Private Credit 2025 Comparisons

Private credit has continued to grow in Australia over the past 12 months. While the slow pace of M&A and continued high interest-rate environment has seen fewer private credit transactions in certain industries (ie, in the acquisition finance and property development space), this has been offset by an increase in activity in other areas of private credit, such as structured and asset finance and financing to non-ESG sectors (including coal).

The public debt markets continue to be quiet in Australia and we are yet to see the refinancing of private credit with public debt market products as seen in the US and Europe.

Private credit and traditional bank debt have been the preferred form of acquisition financing in Australia in the last 12 months, although we expect that the “Term Loan B” (TLB) market will pick up again in 2025.

There do not appear to be any material challenges or obstacles to the continued expansion of the private credit market in Australia.

As noted in 3.7 Junior and Hybrid Capital, junior and hybrid capital products are increasingly popular in Australia. In particular, we have seen an increase in the use of convertible note structures for both listed and unlisted companies.

Private credit providers in Australia are increasingly providing capital to public companies and/or founder-owned companies, as well as to private equity (PE) sponsors and their portfolio companies.       

Recurring revenue transactions are not common in the Australian market.

The size of private credit transactions in Australian varies significantly, from under AUD10 million to over AUD1 billion.

In terms of fund sizes, we have seen significant size variation ranging anywhere from under AUD40 million to more than AUD1 billion. However, private credit providers have seen an influx of private credit sponsors “flooding” into the market in the past four years, enhancing competition and driving down returns. Further, the Australian Securities and Investments Commission (ASIC) announced that it will pay more attention to private debt markets in a recent equity markets report, which will likely cause significant headwind for the private credit industry.

At the date of this Guide, there are no proposals to reform private credit regulation in Australia.

Private credit lending has been the subject of review by the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation authority (APRA). This includes RBA commentary in September 2024 on financial stability risks from non-bank lending. The RBA has noted that the private credit sector has continued to expand, now accounting for around 11% of business lending, but this is still only a very small share of the total. The RBA concludes that risks to the stability of the financial system from non-bank lenders are constrained by the small size of the sector.

APRA has similarly noted that that the private credit sector does not pose a risk to financial stability, due to the relatively small share of system-wide lending in the housing sector. However, APRA has expressed concerns about the exposure of Australian superannuation funds to private credit investments. APRA announced in August 2024 that it would continue heightened supervision of unlisted asset valuations generally, while ASIC announced in January 2025 that private credit is a priority for supervision. It noted that it will be undertaking a surveillance programme of private credit funds and will seek feedback to adapt its regulatory approach as necessary.

Private credit providers typically do not need a licence or regulatory approval to lend money or to take security over assets in Australia. There are, however, certain laws and regulations which providers need to be aware of, as follows.

• Banking licence: to carry on a banking business in Australia, a banking licence granted by APRA is required. A licence granted by ASIC is required to carry on a business of providing prescribed financial services in Australia, known as an Australian Financial Services Licence (“AFSL”), or to carry on a business of providing credit to consumers in Australia, known as an Australia Credit Licence (“ACL”), unless a relevant exemption applies. However, none of these licences are required for non-bank lenders, whether domestic or foreign, to provide credit to corporate borrowers.
• Consumer credit: providing credit to consumers, which requires an ACL, includes lending to an individual for personal, domestic or household purposes or for residential investment properties (purchase, renovation, or improvement). An ACL is therefore generally required for residential property financing and consumer finance leasing.
• Reporting: private credit providers may be subject to reporting and compliance obligations (see 2.4 Compliance and Reporting Requirements), including obligations under:
1. anti-money laundering and counter-terrorism financing legislation; and
2. financial sector data collection legislation.
• Other regulation: private credit providers are also subject to general business regulation for activities in Australia. Such regulations can include Australia’s foreign investment regime (see 2.3 Restrictions on Foreign Investments), privacy laws, or consumer protection regimes. In respect of Australia’s consumer protection regimes:
1. obligations will often apply when lending to a small business, even if an ACL is not required; and
2. liability regimes for misleading and deceptive conduct and unconscionable conduct apply generally to the conduct of a business, including to conduct that does not otherwise require an ACL or AFSL.

ASIC is the primary regulator for consumer credit and for consumer protection obligations that apply to small businesses. Private credit lenders are not regulated in relation to their credit activities specifically if they do not provide credit which is subject to consumer protection laws.

ASIC is the primary regulator of private credit funds, where the manager, promoter or trustee holds an AFSL.

APRA has power to make rules and give directions applicable to non-bank lenders, whether domestic or foreign, that are registered financial corporations (see 2.4 Compliance and Reporting Requirements). However, the power only applies if APRA considers that provision of finance by a non-bank lender, or a class of them, materially contributes to risk of instability in the Australian financial system. There are currently no applicable rules or directions.

Private credit providers are subject to general business regulation for their activities in Australia (see 2.1 Licensing and Regulatory Approval), and have reporting and compliance obligations (see 2.4 Compliance and Reporting Requirements).

Australia’s Foreign Investment Review Board (FIRB) regulates the investment activities of “foreign persons” in Australia under a foreign investment review regime. The regime is complex, and applies broadly to the acquisition of interests in an Australian entity, business or land.

Due to the tracing and association rules under the regime, a large proportion of private credit funds are classified as “foreign government investors” (FGI) and are therefore subject to more FIRB approval triggers, including nil monetary thresholds on acquisition.

For a private credit fund classified as an FGI, typical actions by the FGI will likely be subject to FIRB approval, regardless of the value of the asset or the transaction, unless an exemption applies. One such exemption is the “money-lending exemption”, which is applicable to certain interests held solely by way of security for a “money-lending agreement”.

Acquisitions where FIRB approval may be required include:

• the granting of rights over shares in Australian companies in connection with lending arrangements; and
• security granted to secured warrants or other non-loan related instruments.

APRA Reporting for Registered Financial Corporations

Non-bank lenders may be “registrable corporations” for the purposes of data collection under the Financial Sector (Collection of Data) Act 2001. A “registrable corporation” is a corporation (domestic or foreign) that engages in the provision of finance in the course of carrying on business in Australia, unless an exclusion applies. Provision of finance includes, among other things:

• lending money, with or without security; and
• carrying out activities, whether directly or indirectly, that result in the funding or originating of loans or other financing.

Registration of a corporation is not required unless the corporation satisfies the following two-part test (“Threshold Test”):

• the value of the corporation’s assets in Australia (consisting of debts due to the corporation resulting from financing transactions) exceeds AUD50 million as at the date of the most recent balance sheet (“Loan Value Threshold”); and
• the value of the principal amounts outstanding on loans or other financing that arose during the most recent financial year, where the funding or origination of the loan or other financing resulted from activities carried out by the corporation (directly or indirectly), exceeds AUD50 million (“Principal Amounts Threshold”).

AUSTRAC Enrolment, Compliance and Reporting

Domestic private credit providers and private credit providers that operate through a permanent establishment in Australia are “reporting entities” under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act). Under the AML/CTF Act, entities are “reporting entities” if they engage in “designated services”, including making a loan in the course of carrying on a loans business.

Obligations for reporting entities include:

• enrollment with the Australian Transaction Reports and Analysis Centre (AUSTRAC);
• adopting a compliant AML/CTF financing programme;
• undertaking customer due diligence on their borrowers; and
• providing prescribed reporting to AUSTRAC. 

Australian competition laws apply generally (ie, they are not industry-specific). The main statute dealing with competition laws in Australia is the Federal Competition and Consumer Act 2010 (Cth) (CCA). The CCA is aimed at preserving and promoting competition in the marketplace by prohibiting or regulating anti-competitive agreements and conduct including the following.

• Anti-competitive mergers: any acquisition of shares or assets likely to substantially lessen competition in a market in Australia (noting that a mandatory filing regime will apply to acquisitions from 1 January 2026).
• Cartels: competitors making or implementing any arrangement to fix prices, restrict supply, share markets, or rig bids. There are limited exceptions for cartel conduct, most importantly, the joint venture exception (but this is tightly defined) and may be relevant to club lending but these need to be set up carefully to take advantage of the exception.
• Resale price maintenance: suppliers seeking to ensure that re-sellers maintain specified minimum prices when advertising or selling.
• Specific anti-competitive vertical arrangements: vertical arrangements which have the purpose or likely effect of substantially lessening competition in a market in Australia.
• Market power: corporations that have substantial market power engaging in conduct that has the purpose, effect, or likely effect of substantially lessening competition in a relevant market.
• Anti-competitive arrangements: any arrangement, whether between competitors or not, which has the purpose or likely effect of substantially lessening competition in a market in Australia.

The financial services sector is a focus of the ACCC generally. In addition, joint financing arrangements may be the subject of ACCC investigation as a cartel and/or anti-competitive agreement. Such investigation may be run as a criminal and civil action.

Common structures adopted within the Australian private credit market include the following.

• Senior loans: a general shift in the market has seen TLB and “unitranche” facilities becoming prevalent. TLBs are syndicated loans containing longer repayment terms (five- to seven-year maturity), minimal amortisation, and flexible covenant terms (“cov-loose” or “cov-lite”). In contrast, unitranche facilities blend senior and subordinated debt into a single facility and comprise a consolidated interest rate. Unitranche facilities are provided on a secured term loan basis, generally have limited or no amortisation, and, where additional funding for working capital purposes is required, supplemented by “super senior” revolving credit facilities offered by local banks. We are not currently seeing private credit lenders provide revolving credit facilities.
• Mezzanine financing: as set out further in 3.7 Junior and Hybrid Capital, where borrowing capacity in respect of senior debt has been exceeded, mezzanine financing in the form of junior/subordinated debt (sitting between senior debt and equity) can be afforded as a means to access capital without having to significantly dilute equity (despite the potential for equity participation rights). Such financings are subordinated either contractually or structurally to senior debt.
• Structured and asset financing: private credit is increasing lending into various asset-based financing structures, including real estate financing, receivables financing, and securitisations/warehouses.

The key documentation involved in Australian private credit transactions is similar to that used internationally, albeit tailored to local laws and standard market practices. Examples may include:

• a facility agreement, typically based on the Asia Pacific Loan Market Association (APLMA) standard forms;
• where secured, an all-asset “general security agreement” securing all property other than real estate;
• a security trust deed where a security trustee holds the security on trust for the benefit of the lender group;
• where there is more than one class of debt providers, intercreditor and/or subordination agreements governing the respective rights, obligations, and priority of payment amongst the debt providers; and
• legal opinions issued by the financier’s counsel covering capacity of the obligors (and enforceability of the finance documents).

There are no licensing or regulatory limitations on providing credit or taking security for loans by non-bank lenders, domestic or foreign, to corporate borrowers. However, as noted in 2.3 Restrictions on Foreign Investments, foreign lenders may be subject to FIRB approval. See, also, 2.1 Licensing and Regulatory Approval and 2.4 Compliance and Reporting Requirements regarding regulatory requirements generally.

There are no statutory restrictions in Australia on the borrower’s use of proceeds.

Unlike for banks, there are no further local practical challenges for private credit providers in respect of take-privates and other acquisition financings.

Australia follows APLMA standard on debt buy-backs. Where a debt buy-back is permitted, the borrower/sponsor is typically excluded from voting on its debt position.

With the increased prevalence in the US and Europe of “liability management exercises”, we are seeing various “blockers” included in Australian documentation to limit the ability of borrowers to, for example, take on additional debt, dispose of assets, or delay maturity on existing debts. There have been very few liability management exercises in Australia to date. 

Junior/hybrid capital is increasingly common in Australia. Common structures include the following.

• “Opco” mezzanine debt: debt advanced to the same Opco as the senior debt, which is contractually subordinated to senior debt through an intercreditor arrangement. This structure is common in real estate finance, but has become less common in leveraged finance.
• “Holdco” mezzanine financing: debt advanced to a HoldCo entity, with security often limited to the Holdco’s interest in the Opco. This debt is structurally subordinate to senior debt, usually avoiding the need to negotiate contractual subordination arrangements with the senior debt providers.
• Convertible notes: these provide debt-like features with the option to convert into equity upon certain trigger events. While this has traditionally been utilised in “growth-stage” businesses, there has been increased traction in recent months amongst both listed and unlisted companies for this sort of financing.

Compared to senior secured deals, the structuring and documentation is varied, with some differences prevalent in the covenant and repayment structures, the rate of interest adopted, and the collateral provided.

While payment in kind (PIK) debt is common in Holdco mezzanine structures, the past couple of years has seen an increased number of unitranche financings with PIK-toggle features being offered to borrowers/sponsors. 

There has been an increased trend towards limited or no amortisation on private credit deals.

Like in other private credit markets, call protections (of varying scope) are included on Australian deals, with a trend towards borrowers/sponsors with strong market power limiting the premiums payable, the applicable time periods, and the conditions giving rise to payment through carve-outs and discounts.

In evaluating private credit opportunities, prospective lenders should be cognisant of Australia’s interest withholding tax (IWT) regime. In certain circumstances, Australia imposes 10% withholding tax on payments of interest as well as amounts in the nature of interest and other specified amounts generally bearing a relation to interest.

The most common fact pattern in which IWT can apply involves payments by an Australian resident borrower to a non-resident lender where neither entity is operating through a permanent establishment. Other payments which can fall within scope of the IWT regime include the following.

• Resident to resident: an Australia resident borrower, operating locally, makes an interest payment to an Australian resident lender, operating through a foreign permanent establishment.
• Non-resident to non-resident: a non-resident borrower, borrowing through an Australian permanent establishment, makes an interest payment to a non-resident lender, lending through operations in their local country.
• Non-resident to resident: a non-resident borrower, borrowing through an Australian permanent establishment, makes an interest payment to a resident lender lending through a foreign permanent establishment.

There are also a number of exceptions and mitigation strategies which can reduce IWT or otherwise protect lenders from the economic burden associated with IWT. The most commonly relied upon means of reducing IWT cost for lenders are one or more of the following.

• Public offer exemption: under section 128F of the Income Tax Assessment Act 1936 (Cth), this exemption provides complete relief from IWT for qualifying publicly offered debentures and debt interests. Satisfaction of the public offer test generally requires qualifying issuers to publicly offer the debt via one of several prescribed methods (noting different rules apply to different kinds of debt).
• Treaty relief: either by a reduced rate or complete exemption, treaty relief is available under some of Australia’s bilateral tax treaties. The class of entities that are entitled to treaty relief from IWT is generally limited to financial institutions, but can include certain government entities, monetary institutions, central banks, and pension and superannuation funds. If available, relief is usually automatic, and it is not strictly necessary to obtain approval from the Australian Taxation Office, although those seeking increased certainty regarding the tax impact of their lending activities should consider the private rulings system.
• Tax gross-up clauses: if drafted effectively, these clauses can shift the economic burden of IWT onto the borrower by obliging the borrower to pay an additional amount (ie, the gross-up) on account of IWT, which the borrower would otherwise be legally required to deduct from a payment. The amount of the gross-up is generally not taken to be subject to IWT.

No state or territory in Australia charges ad valorem stamp duty on loan and security documents. For completeness, Australian tax implications may arise on the sale of secured property.

Generally, the primary concern faced by foreign private credit lenders lending to independent borrowers in the Australian market is the risk of IWT, although this risk is manageable via exemptions or mitigation strategies, as noted in 4.1. Withholding Tax.

The public offer exemption from IWT, in particular, makes Australia a potentially attractive location for private credit lenders, though it is important to ensure the relevant public offer test is satisfied. It would be prudent to supplement this protection with a tax gross-up clause. 

For non-bank lenders, it is still possible to qualify for IWT relief under certain of Australia’s tax treaties, on the basis that the lender constitutes a financial institution (notwithstanding its non-bank status). Confirming this characterisation applies requires careful legal analysis by advisors with a thorough knowledge of Australia’s tax treaty network.

The Personal Property Securities Act 2009 (Cth) (PPSA) governs the granting of security over “personal property”, with: a) a general security deed granting security over all assets; or b) a specific security deed granting security over particular assets, typically entered into by the grantors in favour of the secured parties.

Notably, the PPSA does not cover interests in real property. Security over real property must comply with the relevant legislative requirements and follow the prescribed real property mortgage form of the jurisdiction in which the real property is located.

Depending on the transaction, assets available as collateral to private credit lenders can include the following.

• Tangible moveable property: security over tangible movable property that is “inventory” under the PPSA is considered a circulating security interest over fluctuating assets (ie, “circulating assets”). Perfection of a security interest over such property occurs via registration of a financing statement on the PPSR with the timeframe being limited as compared to other collateral classes.
• Financial instruments (ie, shares): security interests over shares can be perfected by control or registration, with perfection by control being preferable. It is common practice in Australia for both registration of a financing statement on the PPSR and delivery of title documents (ie, share certificates and share transfer forms executed in blank) to take place.
• Receivables: security over claims and receivables (ie, secured/unsecured loans, trade receivables, or contractual rights) are common, with perfection occurring via registration of a financing statement on the PPSR. Further, an assignment of receivables may, depending on the situation, be a deemed security interest and not require a separate security document for registration.
• Real property: most land is registered under the Torrens system, with each state and territory operating its own Torrens system. Security over real property is granted pursuant to a registered real property mortgage, which needs to be registered on the Torrens system by recording the particulars in the relevant land titles register.

Registration of a financing statement on the PPSR is the most common form of perfection and is made where there are reasonable grounds to believe that the secured party is or will become a secured party over the collateral. Usually, registration must occur within 20 business days from the date the security agreement comes into effect.

Prior to the PPSA, borrowers granted a general security interest over all or substantially all of their property by way of a “fixed” charge over major assets (ie, machinery) and a “floating" charge over assets such as currency, inventory, and bank accounts which fluctuated in content and able to be dealt with freely in the ordinary course of business.

However, taking security post-PPSA has meant a move away from a distinction between fixed and floating charges. The PPSA also introduced “circulating assets” and a regime reliant on attachment, with general security agreements creating interests over all or substantially all of a borrower’s present and future assets. While floating charges are no longer used in the traditional sense, these charges are nevertheless permitted under Australian law where general security agreements provide a list of circulating assets similar to the fluctuating assets over which floating charges were formally made.

The provision of guarantees is permitted in Australia, subject to certain regulatory and legal considerations which include:

• rules in respect of financial assistance (see 5.4 Restrictions on the Target);
• compliance with fiduciary duties owed by directors when resolving to give a guarantee (eg, to act in good faith for the benefit of the company as a whole, in good faith and for a proper purpose); and
• the power to provide a guarantee being limited by the company’s constitutional documents. However, section 187 of the Corporations Act 2001 (Cth) (CA) stipulates that a director of a wholly owned subsidiary has acted in good faith and in the best interests of that company where they have acted in such manner in respect of its holding company (subject to certain conditions being met).

Pursuant to section 260A CA, a company is prohibited from providing financial assistance to facilitate the acquisition of its shares or its holding company’s shares unless certain conditions are satisfied or if exceptions apply. Such conditions/exceptions include:

• that the giving of assistance would not materially prejudice (i) the interests of the company or its shareholders; or (ii) their ability to pay creditors;
• shareholder approval under section 260B CA; or
• exemptions falling under section 260C CA.

The common procedure adopted in Australia has been to obtain shareholder approval under section 260B CA (ie, undertaking a “whitewash”), whereby the shareholders of the target and the ultimate Australian holding company approve the financial assistance (with notice and special resolutions to be lodged with ASIC within relevant timeframes).

A breach of the financial assistance provisions does not affect the validity of the transaction, and the company would not be guilty of an offence. However, any person “involved” in the contravention (which may include directors and lenders) may be subject to civil penalties and, if that person acted dishonestly, criminal penalties. A person is “involved” if they aided, abetted, counselled, procured or induced, or have in any way been knowingly concerned in, the contravention. Therefore, a contravention could potentially expose directors or lenders to civil penalties or compensation orders.

Shareholder Approval

Shareholder approval is not a strict requirement in respect of granting security/guarantees unless the provision would constitute the giving of financial assistance (see 5.4 Restrictions on the Target.

Hardening Periods

It is possible for certain transactions (including the granting of security/guarantees) to be challenged as “voidable transactions” and unwound (pursuant to court orders obtained by a liquidator) if made during a “hardening period” prior to the appointment of an external administrator. These can include:

• uncommercial transactions: transactions entered into by a company when insolvent or as a result, becomes insolvent, and where a reasonable person would not have entered into the same; the hardening periods where the transaction involves a related party is four years, whereas a transaction which does not involve a related party is two years; and
• unfair preferences: transactions which result in an unsecured creditor receiving more for its unsecured debt than it would have in a winding up; the hardening periods where the transaction involves a related party is four years, whereas a transaction which does not involve a related party is six months.

Retention of Title

In Australia, retention of title clauses in the supply or leasing of goods are recognised and may constitute security interests for the purposes of the PPSA. These clauses usually specify that, while possession passes to the purchaser, legal title (and the risk of loss or damage) does not pass until the full purchase price has been paid. To be enforceable, the security interest should be recorded into a written and signed agreement and subsequently perfected.

Suppliers will typically have a security interest in goods if they are in the business of leasing goods and minimum term or period requirements are satisfied, or if the clause in substance secures payment. Suppliers should register these interests such that they have priority and are enforceable upon the purchasers’ insolvency, particularly where the security interest constitutes a “purchase money security interest” (PMSI) (see 5.8 Priming Liens and/or Claims).

Anti-Assignment Provisions

Anti-assignment clauses are common, valid at common law, and recognised in Australia, with their legal effect dependent on their drafting. Where a purported assignment is in contravention of an anti-assignment clause, it would constitute a breach and invalidate the assignment.

Once obligations under a financing arrangement have been fulfilled, a discharge/release of security over collateral should be effected. Where security over collateral (other than real property) has been created pursuant to a security agreement, the security is released by:

• a deed of release between the grantor and the secured party, releasing the collateral secured; or
• a deed poll of release, executed by the secured party in favour of the grantor.

Further, deregistration of the security from the register on which it was recorded should take place. Where security interests over personal property have been registered on the PPSR and a full release is to occur, a financing change statement must be registered.

In contrast, security over real property (created by a real property mortgage) is released when the relevant state/territory mortgage discharge form is provided by the secured party and subsequently lodged at the relevant land titles office.

In Australia, multiple liens over the same asset are permitted and occur where multiple creditors hold a security interest. The priority of competing security interests over personal property and real property are governed by different statutory rules and general law principles.

The rules governing priority of personal property are set out in the PPSA and determined by order of perfection, where the first interest to be perfected (through registration, possession or control) takes priority. An exception to this is where a secured party has a perfected PMSI. affording “super priority” over all other interests in the same collateral. Similarly, the Real Property Acts of Australian states and territories regulate the registration of interests over real property, with priority over competing interests generally determined by order of registration.

Secured parties can subordinate their interests and alter the priority contractually through amendments to the security agreement or via other agreements (ie, specific subordination agreements or intercreditor agreements). These permit the secured parties to negotiate and agree upon the priority of competing interests. Such agreements have a binding effect, and can be enforced (but must not be in conflict with the mandatory provisions of the PPSA or the real property laws). Contractual subordination provisions will survive the insolvency of a borrower provided they do not violate any statutory rights or provisions under the CA.

Certain security interests can prime another interest despite being perfected. These can include PMSIs and interests in “authorised deposit-taking institutions” (ADI) accounts perfected by control.

A PMSI is a security interest in personal property, securing the lender’s assistance towards a borrower’s acquisition of specific assets. As noted, PMSIs enjoy “super priority” status, provided that they are properly registered.

Separately, an ADI which takes a security interest over a bank account held with it (“charge-back”) will, by virtue of the PPSA (section 341A(1)(a)(i)), be perfected by control, without the need to register a financing statement. Given perfection by control affords greater priority over a security interest in the same collateral which has been perfected via an alternate manner (section 57 PPSA), interest in an ADI account perfected by control will rank higher in priority over an interest in the same ADI account that has been perfected by registration, despite the order of perfection, with common practice including registration on the PPSR to disclose its control to avoid being a circulating asset (section 340(2) PPSA).

In terms of structuring around priming liens, negotiating intercreditor agreements is essential to ensure that priority is captured and altered where required. Further, account bank control agreements can be drafted in a way to effect control, thereby providing security to third parties. However, it is often difficult to obtain such agreements from ADIs in Australia.

Cash pooling is commonly used by corporate groups to manage cashflow at a group level, minimise administrative burden, and protect against balance sheet and counterparty risks. These arrangements permit the consolidation of cash balances from various accounts into a single account, reducing borrowing costs, improving liquidity management, and maximising interest income.

The treatment of lender claims against those of a cash pooling bank depends on whether the claims are secured/unsecured, as well as the terms of the agreements. Generally, lenders who are secured and hold collateral will have higher priority compared to those who are unsecured. In cash pooling arrangements, the cash pooling bank may have a claim on the pooled funds, with the ranking dependent on whether the arrangement is secured and whether a security interest in the pooled funds exist. Further, since cash pooling banks often require certain protections from entities (such as to provide cross-guarantees and full legal rights of set-off), they take on a lower default risk, pursue repayment from a larger pool of collateral, and may have a comparatively stronger financial position.

Separately, cash management obligations are addressed in private credit transactions via certain mechanisms like control agreements and cash sweeps, with secured hedging typically involving collateral-backed derivates governed by ISDA agreements.

There are no licensing or regulatory limitations on the taking or holding of collateral by non-bank lenders. Where there are multiple lenders, a security trustee would typically hold the security on trust for the benefit of the secured lenders. This arrangement tends to be documented by a security trust deed and is appropriate where lenders rank pari passu, or in an intercreditor agreement where lenders have differing priorities. The security trustee acts as an intermediary to manage and enforce the security interests of the beneficiaries, with the scope and nature of their powers primarily dictated by the deed.

Security generally does not need to be re-taken when a loan is assigned, since security interests are attached to a debt and can be assigned therewith. This is typically documented in a deed of assignment and has legal effect when the debtor receives written notice of all assignments. Commercial benefits include the ability of incoming lenders to retain the same priority as the outgoing lender rather than registering a new interest on the PPSR, which would otherwise be subordinated to the existing interest.

However, assignments are subject to the terms of the existing security or loan agreement which may contain anti-assignment clauses (see 5.5 Other Restrictions). Given these limitations are usually contractual, private credit lenders can negotiate their agreement in order to lend on commercially acceptable terms.

Australia is a creditor-friendly jurisdiction that affords strong prospects of recovery to secured creditors in an insolvency scenario. Private credit providers are not treated differently from banks under Australian insolvency laws. A secured creditor will typically enforce its collateral under the finance documents through the contractual appointment of a receiver, who realises the value of the collateral for the sole benefit of the secured creditor. This typically involves the sale of the collateral following an expedited marketing process, but a receiver and manager can also trade on a business for a period of time if there is a commercial imperative to do so. Where a lender has security over substantially all of the assets of a business, the lender will typically appoint a receiver to the relevant operating entities or, if available under the collateral package, a holding company that controls all of them.

Secured creditors may also take control of secured property as mortgagee in possession or pursue court proceedings, but receivership is generally more expedient and also reduces the risk of lender liability in respect of the enforcement process.

The costs of the receivership (including professional fees) are usually recoverable from the proceeds of the collateral, though the secured creditor is required to indemnify the receiver at the outset of the appointment.

Choice of governing law and jurisdiction clauses are generally upheld unless they are contrary to Australian law, public policy, or if there is cause for the court to disregard the relevant provision. Waivers of immunity are also generally upheld by Australian courts unless they contravene the Foreign States Immunities Act 1985 (Cth).

Foreign judgments relating to money orders and other specified relief from certain countries are registerable in Australia under the Foreign Judgment Act 1991 (Cth) where the foreign judgment is final, conclusive, and less than six years old, among other requirements. Foreign judgments of other courts may also be recognised under common law.

Arbitral awards made in countries that are party to the United Nations Convention on the Recognition and Enforcement of Arbitration Awards 1958 (ie, the New York Convention) are also readily enforceable in Australia.

Australian insolvency laws do not discriminate between domestic and foreign lenders. However, where a foreign lender seeks to credit bid for its collateral, the acquisition may require approval from FIRB. Funds that regularly pursue loan-to-own strategies may wish to seek an exemption certificate from FIRB prior to commencing a program of lending transactions to reduce their regulatory burden

Receivers are typically privately appointed under the terms of the finance documents without court involvement. This means that an appointment can be made immediately once the lender’s right to enforce its security has been triggered. The cost and timing of the process to realise the collateral depends on various factors, including:

• the nature and extent of the collateral;
• whether the sale of collateral requires any regulatory approvals;
• the extent of any pre-receivership marketing process conducted by the company; and
• whether any aspects of the enforcement or sale processes are challenged by other stakeholders.

Where a secured creditor’s objectives can be achieved solely by relying on its rights under a voluntary administration commenced by the company’s board (described in 7. Bankruptcy and Insolvency, below), it may elect not to appoint a receiver and thereby reduce enforcement costs.

Due to the size and relationship-based nature of the Australian finance market, Australian lenders have typically afforded stressed or non-performing borrowers significant runway before considering enforcement action. However, due to market conditions and the increased availability of private capital, attitudes are shifting and receivership is becoming more common.

Private credit lenders should also be aware that loan-to-own strategies, debt-for-equity swaps, and credit bidding require careful advanced planning to ensure that these strategies comply with Australian law. For example, it is often necessary for a robust market test to be undertaken by the company in respect of its business or assets prior to the appointment of a receiver if the lender seeks to credit bid for its collateral. This is because receivers are subject to certain statutory duties that require them to ensure assets are sold for market price or the best price reasonably attainable and may not be able to effectuate a credit bid in the absence of an antecedent market test. Where a market bid is not possible, it may be preferable for the secured creditor to appoint an administrator (or allow the borrower’s board to do so) and pursue the acquisition through a voluntary administration process.

Australia upholds principles of corporate separateness and lenders will not typically be responsible for the borrower’s liabilities upon taking enforcement action unless they acquire the business.

However, where environmental liabilities are concerned, a secured lender may, through indemnification of its receiver, be exposed to liability for any environmental problems that are perpetuated if the receiver continues to trade-on the business or operates the asset that has caused the damage. Engagement with the environmental regulator is prudent and remediation may be required in connection with a sale.

Lenders should ensure that they do not seek to control or direct the affairs of the borrower prior to enforcement. Lenders who do so may be considered “shadow directors,” which carries exposure to insolvent trading and other directors’ duties claims.

There are a range of formal insolvency and restructuring processes in Australia, which are predominantly conducted out of court. 

The most common restructuring process is voluntary administration, which involves the appointment of an external administrator to the company by its directors. The administrator displaces existing management and is responsible for investigating and reporting on the affairs of the company, exploring restructuring options, and making a recommendation to creditors as to how they should vote to determine the company’s future. Unsecured creditors’ rights are stayed for the duration of the administration. However, secured creditors with security over substantially all of the company’s assets may enforce their security for a period of time after the administration commences.

Australian companies may also restructure through a scheme of arrangement, which is a court–based process requiring court approval for the convening of meetings and the scheme. The debtor is in control of this process. While there is no automatic stay, the court may approve a stay of creditor enforcement action to facilitate the scheme process.

A company that cannot be restructured is typically liquidated by a registered liquidator. During liquidation, there is commonly a stay on the commencement or continuation of legal proceedings by unsecured creditors. However, secured creditors generally retain their enforcement rights.

Subject to certain exceptions, a company’s assets are generally realised and distributed in the following order:

• for the benefit of the relevant secured creditor in respect of its collateral;
• costs incurred by the administrator or liquidator in realising the assets of the company and in carrying on the company’s business;
• priority unsecured creditors, including employee entitlements and certain tax liabilities;
• ordinary unsecured creditors on a pari passu basis; and
• to the extent there remains any surplus, to the shareholders of the company.

One notable exception to this priority order is that where a security interest is over circulating assets (ie, a floating charge over assets such as inventory and accounts receivable), certain employee entitlements will have over priority over secured claims in respect of those assets.

Notwithstanding the statutory priority order, where it is value-maximising for an administrator to trade-on the business, certain critical vendors may seek payment of stayed pre-appointment claims in order to continue to supply essential goods and services. It may be necessary for the administrator to engage with those suppliers on this issue (particularly if they have retention of title or security interests) or seek a court order enforcing the stay.

When used appropriately, both schemes and administrations are flexible tools that efficiently and reliably de–leverage a company’s balance sheet and maximise value for creditors.

Voluntary administration is intended to be a fast process that takes approximately six weeks. However, in complex cases, the statutory deadlines are often extended by court order and the process can take several months. A scheme typically takes at least 12 weeks to be approved by creditors and the court, but the process can take longer if there are extensive negotiations or contested issues.

The duration of a liquidation depends on the nature of the claims and assets involved, ranging from weeks to more than a year if the liquidator seeks to pursue litigation to recover assets for the benefit of creditors. Liquidation is typically a value-destructive process as all operations are discontinued and assets are sold on a “fire sale” basis.

Australian directors have personal liability for insolvent trading, which has historically resulted in a conservative approach to informal workouts. However, recent reforms reduce the risk to directors where they are actively pursuing a course of action that is reasonably likely to result in a better outcome than an immediate insolvency process. As a result, Australian companies are increasingly receptive to a range of informal turnaround solutions, including those that can be delivered by private capital.

While Australia is yet to see an influx of US-style liability management transactions, the capital structures of Australian companies are becoming increasingly complex due to the range of financing solutions that are available on a non-senior secured basis (including unitranche, TLB, subordinated debt instruments and preferred equity or warrants). Equity deals such as corporate carve-outs and take-private transactions are also regularly seen in the Australian market.

The rights of secured creditors in Australian insolvency processes are robust. Secured lenders’ rights are not stayed in an administration, and their claims cannot typically be compromised (nor can their collateral be sold) without their consent. However, while usually reserved for complex, high-value casts, secured lenders may be exposed to a court-ordered stay and a non-consensual restructuring if a company elects to pursue a scheme of arrangement.

If a company enters liquidation, a liquidator may seek to void certain transactions if it is funded to do so. These include: i) insolvent transactions, such as preferential payments to certain creditors, uncommercial transactions and unfair loans; ii) unreasonable director-related transactions; and iii) transactions entered into for the purpose of defeating, delaying, or interfering with creditors’ rights.

Set-off is recognised on insolvency where there have been mutual dealings between the company and a creditor without the creditor’s knowledge of the impending insolvency.

Both receivership and administration are predominantly out-of-court processes that are regularly used in restructurings and insolvencies led by private credit. They can operate separately or in combination, depending on the objectives of the lender and the circumstances of the case.

The key advantage of receivership is that it provides the secured lender with control. Unlike an administrator, who owes duties to all creditors, the receiver acts solely for the benefit of the secured creditor. A receiver typically does not require material input from other stakeholders in order to realise the collateral for the benefit of its appointor. 

However, receivership is not accompanied by a stay, and a receiver cannot compromise other creditors’ claims against the company. Instead, administration offers these benefits. Thus, where a secured lender seeks to restructure the business (rather than merely sell its collateral), it can be advantageous for receivership and administration to operate in tandem. In these circumstances, the receiver usually takes control of the collateral, and the administrator performs statutory, investigatory and reporting functions. Through administration, the secured lender may advance the terms of its proposed restructuring in a deed of company arrangement (DOCA). The secured lender may require support from other constituents to meet the voting requirements needed to approve its DOCA proposal (described in 7.9 Dissenting Lenders and Non-Consensual Restructurings), but cannot be bound to any competing DOCA without its consent. Typically, support from employees or trade creditors is needed to meet the numerosity requirement.

Unsecured creditors may be bound to a DOCA without their consent if a simple majority of creditors present and voting by value and number as a single class approves the DOCA. However, since a DOCA does not bind secured creditors unless they consent, administrators will typically engage with secured lenders regarding restructuring proposals before making a recommendation to creditors as to how they should vote.

Schemes of arrangement can compromise both secured and unsecured claims if they are approved by 75% by value and 50% by number of creditors present and voting in a class. Cross-class cram down is not provided for by statute, however, Australian courts have demonstrated a willingness to approve schemes that group claims in a single class where, among other things, creditors may reasonably be found to have a common interest.

Legislation does not specifically facilitate pre-packaged or pre-arranged reorganisation in Australia. However, where compatible with their duties and applicable law, an administrator or receiver may be able to effectuate a transaction that has been negotiated to the point that it is substantially agreed among relevant stakeholders prior to the insolvency appointment.

The slow pace of M&A in Australia has left many private equity funds with ageing portfolios. Private credit has become an attractive solution for distressed companies due to its flexibility in structuring debt, offering PIK interest, and easing financial covenants. However, like all lending, private credit carries the risk of borrower default, and in recent months, several lenders took action against struggling borrowers.

For example, instances have been seen of private credit lenders willing to take ownership (debt to equity) as well as withdrawing from refinancings and appointing administrators and receivers. These cases highlight a growing trend of lenders stepping in where PE sponsors cannot or will not.

In contrast, there have been equity capital injections from sponsors to stabilise businesses. Instead of surrendering control to lenders, the company used fresh capital to navigate financial challenges.

These cases illustrate the shifting power dynamics in private credit and distressed investing and how lenders, PE sponsors and corporate shareholders can take different approaches when navigating financial distress.

When a borrower defaults, lenders must evaluate whether enforcing security or restructuring debt will yield the best returns. In many cases, taking control of a distressed business can be more profitable than exiting at a loss.

Tax considerations also play a major role in distressed situations. Many troubled companies have accumulated tax losses, which can be valuable if leveraged properly. Lenders should assess how these losses fit into their broader financial strategy before making enforcement decisions.

For PE funds, the ability and willingness to inject additional liquidity into struggling companies are crucial. If a fund is nearing the end of its life, it may lack the resources or incentive to provide more capital, making lender intervention more likely.

Regulatory and political risks further complicate distressed situations, particularly in sectors like gaming and hospitality. The Star Entertainment case underscores how external factors, such as government intervention or policy changes, can dramatically impact a company’s prospects.

Ultimately, managing financial distress requires proactive decision-making. Lenders must balance yield generation with enforcement strategies, while borrowers need to maintain strategic flexibility to weather downturns.

These case studies offer lessons for both lenders and borrowers in handling financial distress.

Lenders need clear enforcement pathways and strong security interests to ensure flexibility when dealing with defaults. Active monitoring of borrowers allows lenders to step in early and negotiate better terms before problems escalate.

For borrowers, maintaining open communication with lenders is crucial. Companies facing difficulties should explore options early — whether securing new capital, restructuring debt, or selling assets. The contrasting fates of borrowers shows that early intervention and transparency can determine whether a company survives or falls into lender control.

Both borrowers and lenders should consider whether a particular portfolio company might become orphaned within its fund and, if so, the incentives and ability for the fund to be able to continue to provide liquidity, either in the form of equity or through holding company or fund-level financing.

Both parties must also consider tax implications, regulatory risks, and long-term viability. Lenders should assess whether taking over a business is more profitable than selling at a discount, while borrowers should structure capital wisely to retain flexibility in downturns.

As private credit continues to grow in Australia, lenders must balance high yields with enforcement strategies, while borrowers must proactively manage their finances. Learning from these cases can help create more resilient financing structures and minimise risks in times of financial stress.