Most of our loans involve a borrower that is a company (and in that way we can be sure the loan is not coded). If a client insists on lending to an individual Kate Cooper must sign off on the scenario, as well as the partner running the matter, to ensure the code does not apply.
There has long been a dodgy practice where new companies are incorporated, or an unrelated company has been used,to get around the NCCP.
There are no anti-avoidance provisions under the code so these loans are technically not coded. ASIC is currently suing Oak Capital claiming such practices are unconscionable. We have doubts as to whether this will succeed and instead expect legislation will be needed.
Regardless it has always been our policy (in relation to the Code):
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Not to act on a loan where the funds are being used for a residential purchase in a personal name (albeit with a company borrower) – unless it can be demonstrated with supporting documentary evidence that the borrower is a builder or developer who is acquiring the land in a personal name for tax purposes (CGT, GST, Land Tax)
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Not to act on a loan with a freshly incorporated borrower unless:
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it is an SPV (such as a developer using an SPV for each specific project); or
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it is acquiring the property; or
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it can be demonstrated with supporting documentary evidence that the company is genuinely using its funds for its business. We note this raises concerns as to whether it is an improvident transaction and we may make additional enquiries as to the purpose and likelihood of repayment.
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In any of the above exceptions Kate Cooper and the partner with carriage must approve the scenario.
Our view is that such arrangements apart from being opposed by ASIC (and ASIC does not make the laws) are indicative of a loan that is highly likely to default and be a messy default. Presumably the only reason they are not written as a coded loan is because they do not comply with the affordability tests of coded loans. For those reasons alone they are best avoided.
