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ARTICLE · 22 MARCH 2022

Unconscionability in asset-based lending - lessons from Stubbings v Jams

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Whilst asset-based lending itself is not unconscionable, certain conduct may render loans and security unenforceable.

AustraliaFinance and Banking
Craig Ensor
Craig Ensor
Michelle Gordon
Michelle Gordon
Valarie Brewer
Valarie Brewer
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In the recent case of Stubbings v Jams 2 Pty Ltd [2022] HCA 6, the High Court has allowed an appeal relating to asset-based lending (ABL) and the enforceability of security associated with these loans. The High Court held that whilst asset-based lending itself is not unconscionable, certain conduct may render loans and security unenforceable. The decision is a reminder that lenders should ensure the circumstances of potential borrowers are fully scrutinised prior to lending.

In this Insight we discuss the decision and lessons for lenders and borrowers alike.

Background

ABL is the practice of providing credit based solely on an assessment of the value of assets acting as security for the loan, with no consideration of a borrower's capacity to repay the loans through income or other assets.

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