A "Charging Clause" may be included in an unsecured credit or loan agreement.
Think of it as your last line of defence.
In the event there is a default of the credit arrangement/loan, a "Charging Clause" grants the credit provider/lender the legal right (including the power of attorney) to immediately prepare, sign + register a charge against any property (real or personal) owned by the borrower.
Our recommended approach (superior to a "Charging Clause") to document clearly up front (before advancing the funds) an enforceable personal property security capable of being registered on the PPSR - Personal Property Security Register is via our General Security Deed over Personal Property.
If the credit or loan is already secured by a mortgage or a registered security on the PPSR - Personal Property Security Register then a separate "Charging Clause" is not required as repayment of the loan has already been secured.
If an debt is owed, then without a General Security Deed registered on the PPSR - Personal Property Security Register or at the very minimum a "charging clause" it can be costly + time intensive + risky to obtain repayment of the debt using standard Debt Collection tools such as a Letter of Demand, etc.
When a debt is unsecured, even if legal proceedings are successful and a Local Court or Tribunal money judgment is obtained there is still no guarantee that the money will be repaid.
The formal Court money judgment enforcement processes in Australia do not include the right to place a permanent charge against the borrower's property.
There is also the possibility that at the time the borrower defaults (or at the time a Court judgment is obtained) the borrower may not own any real or personal property, and might be unemployed so that a "Charging Clause" / Court money judgment is of little benefit.
Presuming this is not the case, and the borrower does own real or personal property, taking steps to register security against these assets, or if this is not possible, at the very least using a "Charging Clause" can greatly simplify, fast track and increase your prospects of making a full recovery of the debt owed.
This FAQ was created by James D. Ford GAICD | Principal Solicitor, Blue Ocean Law Group℠.
This FAQ is intended for general interest + information only.
It is not legal advice, nor should it be relied upon or used as such.
We recommend you always consult a lawyer for legal advice specifically tailored to your needs & circumstances.