Numerous cases have examined the conscionability of asset-based
lending. The cases say asset-based lending is not in itself
unconscionable. A recent High Court decision1 strikes at
the foundation of the practices of asset-based lending. The
decision erodes the ability of asset-based lenders to rely on
artificial structures to disregard the borrower's or
guarantor's financial and other circumstances. In fact, it
stated that the deployment of certain generally accepted practices
to protect lenders may in certain circumstances be evidence
pointing to an exploitive state of mind on the part of the
lender.2
Asset-based lending
Asset-based lending is a type of lending where the loan is made
exclusively, based on the value of the assets securing the loan,
"without regard to the ability of the borrower to repay by
instalments under the contract". The lender knows that if the
borrower defaults there is adequate security to repay the
loan.3
