The recovery of unpaid body corporate levies is an issue close to the heart of most body corporate committees and managers. Experienced delinquent owners can in some cases drag out the process for many years and even avoid payment entirely.
This article (the third in a series of three on this topic) will focus on the practical steps a body corporate needs to take when contemplating and enforcing legal proceedings against delinquent owners.
This article is not intended to be a substitute for proper legal advice and, if you have any questions, we encourage you to contact us to discuss the matters raised in the article.
TIP SEVEN: Use a solicitor to send a letter of demand and issue proceedings
The recovery of unpaid body corporate levies is a relatively specialised area of the law. Whilst it may be tempting to engage a debt collection agency for the recovery of the debt, we suggest that bodies corporate engage lawyers who are experts in this area. This will ensure that the body corporate recovers the maximum amount possible, because:
- As discussed in the previous articles in this series, a number of technicalities must be observed in striking and issuing the levies, failing which the levies may not be recoverable. A lawyer can identify and rectify these issues at an early stage.
- There is some complexity in the law in relation to the recovery of the body corporate’s costs of pursuing the unpaid body corporate levies and it is important that the correct procedure is followed in recording and paying recovery costs. A lawyer can advise in relation to this process with a view to recouping all of the body corporate’s recovery costs so that the body corporate is not out of pocket as a result of the debt recovery exercise.
- The enforcement of any judgement obtained needs to be the subject of legal advice, given that, depending on the specific nature of the debtor, certain methods of enforcement will be more effective than others. This issue is explored further later in this article.
TIP EIGHT: Consider reasonable payment plans
Often when confronted with a letter of demand or the service of legal proceedings, a lot owner will propose a payment plan to the body corporate committee. This plan needs to be carefully considered by the committee.
If a payment plan will pay the debt down in a reasonable time and the lot owner commits to the plan in writing, accepting the plan (or negotiating further) may yield a better and faster result than insisting on immediate payment and pushing ahead with legal proceedings. The court will often permit a lot owner to pay a judgement debt down in instalments over a period of time (up to several years), so the body corporate may find that the payment of levies is not immediate, even after pushing ahead with court proceedings.
TIP NINE: Comply with statutory timeframes
The modules prescribe a period within which the body corporate must commence proceedings for the recovery of the debt. Specifically, the standard module requires that if the amount of a contribution has been outstanding for two years, the body corporate must, within two months from the end of the two year period, start proceedings to recover the amount.
TIP TEN: Consider carefully the method of enforcement
Once a body corporate decides to proceed with litigating the debt, the usual recovery process can be summarised as follows:
- The body corporate issues Court proceedings against the lot owner in the appropriate jurisdiction, usually the Magistrates Court of Queensland.
- The proceedings are served on the lot owner, who has 28 days to file a defence. If the lot owner does not offer a defence, the body corporate applies for and obtains default judgement against the lot owner.
- The body corporate conducts an enforcement hearing through the Court to learn about the financial position of the lot owner.
At this point, the body corporate needs to carefully consider how best to enforce the Court’s judgement and recover the debt.
Enforcement under the UCPR
Usually, the body corporate would enforce the judgement through the Uniform Civil Procedure Rules (“UCPR”) enforcement process. This requires the body corporate to obtain an enforcement warrant from the Court pursuant to the enforcement provisions in the UCPR. Specifically, the body corporate might seek one or more of the following enforcement warrants:
- Seizure and Sale of Property;
- Redirection of Monies owed;
- Redirections from Financial Institutions; and
- Redirection of Earnings.
The seizure and sale of property enforcement warrant is commonly used. It is a process whereby the court bailiff is retained to seize specific property owned by the lot owner (i.e. the lot in relation to which levies are owed) and then arrange for its sale.
If the body corporate obtains an enforcement warrant for the seizure and sale of property, the body corporate will also register a writ of execution on title of the title of the lot to allow the bailiff to subsequently execute a transfer of the property in favour of the ultimate purchaser.
Enforcement through bankruptcy
An as alternative, for lots that are owned by natural persons, the Body Corporate could seek to enforce the debt by bankrupting the lot owner pursuant to the Bankruptcy Act 1966 (Cth). This process can be summarised as follows:
- The body corporate obtains a bankruptcy notice from Australian Financial Security Authority and serves it upon the lot owner. A bankruptcy notice can be obtained if the lot owner has a judgement against them of $5,000 or more. The bankruptcy notice requires the lot owner to comply with the notice by either paying the debt within 21 days, or making an application to have the bankruptcy notice set aside.
- If the lot owner fails to comply with the bankruptcy notice, the lot owner will have committed an act of bankruptcy.
- If the lot owner commits an act of bankruptcy, the body corporate can make a creditor’s petition to the Court, which will declare the lot owner bankrupt and appoint a trustee in bankruptcy (of the body corporate’s choice) over the assets of the lot owner.
- The trustee in bankruptcy can take possession of the lot owner’s assets (including the lot) and sell the assets to recover the body corporate debt.
In our experience, whilst enforcement through the UCPR enforcement provisions may eventually be successful, the procedure is very slow, cumbersome and without a high probability of success. The body corporate must also meet the bailiff’s strict conditions for offering the property for sale. The process can often take years.
While bankrupting a lot owner is not a simple process either, in the right matter, it holds a significant advantage over the UCPR enforcement process because it allows the body corporate to control the sale process as the sale is conducted by a trustee in bankruptcy of the body corporate’s choice, not a Court appointed bailiff.
The choice of enforcement process needs to be carefully considered and needs to be the matter of expert legal advice in light of the specific circumstances. The position of any mortgagee in possession also needs to be actively considered.