Record family borrowing as carefully as commercial borrowing. Personal closeness does not remove the need to establish the debt or assess repayment properly.
Corporate Recovery Partners
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A family loan carries expectations the cash position cannot meet
A café owner owes money to a bank, suppliers and a sister who transferred savings during a quiet period. The sister expects to be repaid first because the money was meant to be short term. There is no formal agreement, but messages refer to repayment. The owner needs advice on all obligations without rewriting the family arrangement to fit today’s pressure.
Gather transfer records, messages, repayment history and any agreed interest or security. Identify who borrowed: the individual, a company or another entity. Distinguish a loan from a gift or investment using the actual evidence.
Do not create a backdated agreement. If terms were informal or unclear, explain that honestly to the adviser and preserve the material that exists.
Include family, friends, commercial creditors and disputed amounts. Record the legal debtor, balance, due date and any guarantee or security for each. Keep personal and company liabilities identifiable.
AFSA’s guidance notes that family loans require examination of their terms and evidence in bankruptcy. A family relationship neither proves a claim automatically nor makes it irrelevant.
Discuss proposed repayments with a qualified adviser where insolvency is possible. Do not transfer assets or grant security retrospectively simply to protect a relative from loss.
Explain to the family member that the debt must be assessed alongside the wider position. A factual update is better than a private assurance that conflicts with the formal process or available funds.
If a trustee or liquidator becomes involved, provide the records and disclose the relationship. The creditor may need to establish its claim through the relevant procedure.
Keep personal conversations separate from the evidence file. This allows the relationship to be handled respectfully without allowing emotion to change the historical facts or conceal other creditors.
