legal Tip 86: Loans and limitations of enforcement

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

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  1. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

    18th Jun, 2015
    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.
  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Member

    18th Jun, 2015
    And debt forgiveness can have tax consequences too.
    Terry_w likes this.