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legal Tip 86: Loans and limitations of enforcement

Discussion in 'Legal Issues' started by Terry_w, 13th Oct, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    18th Jun, 2015
    Southern Highlands NSW
    When considering related party loans you must also consider that loans can become unenforceable after certain periods. Under NSW a contract cannot be enforced after 6 years from the date which the cause of action accrues s 14(1)(a) Limitation Act 1969.

    Where a deed was entered into rather than a contract the period is 12 years, s 16,

    Note that this is state law and each state has different legislation with different time periods involved.

    This means a loan contract under which there has been no payment or activity for 6 years is no longer enforceable.

    Normally if money is owed the lender will be chasing the borrower much sooner than 6 years, but not always the case with family or related entities.

    This has important implications at death as if there is an outstanding loan owed by the deceased then the executor/administrator of the estate is legally obliged not to pay it. If an executor does pay a loan back when it is over the 6 year period (or 12 years if a deed) then the executor has committed a breach of their duties and they will be personally liable.

    Loans can be refreshed by making a payment or causing the borrower to make a repayment.