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Can I lodge a caveat on real property if someone owes me money?

Can I lodge a caveat on real property if someone owes me money?

JHK Legal is often asked the question “I have a credit agreement in place with a client and they have not paid their invoices – can I lodge a caveat against their property or the guarantor’s property?

This article is a guide of what you may be able to do in the above situation in Queensland. It is not a substitute for legal advice. If you have any questions or concerns we suggest that you contact JHK Legal for further information.

What is a caveat?

A caveat is a notice you can register against land/land and building that prevents the registration of further interests that may affect your interest recorded in the caveat, unless your consent is obtained (with some exceptions).

Who can lodge a caveat?

The fact that someone owes you money does not give you an automatic right to lodge a caveat – you must have a “caveatable interest”.

You should consider the credit agreement under which the goods were sold or services provided (and/or any guarantee) to determine if it includes a clause that charges all of the client’s (and/or the guarantor’s) legal and equitable interest (present and future) of whatsoever nature held in any and all real property, as security for obligations under the credit agreement.

For example in BBC Hardware Limited v G.T. Homes Pty Ltd [1997] 2 QD R 123 Thomas J stated:

The charges in question arise under the fairly familiar terms of a supplier’s agreement. Such charges were obtained both from the defendant company and the defendant directors. Each defendant, in the relevant document, committed itself himself or herself to the following:

The applicant hereby charges with the due payment of those money all of the applicant’s interest in real property, both present and future, and the applicant consents to the company lodging a caveat noting its interests hereunder.

Such a charge has been recognised in many cases as creating a recognisable equitable interest. It as described in Clark v Raymor Brisbane Pty Ltd [No. 2] [1982] Qd. R 790, 795 as an equitable general charge securing a contingent debt under a guarantee and capable of attaching a property in land. No defence or facts have been presented or offered by the defendants challenging the validity of the charge.”

Is there a system to govern the lodgement of caveats?

In Queensland the Land Title Act 1994 (QLD) governs the system for the lodgement of caveats.

JHK Legal can assist you with the lodgement of the appropriate forms at the Department of Natural Resources and Mines. There is a fee payable, dependent upon the number of interested parties already noted on the title of the real property.

What happens after a caveat is lodged

After a caveat is lodged and registered, any other interested parties will be notified of your caveat by the Registrar.

Unless the registered owner’s consent is lodged at the time the caveat is lodged, you will have three months to issue proceedings in a court of competent jurisdiction (generally District Court or Supreme Court) to establish the interest claimed in the caveat, and notify the Registrar of the same, failing which, the caveat will lapse. This does however provide you some time to negotiate with the debtor, if that option is available.

The debtor may also serve you with a notice requiring that the proceedings be commenced within 14 days of service of the notice.

The above time frames, and the correct lodgement of the caveat is important as there are only limited circumstances in which a caveat may be lodged more than once, and very rarely do our clients meet that criteria.

What happens if the debtor still does not pay me after the caveat is lodged and proceedings have been commenced?

Depending on how the proceedings are framed – if you are successful and obtain a judgment, you may be awarded orders for sale of the property, and/or a declaration of your interest in the property. Further steps will then need to be taken if you wish to sell the property.

Please note that if the property is sold all other interested parties will need to be considered when it comes to distributing the sale proceeds – for example other caveators and mortgagees.

If the debtor pays me in full or we come to a settlement arrangement and an agreed, reduced amount is paid do I have to remove the caveat?

Short answer – yes. JHK Legal can assist you with this process. Depending on the terms of settlement, generally we would suggest to provide a signed Form 14 – General Request (Withdrawal of Caveat) to the debtor (or their solicitor) for their lodgement once the settlement funds are received in cleared funds.

Something to keep in mind

A charging clause, and as a result a caveat, does not give you priority over prior registered mortgages.

Conclusion

If you are owed money and you wish to consider lodging a caveat and enforcing your rights, JHK Legal are happy to assist you through the process.

 

Alicia Auden

Associate Director – Brisbane

January 2017

So you’ve received a statutory demand…

A creditor can serve a statutory demand for payment of a debt/s pursuant to section 459E of the Corporations Act 2001 (Cth) (“the Act”) if the debt/s is/are due and payable to the creditor by the company and the total amount must be at least the statutory minimum (presently $2,000.00).

The company that is served with the statutory demand has twenty-one days from service in which to respond in one of the following three ways:

  1. pay the amount sought by the creditor;
  2. secure or compound for the amount of the debt, to the creditor’s reasonable satisfaction; or
  3. file and serve an application seeking to set aside the statutory demand;

failing which there is a rebuttable presumption of insolvency created upon which the creditor may rely upon to apply to the court seeking to wind up the debtor company.

What the above illustrates is that failing to respond, or come to a resolution with a creditor, within those twenty-one critical days can have severe consequences for your company.

Please note that this article is for information purposes only and is not a substitute for legal advice. Please contact JHK Legal office if you require advice on this topic.

What should you do if you receive a statutory demand?

JHK Legal often assists clients when they are served with statutory demands.

We suggest that you send the statutory demand to our office as soon as possible with all the relevant information regarding the debt/s – including invoices, correspondence and any court documents  (for example, a judgment). We can then advise of your best options moving forward.

We understand that this can be a stressful period of time, particularly as facing the option of paying the demanded amount in a short period of time may put stress on your cash flow.

What happens if you pay the debt in the statutory demand within twenty-one days of service?

If you pay the debt the subject of the statutory demand within twenty-one days of service, the statutory demand ceases to have effect. We would suggest for completeness to obtain confirmation in writing that the creditor will not take any further steps.

It must be noted that payment is not an admission that the debt is owing and does not stop the debtor company from appealing any judgment behind the statutory demand.

What does it means to “secure or compound” a debt to the creditor’s satisfaction

“Compounding a debt” means the creditor accepting an arrangement for payment of the amount of the debt or for a different amount.

The compounding or securing:

  1. requires there to be a mutual agreement between the debtor and creditor (note, that this can be inferred from the conduct of parties); and
  1. must also recognise that the debt is due and payable.

The phrase “to the creditor’s reasonable satisfaction” means that where a debtor puts forward a proposal that is subsequently rejected, a court may decide whether rejecting it was reasonable in all the circumstances of the matter.

On what basis may a statutory demand be set aside?

A statutory demand may be set aside pursuant to:

  1. section 459H of the Corporations Act 2001 (Cth) if the Court is satisfied of either or both of the following:
  • there is a genuine dispute between the company and the creditor about the existence or amount of a debt to which the statutory demand relates; or
  • the company has an offset claim; and/or
  1. Section 459J of the Corporations Act 2001 (Cth) if the Court is satisfied that:
  • because of a defect in the statutory demand, substantial injustice will be caused unless the statutory demand is set aside; or
  • there is some other reason why the statutory demand should be set aside.

What is a genuine dispute?

The company seeking to set aside the statutory demand has the onus or proving a genuine dispute on the balance of probabilities.

There is a great amount of commentary as to what constitute a “genuine” dispute, however we find White J decision in Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast digital [2007] NSWSC 772 to be quite useful in trying to understand the concept:

“a genuine dispute will exist about a debt if there is a plausible contention requiring investigation that the company is not indebted.”

There are two types of genuine dispute – one that relates to the “existence” of the debt, the other to the “amount”. With that in mind, to have a statutory demand set aside the Court must be persuaded that there is a genuine dispute in relation to the:

  1. the existence of the debt; or
  1. part of the debt if, when subtracted from the total amount of the debt identified in the statutory demand, that part of the debt is less than the statutory minimum of $2,000.00.

In relation to the second option, if the substantiated amount of the demand is equal or greater than the statutory minimum then the Court may make an order varying the demand as specified in the order and declare that the statutory demand to have had effect, as varied, from when the statutory demand was served on the company.

What is an offsetting claim?

Section 459H(5) of the Act defines an offsetting claim as

a genuine claim that the company has against the respondent by way of counterclaim, set-off or cross-demand (even if it does not arise out of the same transaction or circumstances as a debt to which the demand relates).”

With that in mind, to have a statutory demand set aside on this basis the Court must be persuaded that there is an offsetting in relation to the:

  1. all of the debt; or
  1. part of the debt if, when subtracted from the total amount of the debt identified in the statutory demand, that part of the debt is less than the statutory minimum of $2,000.00.

Much like with a genuine dispute, if the substantiated amount of the demand is equal or greater than the statutory minimum then the Court may make an order varying the demand as specified in the order and declare that the statutory demand to have had effect, as varied, from when the statutory demand was served on the company.

What is a defect that will cause substantial injustice?

Section 9 of the Act defines a defect as including:

“ (a)  an irregularity; and

 (b)  a misstatement of an amount or total; and

 (c)  a misdescription of a debt or other matter; and

(d)  a misdescription of a person or entity.”

It must be kept in mind though, to be a basis to set aside a statutory demand, it must not just be a defect, but one that will cause substantial injustice.

Examples of defects that have caused substantial injustice resulting in the demand being set aside include a failure to include in the statutory demand a clear an unambiguous description of the debt (or debts), or three independent creditors issuing a single statutory demand claiming a composite amount from the debtor (where the composite amount claimed comprises separate amounts owed to each creditor). In the latter of the two examples, the Court found that the statutory demand gave no indication regarding how the debtor was to ‘pay, compound or secure’ the amount claimed where there were three separate creditors with three separate amounts.

Examples of defects that do not cause substantial injustice include an omission of the “warning” box in the statutory demand, an omission of the signature from the statutory demand and omission of notes from the statutory demand, amongst many other items.

What other reasons why a statutory demand should be set aside?

The expression “some other reason” in section 459(J)(1)(b) of the Act is quite broad, however we find that quite often if there is a cause for a statutory demand to be set aside under this subsection it is likely to stem from one of the following reasons:

  1. in some cases if the conduct of the creditor in issuing the statutory demand is an abuse of process, is unconscionable or gives rise to substantial injustice;
  1. there are certain problems relating to the affidavit in support of the statutory demand (if the statutory demand is not supported by a judgment debt); or
  1. if the statutory demand is supported by a judgment debt in some cases if that debt is subject to an appeal, stay or has been set aside.

Summary

What the above illustrates is that the law surrounding statutory demands is quite complex. Deadlines are strict and can have severe consequences. If you receive a statutory demand, we suggest that you contact your local JHK Legal office to obtain advice as soon as possible.

 

Alicia Auden

Associate Director – Brisbane