SECURED TRANSACTIONS LAW SEMESTER 1

Transcription

1 SECURED TRANSACTIONS LAW SEMESTER

2 INTRODUCTION TO SECURED TRANSACTIONS AND COMMON LAW... 4 Secured Vs Unsecured Debt... 5 Why Take Security... 5 Security At Cmmn Law (Pre Ppsa)... 5 CLASSIFICATION OF PROPERTY... 7 Sectin 10 Definitin Of Persnal Prperty. 7 Gds... 8 Financial Prperty... 9 Intermediated Security Intangible Prperty Cmmercial Prperty And Cnsumer Prperty...15 Inventry And Nn Inventry Persnal Prperty SCOPE OF THE STATUTE The Substance Test Deemed Security Interests S 12 (3) Exceptins WRITING REQUIREMENTS / ENFORCEABILITY (writing req f the Cntract) Writing Signature Cllateral Descriptin ATTACHMENT Imprtance Of Attachment? Elements Of Attachment Rights In Cllateral Value Given By Secured Party

3 3. Agreement Attachment And Fixed And Flating Charges/ Si In All Present And After Acquired Prperty 31 Attachment Of Security Interest When Cllateral Is Transferred PERFECTION Elements Of Perfectin Perfectin By Pssessin Perfectin By Cntrl Perfectin By Registratin Temprary Perfectin Lss Of Perfectin Failure T Perfect REGISTRATION Financing Statement Accessing Security Agreement Infrmatin. 40 Liability Fr Unreasnable Registratins Errrs In Registratin PMSIs Amendment T Financing Statements Amendment Demands PRIORITIES Pririty Waterfall PURCHASE MONEY SECURITIES (PMSI) Seller Pmsi s And Lender Pmsi s Exceptins Mixed Pmsi s And Nn-Pmsi s Allcatin Of Payments Refinancing And Cnslidatins Pps Lease Requirements Fr Super Pririty Cmpeting Pmsi s Pmsi In Accunts As Prceeds Subrdinatin Agreements Crps And Livestck PROCEEDS Elements: Tracing (Equitable Cncept) S Use Case Law Here Attachment Of Security Interest T Prceeds. 60 Perfectin Of Prceeds Pririties ACCESSIONS (GOODS ADDED ON TO HOST ITEM) Meaning Of Accessin Pririty Rules Remvals And Remedies COMMINGLING Perfectin And Pririty Rules Cmpeting Cmmingling Si s TRANSFERS OF COLLATERAL Unperfected Security Interests Perfected Security Interests Knwledge Ordinary Curse Of Business (Ocb) Lw Value Transactins Currency Temprarily Perfected Security Interests Subrgatin Creditr Payments And Negtiable Instruments Negtiable Instruments ENFORCEMENT ( AFTER GRANTOR DEFAULTS). 76 Applicatin Scpe Of Ppsa Chapter 4 When Can Chapter 4 Nt Be Applied? General Rules

4 Enfrcement Steps Right Of Redemptin If Enfrcing Sp Chses T Retain Cllateral.. 85 Crpratins Act 2001 (Cth) Part INSOLVENCY: General Rules: Ppsa S Inslvency And Nn-Perfectin:.. 90 Ppsa S 267a - Attachment Of After Acquired Prperty After Inslvent Event Ppsa S 267 (3) Third Party Purchaser Frm Secured Party Or Receiver Ppsa S 268 Exemptins T 267(2) PPSA S 269 COMPENSATION FOR LEASORS AND CONSIGNORS The Crpratins Act Prvisins: Sectin 588fl: Sectin 588fm: Prperty Of Cmpany INTRODUCTION TO SECURED TRANSACTIONS AND COMMON LAW AS A STARTING POINT Persnal Prperty Securities Act 2009 (Cth) is legislatin in regards t taking security ver prperty fr perfrmance f a debt/bligatin (but nt land). When talking abut secured transactins, we are referring t transactins invlving credit. Multiple credit defaults may lead t inslvency/liquidatin/administratin and this is when the PPSA cmes int effect. 4

5 Secured Vs Unsecured Debt In Persnam Cntract law and civil prcedure remedies are in persnam ie. Against the persn. unsecured creditr In Rem remedies exercisable against things security ver the prperty t secure the payment f debt - secured creditr The in rem right supprts the in persnam right. It prvdes extra prtectin t the creditr in the event f default The security des nt replace the ability t be able t sue n the cntract. It just prvides anther avenue t seek cmpensatin fr nn-perfrmance/payment f an bligatin. Tripartite Pssibiities - The prvider f the security des nt have t be the debtr: Grantr (G) may give security t Creditr (C) t supprt Debtr s (D) debt bligatin wed t C. Therefre PPSA uses grantr instead f the term debtr hwever grantr will mst likely be the debtr. Guarantees hwever are nt security interests (Unless the guarantee is accmpanied with a security t supprt a guarantee bligatin) this is nt very likely, prbably dn t need t wrry abut it t much. Why Take Security 1. Inslvency in the event f inslvency, the creditr will nt have t queue up with ther nnsecured creditrs, wh will nt necessarily get any r all f their debt back. 2. Anther Avenue Anther avenue t retrieve the debt using in rem claim, as well as having the ptin fr in persnam. 3. Pririty ver ther secured creditrs Cme back t later with pririty rules 4. Avid Cst f Civil Prcedure Acts as a self help type f remedy fr the creditr 5. Bargaining/mnitring tl The creditr can exert influence ver the debtr as they have the pwer t repssess an asset r call upn an bligatin t be repaid. Als t cnsider Security facilitates access t credit as prtectin is prvided lenders are mre willing t lend and because f the security may als lend at lwer rates. This prvides debtrs with access t capital frm a variety f different surces. HOWEVER this is arguably at the expense f unsecured creditrs as the will have t increase the price f their credit t cmpensate fr nt having security ver their debt. Security At Cmmn Law (Pre Ppsa) 5

6 PRE PPSA a Security interest culd arise in tw ways 1. Cnsensual Security Where bth parties t a cntract agreed t create a security eg. Mrtgage 2. Nn-Cnsensual Security - Arises by peratin f law, curt rder r statute where a security autmatically arse frm the circumstances f the transactin eg. Custmary liens. PRE PPSA a Security interest culd be 1. Pssessry Security Secured party has pssessin fr the purpse f taking security. The secured party has the right t sell the gds if the debtr defaults. 2. Nn-Pssessry Security Secured party has security interest in cllateral which is nt in its pssessin. The secured party has a right f recurse t the prperty. They can seize and sell the cllateral when the debtr defaults. TYPES OF SECURITY INTEREST PRE PPSA Mrtgages Transfer f title but nt f pssessin t the Creditr. Cvenant t re-transfer n repayment f principal. The brrwer has equity f redemptin ie. Right t have cllateral back n repayment t the creditr. Charges Residual categry f cmmn law security recgnized in equity Derives frm a cntract. The curt may frce a sale if debtr des nt pay creditr back Fixed and Flating Charges Fixed charges were ver specific prperty in that the cllateral was specified and the grantr f the charge was the wner f the prperty at the time the charge was granted. Flating charges recgnized the use f charges f circulating cllateral such as inventry. The flating charge wuld hver ver the asset and nly became crystalized upn specific events such as default turning the flating charge int a fixed charge. The PPSA ablishes the distinctin between the tw. Retentin f Title Emerged as a device t give unsecured creditrs pririty ver flating charges fr specific pieces f cllateral. Again PPSA ablishes the distinctin between ROT, Hire Purchase and Cnditinal Sale and they all cme under the brad categry f security interest. 6

7 These types f security interest were enfrceable at cmmn law and thrugh equity. Hwever srting ut pririty and enfrceability was a mess. Different states had different requirements and registers and there were significant prblems with hw wnership interests fit int the equatin. The intrductin f the PPSA Put all security interests under ne cmprehensive system Had sme frm f remedies built int the legislatin Prvided prtectins fr debtrs Reduced transactin csts as they prvided a safe and understandable system which prmted transactins Prvides incentive t use credit facilities Simplified pririty rules One natinal nline register MIGRATION ONTO THE PPS REGISTER Existing majr cmmnwealth and state registers were migrated nt the PPS register. There were sme prblems as the language and terminlgy n the ld registers didn t match up t the terms f the new register hwever mst f these prblems have been irned ut. The transitinal perid expired n 31/1/2014. DEATH OF COMMON LAW? NO security arrangement is still effective accrding t its terms and therefre can sue r e sued under terms f cntract and cmmn law principles. The PPSA just prvides an alternate avenue fr recvery f debts and bligatins befre the curts are brught int the whle prcess. CLASSIFICATION OF PROPERTY DEALS WITH THE MEANING OF PERSONAL PROPERTY Sectin 10 Definitin Of Persnal Prperty PPSA s 10 persnal prperty means prperty (including a licence) ther than: (a) land; r (b) a right, entitlement r authrity that is: (i) granted by r under a law f the Cmmnwealth, a State r a Territry; and 7

8 (ii) declared by that law nt t be persnal prperty fr the purpses f this Act. PPSA divides persnal prperty int fur main categries. Gds Financial prperty Chattel paper Currency Dcuments f title Investment instruments Negtiable instruments Intermediated securities Intangible prperty is a catch all categry. It includes Accunts ADI accunts Intellectual prperty Licenses Persnal prperty must be classified as there are sme prvisins f the PPSA that apply t certain categries f prperty and nt t thers. Gds PPSA s10 describes gds as persnal prperty that is tangible prperty. This includes crps, livestck, wl, extracted minerals and satellites. CROPS PPSA s84 Crps are separately defined t mean crps that have nt yet been harvested. This means that a grwing crp r grwing tree is persnal prperty and nt part f the land and a security interest may attach t it while it is grwing. At cmmn law, grwing trees frm part f the land and d nt becme gds until they are severed. The Canadian legislatin prvides sme insight int when grwing trees may be classified as persnal prperty (Aus legislatin is still s new) trees are included if they are being grwn in a nursery, fr example, as stck, r are intended t be uprted and replanted elsewhere, fr frestatin purpses. Fruit grwing n trees is a crp. Timber is nt a crp, but is within the meaning f persnal prperty as it is tangible prperty. 8

9 LIVESTOCK PPSA s84 A Definitin f livestck includes farm animals, the unbrn yung f these animals and the unrealized prducts f the livestck such as wl. Therefre an unbrn calf is a separate piece f prperty frm the mther and a sheep is separate frm its wl. MINERALS Gds includes minerals nly after they have been extracted. Until extractin, minerals frm part f the land. FIXTURES PPSA s 8 Fixtures are mitted frm the definitin f persnal prperty. Australian Prvincial Assurance C Ltd v Crne chattel fixed t land ther than by its wn weight. Lees & Leech Pty Ltd v Cmmissiner f Taxatin Depends n the degree f annexatin Metal Manufacturers v cmmissiner f taxatin csts and prcess f remval als a factr Cancer Care Institute f Australia Pty Ltd intentin f hw the gd was t be used. Whether it was intended t be a fixture and whether it can be used as anything else is als a factr in determining whether it is a fixture. SHIPS Where prir registratin f a ship had been similar t that f a mrtgage, it nw cmes under the definitin f persnal prperty. Financial Prperty PPSA s 10 Financial prperty means Chattel paper, currency, dcuments f title, investment instruments and negtiable instruments. CHATTEL PAPERS Defined as ne r mre dcuments that evidence bth a mnetary bligatin and security interest in r lease f specific gds. It evidences the grantr s bligatin t pay the debt back. Chattel paper may be hard cpy r electrnic cpy. Example 1. Mtr vehicle dealer enters int hire purchase agreement with grantr and assigns the hirepurchase agreement t the bank as security fr anther lan. 2. The dealer sells a vehicle t the grantr by way f lan and takes security in the vehicle s the grantr will repay the debt. The dealer then uses the paper t secure a lan frm the bank. 9

10 a. In example 1 the chattel paper is the hire purchase agreement itself. Whereas in example 2 the chattel paper wuld be the lan agreement as well as the cntract f sale t the grantr. In bth examples the chattel paper is a piece f persnal prperty and may be used, fr example, t secure a lan frm a bank r ther financing party r may even be sld t smene wh wants t buy the debt. b. The chattel paper is Persnal prperty in its wn right, distinct frm the cllateral it relates t. c. If as in example 2, the chattel paper is used t secure a lan, the bank may rely n the chattel paper as a surce f repayment. Therefre the bank may take ver the cllectins n the lan and then if this lan were t default, the bank may repssess the truck as well. In the case f cmpeting claims ver chattel paper, parties will first need t determine their claim n the chattel paper. The secnd step wuld then be t determine the claim n the vehicle itself. S Example 1. Dealer enters hire purchase agreement with grantr. He then assigns agreement t SP1 n date 1 and SP2 n date 2 and then fraudulently sells the vehicle t a buyer. The prcess t determine this cmpeting claim wuld be first t determine the pririty f claim n the chattel paper, either SP1 r SP2. Then the claim n the vehicle; either SP 1 + SP2 n ne hand r the buyer n the ther. CURRENCY PPSA s10 Currency is defined as a medium f exchange by Australia r anther cuntry. A secured party may have a claim t currency (cash) as riginal cllateral r as prceeds f the cllateral. DOCUMENTS OF TITLE PPSA s10 defined as a writing addressed by r t a bailee (a) That cvers gds in the bailee s pssessin that are identified r are fungible prtins f an identified mass; and (b) In which it is stated that the gds identified in it will be delivered: i. T a named persn, r t the transferee f that persn ii. iii. T the bearer r T the rder f a named persn Example 10