We recently came across a strange situation where we questioned who the broker actually works for when things go awry.

The scenario was that our client had borrowed money from a third tier lender, and their business was placed in liquidation, at the same time, the broker proposed a lending package that would cover the debt to the original lender, but did not actually add anything to our client (other than making sure that the original lender was paid in full).

The broker was telling our client that they needed to pay out the first lender to “protect their credit rating” and that they had a moral obligation to repay the debt. The broker also intervened between the lender and the borrower and was telling the client that the lender would not accept a deal to settle.

It made us question who the broker was actually working for:

So the answer from the lawyer was well they may actually only have an obligation to the financier and depending upon their relationship are an agent of the lender. In that they have no obligation to the borrower.shutterstock_681206938

The borrower believed that the broker was working for them and that they should be acting in the best interests of the borrower and not the lender.

The liquidation was bemused and through that they only have an obligation to themselves and that the attempt to refinance the debt was clearly attempting to ensure that they were able to keep a clean record.

The broker stated that he was acting for both parties and that he was just their to ensure that everyone got a fair deal out of the situation. He assured our client that he was acting in their best interests.

We have to admit we have no idea, we couldn’t work out who the broker should be acting in the best interests of.

At times that things are not going well, it is necessary to work out who is on your side and what their interests are. In this situation, the closer we examined the advice being given, the more concerned we became as the loyalty was not necessary in our favour. Having a team that is on your side is paramount to the future and ensuring that your position is protected.

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Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

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Post Author: Craig Dangar

Craig is the principal consultant of C&D Restructure and Taxation Advisory and has been working in the industry since 1999. Having established C&D Commercial Partners in 2015 the precursor to the current business.

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