Outcomes in insolvency – what should I expect?

Quite obviously many people that we deal with are in a position that can be very stressful as they are unsure of their future due to either personal or business solvency issues.
Whilst noting this scenario one of the issues in any insolvency situation be it personal or corporate is recognising the problem and seeking help to resolve it. Usually the earlier you deal with the problem the more options that are available.

I have seen directors whose company’s are only several days from being wound up by the courts rescued by the Voluntary Administration (“VA”) process. Whilst the rescue has been possible it would have been easier and less costly had this path been explored much earlier in the crisis. In order to assist people and companies in financial difficulty I thought it might be helpful to explore the  positives from a formal insolvency appointment. I’m not saying that it’s an exciting process, as mentioned at my introduction it is a stressful time, however the process does assist people to get on with their lives, viable businesses to survive and those that are not viable to be brought to a dignified end.

Our firms logo is “Light at the end of the tunnel”, an appropriate logo when you consider that whatever the final outcome we usually take away the financial stress for both individuals via the bankruptcy process and companies via Voluntary Administration or Liquidation.

I have seen over many years that stress can lead to family difficulties including the breakdown of relationships.

I look at it on the basis that a debtor or a director of a company might be lying awake at night knowing he or she has a non-viable business wondering how they might extract blood out of a stone to be able to meet all their debts and continue to live and operate their business life etc. Or they might be rueing something that has happened to their company that might have seen it viable but for the issue in question or perhaps the business has grown rapidly and needs parking space from its creditors to survive long term.

When a business survives all stakeholders benefit including creditors, employees the director and his/her family. If it cannot be rescued the positive is at least the bleeding stops, debt doesn’t continue to grow and creditors and the directors can start anew. If a business isn’t viable early identification is also very critical to avoid issues such as insolvent trading.

Over the coming months I will delve into particular case studies to demonstrate how the bravery of an individual or director in admitting they have a problem has assisted all stakeholders to what has been a traumatic period of time for all.

Mark Marlow

66G Application – The magic bullet for property sale disputes between co-owners.

66G Application – The magic bullet for property sale disputes between co-owners.
In the current booming real estate market more and more people are purchasing property with co –owners in order to afford the place of their dreams. I am sure for the vast majority of people it works out and everyone lives happy ever after.

However, various situations arise from:-

  • Relationship breakdowns (Often caused by financial issues)
  • Drug Issues (a current and most concerning social issue)
  • Gambling Issues (A major cause of bankruptcy)
  • Change in investment strategy (Property market to hot sell now before the house of cards falls over).
  • Sea-change ambitions (Europe looks pretty in Spring want to live in the south of france drink wine and eat cheese and own a castle).

Where one owner wants to sell and the other owner does not want to sell and a bitter dispute follows leaving the hapless solicitors trying to find a middle ground. Typically the solutions are:-

  • Remaining co-owner buys out the selling owner at an agreed upon price.
  • Agreement regarding the sale of the property and split of proceeds.

Unfortunately, due to the messy nature of certain property transactions, ongoing costs and differing intentions of both parties, the solicitors end up stuck in the middle between two turbulent, unwieldy and sometimes violent beasts (the clients).

A great way out is a section 66G (under the Conveyancing Act) application, whereby the court will appoint a Trustee to sell the property and distribute the proceeds accordingly.

The mere thought of such an application should get the non selling co owner to the bargaining table and if not it will provide for a relatively cheap and easy solution through the courts.

If you are you are looking for an independent Trustee to consent to such an appointment please do not hesitate to contact me for immediate assistance. Like Gandalf look for me when the sun rises on the 5th day and the co owner’s solicitor does not accept your most reasonable settlement offer.

Personal Guarantees and Co-Guarantors – Liability exists despite Settlement

When loaning money, creditors commonly take security over a borrower’s assets. If this is not sufficient, the creditor may also seek security from related parties as collateral for the principal borrower’s obligations. One of the most common securities given is a personal guarantee.
Where two or more parties guarantee a loan or debt obligations of the principal borrower, issues may arise between the guarantors when one guarantor feels as though they have contributed more than the others. In general, there is a presumption that each co-guarantor should contribute equally towards the payment of a guaranteed debt. In the event that one guarantor pays more than their fair share generally they would have a right of contribution against the other guarantors in respect of the over payment.

The common example is where two individuals have guaranteed the obligations of a borrower and the borrower defaults on the loan against the bank, and one guarantor has repaid the debt in full, this guarantor would be entitled to seek a contribution from the other guarantor for 50 percent of the amount paid to the bank. While the proportions payable in respect of the contribution may vary depending on the number of guarantors and other equitable remedies available to the co-guarantors, the principle right of contribution claims from other co-owners remains the same.

This principle was confirmed in the case of Lavin v Toppi [2015] HCA 4. In this decision, the High Court also confirmed the need to seek diligent legal advice when settling claims with the bank as co-guarantor.

In this case Ms Lavin and Ms Toppi were both directors of a company. The directors also provided personal guarantees to the bank for the loan given to the company. The company was placed into Receivership and the bank, after realising its security, was still owed over $4 million. The bank sought payment of the shortfall from the co-guarantors. Following legal proceedings, Ms Lavin settled with the bank and paid an amount of $1.35 million towards the debt owed. Under the Deed of Settlement, the bank would not sue Ms Lavin for the balance of the guaranteed debt. The bank also commenced proceedings against Ms Toppi and recovered the balance of its debt (approximately $2.9 million) from asset recoveries.

Ms Toppi made a claim for contribution against Ms Lavin claiming an amount of $775,000 be paid, being fifty percent of Ms Lavin’s liability for the guaranteed debt less the amount paid in respect of the settlement. On 11 February 2015, the court gave judgement in favour of Ms Toppi and noted that any claim for contribution arises when the guarantors are called upon to pay the debt rather when the payment of the guaranteed debt is made. Accordingly, the settlement reached between the bank and Ms Lavin to which Ms Toppi was not a party had no bearing on Ms Toppi’s right of contribution.

The case highlights the importance for parties providing personal guarantees ensuring that they fully understand the potential implications and extent of their liability. In addition, individuals should seek professional advice when dealing with banks and negotiating settlements to ensure that their liabilities, not only to the bank, but to other guarantors have been fully discharged.