COVID-19 has caused disruption to all aspects of our society.
The economy has experienced a historical shock, causing widespread disruption to individuals, organisations and government. The disruption to the flow of income means that the Owners Corporation of a Strata Plan should start thinking differently about its collection process and its approach to collecting levies from lot owners.
Enforcing a softer approach
We are witnessing sudden changes to economic policy. The main characteristic is that households and businesses will be offered some form of financial hardship assistance.
There have also been significant changes to insolvency law, which forces creditors (like the Owners Corporation) to rethink its debt collection process. These changes are significant and applicable to all creditors.
The major changes to relevant insolvency laws are:
Old position about bankruptcy debt level:
Prior to the changes, the Owners Corporation could issue a bankruptcy notice to a lot owner who owed a debt of at least $5,000. Generally, the issuing of a bankruptcy notice would compel the lot owner to pay or formally dispute their overdue levies, or risk bankruptcy.
New position about bankruptcy debt level:
The new changes to our bankruptcy laws mean that the Owners Corporation can only commence bankruptcy proceedings if the debt is greater than $20,000.
So bankruptcy is no longer a credible threat for debts under this much higher threshold.
Old position about when you can commence actions:
Prior to the changes, the debtor (being the lot owner) had 21 days to respond to a bankruptcy notice, i.e. to dispute it, or risk being made bankrupt.
New position about when you can commence an action:
The time frame has now been extended to 6 months.
So if you have a judgement debt, and issue a bankruptcy notice, nothing happens for 6 months, i.e. the person will not be made bankrupt.
Does this mean that you cannot collect outstanding levies?
Not really. It just makes collecting debts somewhat harder to do so, because you can no longer threaten immediate bankruptcy.
You can still take debt recovery action, such as issuing complying final notices, and taking court action to obtain a judgement debt against the owner. Once you have a judgement debt, you can also use other formal measures to collect the debt, such as attachment of debts or the sale of assets by the sheriff.
In our view it is important that the Owners Corporation continues to be vigilant about levies and contributions, so the building can be properly run and maintained during this period, as well as into the future, which is likely to be characterised by hard economic times.
What about the option of waiving interest to encourage payment?
Currently, if a lot owner fails to make payment of an overdue levy, the overdue levy continues to grow as it bears 10% interest until paid. During these uncertain times, it may be difficult to justify maintaining an interest rate so high. Especially, in circumstances where the cash rate is at a historical low.
The Strata Schemes Management Act 2015 (NSW) provides some leniency to lot owners. In particular, the legislation allows the Owners Corporation to waive the 10% interest rate or reduce it. The resolution to waive or reduce it must contain the following:
- Whether the interest rate will be waived in totality,
- Whether the interest rate will be merely reduced, and
- The duration that the reduced interest rate or nil interest rate will be applicable.
Your Owners Corporation may wish to consider waiving accrued interest during an amnesty period to encourage people to pay now.
What about entering into payments plans with owners?
The Owners Corporation of a Strata Plan should expect to receive requests from owners to enter into ‘payment plans’ for outstanding levies.
Again, the Strata Schemes Management Act 2015 (NSW) anticipates that lot owners may fall into financial hardship and the requirements of entering into a payment plan have been clearly prescribed in the legislation. The following steps must be undertaken:
- The owners corporation must convene a general meeting,
- The proposed resolution must specify the particulars of a payment plan,
- Whether the payment plan applies to one specific lot owner or more generally, and
- The payment plan cannot extend for a period longer than 12 months.
Once again, such plans may be an effective way to encourage payment of what can be made.
How should a General Meeting be convened?
If the Owners Corporation is planning on reducing the interest rate or introducing payments plans, a General Meeting is required. You can read our article here, which provides the Owners Corporation with some options in conducting General Meetings in this COVID-19 environment.
How can we help?
Get us involved as soon as possible.
We can help you introduce measures to alleviate the financial burden on lot owners. We can assist you to prepare an agenda, notice and proposed resolution for any of the topics identified in this article.
To discuss further, call either:
- Andrew Andreyev on 0400 832 534 or
- Mariam Chalak on 0410 914 128
Both Andrew and Mariam have transitioned to work arrangements that will ensure they remain available to help you through these times.
If you would rather get in contact through email, send your questions through to Mariam at email@example.com