Australia: Tips For Borrowers Under Finance Facilities

Last Updated: 9 March 2009


Few will now argue that the global recession has arrived. Forecasts for 2009 are generally far from optimistic and the effects are already being felt here in Australia. No more evidence is needed than the recent Rudd Government response to the concerns of commercial developers obtaining refinance for loans by foreign lenders. The so called, "Rudd Bank" highlights that for the next few years at least, existing borrowers will need to:

  • consider carefully the ease with which they will be able to refinance existing loans and
  • ensure that existing facilities are conducted in exemplary fashion.

In the current economic conditions where the credit market is tightening, refinancing is becoming increasingly difficult and lenders are becoming more risk averse, borrowers can anticipate volatile lending conditions. Issues include tougher terms of lending, much closer scrutiny of servicing patterns and compliance with terms and conditions of facilities. Borrowers should not be giving lenders a reason to request variation fees or the ability to renegotiate existing terms and conditions or worse, call for repayment of all or part of the debt. Failure to comply with existing facilities may also impact on borrowers' ability to refinance.

It is therefore a timely opportunity for all borrowers to audit their facilities and ensure that there have not been any breaches which may potentially prejudice their position moving forward. It is far better to review the position early and take steps to mitigate any damage rather than deal with the consequences of default which can be severe, particularly in current times.

This article sets out a checklist of major areas which a borrower should review to ensure that its facilities are in order and any refinance with the same or another lender is not impaired.

Review Terms Of Facilities

  • If facilities are to mature within the next 1 to 2 years, consider refinancing options now. Do not underestimate the time it may take to refinance existing facilities. Many borrowers with 12 or 18 months to run on their facilities are refinancing now to ensure funding throughout these difficult times.

Monitor Financial Ratios

  • Ensure that any decline in asset values (notably equities and real property) and decreased earnings will not breach any loan to value ratios and gearing covenants, the consequences of which may be a demand for additional equity or security by the lender to support existing debt (not to mention breach and variation fees and renegotiation of other terms and conditions).

Review Covenant Compliance

  • Review all facilities to confirm maturity dates.
  • Review terms and conditions of existing lending agreements to ensure that any ongoing conditions have been complied with. In particular, review key dates for compliance with financial and other covenants and assess the company's ability to meet upcoming covenants. Consider whether the most appropriate approach is to liaise with lenders early on potential future covenant breaches.

Market Disruption Provisions And Material Adverse Event Provisions

  • The mismatch between the banks' funding costs and market based reference rates (such as BBSY or LIBOR) has led to banks revisiting their standard market disruption clause (which allows lenders to adjust the relevant interest rate under a facility agreement to take account of adverse changes to the lender's cost of funds as a result of a market disruption event). Various banks have sought to rely on market disruption clauses in recent times to increase interest rates under facilities.
  • In current market conditions, lenders might seek to rely on material adverse effect (MAE) provisions typically incorporated in facility agreements. MAE provisions typically limit the lenders' commitment to provide finance and often allow them greater rights where there has been a material adverse effect on the business or financial or other condition or prospects of a borrower or security provider under a facility or their ability to perform their obligations under the finance documents. An MAE is also often a default under finance documents, with the usual consequences.
  • Most facility agreements will have market disruption and MAE provisions and, if they don't, banks will be seeking to ensure they are included in existing and future facility agreements.

Review Security Documents And Events Of Default

  • The security documents (such as fixed and floating charges, mortgages, guarantees and tripartite deeds) will list in detail all acts which will be held to be events of default (those events the lender can rely upon to call in the facilities and seek recovery under the securities, among other rights).
  • Ensure you have not potentially committed an event of default by reviewing closely the security documents.

Review Fees And Default Charges

Note potential fees and penalties for default as well as exit fees in the event of early repayment or refinance and ensure that such costs are factored into any refinance or payment decisions. Another key issue is to limit the timing of reviews of the facility and the ability of the lender to unilaterally change facility terms.

Maintain Communication With Lenders

  • A good relationship with your lender and your relationship manager is essential to ensure that issues can be resolved quickly and minimise potential escalation.
  • Review compliance with covenants to provide information to your lenders. Ensure that you have maintained full co-operation in supplying certifications, and documents and other requisite information (such as events which could materially affect either your business or the facility or changes to shareholders, or control of any corporate borrower or guarantor)

Director's Duties

  • Be aware that strict duties and obligations are imposed upon all directors of corporate borrowers. In particular, potentially serious consequences can flow if a company enters into further financial indebtedness when the company is unable to pay its debts / is technically insolvent.


  • When approaching a lender ensure that you have clear strategic plans for the business.
  • Be realistic about the asset values and earnings to ensure that they can support the level of debt proposed.
  • Expect tighter controls and increased security to be a requirement of funding. As the market tightens and loan capital becomes scarce, lenders may well require added comfort for their exposure. This may take the form of security such as company charges, mortgages over freehold or leasehold interests, guarantees and charges over cash deposits. For commercial and residential developments you can expect to be required to achieve higher presale commitments and closer scrutiny of any sale process.
  • Anticipate lower leverage and LVRs and higher rates and margins and factor these into any finance decision.
  • Anticipate that valuations of any assets including freehold may be more conservative as valuers and lenders adopt a more conservative approach.


If in doubt, it is far better to seek legal and financial advice early rather than risk a situation becoming critical.

Maddocks can provide full professional assistance in all aspects of banking and finance as well as restructuring and insolvency.

Exceptional Service Award Winner | 2007 BRW-St George Client Service Awards
Australasian Legal Business 2008 Fast 10 Law Firms
EOWA Employer of Choice for Women 2004 - 2008

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.