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Question: lorraine hau and valli are the only shareholders and directors...

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Lorraine, Hau and Valli are the only shareholders and directors of Vegan and Sustainable Resort Wear  Pty Ltd which manufactures, distributes and sells vegan sportswear and resort wear. The warehouse which also includes space for the manufacture of clothing and footwear is in Alexandria. The business is run as a sustainable enterprise and has a low level of debt leaving the Alexandria property unencumbered.

Hau is also the Chairperson and majority shareholder of Rural Vistas Pty Ltd which is developing rural land for residential use. Rural Vistas Pty Ltd is in need of finance to fund its latest development. However it is already heavily in debt, facing the downturn in the real estate market, and does not have adequate security that it can use as collateral for loans. Further following the findings of the Hayne Commission’s Inquiry, financial institutions have been reluctant to bend the rules for Hau and Rural Vistas Pty Ltd.

In order to get on with business, Hau borrows $5 million from CBC Bank, promising that Vegan and Sustainable Resort Wear Pty Ltd would act as guarantor. A mortgage is taken over the Alexandria property by CBC Bank. Hau signs the document as a director and forges Lorraine’s signature as another director on the loan documents. Fredirico Pastisi, the loans officer of CBC Bank who has had long term dealings with Rural Vistas Pty Ltd and Hau, has some doubts about why a sustainable vegan company would engage in real estate development, but he quells these doubts, after being convinced by Hau that all is in order. The drop in the real estate market continues and Rural Vistas Pty Ltd defaults on the loan to CBC Bank. CBC Bank seeks to enforce the mortgage over the Alexandria property.

Advise CBC Bank.

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