The COVID-19 pandemic has caused financial difficulty for a lot of Australians. Unemployment has soared and, although the Government has been introducing various measures to relieve hardship, the reality is that the coming months are going to be strained for many people.
The upshot of the financial strain is that most people will be prioritising essential expenses (mortgage repayments, rent, groceries, etc) over payments they see as ‘optional’. Unfortunately, for people who have made private loans or businesses who have extended credit, this means that there is a likelihood that payments might drop off.
It is not a great time to be a private lender or creditor. The recent insolvency law changes make it even harder to recover debts by threatening the spectre of bankruptcy or insolvency – see our article here
But there are some things you should be doing now to improve your positions if you are worried about not getting your money.
Register your security
If you have taken security under your terms but have not previously registered it, now is the time to get your registration in place. Failing to register means you’ll be at the end of the queue if there’s some money to recover.
One of the most common security interests is over personal property – for example, a motor vehicle, equipment, stock, or ‘all present and after-acquired property’ of a company. These security interests should be registered on the Personal Property Securities Register (PPSR). Timing of your registration is imperative, as the general rule is that registered PPSR interests take priority in order of registration date (although it can be a little more complicated than that – see our article here.
If you have taken a charge or a mortgage over real estate, you should also be registering that formally. You can register your security either as a caveat or a mortgage, depending on a few factors (call us to discuss on 1300 654 590).
Accept binding payment plans
Now is not the time to be too restrictive or inflexible. Any money you receive voluntarily from a debtor is a good thing.
If you are offered a payment plan for a debt, you should take it. The courts are usually very lenient in permitting payment plans over long periods of time, so it is likely that anything you negotiate will be better than what a court would impose.
Consider using any payment plan implementation as an opportunity to agree to take some security (if you haven’t already). Or draw up a document where the debtor acknowledges the debt and agrees not to raise any defences to it. That way, if they do default, you have improved your position to recover the debt through legal avenues.
Shore up against relationship breakdowns
And we’re hearing a lot of murmurs now about the new adage ‘You can’t spell DIVORCE without COVID’. Certainly, the trends out of China seem to suggest a spike in relationship breakdowns after release from quarantine.
This means that, more than ever, if you have lent money to a family member you should get your ducks in a row. Document the loan. If the family member is part of a couple, have their partner acknowledge the loan terms. Take security for the loan and register that security.
Having a clear record of the loan terms and security registered early on are the best ways to protect your position if the family member later finds themselves in the Family Court.
What to do next
If you are owed money – whether personally, or in your business – don’t despair. Although times are about to get tougher, we can help put you in the best possible position to recover your money.
Call us on 1300 654 590 to discuss how you can get what you’re owed.
The information contained in this post is current at the date of publishing – 16 April 2020