AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
of a grantor to pay the purchase price of that particular collateral is “purchase money security interest” under the PPSA, which may, if certain conditions are satisfied, afford the secured party a form of “super priority” over the relevant collat- eral in priority even to a prior-perfected security interest, other than a security interest perfected by control. Security can be granted over real property (both freehold and leasehold) through a registered real property mortgage. The grant of security over real property is dealt with on a state-by-state basis. However, from a practical perspective, there are few fundamental differences between the regimes in the various states. Recent leg- islative changes have moved away from paper lodgement at land registry offices to electronic lodgement using an electronic lodgement net- work. After completing the settlement process through the electronic lodgement network, the mortgage registration will appear on the title within a few hours and up to 48 hours after lodgement, depending on the relevant state. A real property mortgage will remain registered until the secured party agrees to discharge the mortgage. 5.4 Restrictions on Upstream Security There are two main restrictions on the granting of upstream security. These are the rules regard- ing financial assistance and corporate benefit issues outlined in 5.5 Financial Assistance and 5.6 Other Restrictions . 5.5 Financial Assistance Section 260A of the Corporations Act imposes restrictions on a company registered under the Corporations Act from providing financial assis- tance for the acquisition of its shares, or any of its holding companies’ shares, until certain con- ditions are satisfied or an exception applies.
Financial assistance includes granting security and the provision of guarantees, which means that financial assistance is always a considera- tion in acquisition finance when looking to take security over the target entities. While a transaction that breaches the prohibition on financial assistance is not invalid, any per- son involved in a contravention of the prohibi- tion is guilty of a civil offence and subject to civil penalties. This liability can be criminal where a person is dishonestly involved in a breach. This liability (both civil and criminal) can theoretically extend to the financiers and advisers involved in a transaction. The general prohibition on the provision of finan- cial assistance is subject to certain exceptions. The most common workaround is to rely on the “whitewash” process, under which the share- holders of the company and the ultimate Austral- ian holding company approve the granting of the financial assistance by the relevant target enti- ties. Notice of all shareholder resolutions must be lodged with ASIC at least 14 clear days prior to providing the financial assistance. Any special resolution passed must also be lodged by the relevant company within 14 clear days of it being passed. Given the timeframes involved, security over Australian target entities is generally grant- ed within an agreed period post-closing, but this is typically no less than 45 days and may be as generous as 90 or 120 days. For completeness, it should be noted that there are other exceptions to the general restriction, although these are more targeted and typically not relevant to an acquisition financing. 5.6 Other Restrictions Under Australian law, directors owe a number of duties to the companies to which they have been
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