{"id":5416,"date":"2018-11-30T03:02:16","date_gmt":"2018-11-30T03:02:16","guid":{"rendered":"https:\/\/paceadelaidelegal.com.au\/whose-interest-gets-priority\/"},"modified":"2018-11-30T03:02:16","modified_gmt":"2018-11-30T03:02:16","slug":"whose-interest-gets-priority","status":"publish","type":"post","link":"https:\/\/paceadelaidelegal.com.au\/whose-interest-gets-priority\/","title":{"rendered":"Whose interest gets priority when money is owed?"},"content":{"rendered":"

If you are owed money, as a creditor, you are able to put a charge over the debtor\u2019s property. This charge helps to secure<\/em> the loan. A caveat may also be placed on the debtor\u2019s property. A caveat serves as a warning<\/em> to the public that another party holds an interest<\/em> in the land. If the land were to be sold, the creditor\u2019s loan would be repaid before the money is given to the seller.<\/p>\n

\"Whose<\/p>\n

But what happens when another creditor also puts a charge and\/or registers a caveat on the same property? Which is more significant?<\/p>\n

This can be a big problem for creditors if there is a competing claim on the property and not enough funds to satisfy both interests (debts). For example, if a company is liquidated while owing two different creditors money and there isn\u2019t enough to go around, who gets paid first? In the event this happens to you as a creditor, it is vital to know how the pecking order is established and whether your loan really is secured or not.<\/p>\n

The General Principle <\/strong><\/h3>\n

The general principle for assessing these similar claims dates all the way back to 1854 in a case between Rice v Rice. <\/em>This case determined that in examining the relative merits of two parties having competing interests, the court must consider the nature and condition<\/em> of the respective interests, the circumstances and manner<\/em> of their acquisition, and the whole conduct<\/em> of each party.<\/p>\n

While that sounds pretty vague there are some more modern cases that shed some more light on this matter.<\/p>\n

Elderly Citizens Homes of SA Inc v Balnaves (1998) 72 SASR 210<\/em><\/strong><\/h4>\n

In this case six competing claimants all with interests created at different times were contesting the surplus from the sale of a house. Here the Judge initially applied the test from Rice v Rice<\/em> before also remarking that the failure to lodge a caveat<\/em> would also weigh into the equation of what order the claimants would have access to the funds. The Judge was careful to note that while registering a caveat is good practice, it is not necessarily the end of the story for claim order. For example, one of the claimants was bumped a full position back for withdrawing his caveat.<\/p>\n

The Court\u2019s judgement teaches us four main things about determining the priority of competing interests:<\/p>\n