With high funding costs impacting on the major banks, it is anticipated corporate debt may be provided more and more by superannuation and other investment funds.
This is expected to fill a growing gap in funding availability to the Australian corporate market and there are already signs of increased activity by some of these alternative lenders.
A core component of these financing arrangements is the ability for such lenders to take a general security interest over the assets of the borrower.
This is now managed predominantly by the new Personal Property Securities Act 2009 (PPSA) regime.
The regime finally came into effect from 30 January 2012.
It has major implications for secured finance transactions of lenders.
The former fixed and floating charges so familiar in this context have now vanished.
ASIC has transferred its charges register to the new Personal Property Securities Register, and will no longer receive or manage filings with respect to such security interests.
Much of what’s changed is positive.
Registrations need to identify specific classes of property, broadly categorised under four headings, each with sub-classes and some allowing free-text descriptions of collateral for additional clarification: tangible property, general property, intangible property and financial property.
Key concepts are also addressed for particular needs of certain types of transactions.
These include, for example, purchase money security interests, receivables financing, leases and bailment of personal property, consignment transactions, retention of title and other matters.
This has all resulted in an increased focus on specific classes of assets and specific requirements with respect to creating and perfecting a security interest in respect of such assets.
Perfection in general means the ability to enforce the security interest in priority against other parties.
With respect to certain classes of assets, this is achieved by means of registration, and with respect to other classes of assets, by means of possession or control.
But what happens in export transactions when it comes to personal property?
Particularly, how are matters addressed with respect to property that may be located overseas?
Indeed, how does one determine the location of personal property that may be intangible, for example, foreign bank accounts, shares in overseas entities, intellectual property registered with foreign authorities and licences granted for overseas territories?
And with respect to goods that are sold to overseas buyers, what happens to any security interest?
The PPSA in this regard creates a fair degree of complexity, and indeed may even be misleading in some contexts.
It states explicitly that it applies to a security interest in goods located in Australia.
However, in certain cases, subsequent provisions of the PPSA will lead to a determination that the regime does not apply.
In effect, the PPSA applies its own rules to determine it does not apply.
The validity, perfection and effect of perfection of a security interest in goods will be governed by the law of another jurisdiction, if either it was reasonable to believe the goods would be moved to the other jurisdiction, or if the grantor (in such cases frequently the purchaser) is located in the other jurisdiction and the goods are of a kind normally used in more than one jurisdiction (and not used predominantly for personal, domestic or household purposes).
The assessment, however, is still missing a more fundamental reality.
Once goods are in a foreign jurisdiction, the starting point with respect to any disputes of ownership and/or security interests is most likely to be that foreign jurisdiction.
It will have its own laws and regulations with respect to such matters, and may not even accommodate an assessment under the laws of Australia, including the PPSA.
So, for example, if equipment is sold by an Australian business for delivery in Chile or Brazil, the primary determination regarding ownership rights and/or security interests in such equipment is most likely to be made under the laws of those jurisdictions.
As a practical matter this probably has a greater impact with respect to enforcing those rights against third parties, including regarding priority of claims in any bankruptcy proceedings.
This all adds further emphasis to the importance of focusing on specific classes of assets and specific requirements with respect to creating and perfecting a security interest in respect of such assets.
This is true not just with respect to the nature of the assets, but the location of such assets, both at the time a security interest is granted and at any subsequent time enforcement may become a concern.
Or, as one business leader commented to the writer of this article with respect to protection for sales to overseas purchasers – simply demand payment in full, upfront, before anything is shipped!
Brett Eagle is chief executive of Eagle Corporate Advisers and is admitted as a lawyer in Australia and the United States.
