Since before the operational commencement of the Personal Property Securities Act 2009 (Cth) (“PPSA”) in January 2012, and certainly since then, law firms have been settling their position on the many issues it raises. They have also been revising their precedent documentation. A document that was heavily affected by the PPSA was the traditional fixed and floating charge. The extensive changes made to the law and registration requirements by the PPSA resulted in substantial rewriting of firms’ standard charge documents. The replacement for the fixed and floating charge is now usually called a General Security Agreement (or Deed) (“GSA”). Evidence in the market is that different firms have taken different approaches to some essential elements of GSAs. The differences are not necessarily a matter of right or wrong, or better or worse (there are often several ways to deal with an issue), but these differences can cause confusion and unnecessary negotiation as parties seek to impose their preferred position on others, often based on an imperfect understanding of other firms’ different approaches. Without guidance, it may take a long time before the market settles.
The PPSA model clauses set out some suggested clauses and definitions for certain core provisions of a GSA. Five international firms have worked together to prepare these. They are:
- Herbert Smith Freehills
- King & Wood Mallesons
- Norton Rose
These clauses represent a distillation of the firms’ thinking on several important issues and are consensus positions. They are not biased towards either grantors’ or secured parties’ interests. In many senses they represent a “line of best fit”, designed to accommodate the competing views on some issues. The footnotes that accompany the clauses explain the PPSA thinking behind the decisions made in settling them. They help understand the intended operation of these provisions. However, they do not constitute advice to any person.
These clauses have been adopted into the firms’ precedent GSAs. The firms have no objection to them being used by any other person in the market if they consider them appropriate for their precedents or a particular transaction. The objective in jointly publishing the clauses is to assist the functioning of the market post-PPSA, with a view to helping the market to develop a settled practice. We believe that this is in clients’ interests, and that is why we have invested the time in this project. It is not necessarily in clients’ interests for firms to be negotiating their respective differing views on points of PPSA law in the context of a live transaction where there is no substantive advantage to be gained by or for a client one way or the other. Just as the fixed and floating charge eventually reached a point where most firms’ key clauses were similar within a narrow range and did not generate much (if any) negotiation, we think it is important for the market to quickly and efficiently reach a consensus position on the key PPSA-affected provisions of a GSA.
It should also be noted that these clauses have not been approved by, and do not represent the views of, any particular firm’s client or a particular client sector. When used by the firms, they may appear in first drafts prepared by them in this form or in a different form. Slight variations may also arise due to differences in drafting styles between the firms. Most aspects of them can be open to negotiation and, of course, they will always be subject to clients’ instructions in any particular matter.
Many of the issues addressed by the clauses also arise in connection with security over specific assets such as shares and contractual rights, where mortgages and charges have been replaced by Specific Security Agreements (or Deeds). Some of these clauses will be applicable to those documents.