High interest rates and fees are not always considered a penalty …
A decision of the Supreme Court of NSW in Bhundia v Sommers (No 4)  NSWSC 455 considered the applicability of the rule against penalties.
In late 2018 Mr Sundip Bhundia. a Swiss citizen, lent US$500,00 with a fixed amount of interest of US150,000 in a one off payment to Propertybay Holdings Pty Ltd. The loan was a bridging loan to be repaid on 31 January 2019.The repayment of the loan was guaranteed by its directors Timothy Sommers and Sean Neylon. In early January 2019 the loan agreement was varied to provide that a further US$130,000 be advanced by Mr Bhundia to the borrower. In the event of a default in the repayment of the loan amount, the default interest payable would be 30% per annum compounded monthly.
The borrower did not repay the loan and Mr Bhundia sued the guarantors to recover his money.
The guarantors, in their defence, claimed that the up front payment of interest and the yearly interest rate on default were void and unenforceable as penalties.
Judge Adamson set out the principles that apply in penalty cases:
• it is up to the plaintiff to prove that the payment was a penalty because of the reluctance of the courts to interfere with agreements reached between parties; and
• an interest rate can only be described as a penalty if it is extravagant, unconscionable or out of all proportion to the legitimate interests of the party making the claim.
The guarantors put no evidence before the court that convinced his Honour that the up front payment of interest or the interest payable on default amounted to a penalty and therefore were unsuccessful in their defence.
Mr Bhundia succeeded in his claim for an amount in excess of US$920,000.
COVID-19 and Statutory Demands
With the ending of the COVID-19 insolvency moratorium on 1st January 2021 and to take into account the effects of inflation the Federal Government has increased the minimum debt that can be claimed in a Statutory Demand from $2,000 to $4,000.
The number of days to respond to a Statutory Demand remains at 21.
The changes took effect on 1st July 2021.
In a few cases, because of other COVID-19 relief that some companies may have been eligible for, the implementation of the change will not occur until 1st August 2021.
Changes at Jackson & Associates Solicitors
On 23 July 2021, Costin Stan was made an Associate of Jackson & Associates Solicitors in recognition of his dedication to the firm and its clients.
Costin will continue to serve the clients with the skill and care that he has shown throughout his time with the firm.