Volume 52 - March 2011

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This month

• Download a free Legal Cartoon App.
• 5 things to know about buying property.
• Statutory demands and shonky companies.
• Announcing the winner of the 2011 Annual Legal Cartoon Competition.

Paul Brennan

Editor

Author of The Law is an Ass...Make Sure it Doesn't Bite Yours!

info@lawanddisorder.com.au

Why Property lawyers suck

Property lawyers are a little like your mother; they wish you to find a home and live happily ever after but delight in pointing out flaws in the one that you have chosen. 

Here are five things to know about buying a property:

• Do not skimp on the searches.  Your lawyer will tell you which ones you need and a few that you do not need.  Spend the money anyway.  For instance, you may find that the position of a sewer blocks the plans that you have for the extension or that the pagola in the garden does not have approval.  The contract is not automatically set to give you what you think you are getting.
• Have a building and pest report to reveal leaky roofs etc.  If it is an apartment block do a search of the management records, which can reveal discontent between the occupants over building works, sinking funds and pets, it lets you know in advance how disagreeable your new neighbours can be.
• Do not buy a new home before you have entered into a contract to sell your own, however much your spouse likes the new house.  Your home will not sell quickly, you will spend a fortune on bridging finance and your spouse, being the unreasonable sort, will get sick of carrying the can and divorce you. 
• Sellers can change their minds and if you give them an opportunity to back out they may take it, terminate the contract, keep your deposit and/or sue you for their loss.  An example of a common, but potentially expensive problem, is that the buyer does not get a written mortgage offer before the contract becomes unconditional and the money does not turn up on time.
• Buying at auction without first conducting searches and obtaining finance is dumb.

Recently, I asked an audience of about 25 business owners two questions:

• Who has experienced legal issues in property transactions? 
• Was I acting for you at the time? 

Five people put their hand up to the first question and none to the second.  A small survey but instructive.

(c) Paul Brennan is a business and property lawyer on the Sunshine Coast, Queensland.  Both  "Deals and disputes".

Statutory demands -do not let them wind you up

It is very common for creditors to use a Statutory Demand to collect a debt of over $2,000 by a company.  If, your company receives a Statutory Demand, you have 21 days to pay or be wound up. 

There are four options: 

1. Pay up in full.
2. Offer to pay less and hope that it is accepted.
3. Threaten to apply to the court to set it aside.
4. Do nothing.

In Option 3, your lawyer will write to the creditor’s lawyer threatening court action if it is not withdrawn and setting out what is wrong with the Statutory Demand.  There are basically two defences:

• A defect in the Statutory Demand.  This is not just to punish lax creditors and, therefore typos and technical objections may not be enough, the defect must cause you an injustice.  If there is a defect in the Statutory Demand e.g. wrong name or other detail, the creditor’s lawyer will normally be cautious and start again.  This may allow you some breathing space to pay the debt.
• If you believe that you do not owe the money the test for a “genuine dispute” is very low and providing your lawyer can raise a plausible argument, the Statutory Demand will be set aside by the court and an order for costs made against the creditor even if it turns out later that you do owe the money, after all. 

If challenged by the debtor company, the creditor will need to be confident that there is no genuine dispute and in order to avoid the expense of losing an application to set aside the Statutory Declaration may opt to withdraw and sue the company instead in order to obtain a judgment for the debt.  Most creditors do not bother to issue a Statutory Demand without first obtaining a judgment to avoid this situation.

However, if the creditor decides to take a chance and will not withdraw the Statutory Demand, your lawyer must serve the Court Application to set aside the Statutory Demand within 21 days and battle (with attendant cost) will commence. 

The problem is that most small companies do not want to have the expense of a court action where the debt may only be a few thousand dollars.  Therefore, they may try Option 2 and if that fails reluctantly go for Option 1. But, Option 4 (doing nothing) is by far the most popular strategy as it is cheap, easy and if it works, which it often does, is very satisfying.

It often succeeds as once the 21 days have passed the creditor has three months to file an application for winding up.  This is expensive and involves spending a few thousand dollars.  Legitimate creditors hesitate as if you are really struggling and the application for winding up sends you over the edge, they will never get paid.  In fact, the costs of the winding up will be throwing good money after bad.

All of a sudden, your decision to do nothing becomes a brilliant strategy, a master stoke especially against a backdrop of your lawyer advising that there are fatal consequences of failing to apply to set the Statutory Demand aside.   

But, before you put a finger up to any creditor who serves a Statutory Demand, let me tell you about the fatal consequences.

If, you ignore the Statutory Demand for 21 days, you have committed an Act of Insolvency and you lose the right to set it aside even if there is a genuine dispute and the creditor is trying it on.  For the next three months, the creditor can apply to wind you up, at will.  Your lawyer will advise you to pay the amount claimed and sue the creditor or alternatively negotiate a settlement which would normally contain an agreement for you not to sue.  This may seem unfair, especially as some companies are unaware that a Statutory Demand has been served until it is too late as the registered office of their company is at an old address or with an accountant who is not on the ball.

Some debtor companies may hold out until the creditor issues the winding up proceedings and then pay the debt together with the creditor’s legal costs.  This adds a few thousand dollars to the bill.

If the winding up proceedings continue you must now defend by demonstrating that your company is solvent.  A difficult task for any small business and expensive too.   But before you get the chance to do so the creditor will helpfully advertise in a newspaper and notify ASIC who will note the winding up application on your public record.  Your bank, suppliers, customers and even your own mother will lose faith in you, bank accounts will be frozen and loans called in.  This is especially galling if you are innocent.

Therefore, once the fatal consequences are explained most prudent companies will not take the risk.

However, if you are a shonky company, the Statutory Demand offers a fantastic opportunity for suppliers who sell shoddy goods or services whose customers understandably never seem to want to pay.  They can issue Statutory Demands to all their disgruntled customers and wait for a few to miss the deadline.   Unlike legitimate creditors they have the advantage of having customers who are able to pay but are refusing to do so.  Once the customer’s lawyer explains the fatal consequences they can be relied upon to sensibly pay up or preferably settle and put it down to experience rather than disrupt their businesses by commencing court proceedings.

(c) Paul Brennan.  All rights reserved.

Click here for books, eBooks and CDs by Paul Brennan.

The winnner of the 2011 Annual Legal Cartoon Competition

And the winner is:

Alex Raymond

a local company director who for the second year running wins 1st prize.   Although, 1st prize is traditionally a copy of

The Law is an Ass...Make Sure it Doesn't Bite Yours!  the Competition committee has decided to replace this with

Easy IP if Alex prefers.

A special mention of the other finalists:

"He’s called for the third umpire!………….he looked pretty out of order from here"

John Boast, Real Estate Agent, Henzells, Buderim

"Direct rebuttal"

Brett Davies, lawyer, Civic Legal, Perth

"I think he's the UN-civil defence attorney"

Jeremy Britton, 24Hour Wealth Coach

A special thank you to all those who entered the competition this year.  Alex is not invincible and we hope that you will take part next year.

If you want to run your own cartoon competition using Law & Disorder Cartoons send your request by email to info@lawanddisorder.com.au

Free Legal Cartoon App for month of March only

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Disclaimer:

The content of the Law & Disorder eZine is to give you legal basics and in some instances included unashamedly to try and make you laugh.  In law it is sometimes difficult to work out what is serious and what is just for fun.  Therefore, if you plan to do anything legal, rely on your own lawyer’s advice or instruct me to look at the particular facts of your case.  Not only will I deny responsibility for the legal content but also for some of the jokes.