Why it is important to be a secured creditor

By Christopher Yam*

COVID-19 pandemic The COVID-19 pandemic, also known as the coronavirus pandemic, is proving to be one of the toughest challenges of our generation.

The International Monetary Fund “World Economic Outlook, April 2020: The Great Lockdown April 2020” states:

The COVID-19 pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity.

As a result of the pandemic, the global economy is projected to contract sharply by –3 percent in 2020, much worse than during the 2008–09 financial crisis.

The Australian government has responded to the economic impacts of the COVID-19 pandemic by providing temporary relief, inter alia, for: l corporations at risk of insolvency (extends the time for compliance with a statutory demand from 21 days to 6 months. A creditor can only issue a statutory demand if the debt or total of debts is $20,000.00 rather than $2,000.00); l individuals at risk of bankruptcy (extends the time for compliance with a bankruptcy notice from 21 days to 6 months. A creditor can only issue a bankruptcy notice if the judgment(s) or order(s) is for an amount or a total amount of at least $20,000.00 rather than $5,000.00).

Secured creditor

You are a secured creditor of a company if the debt owing by the company to you is secured by: 1. a security interest within the meaning of the Personal Property

Securities Act 2009 (Cth); or 2. a charge, lien or pledge.

You are a secured creditor of an individual if: 1. the debt owing by the individual 2. to you is secured by a security interest within the meaning of the Personal Property Securities Act 2009 (Cth); or you hold a mortgage, charge or lien on property of the individual as a security for a debt due to you from the individual.

A secured creditor’s right to realise or otherwise deal with its/his/ her security is not affected by the Australian government’s response to the economic impacts of the COVID-19 pandemic.

For example, a secured creditor who holds an equitable charge over land owned by a company/individual as security is entitled to bring proceeding for judicial sale of the land.

A simple way for you to become a secured creditor of a company/ individual is by having a charging clause in your terms and conditions.

Time to review your terms and conditions?

*Christopher Yam Special Counsel SLF Lawyers T: +61 3 9909 3304 E: cyam@slflawyers.com.au

Disclaimer The content of this publication is intended only to provide a summary and general overview of matters of interest. You should not rely upon the content of this publication as legal advice. You should obtain legal advice regarding the facts and circumstances of your matter before acting or relying upon the content of this publication.