When the bank is threatening to appoint receivers

A letter threatening receivers is not an appointment. Where the lender is a bank subscribing to the Banking Code of Practice and the borrower meets the Code's small business test, the bank commits to no less than 30 days' notice of a payment failure before demanding full repayment or appointing receivers. Paying the overdue amount inside that period removes the default.

Three different documents, and only one of them is an appointment

The letters that arrive in this situation get run together in the reading, and separating them is the first useful thing to do. A letter of demand is the lender exercising a right in the facility agreement: repay, by a date. A default notice is the step a lender has to take before it can enforce, and it names the default, what remedies it and a deadline. The appointment of a receiver is a third thing entirely, and it is the only one that takes control of anything away from you.

A sentence in a letter saying the bank reserves its right to appoint receivers and managers is none of the three. It is a warning about what the bank is entitled to do, and the entitlement comes from the security you signed rather than from a court. ASIC's own description of a receivership is that a receiver can only be appointed by a secured creditor or a court. That cuts both ways: it means the bank does not need anybody's permission, and it means nothing has happened yet.

One mechanical point explains why the sequence feels so abrupt when it does happen. Appointing a receiver is not an enforcement under the Personal Property Securities Act's notice regime — section 116 of that Act is titled "Application while there is a receiver or another controller of property" — so a receiver's enforcement runs under Part 5.2 of the Corporations Act and under the security agreement instead. The notice you are entitled to before that point comes from your contract, and from the Banking Code of Practice where the lender subscribes to it.

You are not the first one this week

Almost everybody in this position asks the bank first — often the same bank that sent the letter — and then asks another bank, and gets no from both. The reasons rarely have anything to do with whether the loan would be repaid: the last financials look wrong, a lodgement is late, there is a mark on the credit file, or the word receivers appears in the file and the application quietly stops being read. Those are the things a bank exists to care about. None of them says a word about whether there is equity in the building.

That gap is where HomeSec has been since 2004. We are not here to judge how the business got here, and we have seen it often enough that it does not surprise us — it is one of the reasons we also write about business loans for borrowers with bad credit. What we look at is whether there is enough unused equity in real property and whether the purpose is a genuine business one: not financials, not a credit score, not whether everything is up to date, and no interrogation about the last two years. From a clean, complete scenario funds can be available in as little as 24 hours, and interest can be capitalised for up to six months so there is nothing payable while the business gets its feet back under it.

Back to the letter, because the notice period is the only asset in this situation that is getting smaller.

Where the 30 days comes from, and what it covers

Credit taken wholly or predominantly for business purposes sits outside the National Consumer Credit Protection Act 2009, so the consumer protections people assume are there are not. What a business borrower has instead is the contract, and the Banking Code of Practice where the lender subscribes to it. The current Code took effect on 28 February 2025, ASIC approved it, and ASIC's own statement about it matters more than it looks: the rules are binding on the Australian Banking Association's members and they form part of the contracts between banks and their customers. A breach of them is a contractual matter, not a complaint about manners. The Banking Code Compliance Committee monitors compliance; ASIC does not.

The relevant part of the Code is headed, in its own words, "How much notice will we give a Small Business before enforcing a Loan for non-payment?" Paragraph 82 answers it: no less than 30 days' notice of the payment failure before the bank makes a demand for full repayment, and it will not make that demand or take enforcement proceedings before the notice expires. The piece that almost nobody reads is in the definitions at the back, where enforcement proceedings for a small business is defined to include exercising a power of sale over security property and "appointing receivers or receivers and managers". That is why the figure on this page is 30 days: under the Code, appointing a receiver is enforcement, and enforcement waits for the notice.

Then read paragraph 83, which is the most useful sentence in the Code for anybody holding one of these letters. The bank will not require full repayment or take enforcement proceedings for non-payment where the overdue amount is paid during the notice period — and if a further payment failure happens inside that period, the same applies if that amount is paid inside it too. The default the bank is relying on can be removed by money arriving before the date. It does not cure a separate non-payment default, which the bank can still act on.

Three limits, and they matter as much as the rule. Paragraph 84 allows a shorter notice period or none at all where the borrower or a guarantor is insolvent, goes into bankruptcy or lacks legal capacity, or where it is reasonable to manage a material and immediate risk — so the 30 days is not a guarantee, and a company that is already insolvent should not plan around it. Paragraph 85 says that for an overdraft or an on-demand facility the bank may not be required to give any notice at all when it requires repayment, although if that failure is also a default under another loan with the same bank, enforcing that other loan has to comply with this part of the Code. And the Code only protects a small business as it defines one.

That definition has three limbs, tested when you took the facility: annual turnover of less than $10 million in the previous financial year, fewer than 100 full-time equivalent employees, and less than $5 million of total debt to all credit providers — counting undrawn limits and the loan being applied for. The debt limb was lifted from $3 million when this Code came in, which ASIC said brought another 10,000 businesses inside it. Fail any limb and the notice paragraphs are not yours. Nor are they yours against a non-bank or private lender, which has not subscribed to anything.

When the default is not a missed payment

Plenty of these letters are not about arrears at all, and borrowers who are paying on time are the most shocked to receive one. The Code narrows what a subscribing bank can do here more than most people expect.

1. 1
   The grounds are a closed list.Under paragraph 87 a bank may act on a non-payment default only on specified grounds — insolvency, another creditor's enforcement, unlawful conduct, materially incorrect information, funds used for a purpose it did not approve, unauthorised dealings with secured assets, a lapsed licence, missing insurance it required, a change of ownership or control it did not consent to, among them. Find which one the letter names.
2. 2
   It still has to be material.Paragraph 90 permits action only where the default is material by nature, or has or is likely to have a material impact on your ability to repay, on the bank's security risk, or on its legal or reputation risk. A technical breach with no consequence is not a reason to enforce, and saying so in writing is a reasonable thing to do.
3. 3
   You get written grounds and 30 days to fix it.Paragraph 88 requires a notice specifying the grounds and no less than 30 days' notice of the default, with time to remedy where it can be remedied. A lapsed insurance policy, an unpaid rates notice or an overdue set of accounts is usually remediable inside that, and far cheaper than anything that follows.
4. 4
   No catch-all clause.Paragraph 92 says a subscribing bank will not include an event of default based on unspecified material adverse changes in a standard form small business loan contract. If the letter leans on a general material-adverse-change clause, that is worth putting in front of a solicitor.

Where the security is land and the lender is moving on the mortgage rather than on a general security agreement, the notice period is a different question again, set by the mortgage and by the property legislation of the state the land is in: what a default notice on a mortgage actually does covers that, and this page does not repeat it. If the facility has simply reached its expiry and the bank will not renew, that is a decision not to extend, which carries a longer notice under the Code and is not a default at all.

The investigating accountant is the real warning sign

Long before receivers are appointed, most banks send somebody in to look at the business. An investigating accountant — the Code calls them investigative accountants and investigating accountants in different places — is a sign the file has moved out of your relationship manager's hands and into the bank's problem-loan team. It is not a formal step and it decides nothing by itself, but it is the most reliable signal you will get that a decision is being prepared.

The Code addresses it directly. A subscribing bank commits to acting fairly when using investigative accountants and insolvency practitioners and to ethically managing potential conflicts of interest; to appointing only qualified practitioners who are members of relevant professional organisations; to requiring additional internal oversight of the appointment of investigating accountants as receivers; and to considering an alternative practitioner where the relationship between you and the investigating accountant has deteriorated. That third commitment is the one to know about, because the accountant who reviewed the business is sometimes the person later appointed over it.

None of which tells you whether to agree, on what terms, or who pays. That is a question for your own lawyer and your own accountant, and it is worth an hour of both this week rather than next month.

The first week, in order

1. 1
   Find out what the letter actually is.A reservation of rights, a demand, or a default notice with a date on it. Write the date down. If there is no date, ask for one in writing — a bank that has decided to exit would generally rather be repaid in an orderly way than appoint anybody.
2. 2
   Identify the clause and the ground.Which facility, which clause, and which default. A payment failure, a covenant, a review date or an on-demand facility are four different positions with four different notice periods, and your solicitor can tell them apart in an hour.
3. 3
   Work out whether the Code applies to you.Is the lender an Australian Banking Association member, and do you meet the three limbs of the small business test? That answer decides whether the 30 days is a commitment you can point at or simply something you have read about.
4. 4
   Ask for the payout figure, and the arrears figure, in writing.Two different numbers. The arrears figure is what paragraph 83 is about; the payout figure is what a refinance has to cover. Ask what each will be in a fortnight, because both move.
5. 5
   Answer every letter, in writing, before the date.Silence is the single thing that accelerates this. A borrower who is demonstrably arranging a refinance and says so, with dates, is in a very different position from one who has stopped replying — and the Code's financial difficulty provisions only start working once you have told the bank.
6. 6
   Get the solvency question answered by somebody registered to answer it.ASIC's advice is to get competent accounting and legal advice as early as possible, and that a suitably qualified registered liquidator can conduct a solvency review. If the company is insolvent, the Code's 30 days may not be there at all and the options change completely.
7. 7
   Work out in parallel what the property could release.If the answer is money, the only questions are whether there is equity and how fast it can be reached. That can be answered the same day and commits you to nothing.

Two things not to do. Do not resign as a director in the hope it removes an exposure — it does not remove a liability that attached while you held office, and it takes away your standing to act. And do not deal with secured assets outside the ordinary course without asking: an unauthorised dealing with the bank's security is one of the grounds in paragraph 87, and it converts a payment problem into a default the bank can act on faster.

What a loan can and cannot do here

It can do one specific thing well. Where the arrears can be cleared inside the notice period, paragraph 83 means the default the bank is relying on goes with them. Where the facility has to go entirely, a loan secured on equity in real property can repay the bank at settlement, which leaves nothing to enforce. The funding page for a called facility sets out how that is arranged and what the bank is paid, and this page does not restate it.

It cannot do anything about a receivership that has already started — by then the questions are different ones, dealt with on what happens in the first seven days after a receiver is appointed and on how a business gets out of receivership. And it does not touch a personal guarantee, which is a separate contract and is not paused by anything that happens to the company.

When borrowing is not the answer

This is the situation where that sentence needs saying plainly, because the pressure to act is enormous and the security on offer is usually a home.

ASIC's instruction to a director of an insolvent company is four words long: do not incur further debt. Borrowing is consistent with that in one case — where the loan clears the arrears or the facility, the enforcement stops, and the business underneath it is genuinely viable. It is not consistent with it where the business is losing money every month and the bank's letter is simply the most visible part of that. More debt secured on the family's property keeps a loss running and puts the house alongside the company. If that is the honest position, the call to make is to a registered liquidator about small business restructuring or a winding up, not to a lender, and we will tell you so on the first call.

It is also the wrong instrument in three narrower cases. If the payout figure is more than the equity can support, no amount of structuring changes the arithmetic. If the default is non-monetary and remediable — lapsed insurance, an overdue valuation, accounts not lodged — then fixing the breach is the answer and a loan is an expensive way to avoid a phone call. And if the figure is below $20,000 we do not lend to it at all; registering security over a property to clear an amount that size is the wrong tool. The Small Business Debt Helpline on 1800 413 828 is free, independent and confidential, and it is a reasonable first call in any of those three.

This page explains what the letters in this situation are and what the Banking Code of Practice commits a subscribing bank to. It is general information, not legal or insolvency advice: what to do in your circumstances is a question for a lawyer, a registered liquidator or your accountant, and the Code's published text on the Australian Banking Association's site, together with ASIC's own insolvency guidance for directors, are the primary sources behind everything above. Read your own facility agreement and security documents alongside them.

Reviewed by Paul Stone, Joint Chief Executive