Family members quite often lend money to one another.
But, if the borrower ultimately falls into insolvency and seeks debt relief by proposing a debt agreement the lender may find themself high & dry. That is unless there is a full written record of the transaction.
Because inter-family loans can so easily be contrived the law is clear that a related entity loan is subject to only a 50% of value vote.
Recently, ITSA rejected a family member’s claim in its entirety because the 50% value vote was sufficient to ensure acceptance of a debt agreement proposal, even though one institutional creditor had voted negatively.
ITSA claims it has the right to reject a vote under the voting rules but the law appears mute on this issue.
In support of the claim the family lender offered a statutory declaration only to be advised that it may not be sufficient.
Sufficient? There is no requirement under Part IX for any creditor to provide a Proof of Debt, as in bankruptcy, and the arbitrary rejection of the family member’s vote on a hunch that it may not be valid is unacceptable.
What else is unacceptable is that the family member’s vote does not appear to have the same weight as a commercial vote.
Clearly when one family member lends to another the transaction will have to be fully documented if there is any possibility of obtaining a return.
