High Court lays down the law on asset-based lending

A recent case decided by the High Court found that the lender of an asset-based facility acted unconscionably in making a loan available to the borrower and ordered that the loan and mortgage be set aside.

Key Takeaways

• Lenders must carefully scrutinize the circumstances of prospective borrowers and their ability to repay a proposed loan.
• If a lender deliberately fails to find out information about a borrower's financial circumstances and capacity to repay a proposed loan, a Court may step in and intervene when the lender attempts to enforce its security after the borrower defaults on that loan.
• In some circumstances, the fact that a lender has received certificates of independent financial and legal advice will not prevent a finding of unconscionable conduct.