AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
base-style financings, property-backed financ- ings and receivables-backed financings. The main consideration in Australia is around the security structure and issues relating to the secured party establishing “control” over certain classes of assets that form part of the underlying collateral. This can either be control in the ordinary sense of the word or, depend- ing on the class of asset, where the Personal Property Securities Act (2009) (PPSA) requires certain conditions to be satisfied for a secured party to establish control. A secured party that establishes control prevents the borrowing base collateral from being categorised as “circulating assets” and in certain circumstances can give the secured party higher priority as compared to other secured creditors (irrespective of the order in which the secured creditors registered their security interests). Certain assets will always constitute circulating assets (unless control is established over these assets), including authorised deposit-taking institution (ADI) accounts, receivables, currency and inventory. In addition, circulating assets are any asset over which the secured party has giv- en the grantor permission to transfer the asset in the ordinary course of the grantor’s business, free of the security interest. Establishing control over circulating assets is an important consideration from an insolvency per- spective as certain unsecured creditors will have a priority claim to certain insolvency proceeds (such as claims in respect of certain employee entitlements and certain costs of an adminis- trator and liquidator). Such priority claims will be paid from the proceeds of circulating assets ahead of secured parties that have security over those circulating assets. The level of con- trol required to ensure that the borrowing base
collateral is not treated as circulating assets is set out in the PPSA. This concept of control is distinguishable from the control that establishes superior ranking security in respect of certain assets, including ADI accounts, investment instruments (such as shares) and intermediated security (such as listed shares). Perfection by control is discussed in 5.3 Registration Process .
4. Intercreditor Agreements 4.1 Typical Elements
Intercreditor agreements are customary in the Australian market and, as is typical, regulate the rights and obligations of the providers of the various classes of debt raised to fund the acqui- sition (including shareholder debt and hedging liabilities). Unlike the position in Europe, where the LMA suite of documents contains various market standard intercreditor agreements, there is no market standard document in Australia. A set of intercreditor principles (primarily applicable to leveraged transactions) has been circulated within the market but has not been universally adopted. Several provisions remain negotiated points, such as drag rights, standstill periods, mezzanine information rights and release provi- sions. Australia recognises the concept of contractual subordination and, as such, intercreditor agree- ments contractually regulate the order of priority for the repayment of each class of debt. The sen- ior debt will rank ahead of the junior debt, and any “super senior” facilities will rank ahead of the senior debt on enforcement. Repayment of the junior debt is typically deeply subordinated so that no principal repayments are permitted until the senior debt has been repaid in full. The pay-
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