribute to the vendor’s land tax is made on that basis. This additional information is included on the back of the Land Tax Certificate.

Next month’s column will consider the impact of the PPR exemption, the imposition of special land tax on trusts and the effect of special conditions in contracts.

Tip Box

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

Filed Under: Articles, Conveyancing and Property, Victoria Tagged With: conveyancing, land tax, property

Contract – New contract – Contract of sale tweaked

1 January 2011 by By Lawyers

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The contract of sale of land in common use is not strictly a compulsory document. It is prescribed pursuant to the Estate Agents (Contracts) Regulations 2008, but those regulations only bind estate agents. This means that if an estate agent prepares a contract the prescribed form must be used, but if the contract is prepared by a solicitor (or conveyancer) another form of contract may be used.

However, apart from some off the plan sales situations where developers (or their advisers) seem reluctant to move from the old form, the 2008 form of contract appears to have been widely accepted. Its best attributes may be described as:

  1. Table A was abandoned and all contractual terms were gathered in the one place;
  2. the contract note was abandoned;
  3. the right to make requisitions was replaced with contractual warranties; and
  4. an attempt was made to have the general conditions operate as a standard template with any changes being made by special condition rather than (possibly imperceptible) changes within the general conditions.

For a more complete summary of the 2008 contract, see the article (2008) 82 (10) LIJ 40.

The impending application of the Personal Property Securities Act 2009 (Cth) prompted a review of the 2008 form of contract by the Justice Department, and the Law Institute has been involved in that working party. This opportunity has also been taken to ‘tweak’ the contract a little to build on the experience of three years use of the new contract.

On the front page, the principal amendment relates to the cooling off warning. This has been amended in accordance with the recent Sale of Land Act amendment to maintain the right to cool off even if the purchaser obtains independent legal advice. The proposed off the plan warning amendment has not been enacted at this stage.

The particulars of sale page has had some minor changes and the location of special conditions has been moved to be between the particulars of sale and the general conditions rather than after the latter, as had been the case.

The main changes to the general conditions are:

  1. General condition (GC) 1.3 is deleted as it appears to have very little application in standard transactions.
  2. GC 3.1 (the ‘identity’ condition) is slightly amended for clarity.
  3. GC 7 is amended to take account of the Personal Property Securities Act 2009 (Cth).
  4. GC 8 is amended to require the vendor only to provide details of building warranty insurance that are in the vendor’s possession.
  5. GC 11.2(c) is deleted. The Sale of Land Act no longer allows for a deposit to be held in a vendor/purchaser joint account.
  6. GC 11.6 is amended to remove the redundant reference to ‘bank’ cheques.
  7. GC 12 (deposit release condition) is amended to adopt the language of the Act by substituting ‘particulars’ for ‘proof’ in 12.1(a).
  8. GC 12.1(b) is amended to comply with the Act by allowing release provided that ‘28 days have elapsed since the particulars were given to the purchaser’.
  9. GC 13 has a minor GST amendment.
  10. GC 17.2 allows for a broader method of service.
  11. GC 23.1(a) (terms contract condition) updates the reference to s 29M Sale of Land Act.
  12. GC 27 is amended to specify that a default notice must be in writing and that notices are to be ‘given’ rather than ‘served’.

Various minor grammatical and style changes have also occurred.

The Law Institute of Victoria is also proposing to release a standard form of nomination to complement the contractual right to nominate established by GC 18 and to make available various standard special conditions to be used in common situations, such as the need for a building inspection or a pest inspection.

The vast majority of users of the contract have respected the intention that the general conditions remain sacrosanct and that any changes to those general conditions are to be made by separate special condition. If a vendor wishes to make a change to the general conditions, then that should be done by way of special condition that amends the relevant general condition, not by making a change to the general condition itself. The objective of this method is to improve transparency in relation to the contract, thereby assisting the purchaser to better understand the conditions and also assisting the vendor by reducing the possibility that the purchaser will cry foul in relation to such changes.

Tip Box

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

Filed Under: Articles, Conveyancing and Property, Victoria Tagged With: conveyancing, Conveyancing & Property, property

Contract – Changing the contract by special condition

1 January 2011 by By Lawyers

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Regular readers of this column will note a recent contract-centric emphasis, and this column continues that focus by considering how the standard form contract can, or should, be changed.

At the risk of repeating well known law, the standard contract of sale of real estate is not a compulsory document and may therefore be changed by agreement between the parties. The authors of the contract surrendered copyright in the contract so that it could be adopted by the Estate Agents (Contracts) Regulations 2008 as a standard form available for use across the conveyancing industry. The contract includes 28 general conditions that form the basis of a contract that is capable of providing all the terms necessary to make a workable, binding contract between vendor and purchaser.

This means that special conditions ought not be necessary in a standard conveyancing transaction, although it remains permissible to supplement or change the general conditions by special condition. Unfortunately many lawyers find it very difficult to move on from time-honoured precedents and many contracts still included pages of special conditions that, if considered carefully, generally add nothing to the general conditions and indeed often contradict those general conditions. Generally this is simply a consequence of laziness, with the practitioner not bothering to determine how those ‘old’ special conditions interact with the new general conditions. The worst example of this is the special condition that refers to Table A, a provision that was repealed in 2009.

Special conditions

Some transactions do indeed require special conditions. In such cases the special conditions are added to the contract (in the newest version of the contract, before the general conditions) and those special conditions take precedence over the general conditions. It is possible for those special conditions to change the general conditions and some common examples of this are to remove general condition 24.4 or to amend the penalty interest rate.

One of the popular consequences of the new contract was to abandon the time wasting exercise of ‘requisitions’ and replace it with contractual warranties, set out in general condition 2, so that a purchaser can have certain basic expectations about the transaction confirmed. Whilst it is theoretically possible for the vendor to include a special condition amending these contractual warranties, to do so undermines the whole structure of the contract and is not recommended.

Altering general conditions

Unfortunately some practitioners have chosen to adopt a more surreptitious method of amending the contract. Rather than adding a special condition, these practitioners amend the wording of the general condition. The Legal Practitioners Liability Committee (LPLC) In Check Bulletin 53 of December 2011 alluded to this practice and warned purchaser’s practitioners of the danger of ‘missing’ such a surreptitious change. However there may well be danger for the vendor’s practitioner who adopts this practice.

George T Collings v. H F Stevenson (Aust) P/L is a 1990 unreported judgment of Nathan J. in the Supreme Court of Victoria. The case relates to the interpretation of an estate agent’s sole agency authority, specifically the period of time during which the vendor was bound to pay the agent commission in respect of a sale. The authority allowed for the inclusion of a specific period but also provided that the authority extended indefinitely, unless terminated by the vendor. The agent negotiated a sale outside the specified period and claimed commission on the basis that the vendor had not terminated the authority. Nathan J. found that the authority was unenforceable as ‘unconscionable’ on the basis that the indefinite extension of time was ‘submerged in the fine print of the contract’. He concluded that it is ‘unconscionable to imbed in a pro forma contract, a term inconsistent with its stated purpose’.

By analogy, a vendor who adopts the standard form contract of sale of land but surreptitiously amends that contract such that the amendment is ‘submerged in the fine print’ may well find that such an amendment is unenforceable as unconscionable. If that amendment were to be to the penalty interest rate, no interest would be payable. No better example of the saying ‘hoist by his own petard’ can be imagined.

Notwithstanding the High Court confirmation of the significance of contractual terms in Toll (FGCT) P/L v Alphapharm P/L [2004] HCA 52, it is submitted that, particularly in a residential sale environment, the powerful argument based on unconscionability will prevail to strike out any amendments to general conditions that are effected other than by way of a special condition. The negative consequences for a vendor in such circumstances might be the next matter of concern for the LPLC.

Tip Box

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

Filed Under: Articles, Conveyancing and Property, Victoria Tagged With: conveyancing, Conveyancing & Property, property

If the ATO doesn’t get you, then the OSR might

1 January 2011 by By Lawyers

By O’Brien Palmer

INSOLVENCY AND BUSINESS ADVISORY

First published on the website, www.obp.com.au

Much has been written about the alternative courses of action available to the Australian Taxation Office (ATO) in collecting outstanding taxes and the aggressive attitude being adopted by it in effecting debt recoveries. In this paper, we focus attention on the New South Wales Office of State Revenue (OSR), which also has a formidable arsenal at its disposal for the recovery of overdue taxes and in particular payroll tax.

The Office of State Revenue

The OSR is a division of the Department of Finance and Services. It administers state taxation and revenue programs for and on behalf of the government and thus the people of New South Wales. A major source of revenue for the OSR is payroll tax, the imposition of which arises under the operation of the Payroll Tax Act 2007 (PTA).

The Taxation Administration Act 1996 (TAA) provides for the administration and enforcement of the PTA and a number of other taxation laws including the following:

  • Betting Tax Act 2001;
  • Duties Act 1997;
  • Gaming Machine Tax Act 2001;
  • Health Insurance Levies Act 1982;
  • Insurance Protection Tax Act 2001;
  • Land Tax Act 1956;
  • Land Tax Management Act 1956;
  • Parking Space Levy Act 2009.

The general administration of the TAA and the other taxation laws including the PTA is undertaken by the Chief Commissioner of State Revenue who assesses the tax liability of a taxpayer and collects the tax payable.

Collection of unpaid payroll tax and other taxes under the Taxation Administration Act

If a tax debt remains unpaid, then the Chief Commissioner can seek payment from third parties and/or directors and former directors of corporations. The relevant provisions of the TAA in relation to the collection of unpaid tax are summarised hereunder:

(a) From third parties

Pursuant to subsection 46(1) of the TAA, the Chief Commissioner can, by written notice, require persons instead of the taxpayer to pay the debt. Those persons include the following:

  • a person by whom any money is due or accruing or may become due to the taxpayer;
  • a person who holds or may subsequently hold money for or on account of the taxpayer;
  • a person who holds or may subsequently hold money on account of some other person for payment to the taxpayer;
  • a person having authority from some other person to pay money to the taxpayer.

These notices operate in a manner similar to what are commonly referred to as ‘tax garnishee notices’ issued by the ATO. The recipient of such a notice must pay the money to the Chief Commissioner on receipt of the notice, or when the money is held by the person and becomes due to the taxpayer, or after such period (if any) as may be specified by the Chief Commissioner, whichever is the later: subsection 46(5). A person subject to a requirement under subsection 46(1) must comply with the requirement. Failure to do so may result in a penalty of $11,000: subsection 46(6).

(b) From directors and former directors of corporations

Section 47B of the TAA operates in a manner similar to the Director Penalty Notice regime under the Income Tax Assessment Act. Pursuant to subsection 47B(1), if a corporation fails to pay an assessment amount in accordance with a notice issued by the Chief Commissioner, then the Chief Commissioner may serve a compliance notice on one or more of the following persons:

  • a person who is a director of the corporation;
  • a person who was a director of the corporation at the time the corporation first became liable to pay the tax, or any part of the tax, that is included in the assessment amount or at any time afterwards.

A ‘compliance notice’ is defined in subsection 47B (2) as a notice that advises the director or former director on whom it is served that if the failure to pay the assessment amount is not rectified within the period specified in the notice, being a period of not less than twenty-one days, the director or former director will be liable to pay the assessment amount.

However, subsection 47B(3) states that a failure to pay an assessment amount is rectified if:

  • the assessment amount is paid; or
  • the Chief Commissioner makes a special arrangement with the corporation for the payment of the assessment amount; or
  • the Board of Review waives or defers payment of some or all of the assessment amount; or
  • an administrator of the corporation is appointed under Part 5.3A of the Corporations Act 2001 (‘the Corps Act’); or
  • the corporation begins to be wound up within the meaning of the Corporations Act.

If the failure to pay the assessment amount is not rectified within the period specified in the compliance notice, then the director or former director on whom the compliance notice was served is jointly and severally liable with the corporation to pay the assessment amount: subsection 47B(4).

Directors should note that a person does not cease to be liable to pay an assessment amount because the person ceases to be a director of the corporation, but a former director of a corporation is not liable for any tax for which the corporation first became liable after the director ceased to be a director of the corporation: subsection 47B(5).

The defences that are available to directors and former directors are set out in section 47E, which states that it is a defence to the recovery of an assessment amount if it can be established that:

  • the director or former director took all reasonable steps that were possible in the circumstances to ensure that the corporation rectified the failure to pay the assessment amount; or
  • the director or former director was unable, because of illness or for some other similar good reason, to take steps to ensure that the corporation rectified the failure to pay the assessment amount.

Collection of unpaid payroll tax under the Payroll Tax Act

(a) From group members

Readers of this newsletter would be aware, even if it is only in general terms, of the grouping provisions of the Payroll Tax Act. We do not propose to review those provisions in this paper except to very briefly set out the groups that can be constituted:

  • groups of corporations that are related bodies within the meaning of the Corporations Act (section 70);
  • groups arising from the use of common employees (section 71);
  • groups of commonly controlled businesses (section 72);
  • groups arising from interests in corporations (section 73); and
  • smaller groups subsumed by larger groups (section 74).

Importantly, if a member of a group fails to pay an amount that the member is required to pay in respect of any period, then pursuant to subsection 81(1) every member of the group is liable jointly and severally to pay that amount to the Chief Commissioner. One or more members in the group will be issued with an assessment for the amount outstanding, with payment to be effected within twenty-one days.

(b) From principal contractors

Part 5 of Schedule 2 of the PTA applies where a principal contractor enters into a contract for the carrying out of work by a subcontractor and employees of the subcontractor carry out work in connection with a business undertaking of the principle contractor: clause 17(1) of Schedule 2.

If, at the end of the period of 60 days after the end of a financial year, any payroll tax payable by the subcontractor in respect of wages paid or payable to the relevant employees during the financial year for work done in connection with the contract has not been paid, then the principal contractor is jointly and severally liable with the subcontractor for the payment of the payroll tax: clause 17(2).

However, the principal contractor is released of the liability if the subcontractor provides a written statement declaring, inter alia, that all payroll tax payable for work done in connection with the contract has been paid: clauses 18(1) and (2).

Finally, the principal contractor is entitled to recover from the subcontractor, as a debt in a court of competent jurisdiction, any payment made by the principal contractor as a consequence of a liability arising under Part 5: clause 19.

This article was written by O’Brien Palmer insolvency authors. They are committed to assisting solicitors help their clients understand and navigate the complex realms of insolvency. As part of that commitment, they are pleased to answer any questions regarding their services and offer a complimentary and obligation free initial consultation to establish the nature of the problem and the manner in which they can be of service.

O’Brien Palmer is a specialist practice with national affiliations, focusing on corporate and personal insolvency and business recovery.

Filed Under: Articles, Bankruptcy and Liquidation, Federal Tagged With: insolvency

Vendor statement – Growth areas infrastructure contribution

1 June 2010 by By Lawyers

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The GAIC has been a political football. The government sought to establish a fund to provide for infrastructure in developing areas, not such an exceptional idea, however some bright spark hit on the idea of collecting the tax upon transfer from the ‘existing’ owner to the ‘developer’. This would have timing advantages for the government, but it hit a raw nerve with landowners.

Generally speaking, these were people who owned large tracts of undeveloped land in outlying suburbs. The extension of the Urban Growth Boundary created a windfall profit for such people, but the suggestion that the profit would be taxed upon sale was anathema. In fact what would have happened is that such vendors would have simply added the tax to the inflated value of the land and recovered it from the developers who were beating a path to their door. The developers want the land. They know the tax has to be paid. Payment upon acquisition is probably not ideal but if that is what the market dictates then that is what would have happened. However the government has now backed down and the GAIC passed by Parliament on 25 May 2010 imposes the tax on development, not first sale.

Vendors will still receive the inflated value of the land courtesy of the UGB extension and developers will still pay the GAIC, the result simply means that those funds will not be available to the government until development takes place, rather than at the time the land is first sold.

None of this has been of much interest to conveyancing practitioners, other than as a sport involving progressively rabid participants, but the legislation does have a sting in the tail for conveyancing transactions. The legislation establishes a bureaucracy (even including a Hardship Board) to collect and administer the tax and creates links to the State Revenue Office in relation to collection and the Land Titles Office in relation to administration. Rather than treating the tax in much the same way as council rates or land tax, the legislation elevates it to the position of providing for recording of the tax liability on the title to the land and prohibits registration of dealings without a certificate from the SRO.

This ‘tinkering’ with the title is philosophically objectionable to traditional Torrens title lawyers, who argue that the title to land is sacrosanct and endorsements on the title ought to be restricted to recording dealings relating to traditionally recognised interests in land. This references the debate foreshadowed some years ago relating to the possibility of a two-tiered title, the first tier for traditional transactions and the second tier for matters such as the GAIC, a debate yet to be resolved.

Importantly, the Act also amends section 32 of the Sale of Land Act, the bread and butter of the conveyancing practitioner. One would have thought that the recording of the tax liability on the title would be adequate protection for a prospective purchaser, who would at least be expected to look at the copy title required to be attached to the Vendors Statement. However s  32(2)(da) has been inserted to require the vendor to include another warning to purchasers to the effect that a transfer cannot be registered without payment of, or exemption from, the GAIC. This warning is only required where there is a GAIC recording on the title, but the result will no doubt be that standard form Vendors Statements will have this warning added as a matter of course.

Further, s 32(3) has been amended. This is the section that requires inclusion in the Vendors Statement of a copy of the title (and plan of subdivision, if applicable) and ss (f) has been added requiring the inclusion of a certificate or notice relating to release, deferral, etc. in respect of GAIC liability. If there is no such certificate, then s 32(3)(f)(iv) requires inclusion of a certificate showing the GAIC liability but the certificate, available from the SRO, will only show liability in respect of a transaction undertaken in the current financial year.

Again, this requirement only relates to land in respect of which there is a GAIC recording on title, but will no doubt lead to another half a page of irrelevant dribble being added to standard form Vendor Statements. It is also unusual that a vendor is obliged to disclose a release or exemption. Section 32 is about disclosing encumbrances or liabilities, negative aspects of land, but s 32(3)(f) requires the vendor to disclose a positive aspect – that the land is not subject to a GAIC liability notwithstanding that there is a GAIC recording.

No doubt a vendor in such circumstances would be keen to disclose this positive aspect, but to make it obligatory seems to misconceive the objective of s 32. It would also be hard to imagine how a purchaser could rely on the failure to disclose to avoid the contract pursuant to s 32(5). The purchaser would have to argue that whilst the land does enjoy a release or exemption from GAIC, the fact that the vendor did not inform the purchaser of that fact justifies the purchaser in avoiding the contract. It is hard to imagine how a purchaser in such circumstances could argue that the purchaser is not in substantially as good a position, as the land does in fact have the benefit of the release or exemption. The vendor could rely on s 32(7) to establish that the purchaser is no worst off as a result of the breach and everyone’s time will have been wasted.

The word ‘overkill’ comes to mind in relation to this legislation. Certainly the amounts involved ($95,000 per hectare) are significant, but the prostitution of the certificate of title for recording of what in the end is just another tax is unnecessary. Overkill is carried into the disclosure obligation by requiring a warning when the title itself provides a warning and disclosure of positives, rather than negatives.

Tip Box

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

Filed Under: Articles, Conveyancing and Property, Victoria Tagged With: conveyancing, Conveyancing & Property, property

Technical guide: Voluntary administration

1 January 2010 by By Lawyers

By O’Brien Palmer

INSOLVENCY AND BUSINESS ADVISORY

First published on the website, www.obp.com.au

Introduction

The Voluntary Administration process is regulated by the Corporations Act 2001 (Cth) (‘the Act’) and provides for the business, property and affairs of an insolvent company to be administered in a way that:

  1. maximises the chances of the company continuing in existence; or
  2. results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.

Appointment

Who may appoint an administrator?

Pursuant to section 436A of the Act, an Administrator, who must be a registered liquidator, can be appointed by:

  1. the majority of the company’s directors; or
  2. a Liquidator of the company; or
  3. a person holding a charge over the whole or substantially the whole of a company’s property.

Making the appointment

Pursuant to subsection 436A(1) of the Act, the company’s directors can appoint an administrator by passing a resolution to the effect that the company is insolvent or is likely to become insolvent at some future time.

A Liquidator, pursuant to subsection 436B(1), may by writing appoint an Administrator to the company if he or she thinks that the company is insolvent or will become insolvent. In compliance with subsection 436B(2)(f), the Liquidator can appoint himself or herself Administrator if:

  1. at a meeting the creditors pass a resolution approving the appointment; or
  2. the appointment is made with leave of the Court.

Pursuant to subsection 436C(1), a person who is entitled to enforce a security interest over the whole or substantially the whole of a company’s property may by writing appoint an Administrator to the company, if the security interest has become and is still enforceable.

The appointment of an Administrator cannot be made unless the proposed Administrator has consented in writing to the appointment (section 448A). A person cannot consent to be appointed Administrator unless the person is a Registered Liquidator (section 448B).

The administrator’s independence

In accordance with section 436DA of the Act and the Code of Professional Practice issued by the Australian Restructuring Insolvency & Turnaround Association (‘ARITA’) a person appointed Administrator must as soon as practicable after being appointed make out a Declaration of Independence, Relevant Relationships and Indemnities (‘DIRRI’). The purpose of the DIRRI is to establish the independence of the appointee. In accordance with subsection 436DA(3), the Administrator must circulate a copy of the DIRRI to creditors when he gives notice of the first meeting of creditors.

The first meeting of creditors

Pursuant to subsection 436E(1) of the Act, the Administrator must convene the first meeting of creditors, to be held within eight (8) business days after the administration begins. The purpose of the meeting is to consider:

  1. whether or not to appoint a Committee of Creditors; and/or
  2. to replace the Administrator.

The functions of a Committee of Creditors as per subsection 436F(1), are to consult with the Administrator and to receive and consider reports from the Administrator. The Committee cannot give directions to the Administrator (subsection 436F(2)) except to require the Administrator to report to the Committee (subsection 436F(3)). Furthermore, a Committee of Creditors can approve the remuneration of the Administrator (subsection 449E(1)).

The outcome of the administration

Second meeting of creditors

In accordance with subsection 439A(1) of the Act, the Administrator must convene a second meeting of creditors, such meeting to be held within five (5) business days before or within five (5) business days after, the end of the convening period, which is normally twenty (20) business days beginning on the day after the Administration began. Attached to the notice of meeting will be a copy of the Administrator’s Section 439A report. The purpose of the meeting is to:

  1. decide upon the future of the company by passing a resolution for the company to adopt one of the normal outcomes of the administration set out in subsection 435C(2), which are that;
  2. the company executes a Deed of Company Arrangement (‘DOCA’); or
  3. the Administration should end; or
  4. the company be wound up.

Alternatively and pursuant to subsection 439B(2), creditors can resolve to adjourn the meeting from time to time for a period not to exceed forty-five (45) business days from the date of the second meeting.

  1. determine the remuneration of the Administrator, if it has not already been dealt with by a Committee of Creditors.

In circumstances where it is proposed that employees will surrender their priority status under a DOCA that they would otherwise be entitled to pursuant to sections 556, 560 and 561, then it may be necessary, pursuant to section 444DA, for a separate meeting of eligible employees to be convened in order to pass a resolution approving the priority adjustment. This is most relevant where employees agree to accept payment of their outstanding entitlements in the ordinary course of their employment rather than having them paid out in full under the DOCA.

The section 439A report

When convening the second meeting, the Administrator is required to prepare a comprehensive report to creditors (pursuant to subsection 439A(4) of the Act) that;

    1. details the results of his or her investigation into the business, property, affairs and financial circumstances of the company; and
    2. sets out the Administrator’s opinions and the reasons for those opinions on each of the alternative courses of action set out above; and
    3. provides such other information as will enable creditors to make an informed decision in relation to the potential options regarding the future of the Company; and
    4. includes a statement setting out the details of and DOCA that has been propounded.

Voting at the meetings

Pursuant to Corporations Regulation 5.6.19, a resolution put to the vote at a meeting must be decided by majority on the voices (or on a show of hands) unless a poll is demanded. Subregulation 5.6.21(2) states that a resolution is carried under a poll if a majority in number and value of creditors present vote in favour of the resolution. Conversely, Subregulation 5.6.21(3) states that a resolution is not carried under a poll, if a majority in number and a majority in value of creditors present vote against the resolution.

In the event that a resolution is neither carried nor lost, then regulation 5.6.21(4) gives the chairperson the power to determine the outcome by exercising a casting vote either for or against the motion. If the chairperson declines to exercise a casting vote, or votes against the resolution, then the resolution will be lost.

If creditors resolve to wind up the company?

In the event creditors resolve to wind up the company, then pursuant to subsections 446A(1) and 446A(2) of the Act, the company is taken to have passed a resolution under section 491 of the Act that the company has been wound up voluntarily.

In the event that creditors resolve to wind up the company, then pursuant to subsection 499(2A)(a), creditors can seek to appoint a person to be Liquidator for the purpose of winding up the company. If no such appointment is made, then pursuant to subsection 499(2A)(b), the Administrator will automatically become Liquidator of the company.

If creditors resolve that the company executes a DOCA?

In the event creditors resolve that the company executes a DOCA, then pursuant to subsection 444B(2) of the Act, the DOCA must be executed within fifteen (15) business days after the end of the meeting of creditors, or such further period as the Court allows on an application made within those fifteen business days.

For further information in relation to DOCA’s, you are referred to our separate technical guide on the subject, which is available at www.obp.com.au/publications.

If creditors resolve to bring the administration to an end?

In the event creditors resolve to bring the administration to an end, then control of the company simply reverts to the directors.

The role and powers of the administrator

In accordance with section 437A of the Act, while a company is under administration, the Administrator:

  1. has control of the company’s business, property and affairs; and
  2. may carry on the company’s business and manage its property and affairs; and
  3. may terminate or dispose of all or part of the company’s business or property; and
  4. may perform any function, and exercise any power, that the company or any of its officers could perform or exercise if the company was not in administration.

Section 437B states that when performing a function or exercising a power, an Administrator is taken to be acting as the agent of the company.

Pursuant to section 438A, an Administrator must investigate the company’s business, property, affairs and financial circumstances and form an opinion about whether it is in the interests of the company’s creditors for either the company to execute a DOCA, or for the administration to end, or for the company to be wound up.

Section 442A, sets out the additional powers of an Administrator, which comprise:

  1. removing from office a director of the company;
  2. appointing a person as a director;
  3. executing a document, bringing or defending proceedings, or doing anything else in the company’s name or on its behalf;
  4. whatever else is necessary for the purposes of Part 5.3A.

Continuation of trading

As stated above, an Administrator has the power to carry on the business of a company. However the Administrator will only do so if he or she can be satisfied that the continuation of trading is in the interests of creditors. The reasons that would support the continuation of trading are:

  1. the ability of the company to generate a positive cash flow;
  2. to maximize the realisable value of assets such as stock;
  3. to facilitate the sale of the company’s business;
  4. to enable a DOCA to be propounded in the expectation that the return under the DOCA will be greater than if the company was wound up;
  5. the availability of fixed assets to cover trade on debts and expenses.

Pursuant to section 443A, an Administrator is personally liable for debts he or she incurs in the performance or exercise of his or her functions and powers. Section 443D gives the Administrator an entitlement to be indemnified out of the company’s property for debts, liabilities, damages or losses sustained for which he or she becomes liable. The indemnity extends to the remuneration of the Administrator.

The administrator’s remuneration

The remuneration of an Administrator is normally calculated on a time basis using hourly rates set by his or her firm. The actual costs will depend upon the circumstances and complexity of the administration and can only be drawn down once approved. Pursuant to section 449E of the Act, the Administrator’s remuneration can be determined;

  1. by agreement between the Administrator and the Committee of Creditors (if any); or
  2. by resolution of creditors; or
  3. if there is no agreement or resolution, then by order of the Court.

As noted earlier herein, the remuneration of the Administrator would normally be determined at the second meeting of creditors or at any adjournment of that meeting, unless of course the remuneration has already been dealt with by a Committee of Creditors, assuming of course one is in existence.

The effect of the appointment on directors and members

Pursuant to section 437C of the Act, while a company is under administration, company officers cannot perform or exercise a function or power unless the Administrator has provided written approval for the person to so act.

Following the commencement of the administration, each director must deliver to the Administrator all of the company’s books and records in their possession (subsection 438B(1)) and attend upon the Administrator providing such information about the affairs of the company as the Administrator reasonably requires (subsection 438B(3)).

Furthermore, in compliance with subsection 438B(2), the directors must, within five (5) business days after the administration began or such longer period as the Administrator allows, give to the Administrator a statement about the business, property, affairs and financial circumstances of the company.

In so far as members are concerned, pursuant to section 437F, a transfer of shares made after the administration began is void unless either the Administrator gives written consent and any conditions attaching thereto are satisfied, or the Court makes an order authorising the transfer.

The position in relation to personal guarantees

Pursuant to section 440J of the Act, during the administration of a company, a guarantee of a liability of a company cannot be enforced against a director of a company or a relative or spouse of a director, except with leave of the Court and in accordance with such terms (if any) as the Court imposes.

The effect of the appointment on creditors

Section 440D of the Act provides that during the period of the administration, there is a general stay of proceedings against the company or in relation to any of its property. Proceedings cannot be commenced or proceeded with except, with either the written consent of the Administrator or with leave of the Court.

If a creditor holds a charge over the whole or substantially the whole of the company’s property, then pursuant to section 441A, the creditor is able to enforce the charge either before or during the ‘decision period’, which is defined in the Act as the period of thirteen (13) days after receipt of notice of the Administrator’s appointment.

Furthermore, pursuant to section 440C, the owner or lessor of property that is used or occupied by, or is in possession of the company, cannot take possession of the property or otherwise recover it except with the Administrator’s written consent or with the leave of the Court.

The effects of the appointment if a winding up application has been filed

If a winding up application has been filed, then an Administrator can still be appointed. In compliance with subsection 440A(2), the Court is to adjourn the hearing of an application to wind up a company already in administration, if the Court is satisfied that the continuation of the administration is in the interest of creditors. In our experience, there will need to be evidence put before the Court that will lead the Court to conclude there is a real likelihood that a DOCA will be propounded and that the return under the proposed DOCA will be greater than if the company was wound up. If that cannot be done, then it is likely that the Court will order the winding up of the company in which case the administration ends.

Other relevant sections

  1. Section 447A to Section 447E of the Act – Powers of the Court Pursuant to section 447A, the Court has general powers to make such orders as it thinks appropriate. The sections that follow deal with specific powers, namely the protection of creditors (section 447B), the validity of the Administrator’s appointment (section 447C), the ability of the Administrator to seek directions (section 447D) and the supervision by the Court of Administrators (section 447E).
  2. Section 449A of the Act – Appointment cannot be Revoked Section 449A states the appointment of a person as Administrator of a company cannot be revoked.
  3. Section 450E of the Act – Notice of Appointment in Public Documents Subsection 450E(1) provides that a company under administration, must set out in every public document and in every negotiable instrument, after the company’s name where it first appears, the expression ‘Administrator Appointed’.

Conclusion – the benefits of administration

The benefits of a company entering into Administration include the following:

  1. allows immediate action to be taken and sets a fixed time frame for dealing with the issues;
  2. control of the company is given to an independent person;
  3. prevents unsecured creditors, owners and lessors of property from taking action which may adversely affect the value of a company’s business and assets;
  4. allows a company and its creditors to consider the merits of a compromise arrangement which may maximise the return to creditors; and
  5. enables directors in certain circumstances to avoid personal liability for company debts except for debts that have been personally guaranteed.

Directors of companies that are insolvent or are likely to become insolvent should seek immediate professional advice in relation to their specific circumstances. The procedure normally requires consultation and certain investigative work before implementation, particularly when the intention is to carry on the business of the company or where a secured creditor is in existence.

Filed Under: Articles, Bankruptcy and Liquidation Tagged With: bankruptcy, insolvency, liquidation

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