By Pinar Acay
Insolvency can significantly complicate property transactions, and understanding your rights and responsibilities under Australian law is crucial. This article outlines the implications of insolvency during property transactions and provides guidance on how to navigate scenarios involving administration, liquidation and receivership, as well as warning signs to watch for.
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Vendor or Purchaser in Administration
When a party enters voluntary administration, an administrator is appointed to assess the company’s financial position and decide whether it can be salvaged or proceed to liquidation.
What to Do:
- For Purchasers: Check if the administrator intends to honour the contract of sale. The administrator has discretion to terminate or complete contracts, so prompt communication is vital. You may need to lodge a proof of debt for deposit recovery if the sale does not proceed.
- For Vendors: If the purchaser is in administration, you must determine if they can meet their financial obligations. You should seek legal advice on whether you can terminate the contract and resell the property under the terms of the contract of sale.
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Vendor or Purchaser in Liquidation
Liquidation involves winding up a company’s affairs, selling its assets, and distributing proceeds to creditors. The liquidator generally assumes control of the company.
What to Do:
- For Purchasers: If the vendor enters liquidation, verify whether the liquidator intends to complete the sale. If not, you may need to pursue your deposit as an unsecured creditor if the deposit has already been released to the vendor before settlement.
- For Vendors: If the purchaser enters liquidation, determine if they can proceed with the purchase. You may be able to terminate the contract for breach and claim damages for loss due to non-completion.
- Stay Updated: Engage with the liquidator early to understand the process and potential outcomes.
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Vendor or Purchaser in Receivership
Receivership occurs when a secured creditor appoints a receiver to manage the company’s assets, often with the aim of recovering outstanding debts.
What to Do:
- For Purchasers: If the vendor is in receivership, determine whether the receiver has authority to complete the sale. Review the contract of sale for clauses addressing such scenarios.
- For Vendors: If the purchaser is in receivership, assess their capacity to meet financial commitments. You may need to engage with the receiver for clarity on how the transaction will proceed.
- Check Priorities: Receivers prioritise secured creditors, so your position as a contractual party must be reviewed carefully with legal support.
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Warning Signs to Avoid Insolvency-Impacted Transactions
Identifying potential insolvency risks early can save significant time and costs. Key warning signs include:
- Delayed Payments: Repeated requests for extensions of time or failure to pay deposits on time.
- Unresponsive Communication: Parties avoiding contact or providing vague responses about financial capacity.
- Credit History Issues: Signs of poor financial health, such as unpaid debts or a history of insolvency-related activity.
- Insolvency Notices: Publicly accessible insolvency notices can reveal if a company is under administration or liquidation.
Conducting thorough due diligence and seeking legal advice during contract negotiations can help you identify and mitigate these risks.
Final Thoughts
Insolvency issues in property transactions can be complex and financially damaging. Whether dealing with administration, liquidation or receivership, quick action and sound legal advice are critical to protecting your interests. Additionally, vigilance in identifying potential risks can help you avoid insolvency-related complications.
This information is general in nature and not a substitute for legal advice. If you suspect insolvency may affect your transaction, our team of experienced lawyers is here to help. Speak with our senior property lawyer Pinar Acay on (03) 8621 1000 or (03) 9331 1144 for tailored advice about your situation.
