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When buying property 'off the plan', know exactly who you're dealing with
Property Law News | June 2017
Due diligence when purchasing property 'off the plan' may save you suffering at the unscrupulous hand of a phoenix company
Company directors or “related” entities can wind up a company to avoid paying the creditors, and the employees, of that company. The usual scenario is that the company gets wound up after assets have been transferred to a “new” company, and the “debts” stay with the company that gets wound up.
The resulting “new” company is known as a “phoenix” company.
When purchasing a property – particularly when you are purchasing a property off the plan –it is essential that you understand with whom you are dealing and whether they have the ability to undertake and complete the “works” on the property that you wish to purchase. If you do not undertake due diligence on the developer and the vendor, you may fall victim to the practices of a “phoenix company”.
Forum Law have recently advised a client who intended to purchase a property “off the plan”. This particular client was being pressured by the vendor’s agent to sign and exchange on a contract for the off the plan sale within a very short time frame. After performing the relevant searches of the vendor and the property, we were able to ascertain that the vendor was a company with a sole director and sole shareholder and only had minimal share value (often referred to as a “$2 company”). After advising our client about the results of our searches (including the fact that the contract did not identify which lot was actually being sold) and the risks of buying from a “$2 company” where the contract was not likely to be completed for 18 months or longer, our client elected not to proceed with the purchase of that particular property.
The conduct by that vendor is often a precursor for a “phoenix” company and has been highlighted in recent popular press in Australia, whereby some building companies have set up a small “$2 company” and appointed a friend or family member as the sole director with a nominal share value and have engaged in the “phoenix” style behaviour referred to in this article. The pattern of conduct is typically that the $2 company is wound up as soon as the building is completed and that leaves the purchasers of the lots with little or no remedy to pursue the builder or developer for defective works.
If you have any concerns about off the plan purchases or the vendor of a property that you wish to purchase, contact us to discuss how we can advise and assist with protecting your interests in what you are purchasing and with whom you are dealing.
The lawyers at Forum Law have extensive experience in property law and insolvency law so we are well equipped to advise and assist our clients with concerns about the integrity or otherwise of off the plan purchases. Contact us at for a free 30-minute conversation on (02) 9560 3388 or in our friendly office in Leichhardt where parking for clients is free.
