Can A Strata Scheme Be Wound Up In Insolvency?

Can A Strata Scheme Be Wound Up In Insolvency?

We have received some recent enquiries from lot owners in strata schemes seeking advice in relation to whether or not an owners corporation (strata scheme) can be wound up in insolvency by a Court.

The starting point is sub-section 11(2) of the Strata Schemes Management Act 1996 (“SSMA”) which states that an owners corporation is declared to be an excluded matter for the purposes of section 5F of the Corporations Act 2001 of the Commonwealth in relation to the whole of the Corporation’s legislation.

Accordingly, since the provisions of the Corporations Act 2001 do not apply to an owners corporation, an owners corporation cannot be wound up in insolvency.

It appears that the above provisions make sense because if an owners corporation is faced with expenses it cannot at once meet from either its administrative or sinking funds, it must levy on each owner a contribution to the administrative fund, determined at a general meeting of the owners corporation, in order to meet the expenses (section 76(4) of the SSMA).

However, although an owners corporation cannot be wound up by a Court on the grounds of insolvency, if an owners corporation cannot pay its debts as and when they fall due has a judgment debt entered against it in Court proceedings, a judgement creditor may apply to NCAT for an adjudicator’s order under section 162(7)(d) of the SSMA that a compulsory strata managing agent be appointed to the strata scheme to enforce payment of the judgement debt.

If you have any queries in relation to the above, please contact Michael Pobi on (02) 8710 3430.

Please note that the information contained in this article is not legal advice and should not be relied upon. You should obtain legal advice before you take any action or otherwise rely on this article.