Our clients were referred to us by their solicitor. They had invested in a property development nearly 6 years previously and had been provided with mortgages but inexplicably hadn’t registered them.
The borrower had almost completed the project but had gone quiet on our clients – always a bad sign. The referring solicitor set up a meeting with the borrower and our clients where the borrower’s solicitor presented a “take it or leave it” offer on the basis that the project had substantially failed.
Strategy and Solution
We immediately recognised that the proposed “solution” would leave our clients extremely vulnerable to recovery action by a liquidator if (most likely when) the borrower’s company failed.
Further, our clients were deeply aggrieved and had a definite view that the borrower should repay the total debt using any means possible. This was compounded by a belief that the borrower had misappropriated funds that should have been available for creditors.
Whilst our clients were morally correct, the simple reality was that we needed to understand the circumstances and determine the best way for our clients to recover the maximum sum possible without exposing themselves to any later recovery action or litigation.
We prepared a simple summary of the problem, highlighting the risks to both our clients and the borrower under various scenarios and shared that summary with the borrower’s solicitors. That enabled them to understand how important it was for them to be flexible in their approach to resolving the issue.
We conducted a due diligence assessment of the borrower’s records (everything from bank statements to contracts to security documents and ASIC records) and identified a number of questionable transactions and the likely costs of recovery under alternate scenarios.
Ultimately, we obtained an immediate cash payment for our clients, direct security over real property for the balance and unequivocal warranties and guarantees from the borrower’s director that were encapsulated in a Deed of Compromise.
Over the total project, our clients recovered their principal plus a small interest component – which was a lot worse than their “black ink” balance but a whole lot better than the outcome they would have faced if the borrower had been allowed to proceed into liquidation.
More importantly, our solution practically eliminated the potential for a liquidation of the borrower and any associated recovery action meaning that our clients could accept the final settlement as the best possible outcome from a failed project.