Bathla Group Collapse: ASIC Scrutiny and What Private Credit Funds Should Review

Introduction

Poor private credit practices are one of the Australian Securities and Investments Commission‘s (ASIC) 2026 enforcement priorities, with the regulator conducting targeted surveillance and enforcement activity across the sector. The Bathla Group voluntary administration has now brought many of the risks ASIC has been examining into sharper focus.

For Australian Financial Services (AFS) licensees, responsible entities and trustees involved in private credit, this is an appropriate time to check whether existing governance arrangements remain suitable for their funds and are working as intended. In this article, we explain what the Bathla Group voluntary administration means for private credit fund operators, why ASIC is focusing on the sector, the regulatory framework that applies, and the key areas AFS licensees, responsible entities and trustees should review now.

Interactive Tool: Check Your Private Credit Fund’s Governance Health

What Happened to the Bathla Group?

The Bathla Group entered voluntary administration on 25 August 2026 after a period of mounting financial pressure, reportedly driven by weaker property sales, falling prices, higher construction costs and tax changes.

The scale of the administration is significant. The group has:

• more than 520 subsidiaries;
• more than $3.5 billion in reported creditor exposure;
• approximately 2,000 homes under construction; and
• around 13,000 further homes in its development pipeline.

Much of the group’s debt was funded through private credit rather than traditional bank lending, including capital ultimately sourced from retail investors.

Administrators from Teneo were appointed to the group and have since been assessing its financial position, seeking short-term funding to keep projects operating and dealing with a large number of lenders.

What Has ASIC Said About the Bathla Collapse?

ASIC did not appoint Bathla’s administrators, and as at 28 August 2026 it has not publicly announced a new enforcement proceeding against Bathla arising from the administration. However, ASIC was already scrutinising private credit before the collapse, and the Bathla administration has become an important example of the risks it has been warning about.

ASIC Chair Sarah Court has said current conditions are the private credit sector’s “first real test” and that Australia is beginning to see the “first significant cracks” as major borrowers fail and some funds face redemption pressure. That matters because ASIC had raised concerns about:

• borrower concentration;
• credit monitoring;
• valuations and impairment;
• liquidity;
• conflicts; and
• investor disclosure.

For fund operators, the key question is therefore not simply whether they have exposure to Bathla. It is whether their governance framework would identify and respond appropriately if a significant borrower in their own portfolio began to deteriorate.

ASIC’s 2026 Focus on Private Credit

Poor private credit practices as an enforcement priority

ASIC formally identified poor private credit practices as a 2026 enforcement priority and has said that increased surveillance will be accompanied by enforcement action where misconduct is identified. That follows a substantial program of regulatory work across the sector, including:

• surveillance of 28 private credit funds between October 2024 and August 2025, and publication of Report 820: Private credit surveillance – retail and wholesale funds (REP 820);
• publication of ten private credit principles;
• a catalogue identifying relevant existing legal obligations and regulatory guidance;
• further targeted surveillance, including of real estate lending strategies; and
• private credit-related enforcement investigations.

ASIC’s REP 820

REP 820 identified weaknesses and inconsistencies across areas including:

• credit assessment and borrower monitoring;
• impairment and default management;
• valuations;
• liquidity;
• conflicts of interest;
• allocation between funds and co-investment vehicles;
• fees and interest margins; and
• investor disclosure.

Some of ASIC’s findings were significant. Fewer than half of the funds reviewed had detailed written credit or impairment and default-management policies; half of the wholesale funds reviewed did not have a policy governing fair allocation of investment opportunities across overlapping funds and co-investment vehicles; and most funds reviewed lacked effective separation between loan approval and subsequent monitoring or valuation oversight.

However, REP 820 and ASIC’s ten principles are not themselves new laws. The relevant legal obligations arise from the specific provisions of the Corporations Act 2001 (Cth) (‘Corporations Act‘), the conditions of any applicable AFS licence (AFSL) and, where relevant, other legislations as per the fund’s structure and activities.

Easier to deal with, harder to avoid

ASIC Chair Sarah Court added to this regulatory context in her 26 August 2026 address, describing ASIC’s intended approach as becoming “easier to deal with, harder to avoid”. This involves:

• becoming a more responsive regulator;
• detecting emerging risks earlier;
• resolving lower-risk matters more quickly and proportionately;
• escalating high-risk conduct faster;
• making more targeted interventions; and
• pursuing stronger consequences where warranted.

Which Private Credit Funds Are Affected?

Private Credit Funds & the Corporations Act (Cth)

There is no standalone private credit licensing regime under the Corporations Act. The obligations applying to a private credit fund depend on matters such as:

• whether the scheme is registered;
• whether interests are offered to retail or wholesale investors;
• who operates or manages the fund;
• which entities hold an AFSL; and
• which financial services those entities provide.

Registered managed investment schemes

Under Section 601ED of the Corporations Act, a managed investment scheme must generally be registered where one of the statutory registration criteria is satisfied, subject to the exceptions in that section. Importantly, registered does not necessarily mean retail-only. A registered scheme may also be available to wholesale investors.

A registered scheme must have a responsible entity. Under Section 601FA, the responsible entity must be a public company holding an AFS licence authorising it to operate the scheme. The responsible entity also has duties under Section 601FC, including obligations to:

• act honestly;
• exercise the degree of care and diligence required by the section;
• act in members’ best interests where those interests conflict with its own; and
• ensure scheme property is valued at appropriate regular intervals.

For private credit funds, Section 601FC(1)(j) is particularly relevant because it requires scheme property to be valued at intervals appropriate to the nature of that property. Under Section 601HA(1)(c), the scheme’s compliance plan must also contain adequate measures to ensure scheme property is regularly valued.

As an AFS licensee, the responsible entity is also subject to applicable obligations under Section 912A, including requirements relating to:

• efficient, honest and fair provision of financial services;
• conflicts management;
• compliance with financial services laws; and
• adequate risk-management systems, subject to the qualifications in Section 912A(5).

Depending on the product and investor base, other obligations may include Product Disclosure Statements (PDS) requirements, design and distribution obligations, and registered-scheme withdrawal requirements.

Unregistered wholesale schemes

Unregistered wholesale funds require a different analysis. The Chapter 5C responsible entity duties should not simply be applied to an unregistered wholesale fund because it happens to provide private credit. Instead, the fund should identify:

• who is acting as trustee, operator and investment manager;
• which entities hold an AFSL;
• what financial services each entity provides;
• what AFSL authorisations apply; and
• what obligations arise under the fund documents and other applicable laws.

Where the relevant entity is an AFS licensee, applicable obligations under Section 912A of the Corporations Act may still apply.

Similarly, Section 1041H(1) of the Corporations Act prohibits misleading or deceptive conduct in relation to a financial product or financial service regardless of whether the scheme is registered. The key point is that wholesale does not mean unregulated. It means the applicable regulatory framework must be determined from the actual structure and activities of the fund.

Where AML/CTF also applies

Private lenders may also be subject to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (‘AML/CTF Act‘).

Under Section 6(2), Table 1, item 6 of the AML/CTF Act, making a loan in the course of carrying on a loans business is a designated service. Section 6(2), Table 1, item 7 separately covers specified transactions conducted by a lender or assignee in relation to such a loan.

Where the lender is an AML/CTF reporting entity, those obligations operate alongside its Corporations Act and AFSL obligations.

For a broader overview of your compliance requirements as an AFSL holder, see our free AFSL Compliance Guide.

What Should Private Credit Fund Operators Review Now?

Credit risk and portfolio concentration

ASIC is also looking at whether funds can identify deteriorating credit quality and concentrated exposures early enough to respond. For an AFS licensee to which Section 912A(1)(h) of the Corporations Act applies, the legal requirement is to maintain adequate risk-management systems, which may be supported by AFSL compliance services for private credit fund operators. The Act does not prescribe:

• a specific concentration limit;
• a particular borrower-rating methodology;
• mandatory early-warning indicators; or
• a standard escalation timetable.

As a cogent practice, fund operators should review whether they can readily identify:

• their largest borrower and sponsor exposures;
• exposures across related entities and projects;
• concentration by sector, geography or asset type;
• deteriorating financial covenants;
• construction delays or cost increases;
• weakening presales or project performance;
• refinancing difficulties; and
• other indicators that may require escalation.

The fund should also be able to aggregate exposures across related borrowers rather than assessing every lending entity in isolation.

Valuations and impairment

Valuation is a critical area because it can affect:

• asset values;
• unit pricing;
• performance reporting;
• management or performance fees;
• liquidity decisions; and
• investor withdrawals.

For registered schemes, Section 601FC(1)(j) and Section 601HA(1)(c) of the Corporations Act impose specific valuation requirements. Wholesale funds are not automatically subject to those Chapter 5C provisions. However, valuation practices may engage other AFSL, financial reporting, disclosure and contractual obligations depending on the fund structure.

Funds should use current and supportable information, challenge assumptions and reconsider valuations when borrower circumstances materially change. Fund operators should therefore consider whether:

• valuations incorporate current borrower and project information;
• material assumptions remain supportable;
• deterioration triggers an additional or earlier valuation;
• valuation processes are sufficiently independent from origination;
• impairment and default methodologies remain appropriate; and
• loan amendments, extensions or capitalised interest affect the economic assessment of an asset.

Liquidity and redemption risk

Private credit assets are generally less liquid than publicly traded investments. That can become a significant issue where investors are offered periodic withdrawals or redemptions.

Under Section 601KA(4) of the Corporations Act, a registered scheme is ‘liquid’ where liquid assets account for at least 80% of the value of scheme property. Where the scheme is not liquid, withdrawals must comply with the constitution and the requirements in Section 601KB–601KE.

ASIC’s private credit principles also encourage funds to consider whether:

• redemption terms align with underlying portfolio liquidity;
• appropriate liquidity buffers are maintained;
• liquidity is stress-tested;
• distributions are funded sustainably; and
• withdrawal arrangements operate fairly between exiting and remaining investors.

Fund operators should therefore test what happens if:

• borrower repayments are delayed;
• refinancing becomes more difficult;
• asset realisations take longer than expected;
• new investment inflows reduce; or
• redemption requests increase materially.

Conflicts of interest

Private credit can create conflicts throughout the life of a loan. Potential conflicts may arise from:

• related-party lending;
• allocating loans between multiple funds;
• co-investment arrangements;
• origination or amendment fees;
• default or restructuring fees;
• valuation and impairment decisions;
• decisions to extend rather than enforce a loan; and
• remuneration linked to fund performance or reported asset values.

Under Section 912A(1)(aa) of the Corporations Act, an AFS licensee must have adequate arrangements for managing conflicts arising in relation to its financial services business.

Registered-scheme responsible entities are also subject to Section 601FC(1)(c), which requires members’ interests to be given priority where they conflict with the responsible entity’s own interests.

Merely having a generic conflicts policy may not be enough. Fund operators should consider whether material credit decisions receive appropriate independent challenge and whether the reasons for managing a conflict in a particular way are properly documented.

For more practical guidance on identifying and managing conflicts, see our Conflicts of Interest Management Guide for AFSL and ACL holders.

Disclosure and investor communications

Portfolio deterioration may also affect whether investor communications remain accurate, engaging the Section 1041H of the Corporations Act prohibition on misleading or deceptive conduct discussed above. For PDSs, Section 1013D(1)(c) requires information about significant risks associated with holding the product, to the extent required by that provision.

Fund operators should review whether investor communications accurately continue to describe:

• arrears and defaults;
• impaired or restructured loans;
• portfolio concentration;
• valuation methodologies;
• liquidity;
• performance;
• fees and interest margins; and
• material changes in portfolio risk.

Marketing descriptions such as “low risk”, “stable” or “capital preservation” are not prohibited, but they should also be reconsidered where changing portfolio conditions may affect whether those statements remain supportable.

Design and distribution obligations

Where Part 7.8A of the Corporations Act applies to a retail product, the issuer must comply with the design and distribution obligations. Among other things:

• Section 994B requires a target market determination (TMD) containing specified information, including review triggers;
• Section 994C requires the TMD to be reviewed in the circumstances specified by that section; and
• Section 994E requires reasonable steps to ensure relevant distribution conduct is consistent with the TMD.

A borrower experiencing financial difficulty does not automatically require a new TMD. Instead, the issuer should consider whether changes in the fund or portfolio:

• engage a review trigger in the TMD;
• otherwise require review under Section 994C; or
• affect whether the product continues to be distributed consistently with its target market.

AML/CTF customer risk

Where the lender is an AML/CTF Act reporting entity, changing borrower circumstances may also become relevant to ongoing customer due diligence. Under Section 30(1) of the AML/CTF Act, a reporting entity must monitor customers in relation to its designated services so that it can appropriately identify, assess, manage and mitigate relevant ML/TF and proliferation-financing risks.

Depending on the circumstances, Section 31 and 32 provide for simplified or enhanced customer due diligence (CDD). Financial distress or administration does not, by itself establish suspicious activity, require a suspicious matter report (SMR) or automatically trigger enhanced CDD. However, new information may need to be incorporated into the reporting entity’s customer-risk assessment and ongoing CDD processes. This applies to matters such as:

• ownership or control;
• unusual transactions;
• sources of funds;
• changes in customer behaviour; or
• other risk indicators

What Are the Common Governance Gaps?

The problem is often not the complete absence of a policy. It is the failure of different parts of the governance framework to work together when circumstances change. Common areas to check include:

• Assessing loans in isolation: Related borrowers, sponsors or projects may create significantly greater concentration than individual loan reporting suggests.
• Waiting for formal default: Covenant breaches, refinancing difficulties, project delays or deteriorating borrower performance may require action before a payment default occurs.
• Using stale valuations: A regular valuation timetable may not be sufficient if significant new information emerges between scheduled valuations.
• Insufficient independent challenge: Origination teams may have incentives that differ from those involved in valuation, impairment or enforcement decisions.
• Extending loans without reassessing risk: An amendment may postpone a default without resolving the borrower’s underlying repayment difficulty.
• Allowing liquidity assumptions to remain static: Changes in borrower repayments and investor redemptions can affect both sides of the fund’s liquidity position.
• Treating conflicts as a disclosure-only issue: Some conflicts require active management, independent decision-making and documented reasons.
• Leaving investor disclosure unchanged: Communications should continue to reflect the actual condition of the portfolio.

The common theme is delay. As discussed above, ASIC has warned private credit funds not to wait for formal default before reassessing asset values and related risks. Good governance should therefore ensure that information identified through borrower monitoring can flow into valuation, impairment, liquidity management, conflict management, investor disclosure and board or senior management escalation.

What Should AFS Licensees, Responsible Entities and Trustees Do Now?

Private credit operators do not need to treat REP 820 as a new compliance regime. A more useful approach is to test existing arrangements against the legal obligations applying to the fund and the risks ASIC has identified. As a starting point:

• Map the applicable obligations: Separate the requirements applying to registered schemes, AFS licensees, wholesale structures, retail products and any AML/CTF Act reporting entity.
• Identify concentrated and deteriorating exposures: Aggregate related borrowers, sponsors, projects and security rather than relying only on individual loan reporting.
• Re-test valuation and liquidity assumptions: Consider whether borrower, project or market developments have made previous assumptions stale or unsupported.
• Review escalation and conflicts processes: Confirm that material loan amendments, extensions, valuations and impairment decisions receive appropriate scrutiny.
• Review investor disclosure: Check whether current disclosures and marketing accurately reflect material changes in the portfolio.
• Document the review and resulting decisions: Boards and senior management should be able to demonstrate what information was considered, what risks were identified and why particular actions were taken.

The objective is not mechanical alignment with every better-practice example in REP 820. It is to ensure that the fund’s existing governance framework supports compliance with its actual legal obligations and responds appropriately when borrower or portfolio risk changes.

Conclusion

The Bathla Group administration is a timely example of how deterioration in a major borrower can affect much more than credit performance. Concentration, valuation, liquidity, conflicts and investor disclosure can all become material at the same time.

ASIC has already made clear where it intends to look. For AFS licensees, responsible entities and trustees involved in private credit, you can contact Click Legal’s AFSL lawyers about compliance services for private credit governance reviews to test whether existing governance arrangements can identify emerging risk early, escalate it appropriately and support compliance with the legal obligations applying to their particular structure.

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