Levy recovery proceedings and insolvency – a warning

Levy arrears can be the bane of a committee’s existence if not handled properly. Bodies corporate rely on levies to be paid in a timely manner to cover day-to-day expenses of running and maintaining a community titles scheme.

The importance of levy recoveries is clear – the Body Corporate and Community Management Act 1997 (Qld) (‘BCCMA’) even positively obliges a body corporate to recover any levy arrears in certain timeframes.

In light of this obligation and practical necessity, a committee does not require a special resolution to commence debt recovery proceedings under section 312(2) of the BCCMA. A body corporate may only commence proceedings without a special resolution in certain circumstances; a proceeding for the recovery of a liquidated debt against the owner of a lot is one of those circumstances.

We regularly conduct recovery proceedings on behalf of bodies corporate and we have seen several matters where the body corporate has moved to wind up a debtor (for a company) or bankrupt them (when an individual).

Bodies corporate should be very cautious of this approach. To use either winding up or bankruptcy as a debt recovery tool is generally seen as improper by the courts. This is because these actions are part of the insolvency process and are not considered to be ‘debt recovery proceedings’.

These processes should only be used if a creditor reasonably suspects that a debtor is incapable of paying debts as and when they fall due. This process aims to give all creditors the ability to recoup at least part of their debts from an insolvent debtor. As commencing winding up or bankruptcy proceedings do not fall within the category of ‘debt recovery proceedings’, a body corporate may only take these types of action with the authority of a special resolution.

If either bankruptcy proceedings or winding up proceedings are commenced without a special resolution the risk is that the proceedings could be set dismissed with costs orders.

The disastrous flow on from that could be a likely costs order against the body corporate, a perceived victory for the recalcitrant debtor and an embarrassing and costly setback for the committee.

Most importantly, by managing the recoveries processes properly and efficiently, we have experience in working with bodies corporate to assist in avoiding the extensive delays that can otherwise be encountered in recovery proceedings. With our experience in strata law, insolvency and commercial litigation, we can assist a body corporate in all aspects of debt recovery proceedings and ensuring that any subsequent enforcement is carried on properly and avoiding these real pitfalls.

Let us know if we can help.

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