It's not good news if you're a strata owner who can't pay their levies.
But, after a decision by the Federal Magistrates Court last year, things have become even worse for strata owners who don't pay their levies.
In that case, the strata corporation sued for unpaid strata levies and got a local court judgments for $4,561. By that stage more levies, interest and enforcement costs had accrued which totalled an additional $8,338 and the strata corporation started bankruptcy action against the owner. The owner obtained a local court order to pay the judgment by instalments and started making payments so that by the time the bankruptcy application reached hearing only $1,603 was owing on the judgement but the whole $8,338 remained unpaid.
The owner argued that only the amount still owing on the judgment and not the additional strata levies, interest and expenses of $8338.36 could be considered a debt due for the purposes of the bankruptcy application. And, since the $1,603 owed was less than the $5,000 bankruptcy threshold, the owner could not be declared bankrupt.
The Federal Magistrates Court said that there was “no requirement that the debt relied on to support the creditor’s petition be a judgment debt, or even the same debt as the one that was used to create the act of bankruptcy”. It went on to decide that -
- the $8,338.36 was claimed under section 80(1) of the Strata Schemes Management Act 1996
- section 80(1) allows overdue strata levies and interest to be recovered as a debt
- that meant that the $8,338.36 was a liquidated debt for the purposes of section 44 of the Bankruptcy Act
- that debt could itself satisfy the $5,000 bankruptcy threshold or be added to the amount outstanding under the judgment debt.
As a result was the owner was declared bankrupt.
As one legal commentator said "This is great news for Owners Corporations - and a wake-up call for owners". So, if you owe strata levies and judgements are entered, remember that you also have to pay the further accruing levies, interest and expenses to avoid enforcement by bankruptcy.
If you want to read the decision the case is Owners of Strata Plan 50164 v O’Connor decided decided on 5 November 2010.
Francesco ...
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Dear Francesco, I noted your article re bankruptcy. I have a question though that goes beyond the point of the actual bankruptcy.
ReplyDeleteThe Court of appeals in a case awarded the legal costs incurred as "reasonable expenses" The owners debt by now was $158,000.00 to the owners corporation. The owner went into bankruptcy. The Mortgagee took possession of the properties. Demands a s109 showing only the contributions & interest due. He claims he is not liable for the legal expenses. I presume he relies on s78 3 & 4 to justify his demands and threatens the OC with legal action for any costs incurred.
Issuing such a, in my opinion, incorrect & misleading Certificate, is not acceptable as s109 is in fact final claim.
s80 clearly allows recovery of expenses. There is obviously a contradiction in 78 & 80. In my mind contributions referred to in s78 woiuld imply inclusion of all amounts due.
Any help will be appreciated.
Tony Conides