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Unfair loans

Unfair Loans may arise in circumstances where a loan to a company is unfair and meets either of the following tests (as set out in s 588FD of the Corporations Act 2001 (Cth)):

  • The interest on the loan was extortionate when the loan was made, or has since become extortionate because of a variation; or
  • The charges in relation to the loan were extortionate when the loan was made, or have since become extortionate because of a variation, even if the interest is, or the charges are, no longer extortionate.”

A liquidator making a claim to a court under s 588FF of the Corporations Act 2001, for an unfair loan need not determine whether the company was insolvent at the time of entering into the loan and the claim depends upon the circumstances and facts of the case.

For a liquidator to successfully bring an unfair loan claim against a lender, the liquidator must show that the events leading up to, and during, the entering into the loan arrangement, the lender extorted the borrower.

In our experience, this is a very difficult claim to prove.

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