Written by Tim Jones

You may have heard of a proposed change to taxation concessions for Self-Managed Super Funds (SMSFs) under the newly appointed Labor Government. This requires closer inspection as it will impact a large portion of the population if it does pass into law, especially those Australians nearing retirement

What is a SMSF?

A SMSF is, as the name rightly spells out, a super fund that is managed by you and other members (as may be nominated) to provide for your retirement. In your capacity as trustee of the fund, you bear the responsibility of managing assets, growing the fund, and being compliant with the applicable taxation and legislative requirements  that govern SMSFs (namely, those provided for in the Superannuation Industry (Supervision) Act 1993 (Cth)) (“SIS Act”).

Whilst the governance requirements are stringent, a SMSF does give members greater flexibility and control in dealing with how their retirement benefits are invested and managed. This is in direct contrast to an industry or private super fund that deals with your money of which you rarely see in-depth reporting, unless asked, on what they are doing with your super balance.

The governance requirements for SMSF are varied. As an example, there are strict rules regarding how trustees are appointed. You may appoint individual trustee or a corporate trustee to manage the SMSF. The differences being:

Individual	Corporate
Must be two trustees as individuals	One trustee
Individuals are liable for the trusts debts	The corporation is liable for the trusts debts
Easier to manage	More complex structure and compliance
Assets differentiation may become difficult	Clear delineation of assets
Cheap	More costly due to fees associated with company structure
Rigid	More flexible

There are also rules regarding:

• The sole purpose test – this rule has been established to make sure that the sole purpose of an SMSF is set up to provide for the retirement of members of the super fund.
•  Limited recourse borrowing arrangements – this is set up to allow SMSFs to borrow money which is generally not allowed under the SIS Act. An LRBA is where the SMSF trustee obtains a loan and acquires an asset through a holding trust which is separated from the SMSF. The SMSF gains the beneficial interest in the acquired asset by paying off the loan.
• Maximum permissible contributions – there are contribution caps for members of an SMSF and all members must comply with these caps or face penalties. The cap amounts for members are contributions of $25,000 annually and/or $500,000 across a member’s lifetime.

What is the proposal?

3 years ago, Labor made plans to introduce an increase on tax from 15% to 30% for earnings of SMSFs that held super balances over $3 million. That plan was scrapped due to support between all parties failing. Enter 2025, with a well held majority, Labor seems hellbent on reviving that policy and pushing it through the lower and upper houses of Government to be enshrined into law. The contentious part of the proposal is that Labor have announced that:

 1. they plan to tax any gains above the threshold no matter if they have been realised yet or not; and

2. they have no plan to index the rate of taxation.

This new law, should it pass, would be brought into effect by 1 July 2026 and may have retrospective application.

How will it impact people?

Under the current proposal this would only impact an alleged 80,000 people, however noting that there is no provision for indexation, that figure would likely drastically increase over time. As inflation increases, and the general value of a dollar loses value, the $3 million threshold will start being reached by far more people than intended. The ramifications of failing to adjust the indexed rate may end up affecting people who the tax was never meant to impact and see people who have rightfully set up their futures for their old age being unfairly punished.

What can you do?

It is important to note that this proposed plan has yet to be approved and legislated for so it may not come into effect at all. However, noting the potential impact, especially in the future, it is best to read about how the changes may impact your investment strategies and open dialogue with SMSF specialists and accountants to receive advice as to how to best manage your super balances.

JHK Legal is experienced in establishing SMSFs and providing advice in respect of structuring real property investment purchases through your SMSF. If you are considering establishing a SMSF or looking to purchase real property within your existing SMSF, contact our office to speak with an experience solicitor about your self-managed super fund.

JHK Legal can also refer you to a SMSF specialist should you require investment strategy advice.

Written by Telekah Anderson

When a party (the “Judgment Creditor”) obtains a court judgment requiring another party (the “Judgment Debtor”) to pay money, there is a risk that the Judgment Debtor may fail to comply with the judgment. In such cases, the Judgment Creditor may initiate enforcement action to compel compliance. This article outlines the process for enforcing a judgment for an unsecured debt in New South Wales.

ENFORCING A JUDGMENT DEBT

Enforcement action refers to the legal steps a Judgment Creditor can take to compel a Judgment Debtor to comply with a court order. These steps are not automatic; the Judgment Creditor must initiate them. The enforcement process is generally governed by the Civil Procedure Act 2005 (NSW) and the Uniform Civil Procedure Rules 2005 (NSW) and a judgment is enforceable for 12 years from the date it is entered.

ENFORCEMENT OPTIONS

1. Examination

If the Judgment Creditor doesn’t know the financial position of the Judgment Debtor, they can send an Examination Notice to the Judgment Debtor requesting that they provide this information. This information can be used to decide what, if any, enforcement action to take.  

If a Judgment Debtor doesn’t fully comply with the Examination Notice, then the court can issue an Examination Order. This is an order that the Judgment Debtor must attend court to answer questions about their financial position and show documents. 

2. Garnishee Order

A garnishee order allows the Judgment Creditor to recover money directly from a third party who owes money to the Judgment Debtor; in most circumstances the third party is a bank or employer.  

There are two main types of garnishee orders:

2.1 Garnishee Order for Debts

This order directs a bank or other entity holding funds in the name of the Judgment Debtor to pay the Judgment Creditor.

A Garnishee Order for Debts is an order that is addressed to a bank or other financial institution where the Judgment Debtor has an account or to anyone else who holds money on the Judgment Debtor’s behalf – such as a real estate agent who collects rent for them. All of the money in the account at the date of the order is released and sent to the Judgment Creditor. If the funds do not cover the judgment debt, another garnishee can be applied for.

2.2 Garnishee Order for Wages or Salary

This order directs an employer to deduct payments from the Judgment Debtor’s wages and forward to the Judgment Creditor.

When a garnishee order is made on wages or salary, an employer must take an amount of money from the Judgment Debtor’s wages until the whole debt is paid or until the court makes another order. The amount deducted from the wage cannot be the entirety of the payment, the Judgment Debtor’s must be left with a minimum amount of money per week to meet their day-to-day expenses. 

3. Writ for the Levy of Property

There are two types of writs that can be used to enforce a NSW judgment and once issued both writs remain valid for 12 months.

3.1 A Writ for the Delivery of Goods

This writ authorises the sheriff to seize goods and return them to the Judgment Creditor, or to recover their value by seizing other property and selling it. An application can be made to change the order so that the Judgment Debtor does not have the option of paying the value of the goods.

3.2 A Writ for Levy of Property

A Writ for Levy of Property authorises the sheriff to seize and sell at auction personal property belonging to the Judgment Debtor to pay the judgment debt. If unsuccessful and the judgment debt is not paid in full a separate application can be made to the court in respect of real property.

The sheriff will charge a fee to execute a writ. The fee will be payable for each address and each visit the sheriff makes and any expenses incurred such as towing a vehicle following recovery. If the sheriff has to auction goods, a levy will also be charged. All these amounts are initially payable by the Judgment Creditor but are added onto the amount that is recovered from the Judgment Debtor.

4. Bankruptcy Proceedings

If the Judgment Debtor is an individual and owes more than $10,000, a Judgment Creditor can issue a bankruptcy notice in accordance with the Bankruptcy Act 1966 (Cth), potentially leading to bankruptcy proceedings.

Where the Judgment Debtor is an individual, the Judgment Creditor may be able to issue a bankruptcy notice for the full amount, or any balance of the judgment debt provided it meets the statutory minimum (currently $10,000).

By issuing a bankruptcy notice, the Judgment Debtor has 21 days from the date of service of the bankruptcy notice to pay the monies or to secure payment of the debt to the Judgment Creditor’s satisfaction. Failure to satisfy the requirements of a bankruptcy notice, can then entitle the Judgment Creditor to make an application to the Court for a sequestration order against the Judgment Debtor.

It is important to note that bankruptcy proceedings are not to be used as a “debt collection tool”. Therefore, a Judgment Creditor should be ready to proceed with bankruptcy and the court is not likely to be forgiving of numerous adjournments for things like payment arrangements.

5. Winding Up a Company  

For companies, if the debt exceeds $4,000, the Judgment Creditor can issue a statutory demand which may lead to winding up proceedings if not complied with.

Where the Judgment Debtor is a company, the Judgment Creditor may also wish to issue a statutory demand. A statutory demand is a demand made to the company (Judgment Debtor) for an outstanding debt under the provisions of the Corporations Act 2001 (Cth) or any balance of the judgment debt provided it meets the statutory minimum (currently $4,000).

Similarly to a bankruptcy notice, the Judgment Debtor has 21 days from the date of service of the statutory demand to pay the debt or secure payment. If a Judgment Debtor fails to take any steps to secure payment of the debt, then a Judgment Creditor can make an application for the Judgment Debtor to be wound up.

Similarly to bankruptcy proceedings, winding up proceedings are not to be used as a “debt collection tool”. Therefore, a Judgment Creditor should be ready to proceed with the wind-up application noting the court is not likely to be forgiving of numerous adjournments for things like payment arrangements. Particularly noting that section 459R of the Corporations Act 2001 (Cth) notes that an application for a company to be wound up in insolvency is to be determined within 6 months after it is made.  

ACTION BY THE JUDGMENT DEBTOR

The Judgment Debtor can respond to enforcement action in various ways.

First, they can return the goods or pay the judgment debt whether in one payment or by way of an agreement reached with the Judgment Creditor.

Secondly, they can apply to the court to pay the debt by instalments. If the court accepts this application, the Judgment Creditor can object to an instalment order within 14 days of being notified. If an objection is filed, the court will hear evidence about why an instalment order should or should not be granted, before making a final decision.

If a default judgment was entered and the Judgment Debtor did not receive the Statement of Claim, they can apply to set aside the judgment and seek an order to stay enforcement. If this order is granted, the Judgment Debtor can file a defence to the claim. The court will then hear the matter.

FURTHER INFORMATION OR ASSISTANCE

Please note this article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.

For any further information or assistance in enforcing a judgment, please get in touch with JHK Legal on (02) 8239 9600 or book an appointment through our website Contact.

Written by Hanaa Merhi

Introduction

In Australia, company directors are entrusted with significant responsibilities in overseeing the management and operations of their businesses. These duties are not only crucial to the success and compliance of the company but are also governed by strict legal obligations governed by the Corporations Act 2001 (Cth) (“The Act”).

One of the most serious risks directors face is the potential for personal liability for trading while the company is insolvent. Insolvent trading refers to the practice of allowing a company to incur debts when there is no reasonable prospect of the company being able to pay them. This can lead to severe consequences, including personal liability, disqualification from managing a company, and damage to reputation.

This article provides a comprehensive overview of director’s liability in relation to insolvent trading, highlighting key legal principles, consequences, defences, and best practices for directors to avoid personal liability.

The Legal Framework for Insolvent Trading

Section 588G of the Act outlines the responsibility of directors to prevent their company from incurring debts when it is insolvent, and the penalties for breaching this duty. According to the Act, a director has a duty to prevent insolvent trading and may be personally liable for the debts incurred by a company if:

1. a person is a director of a company at the time when the company incurs a debt; and
2. the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
3. at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
4. that time is at or after the commencement of this Act.[1]

Personal Liability for Directors

When directors allow a company to incur debts while it is insolvent, they risk facing significant personal liabilities. Section 588G(2) of the Act imposes personal liability on directors for debts incurred by the company during periods of insolvency. These liabilities can extend to civil penalties, including fines and compensation orders, and in some cases, criminal sanctions.

The potential personal consequences for directors include:

1. Penalties: The Australian Securities and Investments Commission has the authority to pursue civil penalties against directors who breach their duties under Section 588G. The penalties for insolvent trading are substantial, with directors potentially facing fines up to $200,000.

• Compensation Orders: A court may order directors to personally compensate the company for the debts incurred while the company was insolvent.

• Disqualification: Directors found guilty of insolvent trading may face disqualification from managing corporations for a period of up to 5 years.

• Criminal Liability: In cases of dishonest or fraudulent conduct, directors may face criminal charges, which carry severe penalties including imprisonment.

Defences to Insolvent Trading Liability

While directors have a legal obligation to prevent insolvent trading, the law provides several defences to mitigate the risk of liability. To successfully defend a claim of insolvent trading, directors must demonstrate that they took reasonable steps to avoid the company incurring debts while insolvent. Some common defences include:

1. Reasonable Reliance on Information: A director may avoid liability if they relied on information from a competent and reliable source, such as a financial report or advice from an accountant or auditor and had no reason to doubt its accuracy. This defence may be applicable where a director, in good faith, acted upon professional advice and did not foresee insolvency.

• The Director Took All Reasonable Steps: Directors can argue that they took all reasonable steps to prevent the company from incurring debts while insolvent. This may include demonstrating that they were proactive in seeking financial advice, reviewing the company’s financial position, or attempting to restructure the business.

• Insolvency Was Not Known or Foreseeable: Directors may also defend themselves by showing that they were not aware of the company’s insolvency, nor could they reasonably have foreseen it. This defence might be available where directors acted promptly upon discovering the company’s financial troubles, such as taking steps to put the company into administration or liquidation.

• Insolvency Did Not Result from the Debt: Another potential defence is proving that the incurrence of the debt did not directly contribute to the company’s insolvency. This may be the case where the debt was incurred after the company was already insolvent due to other financial issues.

Strategies for Directors to Avoid Insolvent Trading

While the law offers defences, the best approach for directors is to take proactive steps to prevent insolvent trading in the first place. Some strategies to mitigate risk include:

1. Regular Financial Monitoring: Directors should ensure they regularly review the company’s financial statements and cash flow projections to identify potential signs of financial distress. Proactive monitoring allows directors to detect insolvency early and take corrective action before debts are incurred.

• Seek Professional Advice: Directors should seek advice from qualified accountants, auditors, and legal professionals to ensure the company’s financial position is accurately assessed. Financial advisors can also assist in determining whether the company is insolvent or at risk of becoming insolvent.

• Implementing Effective Governance: Directors should ensure that the company’s governance structures are robust and that financial and operational risks are properly managed. This includes appointing qualified financial officers, implementing internal controls, and ensuring that the company’s management team acts in the company’s best interest.
• Early Intervention: If insolvency is suspected or imminent, directors should act quickly by seeking to restructure the business or appointing administrators to assess the company’s financial position. Taking early action can mitigate personal liability and help safeguard the interests of creditors.

Conclusion

Directors of Australian companies carry significant responsibilities in managing their companies’ financial affairs. When a company becomes insolvent, directors must be vigilant in ensuring that the company does not incur further debts that cannot be paid. Insolvent trading is a serious issue that can lead to personal liability, civil penalties, disqualification, and even criminal sanctions. However, directors are not without recourse, as there are defences available if they can demonstrate they acted prudently and in good faith.

Ultimately, the key to avoiding liability for insolvent trading lies in diligent financial management, regular monitoring of the company’s solvency, and seeking professional advice when necessary. By implementing financial monitoring and understanding the company’s obligations in accordance with the Act, directors can protect themselves and their companies from the risks associated with insolvent trading.

By Hanaa Merhi

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[1] Section 588G (1) of the Corporations Act 2001 (Cth);

Written by Sarah Jones

The changes to Australia’s anti-money laundering and counter terrorism financing (AML/CTF) regime have begun, with some of the amendments coming into effect from March 2025 (notably, the changes to the tipping off offence) and the remainder from March 2026.   

Background

On 10 December 2024, the Anti-Money Laundering and Counter-Terrorism Financing Amendment Act 2024 (Cth) (the Amendment Act) received royal assent after extensive rounds of consultation, over 100 stakeholder meetings and consideration of the international standards set by the Financial Action Task Force (of which Australia is a founding member).

The Amendment Act amends the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the AML/CTF Act). The Attorney-General’s second reading speech[1] argues that the amendments effected by the Amendment Act were required because Australia is an attractive destination to store, launder and legitimize proceeds of crime and the Amendment Act seeks to address some of the potential regulatory gaps that could allow this to continue.

The AML/CTF Act is overseen by the Australian Transaction Reports and Analysis Centre (AUSTRAC). AUSTRAC is currently undertaking consultation in respect of updating the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No 1) (the Rules) which assist in the governance of the AML/CTF Act.

Why might it affect you?

Designated Service Providers

There are a lot of businesses who are bound by the requirements of the AML/CTF Act, and this group is to be extended further by the Amendment Act.

As AUSTRAC says: if you provide one or more designated services that have a geographical link to Australia, you are a reporting entity (Reporting Entity)and have AML/CTF obligations under the AML/CTF Act.

‘Designated Services’ is reasonably extensive.[2] It includes businesses like motor vehicle dealers, money transfer services, deposit taking institutions like banks, financial service providers who hold Australia financial service licenses, and gambling services, with a geographical link to Australia, being:

• You provide services in Australia through business premises, a branch or an office (including a mobile office);
• You are an Australian business or organisation but provide services through a foreign branch or foreign subsidiary;
• You are the subsidiary of an Australian business or organisation and you provide services in a foreign country.[3]

The Amendment Act adds a further group of service providers known as “tranche 2 entities”[4] or “gate-keeper professions”[5] namely: real estate professionals, dealers in precious metals and stones, and professional service providers like solicitors, accountants, conveyancers and trust and company service providers (the Tranche 2 Entities).

Users of Service Providers

As a borrower or client using one of these services, you may be on the receiving end of extra questions or requirements from a Reporting Entity (eg: your service provider, lender, lawyer, etc) who is making sure they comply with their obligations under the AML/CTF Act and the Rules.

What are the broad expectations of the regime?

In order to deter, detect and disrupt money laundering and terrorism financing, Australia has implemented the AML/CTF Act and the Rules. It requires providers of designated services to meet obligations by:

• Enrolment with AUSTRAC;
• Development and maintenance of an AML program. This must be tailored to the particular business of the Reporting Entity;
• Proper conduct of “know your customer” as part of the AML program. This must be initial and ongoing;
• Reporting of certain transactions/matters;
• Submission of compliance reports;
• Maintenance of records;
• Keeping AUSTRAC informed of changes; and
• In some cases for particularly large companies, payment of an annual levy.

As an overarching position, the Australian government (by the AML/ATF Act) also expects and requires that each business assess the risks of potential money laundering or terrorism financing when providing a designated service to a customer.

What are the changes?

The Amendment Act seeks to make changes to meet three key objectives:

• To extend the AML/CTF regime to higher risk service providers (the Tranche 2 Entities);
• To improve the effectiveness of the AML/CTF regime by making it simpler and clearer for Reporting Entities to comply; and
• To modernise the regime to reflect changing business structures, technologies and illicit ideologies.[6]

Extension of the regime to Tranche 2 Entities

As set out above, the Amendment Act will require Tranche 2 Entities (where they fit within the renewed definitions[7]) to comply with the AML/CTF Act and the Rules moving forward.

The AML/CTF Act will apply to the Tranche 2 Entities from 1 July 2026, with an ability to enrol with AUSTRAC from 31 March 2026.

Simpler and Clearer

The Amendment Act makes some changes to the current program requirements. The intention is to be a more flexible approach rather than a “tick box” compliance approach.[8] The updated program requirements include:

• An overarching risk assessment to be made by the Reporting Entity;
• Proportionate risk mitigation measures to be taken (to respond to that risk);
  • It will no longer be enough to simply have a policy in place. A Reporting Entity must engage in risk management appropriate to the nature, size and complexity of the entity’s business.
• A change to reporting groups;
  • The primary concept for grouping reporting entities (and other entities) for the purpose of group-wide risk management and compliance arrangements will be the ‘reporting group’. Each member of a reporting group is referred to as an ‘ordinary member’ but each group will have a ‘lead entity’ which will have a broad responsibility for a variety of matters.
• A designated service provider having a “governing body” and compliance officer;
• Simplified obligations for Australian companies operating overseas through a foreign branch.

The Amendment Act also makes changes to requirements for customer due diligence (CDD). These obligations apply in the scenarios newly described as a ‘business relationship’ and ‘occasional transactions’. Initial and ongoing CDD obligations may be simplified if the risk of the customer is low[9] and the requirements of the revised Rules are met. On the other hand, initial and ongoing CDD obligations must be enhanced if the risk of the customer is high[10] and certain specified requirements, including those in the revised Rules, are met.

Finally, there are also some changes to the tipping off offence so that the offence is now focused on stopping Reporting Entities disclosing information which could prejudice an investigation by AUSTRAC.

Modernisation

There have also been changes to matters in the AML/CTF Act to allow for a modernised approach and references. For instance:

• A streamlining of funds transfers to a single value transfer chain to facilitate the passage of key information about the transfer (regardless of the technology that was used to facilitate the transfer);
• A new definition of “virtual asset” has been inserted by the Amendment Act to replace “digital currency” throughout the AML/CTF Act to encompass things like non fungible tokens and other asset types which had not originally been expressly included;
• Further designated services have been added within the scope of virtual assets like the safekeeping or administration of virtual assets or exchanged between one or more other forms of virtual assets.

Further Information

If you would like advice on your obligations under the AML/CTF Act and the Rules, whether as a result of the Amendment Act or generally, please get in touch with JHK Legal on 02 8239 9600 or book an appointment through our website Contact.

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[1] Australia, Parliamentary Debates, House of Representatives, 11 September 2024 (Mark Dreyfus, Attorney-General and Cabinet Secretary) (‘Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 – Second Reading’).

[2] Section 6 of the AML/CTF Act.

[3] AUSTRAC enrolment website.

[4] Note 1.

[5] Supplementary Explanatory Memorandum, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth) cl 7.

[6] Explanatory Memorandum, Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2024 (Cth) cl 7.

[7] For example, some barristers are excluded and there are specific exclusions that apply to legal professional privilege.

[8] Note 1.

[9] AUSTRAC is to provide guidance on what this entails.

[10] Again, AUSTRAC is to provide guidance on what this entails.

Written By: Craig Reynolds

Artificial intelligence (“AI”) has quickly become a part of our everyday life, with its quick adoption by individuals and companies. In November 2024, McKinsey & Company reported that in just 10 months, the number of respondent organisations that reported they use generative AI regularly almost doubled to 65% of the total respondents.[1]

But with new technology brings new challenges, in particular the emerging risk of deepfake-driven fraud, particularly as practitioners and organisations are increasingly using digital methods to verify the identities of individuals.

What is a deepfake?

Deepfakes, or synthetic media, are realistic fake videos, images and/or sound recordings designed to imitate another person’s appearance and/or voice.[2]

Although manipulation of this kind to media is not new, the rapid development of AI has enabled deepfakes to be utilised in real time, unlike earlier technologies that altered media after it was created.[3]

But could this technology be used to emulate the identity of a person over a live audio-visual call? Conventional wisdom would suggest no. However, given that leading AI developers predict AI capabilities are doubling every six months, this position may be misguided.[4]

Current position in Australia

Presently, there is little to no formal acknowledgement of deepfakes in statue or common law regarding commercial matters.

It appears that the only codified formal definition relates to the non-consensual transmission of sexual material, defining a deepfake as “includes images, videos or audio depicting a person that have been edited or entirely created using digital technology (including artificial intelligence), generating a realistic but false depiction of the person”.[5]

In September 2024, the Australian Government proposed mandatory guidelines relating to AI and its regulation acknowledging that the “current regulatory system [of Australia] is not fit for purpose to respond to the distinct risks that AI poses”.[6]

These guidelines appear to aim to establish legislation governing the development and use of AI by professionals, rather than focusing on fraudulent use of this technology by individuals.

Despite this lack of codification, the open definition of reasonable steps when it comes to verifying the identity of a signatory for a mortgagor is likely to capture deepfakes.

Identifying the mortgagor

All Australian States and Territories have adopted standards for verifying the identity of a signatory for a mortgagor.[7]  These standards generally require the mortgagee or its agent (such as a legal practitioner) to take reasonable steps to verify the identity of the signatory for the mortgagor at the time the mortgage for land (“mortgage”) is being executed.

In most jurisdictions, failure to take reasonable steps can lead to the Registrar voiding a mortgage or denying the mortgagee indefeasibility.[8]

At a minimum, the mortgagee or its agent at the time of the mortgage being executed generally must:

1. Review and certify as a true copy 100 points of identification (for example a current passport and driver licence) of the person signing the mortgage on behalf of the mortgagor;
2. Compare the likeness of the photo in the identification to the signatory;
3. Ensure the details between the identification documents are identical and any discrepancies to be addressed prior to execution;
4. Ensure the signatory has authority to sign the mortgage for the mortgagor; and
5. Conduct all relevant searches, such as an ASIC search when the mortgagor is a company.

The above only serves as a guide. What constitutes ‘reasonable steps’ will be determined on a case-by-case basis, having regard to the specific circumstances and facts, including the relationship between the parties, the mortgagee’s knowledge, and any unusual transaction features.[9]

The open definition of reasonable steps therefore should provide pause when considering rapidly developing technology surrounding deepfakes and how it may impact what is deemed reasonable when using digital methods to identify the mortgagor’s signatory.

Does this mean that using digital means to identify people and execute a mortgage should not be utilised? The short answer is no, but these means should be used with care.

A case for digital means

Although this article may seem to imply that digital methods for mortgagor signatory identification and execution pose excessive risks compared to in-person meetings and wet-ink signatures, this is not accurate.

Digital means provide numerous additional tools to ensure the signatory is who they say they are, such as:

1. The Australian Government Document Verification Service to verify that the details of the identification match what is recorded by the Australian Government;
2. AI assisted photo recognition in real time;
3. Liveness check of the person being identified;
4. Two-factor authentication codes for a signatory to access and sign documents digitally; and
5. Recording of the location of the signatory at the time they executed the documents.

What is key is to ensure that a platform used for a signatory for a mortgagor is safe, secure and prevents the use of third party software. Taking such steps minimises the risk of a person fraudulently executing a mortgage and/or contravening the requirement to take reasonable steps to verify the identity of a signatory for a mortgagor.

Caution is also necessary when electronically executing mortgages or witnessing mortgagor signatures, as not all jurisdictions permit these methods as well as utilising certain digital means could result in a breach of privacy laws. However, commentary relating to these issues are outside of the scope of this article.

Conclusion

Digital means to verify the identity of a signatory for a mortgagor is being adopted rapidly, as it enables quick and convenient verification of a person at any time or place.

However, the separation digital means creates, provides an opportunity for fraudulent actors to utilise AI to impersonate the person being identified.

It follows that a prudent verifier utilising digital means to verify the identity of a signatory must undertake their own research to ensure that they are satisfied as to the integrity of the verification platform and that utilising such platform is taking reasonable steps in their jurisdiction.

Regrettably, no specific law currently addresses deepfakes in mortgage impersonation cases, leaving it to the verifier to ensure they have taken reasonable steps to prevent deepfake impersonation of authorised mortgage signatories.

Given the risks and potential loss from an invalid mortgage, when in doubt, it seems that best practice would be to verify the mortgagor signatory’s identity via an in-person meeting.

Please contact the team at JHK Legal if you have any questions in relation to this Artificial intelligence and its impacts on verifying a Mortgagor’s identity, we would be happy to assist.

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[1] ‘The state of AI: How organizations are rewiring to capture value’ McKinsey & Company (Web Page, 3 April 2025) https://www.mckinsey.com/capabilities/quantumblack/our-insights/the-state-of-ai

[2]  eSafety Commissioner, Deepfake trends and challenges — position statement (Statement published, 23 January 2022)

[3] Ibid

[4] Satya Nadella, ‘Full Keynote: Satya Nadella at Microsoft Ignite 2024’ 00:04:28 – 00:05:48 <https://youtu.be/3YiB2OvK6sY?si=bVexUBgQNxF1Uq7z>

[5] Criminal Code Act 1995 (Cth) s 474.17A (2) (b)

[6] Australian Government Department of Industry, Science and Resources Proposals Paper for Introducing Mandatory Guardrails for AI in High-Risk Settings (Proposal paper, September 2024)

[7] Transfer of Land Act 1958 (Vic) ss 87A (1)-(2), 87B (1)-(2), Real Property Act 1900 (NSW) s 56C (1), (2), Land Title Act 1994 (Qld) ss 11A, 11B, Land Titles Act 1925 (ACT) ss 48BA, 48BB, Land Title Act 2000 (NT) ss 78A, 81A, Real Property Act 1886 (SA) s128A, Land Titles Act 1980 (Tas) s 160A (2) and Recorders Directions Version 1.0 7 March 2024, Transfer of Land Act 1893 (WA) 81K and Customer Information Bulletin dated 24 May 2017

[8] Transfer of Land Act 1958 (Vic) ss 87A (3), 87B (3), Real Property Act 1900 (NSW) s 56C (6), Land Title Act 1994 (Qld) s 185, Land Titles Act 1925 (ACT) s 165, Land Title Act 2000 (NT) s 85A, Real Property Act 1886 (SA) s128A (i)

[9] C & F Nominees Mortgage Securities Ltd v Karbotli [2021] VSCA 134 [96]

Written by Sarah Olley

A Share Sale Agreement (SSA) is a legally binding contract that governs the sale of shares in a company between a buyer and a seller. These agreements are fundamental in mergers and acquisitions, joint ventures, and other corporate restructuring activities.

When the party acquiring the shares, or its holding company, looks to obtain financial assistance, undertaking the whitewash process may be required to ensure that the transaction is legally compliant and ensures the shareholders of the company approve the financial assistance.

This article delves into what an SSA entails, some circumstances under which the whitewash process is required, and the steps to take for compliance under Australian law.

1. What is an SSA?

An SSA is an agreement between a seller and a buyer in which the seller agrees to transfer ownership of shares in a company to the buyer in exchange for an agreed consideration. This agreement governs various aspects of the sale, including the number and type of shares being transferred, payment terms, warranties, representations, and conditions that must be fulfilled for the sale to proceed.

Key Elements of an SSA:

• Parties Involved: The SSA identifies the buyer(s) and seller(s), along with their respective rights and obligations.
• Sale Price and Payment Terms: It specifies the purchase price for the shares and the manner in which the payment will be made (e.g., lump sum, instalments, etc.).
• Warranties and Representations: The seller typically provides assurances regarding the financial status of the company, ownership of shares, and confirms there are no undisclosed liabilities. These warranties protect the buyer from any potential legal or financial surprises post completion.
• Conditions Precedent: These are conditions that must be met before completion can be effected, such as regulatory approvals, third-party consents, or shareholder approvals.
• Post-Completion Obligations: After the transaction is completed, there may be obligations related to the transition, such as non-compete clauses, employee retention, or the management of intellectual property.

2. What is the Whitewash Process?

The whitewash process refers to a legal procedure that allows a company to provide financial assistance without violating certain provisions under Australian law, specifically the Corporations Act 2001 (Cth) (“the Act”). Under Section 260A of the Act, a company is generally prohibited from providing financial assistance in connection with the acquisition of its own shares where assistance could potentially harm the company’s financial position or mislead its shareholders.

The whitewash process, set out at section 260B of the Act, allows companies to bypass this restriction by following a legal procedure to ensure the transaction is conducted in a transparent and compliant manner. It is most often associated with situations where a company provides financial assistance (such as loans or guarantees) for the acquisition of its own shares.

3. When is the Whitewash Process Required for an SSA?

While the whitewash process is not required in every SSA, there are specific circumstances where it becomes necessary. The whitewash process is primarily needed in cases where the sale involves financial assistance. Below is a common scenario that may require a whitewash:

a) Financial Assistance for the Acquisition of Shares

Under Section 260A of the Act, a company is prohibited from providing financial assistance to a person to acquire its own shares, unless the transaction is approved through the whitewash procedure.

This provision ensures that companies do not put themselves at financial risk by providing loans, guarantees, or other forms of financial assistance to help a shareholder purchase additional shares in the company.

For example, if a company agrees to lend money or offer a guarantee to a buyer to enable them to purchase shares in the company, this constitutes financial assistance. To proceed with such a transaction legally, the company must follow the whitewash process to obtain shareholder approval and meet other requirements set forth under the Act.

4. The Whitewash Process: Key Steps and Requirements

Below are the key steps involved in the whitewash process:

a) Prepare a Draft Notice of the General Meeting:

The notice must include the resolutions to be considered, along with the general information of the meeting such as the date, time, and place of the meeting. There should also be an adequate explanatory memorandum attached that details what the transaction is, why it would be considered financial assistance, the benefits/negatives of the shareholders agreeing to the financial assistance and other relevant information regarding the financial assistance.

b) The Directors Approve the Draft Notice and Lodge Forms 2602 with ASIC:

The company’s directors must then hold a board meeting or sign a circular resolution to approve the draft notice and explanatory memorandum noted above. They must also agree to convene a general meeting of shareholders, which can be called on short notice if members agree or with a 21-day notice.

Once approved by the directors, the Form 2602 attaching the notice of general meeting and explanatory memorandum is required to be lodged with ASIC. This form must be lodged at least 22 days before any financial assistance is granted.

c) Notice of the Meeting is sent to Shareholders:

The notice of general meeting and explanatory memorandum is then required to be sent to all shareholders after lodgement of the Form 2602. This notice must be sent at least 21 days before the meeting itself (or otherwise provided for under the company’s constitution), or otherwise can be issued on shorter notice if agreed by the shareholders.

d) Hold a General Meeting of Shareholders and Lodge Forms 2205 and 2601 with ASIC:

The company is then required to hold the general meeting where shareholders vote on the items in the notice and explanatory memorandum and if they do or do not approve the financial assistance the company proposes to receive/provide to the proposed new shareholder under the SSA.

e) Lodge a Second and Third Form with ASIC:

If the shareholders agree to the financial assistance being provided, the company then needs to lodge with ASIC a Form 2205 with a copy of the signed resolution authorising same (this must be lodged within 14 days of the passing of the resolution), and a Form 2601. These forms must be lodged at least 14 days before the financial assistance is provided.

f) Proceed with Providing Financial Assistance:

Once all of the above has been completed and the 14 day period has passed, the company can proceed with providing the financial assistance under the SSA.

5. Risks of Non-Compliance

Failure to properly follow the whitewash process can result in significant legal and financial risks for the company. If the required approvals by company members and shareholders and the relevant processes under the Act are not followed, the transaction could be declared void, which may lead to the reversal of the sale or financial assistance. Further, non-compliance with the Act may lead to penalties imposed by regulatory authorities such as ASIC.

It is important to note that ASIC however will only confirm receipt of the forms and documents, and it does not approve or consider the validity of the financial assistance. Shareholders are reminded it is solely their decision and responsibility to consider whether or not the company should give the financial assistance and vote accordingly.

Importance of Legal Guidance in an SSA

An SSA is a crucial tool in transacting in the corporate world, and where financial assistance becomes an item that could be considered for a company to fund SSAs, following the whitewash process becomes essential. The whitewash procedure ensures that transactions are compliant with the law and transparent to the shareholders in the company itself.

Businesses engaging in SSAs involving any form of financial assistance should seek legal advice to navigate the whitewash process effectively. Please contact the team at JHK Legal if you have any questions in relation to this process and we would be happy to assist.

Written by: Berkan Balaban

The Australian Banking Association (ABA) has introduced an updated Banking Code of Practice (Code), approved by the Australian Securities and Investments Commission (ASIC), which commenced on 28 February 2025.

This revised Code aims to elevate standards within the banking industry, offering enhanced protections and fostering greater trust between banks and their customers.

What is the Banking Code of Practice, its scope and applicability:

The Banking Code of Practice serves as a framework outlining the standards of practice and service for banks when dealing with current and prospective customers. It applies to individuals, small businesses, and guarantors engaged with banks that are signatories to the Code. By subscribing to the Code, banks commit to ethical conduct, transparency, and responsible banking practices, thereby integrating these standards into their contractual agreements with customers.  The Code provides safeguards and protections often not set out in the law, or otherwise complementing legal requirements and, in some areas, setting higher standards than the law.

Penalties and Repercussions for Code Breaches

While the Banking Code of Practice is a voluntary commitment by subscribing banks, adherence is closely monitored by the Banking Code Compliance Committee (BCCC). The BCCC investigates alleged breaches and can publicly name banks found in violation, leading to reputational damage. Additionally, breaches may result in enforcement actions by regulatory bodies such as the Australian Securities and Investments Commission (ASIC), which can impose fines and other penalties. For example, recent investigations into banks charging fees to deceased customers have led to significant scrutiny and potential enforcement actions.

Banks Subscribed to the Code

A comprehensive list of banks that have adopted the Banking Code of Practice is maintained by the Australian Banking Association (ABA). This list includes major financial institutions (Subscribers) such as:

• Arab Bank Australia Limited
• Australia and New Zealand Banking Group (ANZ)
• Bank of Queensland (BOQ)
• Commonwealth Bank (CBA)
• ING Bank Australia
• Macquarie Bank
• Westpac Bank

These banks, among others, have committed to upholding the standards set forth in the Code.

Key Changes in the 2025 Code

The 2025 Banking Code of Practice introduces several significant enhancements including but not limited to:

• Expanded Definition of Small Business: The threshold for aggregate borrowings has been increased from $3 million to $5 million, extending Code protections to an additional 10,000 small businesses.
• Enhanced Conduct Standards: amendments to provide services “efficiently, honestly, and fairly”, aligning with obligations under the Corporations Act and the National Consumer Credit Protection Act.
• Improved Inclusivity and Accessibility: offering better support through interpreter services and accessible information, ensuring services are more inclusive for all customers.
• Strengthened Guarantor Protections: requirement to take reasonable steps to meet with prospective guarantors before accepting a guarantee that is provided without obtaining independent legal advice first. Subscribers are further required to discuss the customer’s circumstances and alternatives before proceeding with the sale of a guarantor’s primary residence.
• Enhanced Protections for Vulnerable Customers:  The Code expands its definition of vulnerable customers to include:
  • Disability
  • Serious medical conditions
  • Financial difficulty
  • Literacy and language barriers, including limited English
  • Cultural background
  • Aboriginal or Torres Strait Islander status
  • Remote locations
  • Incarceration or recent release from incarceration

Subscribers are now obligated to take extra care with customers experiencing vulnerability by:

1. Facilitating the appointment of third-party representatives, such as lawyers or financial counsellors, to act on behalf of the customer.
2. Providing referrals to external support services, including interpreter services and the National Relay Service, to enhance accessibility and inclusivity.

Key Take-Aways: Influence on Non-Bank Lenders and Industry Standards

Although the Code applies specifically to its subscribing banks, the ethical standards it establishes set a benchmark for the broader finance industry. An argument can be made that this heightened standard may influence court scrutiny of non-bank lenders not subscribed to the Code, especially if they engage in unreasonable or unethical practices. Courts could view the Code as reflecting industry best practices, thereby holding non-bank lenders to similar expectations. This dynamic encourages non-bank lenders to align or at the very least begin to take steps towards aligning their practices with the ethical standards established by the Code to mitigate legal risks and maintain competitiveness.

Both bank and non-bank lenders must remain vigilant in adapting to these changes to uphold integrity and protect consumer interests.

If you are a lender and have any questions regarding your policies and procedures to meet these evolving expectations, please do not hesitate to contact us at JHK Legal.

Written by: Chelsea Lo Giudice

With the rise of electronic conveyancing, property transactions have become more efficient and accessible. However, this shift also introduces new risks. To address these risks, Priority Notices play a crucial role in protecting interests in land dealings.

Origins of Priority Notices

Priority Notices were introduced as part of land title reforms to enhance security and transparency in property transactions. Cases like Black v Garnock [2007] HCA 31 highlighted the vulnerability of unregistered interests in property transactions. In that case, a purchaser’s equitable interest was overridden by an execution creditor by way of a writ which was dated later than the purchasers’ contract. This case underscored the need for a mechanism to secure priority between contract execution and registration, ultimately leading to the introduction of Priority Notices. They were designed to give purchasers and/ or lenders confidence that their dealings would not be displaced by subsequent transactions lodged before registration could be completed.

What is a Priority Notice?

A Priority Notice is a formal notification lodged with the relevant Land Titles Office to indicate an intention to register a specific dealing, such as a transfer or mortgage, against a property title. It acts as a safeguard for the registering party by preventing the registration of other interests that may interfere with their priority that may potentially lodged in between.

Priority Notices function similarly to caveats but are temporary and specific to intended dealings. They serve to:

• Protect a purchaser’s or lender’s interest prior to settlement;
• Ensure transparency in the registration process by detailing the order of which instruments are to be lodged;
• Allow parties to secure priority in advance of formal registration;
• Provide an effective mechanism to prevent unforeseen competing dealings from affecting settlement.

Which States Recognize Priority Notices?

As at the date of this article, Victoria, New South Wales, Queensland, South Australia and Tasmania are the only states have adopted Priority Notices as part of their land title frameworks.

Each jurisdiction has specific rules regarding the duration, lodgement, and extension of Priority Notices.

Duration of a Priority Notice

Once lodged, a Priority Notice remains in effect for:

• 60 days – Victoria, New South Wales, Queensland, South Australia
• 90 days – Tasmania

In most states, an extension of 30 days can be applied for, but the extension request must be submitted before the original notice expires.

Lodging a Priority Notice

Priority Notices must be lodged electronically via the respective state’s online systems:

• Victoria & New South Wales – PEXA
• Queensland – PEXA or paper lodgement (with exemption request)
• South Australia – South Australian Integrated Land Information System
• Tasmania – Tasmanian Online Land Dealings

Generally, the legal representative of the party seeking to register a dealing will handle the lodgement. If an error is made, the Priority Notice must be withdrawn and re-lodged, which may affect the priority of the dealing.

What Dealings Can Still Be Lodged Despite a Priority Notice?

While Priority Notices provide significant protection, they do not completely freeze a property title. Certain dealings can still be lodged despite an active Priority Notice, including but not limited to:

• Caveats
• Court orders affecting land ownership
• Statutory charges (e.g., land tax charges)

This limitation ensures that essential legal processes and statutory rights are not obstructed, even when a Priority Notice is in place.

Advantages and Disadvantages of Priority Notices

Advantages:

• Provides an effective, low-cost alternative to a caveat.
• Protects purchasers and lenders to a degree from competing registrations before settlement.
• Ensures transparency in property dealings.
• Establishes priority between contract execution and registration.
• Especially useful for paper settlements as it acts as interim security for purchasers or incoming mortgagees in between the time of paper settlement and lodgement of all paper dealings in-person following settlement.

Disadvantages:

• Temporary in nature; cannot be used as a long-term security measure as the Priority Notice lapses after a certain timeframe.
• Errors require withdrawal and re-lodgement, which affects priority. The lodging party must ensure the Priority Notice is correctly prepared and lodged
• Improper lodgement can result in liability for compensation to affected parties.
• Does not prevent all types of dealings from being registered.

Key Takeaways for Lenders

For lenders and financiers, Priority Notices provide a subtle yet vital layer of protection in property transactions. By ensuring that their interests are secured ahead of settlement, lenders can mitigate risks and prevent unauthorized dealings from being lodged/ ranked ahead of its interest prior to actual registration. However, it is essential to monitor expiry dates and ensure compliance with jurisdictional requirements to maintain their effectiveness.

As the property sector continues to evolve with electronic conveyancing, Priority Notices remain a fundamental tool in securing property transactions efficiently and securely.

We have extensive experience with preparation and lodgement of Priority Notices and can assist with any questions you may have.

Feel free to reach out to JHK Legal for further information or guidance around Priority Notices by calling us on03 9927 3600 or emailing contact@jhklegal.com.au.

Please be advised that our Melbourne Office will be moving to new premises.
From Monday 4 November 2024 our new office location address will be;

Level 10, 34 Queen Street, Melbourne VIC 3000.

All other details will remain the same.

Written by: Sarah Olley

Loan agreements are foundational components of financial transactions, defining the terms under which lenders provide funds to borrowers. These agreements can be for loans of any size, with borrowers being individuals or corporate entity structures and can be lent formally through a bank/recognised company lender, or otherwise some other examples include loans between directors/shareholders and companies (known as director/shareholder loans), family members or friends who wish to document the loan transaction in a formal manner.

A well-structured loan agreement not only protects the interests of both parties, but also ensures compliance with any applicable laws. Additionally, understanding the various types of securities that can be utilised to secure a loan is crucial for minimising risks and enhancing the enforceability of the agreement, particularly when considering the position and risk of the lender when providing the funds. This article will discuss some key features of loan agreements and highlight the different types of securities that lenders can employ when loaning funds in Australia.

What is a Loan Agreement?

A loan agreement is a formal contract that defines the relationship between a lender and a borrower. It includes critical details such as the amount of the loan, the interest rate, repayment terms, and any additional conditions that may apply. Loan agreements can vary significantly based on the type of loan (i.e personal loans, property loans, or business loans) and the specific needs of the parties involved.

Essential Elements of a Loan Agreement

• Identifying the Parties: The agreement must clearly state the names and addresses of the lender and borrower (if corporate entities, these must also include details as noted with the Australian Securities and Investments Commission).
• Loan Amount: This specifies the total sum being borrowed, which must be explicitly articulated to prevent misunderstandings or disputes later on. If payments are being made in instalments or otherwise after the completion of certain conditions, this, along with the amounts of same, should be included for clarity so that all parties know what amounts are due when.
• Interest Rate: The agreement should detail whether the interest rate is fixed or variable and for how much/how it will be calculated (i.e if there will be interest only period, if there will be an interest free term, or otherwise as specified).
• Repayment Terms: This section outlines the repayment schedule, detailing how frequently payments will be made (i.e monthly, quarterly, yearly), the due dates, and any penalties for late payments. Clear repayment terms are critical for maintaining transparency between the parties.
• Collateral and Security Interests: If applicable, the agreement should specify any collateral or security interests that the lender will hold against the loan. This is vital for protecting the lender’s investment and will be discussed further in this article.
• Default and Remedies: This outlines what constitutes a default—such as missed payments—and the remedies available to the lender, including the right to accelerate the loan, charge default interest or fees, and can include repossessing/forcing the sale of the collateral.
• Governing Law: The agreement should specify which jurisdiction’s laws govern the contract. This is particularly important in Australia, where laws can differ across states and territories.
• Dispute Resolution: Including a clause on how disputes will be managed—whether through mediation, arbitration, or litigation—can ensure both parties are on the same page as to how any disputes are to be dealt with.

Types of Securities in Loan Agreements

As previously noted, taking security for a loan is important for lenders in respect of a number of different types of loans (excluding small amount credit contract loans) as it mitigates the risks involved in lending: if a borrower fails to repay the loan, the lender can call on that security. Various types of securities can be taken, each offering different levels of protection and risk. Below are some commonly used securities that can be established with loan agreements:

Mortgages (Real Property Security)

A mortgage is one of the most prevalent forms of security taken by lenders, in which the borrower grants the lender a security interest in real estate that the lender will have a registered interest as a mortgagee noted over the title of the property. If the borrower defaults on the loan, the lender can take possession of the property through foreclosure (each State has applicable and specifically relevant laws in relation to the sale).

Key considerations:

• Registration: In order for mortgages to be enforceable against third parties, it is highly recommended that the mortgage is registered with the relevant state or territory land titles registry. By registering the mortgage, it formally establishes the lender’s priority over other creditors and prevents any dealings of the property without the lender’s involvement (i.e a house cannot be sold without a release of the mortgage being completed at settlement).
• Property Valuation: Lenders typically require a valuation of the property to determine its market value, helping to assess the loan-to-value ratio and associated risks.
• Priority Rights: Registered mortgages generally hold priority over unsecured creditors in the event of the borrower’s insolvency. This makes them a relatively secure form of lending.

Personal Property Security

Under the Personal Property Securities Act 2009 (Cth) (PPSA), lenders may consider taking security interests in personal property. This can encompass a broad range of assets, including vehicles, machinery, inventory, and even intellectual property and can sometimes be documented in a separate General Security Agreement.

Important Points:

• PPSR Registration: To establish priority and often, to perfect the security interest so that it is enforceable, secured interests in personal property must be registered on the Personal Property Securities Register (PPSR). This is a relatively cheap and straightforward way for lenders to secure their interests over certain personal property such as cars, company assets, boats, used goods and intellectual property. Failure to register may result in your security being invalid and therefore difficult to recover in the instance recovery is required (i.e default of loan). Otherwise, the lender may lose priority to other creditors, where in the instance of insolvency/bankruptcy the order of priority will be the order of registration of secured creditors before moving to unsecured creditors.
• Types of Security Interests: Lenders can create various forms of security interests, including fixed and floating charges over all present and after acquired property of the borrower or otherwise over the specific asset.
• Enforcement Rights: In the event of default, the lender may seize the collateral as outlined in the loan agreement, provided the process aligns with the PPSA. This ensures that lenders can effectively reclaim their investment if necessary.

Guarantees

A guarantee involves a commitment from a third party to assume responsibility for the borrower’s obligations under the loan agreement. Should the borrower default, the guarantor is liable to repay the debt. This additional layer of security often strengthens the lender’s position.

Key Aspects:

• Assessment of the Guarantor: Lenders typically evaluate the financial stability and creditworthiness of the guarantor to ensure they can meet the obligations if required. This assessment may include reviewing the guarantor’s income, assets, and overall financial situation.
• Written Documentation: Guarantees must be documented in writing and signed by the guarantor to be legally enforceable. Oral guarantees generally lack legal standing in Australia.
• Defined Limitations: The lender may choose to limit the guarantee to a specific amount or duration, clearly defining the extent of the guarantor’s liability. This protects both the lender and the guarantor from unforeseen obligations.

Practical Considerations for Lenders

When drafting loan agreements and selecting the type of security to be utilised, lenders should keep the following points in mind:

1. Risk Assessment: Conduct a thorough evaluation of the borrower’s creditworthiness and the associated risks before finalising the loan agreement and security arrangements. A detailed assessment can guide the choice of appropriate security.
2. Legal Compliance: Ensure adherence to all relevant laws and regulations, including the PPSA and relevant state land titles registry requirements to safeguard the lender’s interests. Regularly reviewing updates to regulations is crucial to ensuring the loan agreement is sufficiently connected to the security taken.
3. Clear and Precise Documentation: All terms, conditions, and securities should be clearly documented in the loan agreement to avoid misunderstandings and ensure enforceability. Ambiguities can lead to disputes and legal challenges.
4. Professional Advice: Consult legal experts when drafting complex agreements or dealing with unique forms of security to cover all necessary aspects and mitigate risks effectively. Legal professionals can provide valuable insights into structuring agreements that protect the lender’s interests.

Conclusion

Loan agreements are vital to the lending process, and understanding the various types of securities available for securing these loans is essential for protecting the interests of both lenders and borrowers. Securities protect the interest of the borrower in so far that if the borrower defaults on a loan, the lender than recover payment directly through that property the security is taken over, or otherwise through any guarantees that have been made with the loan.

By clearly articulating the terms of the loan and appropriately securing it, parties can mitigate risks and provide clarity on each party’s legal standing right at the commencement of the loan. Whether utilising mortgages, personal property securities and/or guarantees, careful attention to detail and legal compliance are crucial for successful lending relationships. Engaging legal professionals can further ensure that agreements are comprehensive, enforceable, and tailored to the specific needs of the transaction. Ultimately, a well-structured loan agreement backed by appropriate securities can facilitate positive financial outcomes for both lenders and borrowers, fostering a robust lending environment.