Disputes about commercial loans

It explains:

• the legal protection that applies to consumer and commercial loans
• how complaints may arise in connection with commercial loans
• ASIC's role and approach when dealing with commercial loan complaints
• what you should do to resolve commercial loan complaints.

Legal differences between consumer and commercial loans

The laws, and the protections they provide to borrowers, differ depending on the purpose of the loan.

The law provides the highest level of protection to individual consumers borrowing for household and domestic purposes (for example, personal loans for renovations or holidays, car loans, credit cards and pay day loans). This also includes loans to consumers to buy residential properties (including investment properties). For these types of consumer and personal loans, the law regulates what lenders need to disclose, how interest can be calculated, how the loan can be enforced, and limits on default charges.

Different laws apply to consumers borrowing to make investments for example, in commercial property, shares or managed funds. Generally borrowing to make an investment gets a lower level of protection under the law. An exception to this is borrowing to buy residential property as an investment which is treated in a similar way to a consumer loan. There are also special laws covering margin loans.

The law provides the lowest level of protection to commercial loans, including loans to small businesses. Commercial loans are loans provided to companies and business owners. They are used to fund the running of a business and the purchase of goods or services used in the business. For example, commercial loans may be used to fund purchases of supplies used in manufacturing, new machinery or premises.

Commercial lending and disputes

Commercial loans may have terms of many years and complaints can often arise during the course of the relationship between the borrower and the lender. This is particularly true if the borrower gets into difficulty making repayments on a loan.

Complaints may be about fees (including fees paid to finance brokers to prepare loan applications), repayment arrangements, valuations, consequences of default, rights under the loan agreement or other terms of the loan agreement. For example, the borrower may have concerns that the lender did not adequately disclose the terms of the agreement, or that the conduct of the broker or lender is unfair in some way.

Complaints may also arise if a lender appoints a receiver to deal with an asset that a borrower has used as security for a loan. You can read more about when and how a lender can appoint a receiver in Information Sheet 54 Receivership: a guide for creditors (INFO 54).

ASIC's role and approach when dealing with disputes

ASIC’s role and approach to dealing with complaints about loans depends on the purpose of the loan. Because there is a low level of legal protection for commercial loans, this limits ASIC's ability to act against lenders on commercial loans.

The Australian Securities and Investments Commission Act 2001 (ASIC Act) does provide some general protections for commercial borrowers. In particular, it prohibits unconscionable conduct (actions or behaviour that go against good conscience), misleading or deceptive conduct, and unfair contract terms in standard form small business contracts. See more information on protections against unfair contract terms for small businesses.

In relation to commercial loans, the courts generally impose a high bar when a borrower (or ASIC) alleges that conduct of a broker or lender is unconscionable. Courts interpret these laws in light of the business nature of the transaction and on the basis that generally commercial parties can look after their own interests. Therefore, although conduct may seem unfair, this may not necessarily amount to unconscionable conduct under the law. To successfully take action for unconscionable conduct in commercial lending, courts expect there to be evidence that the lender has improperly taken advantage of a power imbalance between the parties.

Our role does not extend to taking action on behalf of individuals or businesses regarding their private complaints, except in limited circumstances when it is in the broader public interest to do so. Most matters involving commercial lending relate to individual circumstances and most will not have a broader public application. ASIC is, therefore, unlikely to become involved: see Information Sheet 151 ASIC's approach to enforcement (INFO 151).

ASIC has jurisdiction over the conduct of insolvency practitioners, including receivers, under the Corporations Act 2001 (Corporations Act). See more information on insolvency.

What you should do to resolve commercial lending disputes

Internal dispute resolution

First, contact your broker or lender to see if you are able to resolve your complaintwith them directly.

Australian Financial Complaints Authority (AFCA) or debt mediation

If you are unable to resolve your complaint directly with the broker or lender, you may be able to take your complaint to AFCA.

In November 2018, AFCA replaced the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT). AFCA is able to resolve complaints about commercial lending, including loans to primary producers.

Whether or not AFCA can resolve your complaint will depend on the nature of your complaint – including what it is about and who it is with. We encourage you to get independent legal advice if access to AFCA is not available.

Lenders that provide loans to consumers must have an Australian credit licence (credit licence) from ASIC and must be a member of AFCA. Lenders that only provide commercial loans are not required to have a credit licence and are not legally required to be a member ofAFCA.

If your complaint is about a large financial firm, they are likely to be a member of AFCA. AFCA will be able to hear your complaint involving a member financial firm as long as it falls within AFCA's limits on claims and compensation. AFCA can award monetary compensation and make appropriate non-monetary orders. For more information, see AFCA's website.

If your complaint is about a lender who only provides commercial credit, you should check if they are a member of AFCA (as they may have joined voluntarily). If they are not a member of AFCA, you should seek private legal advice.

In addition to contacting AFCA, farming businesses may also be able to access farm debt mediation in:

• Queensland 
• Victoria
• New South Wales
• Western Australia
• South Australia.

Report alleged misconduct to ASIC

If you consider that a broker, lender or receiver has engaged in misconduct, you can lodge a report of misconduct online with ASIC. We assess each report of misconduct that we receive to determine whether it shows breaches of the laws we administer. Information Sheet 153 How ASIC deals with reports of misconduct (INFO 153) provides further detail about our assessment process.

We cannot investigate every alleged breach brought to our attention. INFO 151 explains the factors we take into account when determining whether to take enforcement action. While reports of misconduct provide ASIC with a very important source of intelligence about behaviour in the market, we are only likely to intervene in a commercial loan dispute where it would serve some broader public purpose.

Your own legal advice

If you are unable to resolve your complaint with the broker or lender directly, or through AFCA, you may wish to seek legal advice about what to do next and whether there are any private civil remedies available to you.
ASIC encourages anyone who has concerns about commercial lending to seek independent legal advice as soon as possible. Don't leave it too late.

If you are unsure about how to access legal advice, contact the Law Society in your state or territory.

Where can I get more information?

• See our website for more information about ASIC's role and the laws we administer.
• Our website also has information about insolvency, including information sheets for company employees, directors and shareholders.
• Register a Company Alert, to be notified about changes to any companies you do business with.
• Visit AFCA's website.
• For information on farm debt mediation, see your state or territory government website.

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic.

It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you.