Law accounting practice


Law accounting practice

Jak has been working as a successful accountant for several years since graduating with a double major in finance and accounting. He is 28 years old and is looking to start his own accounting practice in a developing area of New South Wales. He has saved up a substantial amount of capital, however, he will still need to borrow $25,000 to finalise the arrangements. He has no assets and cannot obtain a loan without a guarantor. Jak consults his elderly parents, who grew up in Australia. He tells them he has a fantastic idea and he needs their help. Jak’s parents have always been very proud of him and think his plans are fantastic. Jak tells his parents he needs only $25,000 and this will be repaid within 6 months, after which time they would be under no further liability. Arrangements are made for a bank manager to visit Jak’s parents and they both sign as guarantors for Jak. The agreement they sign, however, is one for an infinite credit limit over an infinite period.

Jak borrows $50,000 from the bank for a term of 4 years. His business goes well for some time, however, after 9 months rival practices open which significantly slows Jak’s revenue stream, forcing him to default on his loan obligations. The bank calls in the loan and approaches Jak’s parents for the balance, a sum of $43,000. Jak’s parents do not have $43,000 readily available to repay the loan and they fear losing their family home.

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