ASIC Puts Private Credit on Notice: The Growing Pressure for Accurate Loan Valuations

ASIC has moved from surveying private credit to setting clear expectations. Ahead of the 30 June 2026 reporting date, the regulator has called on funds, trustees and auditors to ensure asset valuations are “current, accurate and grounded in realistic assumptions”, and to assess their practices against ASIC’s ten principles for private markets. For Victorian private lenders, family offices and credit funds, internal valuation discipline now carries direct legal and regulatory consequences.

This article identifies where the legal risk sits, the documentation that withstands challenge, and the practical steps lenders should take before and after a default.

Key points

• ASIC expects 30 June 2026 valuations to reflect current market conditions, not stale internal assumptions.
• Stale valuations expose lenders to undervalue claims on enforcement and to allegations of unconscionable conduct.
• Loan documents should contain clear revaluation triggers and a right to revalue at the borrower’s cost.
• Mezzanine and subordinated lenders should secure independent valuation and cure rights in intercreditor agreements.
• Directors and trustees should adopt and follow a written valuation policy and document their challenges to optimistic reports.

ASIC’s 30 June 2026 deadline and the ten principles

ASIC monitored the sector through an eight-week voluntary survey conducted from 26 March to 14 May 2026, covering 22 managers, 52 funds and around 76 billion dollars in assets under management. ASIC has described the survey as a snapshot, not a complete picture, and has since put the sector on notice for the financial year end.

Early findings point to uneven credit deterioration, tightening liquidity buffers and valuations lagging economic reality. ASIC has stated that active surveillances across wholesale and retail funds are well progressed and that multiple enforcement investigations are underway. Poor private credit practice is a 2026 enforcement priority. The regulator’s central concern is valuation practice that relies on internal assumptions rather than external market evidence, and that fails to reflect higher capitalisation rates, increased leasing incentives and a realistic time to sell. The full statement is set out in the ASIC notice on private credit valuations and reporting.

Why stale valuations create legal risk for Victorian lenders

A valuation is a snapshot in time. In a repricing market, a report more than twelve months old may misstate security cover. If a loan-to-value ratio was set at 70 per cent on an outdated figure, the true position may now exceed 80 or 90 per cent. New loan commitment data in the ABS lending indicators often shifts ahead of asset values, so lenders who do not update their valuations may hold insufficient cover without knowing it. The exposure is highest for suburban Melbourne development sites, where construction costs have risen and end values have softened.

Undervalue risk when exercising power of sale

A mortgagee exercising power of sale must act in good faith and take reasonable care to obtain the market value of the secured property. Where a controller or receiver conducts the sale, section 420A of the Corporations Act 2001 (Cth) requires reasonable care to sell for not less than market value, or for the best price reasonably obtainable. An outdated valuation used to set a reserve price supports a borrower’s claim that the lender sold at an undervalue, and can found an injunction that delays enforcement. A current, defensible valuation for the reserve removes that argument.

Unconscionable conduct and pro-forma valuations

Statutory unconscionable conduct under section 12CB of the ASIC Act applies to financial services generally, not only to regulated Code loans. In Stubbings v Jams 2 Pty Ltd [2022] HCA 6, the High Court found asset-based lending unconscionable on comparable facts and held that pro-forma certificates of legal advice and business-purpose declarations did not reduce the lender’s culpability. Standard-form paperwork does not insulate a transaction. Where a valuation report carries numerous caveats and assumptions that the lender does not verify, the lender carries the resulting risk.

Lessons from ASIC v Oak Capital

ASIC alleges that Oak Capital used corporate borrowers to avoid the National Credit Code on loans that were, in substance, consumer loans secured against the borrowers’ homes, comprising up to 47 loans totalling more than 37 million dollars between 2019 and 2023. These allegations are not proven and the matter is before the Federal Court. The relevance for valuation practice is the regulator’s approach: ASIC looks to substance over form and expects governance that challenges, rather than accommodates, a desired loan-to-value ratio. Our earlier analysis sets out the detail in ASIC v Oak Capital: implications for asset-based lending.

Documentation that withstands challenge

Documentation is the primary defence against regulatory intervention and borrower disputes. A loan agreement should include clear revaluation triggers, such as a time lapse, a default event or a material change in market conditions, and a right to call for a new valuation at the borrower’s cost. Instructions to valuers should be precise and address site-specific risk: a commercial site in Cremorne carries different risk factors from an industrial warehouse in Dandenong, and a pro-forma valuation that ignores those factors is weaker evidence. Before any auction, confirm that the reserve valuation is current and defensible. Our private lender’s pre-auction checklist sets out the documentation that supports a clean enforcement.

Subordinated and mezzanine debt

Second-mortgage and mezzanine positions are highly sensitive to small movements in asset value. A 10 per cent fall may not affect the first mortgagee, but it can erase the security of the mezzanine lender. A subordinated lender should negotiate three protections: a right to commission an independent valuation where it doubts the senior lender’s data; clear cure rights that allow it to step in when a valuation trigger is met; and intercreditor terms that state whose valuation controls between the tiers of debt. Where the fund accepts capital from retail or wholesale investors, the lender should also verify investor status, because misclassification increases regulatory exposure.

Director and trustee liability for valuation oversight

Directors of lending companies and trustees of credit funds risk personal exposure where valuations are recklessly or intentionally inflated. A director who signs financial statements knowing the underlying loan valuations are overstated may breach statutory duties. Australian courts have imposed substantial penalties for oversight failures characterised as negligent rather than dishonest, as the Federal Court did in ASIC v Bekier in 2026, which confirms that motive is not a defence to a failure of care and diligence.

To manage this risk, the organisation should adopt a written valuation policy that defines the frequency of external valuations, the criteria for selecting independent valuers, the process for reviewing internal assumptions, and how the board receives and interrogates reports. Where a valuer’s report ignores recent comparable sales at lower prices, the board should challenge it and record that challenge. Documented challenges evidence due care. The same principles of director liability apply across sectors, as our analysis of director liability in the Medlab case shows.

The Melbourne commercial market context

Melbourne’s asset classes have diverged, and a single valuation approach across them is inadequate. The industrial sector remains relatively tight. Secondary office is under pressure, with high CBD vacancy concentrated in secondary towers and Docklands stock. Retail is recovering selectively. Lenders active in commercial lending should value each asset class on its own evidence rather than a portfolio average.

Realistic assumptions: capitalisation rates, incentives and time to sell

ASIC’s call for realistic assumptions centres on capitalisation rates, and the recovery forecasts do not support optimistic near-term repricing. CBRE’s Pacific outlook expects cap rates to expand in 2026 and remain broadly flat through to 2028, with compression emerging only in 2028. For Melbourne, Knight Frank forecasts only modest yield compression, with income growth driving most of total returns, and describes the market as a valuation reset; the yield spread between Melbourne and Sydney prime office now sits at a 20-year high. Lenders should not assume value uplift in the near term.

Retail recovery is real but uneven. JLL recorded Melbourne sub-regional yield compression of 25 basis points and neighbourhood compression of 12.5 basis points in the December 2025 quarter, and large format retail rents rose by about 4.5 per cent over the year. Beyond cap rates, leasing incentives have risen even where face rents appear stable, so a valuation that ignores incentives overstates net income and value. Lenders should require a breakdown of net effective rents. They should also account for time to sell: a forced sale of specialised commercial stock in Melbourne can take six months or more, so an orderly liquidation value should sit alongside market value. For development sites, rising construction costs reduce residual land value, which makes an updated quantity surveyor report necessary alongside the property valuation.

Practical steps for Victorian private lenders

1. Review all facilities where the valuation is more than twelve months old, and prioritise higher-risk sectors such as suburban and secondary office.
2. Audit the valuation clauses in existing loan documents, and add a right to revalue at the borrower’s cost in new originations.
3. Adjust the internal valuation promptly when a loan falls into arrears, to avoid a cliff write-down when the asset is finally sold.
4. Engage valuers and lawyers who understand Victorian planning zones and Land Use Victoria requirements, so the security documentation and the underlying valuation are both fit for purpose.

Private credit provides a necessary alternative to bank lending, and as the sector matures, ASIC expects higher standards of valuation integrity. Lenders who hold accurate, defensible valuations protect their capital and satisfy the regulator’s expectations. The current focus is a structural shift toward a more transparent private lending market, not a temporary trend.

Frequently asked questions

What does ASIC expect of private credit valuations at 30 June 2026?

ASIC expects 30 June 2026 asset valuations to be current, accurate and grounded in realistic assumptions. It expects funds, trustees and auditors to reflect current market conditions, including higher capitalisation rates and leasing incentives, and to assess their practices against ASIC’s ten principles for private markets.

Can a lender rely on a valuation obtained at loan origination?

No. In a repricing market, a valuation more than twelve months old may misstate security cover. Loan documents should contain revaluation triggers, such as a time lapse, a default event or a material change in market conditions, and a right to revalue at the borrower’s cost.

Does a corporate borrower place a loan outside the National Credit Code?

Not necessarily. ASIC assesses substance over form. Where a loan is, in substance, for a personal, domestic or household purpose and is secured against a borrower’s home, ASIC alleges in its proceeding against Oak Capital that a corporate borrower structure does not remove the loan from the Code. Those allegations remain before the Federal Court and are not proven.

What valuation rights should a mezzanine lender negotiate?

A mezzanine or subordinated lender should negotiate a right to commission an independent valuation, clear cure rights, and intercreditor terms that state whose valuation controls between the tiers of debt. These positions are highly sensitive to small movements in asset value.

Further reading

• The private lender’s pre-auction checklist
• ASIC v Oak Capital: implications for asset-based lending
• Director liability: lessons from the Medlab case

This article is general information only and does not constitute legal advice. It reflects the law and publicly available information as at 29 June 2026. The allegations in ASIC v Oak Capital are not proven. Reading this article does not create a lawyer-client relationship. Seek advice specific to your circumstances before acting. Author: Blaine Hattie, SLK Lawyers.

About Blaine HattieBlaine Hattie is a Principal in Commercial Transactions at Sutton Laurence King Lawyers. He advises businesses on transactions and finance with a special interest in technology, cybersecurity, digital media, defamation, and artificial intelligence.