Security

Types

What types of collateral/security are typically granted to investors in a securitisation in your jurisdiction?

The most common form of security granted by the SPV is a general security interest over all assets of the SPV, including the receivables, bank accounts and other assets of the SPV. The security is usually granted in favour of a security trustee who holds the security on behalf of, and for the benefit of, the investors and other secured creditors.

Perfection

How is the interest of investors in a securitisation in the underlying security perfected in your jurisdiction?

The security interest held by the security trustee must be perfected by registration on the PPSR within prescribed time limits. It is possible to perfect security interests in some assets by only possession or control, with no registration; however, this is unusual in securitisations as the date of perfection can be difficult to determine. The date of perfection is important as it will determine priority of competing security interests. For this reason perfection by registration is the preferred approach as it provides a definitive date.

Enforcement

How do investors enforce their security interest?

As security is most often held by a security trustee, on an event of default it is the security trustee’s role to enforce the security interest.

The security trustee often has the sole right to enforce the security granted by the issuer. Most securitisation documentation will also require the security trustee to enforce the security if directed to do so by a certain proportion of investors.

Commingling risk

Is commingling risk relating to collections an issue in your jurisdiction?

The investors are exposed to the risk that the servicer becomes insolvent before the proceeds from the receivables are paid to the SPV, and are available to the servicer’s creditors. If the funds are not held separately, it is likely to be difficult to establish that they are held on trust for the investors.

To mitigate this risk, the collections from the receivables can be paid into a nominated account into which only receivables that are subject to the securitisation are paid. Often there will also be a requirement to sweep funds frequently from the collection account to an account in the name of the SPV.