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Finance companies and the wave of litigation

We are now starting to see an upsurge in litigation as a result of the finance company collapses.  In last month’s news headlines we have seen “Bridgecorp Directors Prosecuted”, “Investors set to sue financial adviser”, “Bankruptcy proceedings start against Petricevic”, “Five Star Finance Directors Prosecuted” and  “Bryers ordered to pay $13.6m plus interest”. 

There are a significant number of investigations of loan books and finance companies currently underway, by both public sector enforcement units and private sector investigators.  Clearly the volume of litigation in this sector will increase significantly over the next few years.

Five common themes we have identified from our investigations in this sector include:
  • over exposure to a single sector
  • focus on quantity rather than quality of lending
  • limited focus on the ability of borrowers’ to repay loans
  • poor and/or fraudulent documentation
  • poor loan review and approval processes

While this will be a fascinating area for the next few years for litigators, investigators, insolvency practitioners and “commercial rubberneckers” alike, it is unlikely to provide much comfort for the “mum and dad investors” who have lost their life savings and been provided with a harsh lesson on risk. 

Five warnings signs for lenders, Trustees and advisers:
  • Rapid increase in level of funds lent
  • Significant and/or increasing levels of defaults
  • Unusual clusters of defaults (e.g. many defaulters from same suburb)
  • High staff turnover
  • Non-adherence to lending guidelines
For more information about this topic please contact:

Jason Weir
Associate Director, Forensics

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