What is an Independent Advice Certificate and why do I need one?

What is an Independent Advice Certificate and why do I need one?

These days, borrowers and guarantors are increasingly required to obtain an Independent Advice Certificate in relation to loans. Ballantyne Law has a strong record in these documents, which need to be taken seriously.

Why does my bank want an Independent Advice Certificate?

Banks and other lenders are understandably eager to mitigate risk and prevent loan defaults. This has assumed even greater priority since the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

One result has been the increase in demand for Independent Advice Certificates (IAC), which shift risk from lenders to borrowers and/or guarantors. IACs also place enormous responsibility on lawyers, with some firms refusing or reluctant to provide an IAC service.

Gold Coast Property Law team at Ballantyne Law do offer this service. Based on the Gold Coast, our leading Commercial Law and Property Law teams handle IAC matters with great efficiency, comprehensive detail and full explanations around liability. Also, we are usually able to provide a fixed fee for a standard IAC.

How does an IAC work?

Third party loan guarantees are still common in Australia – e.g., a company director acts as guarantor for a loan taken out by the company; or parents “go guarantor” for a loan taken out by their child. In these and other scenarios, banks and other lenders can now demand an IAC from a solicitor.

This a serious obligation. Not only does it require a solicitor to read vast amounts of documentation, but the contents must then be fully explained to, and declared understood by, the borrower/guarantor. In turn, the IAC declares all these procedures have been carried out, while the signature of the borrower/guarantor registers their understanding of all responsibilities and ramifications.

At Ballantyne Law Group, we recognise that this can be a frustrating process, especially for parties who consider they already have a firm grasp on their obligations. However, a number of cases in Australia have resulted in loans and guarantees being set aside by the courts due to borrowers and/or guarantors failing to understand the consequences of transactions – and this is precisely what lenders want to avoid.

What does an IAC actually certify?

An IAC requires lawyers to certify that they have:

  1. explained the nature and effect of relevant documents to the borrower and/or guarantor
  2. advised the borrower and/or guarantor to carefully consider the financial risks of entering into the transaction, or of providing a guarantee
  3. advised the borrower and/or guarantor to make appropriate enquiries about the risks involved, including the adequacy of any security being given by the borrower or others
  4. asked for and received confirmation from the borrower and/or guarantor that they have read the relevant documents and understood (a) their general nature and effect, (b) the solicitor’s advice, and (c), that they are entering the transaction freely, voluntarily and without pressure.

Ballantyne Law will generally not express any opinion or advice on the viability of a transaction or the ability of a borrower or guarantor to make the required payments. What we will do is ensure the IAC process is handled efficiently and completely.

As mentioned, any certificate from a solicitor is serious business and an IAC is no exception. If you have been asked to procure an IAC, please contact Ballantyne Law today.

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