The Sydney property market has seen enormous growth. The median price has risen by some 412% in the past 25 years. Pegged to this has been the growth in certain industries such as trades and services or manufacturing.
It is common for us to meet clients with the following story:
This common scenario leaves the Client and the business exposed. The Client’s loan is not secured, thereby pushing the client into a non-secured creditors list.
If the Client had secured their loan by way of a Loan Agreement and Security Agreement which grants the registration of a security interest on the PPSR, the Client would be a secured creditor and thus have a number of options to restructure the business. This may ensure the continued viability of the business and protection of the Client’s own personal assets.
In a market which is dominated by property and the personal wealth of company directors, it is crucial that proper documentation is put in place to protect the interests of all parties.
Section 441A of the Corporations Act 2001 (Cth) grants a secured creditor the right to enforce their interest even when the company goes into administration. This is an extremely power provision for secured creditors.
Now is the time to act to ensure that Directors, Shareholders and related party’s loans are secured and perfected in accordance with the requirements of the Personal Property Security Register.
The Takeaway
Not securing a loan is like asking a thief to hold your money rather than a bank.
If you have further questions, please contact James Frank at jfrank@franklaw.com.au.
This is not legal advice.