Taking out a $2.35 million short-term loan in the heat of the covid-19 property boom came unstuck when Auckland development plans collapsed and the borrower had no exit strategy. The High Court refused to block forced sale of a Whangamata home put up by Michelle Joy O’Byrne as security.
In the depths of Auckland’s lockdown, Ms O’Byrne was frantically putting together a deal to purchase and develop land on Leybourne Circle in Glen Innes. In early November 2021, paperwork was finalised. With face-to-face meetings prohibited, documents were signed in a meeting co-ordinated using Facetime. Ms O’Byrne agreed to a two month $2.35 million loan with security over both Leybourne Circle and an investment property in Whangamata owned by her family trust. Latitude Homes was lined up to carry out the Leybourne Circle development.
The High Court was told Ms O’Byrne learnt just days after the loan was drawn down that Latitude Homes could not commit to the build. The full amount of this loan was used to purchase Leybourne Circle. She was left holding a building site with building consents issued but no builder, a $2.35 million loan falling due within weeks and no funds to further progress the development. With forced sale of Leybourne Circle threatened, Ms O’Byrne sold up leaving a shortfall on her $2.35 million loan of some $1.1 million and interest running at about $780 per day.
With her family trust’s Whangamata property also threatened with a mortgagee sale, Ms O’Byrne challenged terms of the original $2.35 million loan. There was a breach of the Responsible Lending Code in the Credit Contracts and Consumer Finance Act, she alleged. The lender, Extension Capital Ltd, knew from the outset that further finance was needed to progress the development and failed to provide promised further funding, she claimed. It was clear from all documentation that the $2.35 million was a short-term loan only. The Responsible Lending Code did not apply, Justice Robinson ruled. This was a commercial transaction; the Code applies only to consumer loans.
Ms O’Byrne alleges her then financial adviser failed to properly explain terms of the deal.
Wake Up Commercial Ltd v. Extension Capital Ltd – High Court (10.01.23)
23.016