AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
One potential outcome of voluntary administra- tion is (upon resolution by the creditors) entry by the company into “deed of company arrange- ment” , which is intended to give effect to a restructure of the company (with a view to ena- bling the company to continue as a going con- cern). The rights that a secured creditor has to realise its security interest are not extinguished by entry (by the debtor company) into a deed unless the secured creditor voted in favour of the deed or by court order. In Australia, it is common to take “feather- weight” security to address the administration risk, whereby a secured creditor needs to hold security against all or substantially all of the assets to be able to appoint a receiver during the administration of a company. Where the security only covers a small part of the business, lenders will often seek to have a featherweight security that “springs” upon the remainder of the assets when the “featherweight event” occurs – eg, the appointment of an administrator. The amount recoverable from the featherweight is usually a nominal amount (eg, AUD10,000) to reflect that the purpose is not to asset back the security, but to address the administration risk. Although “featherweight” security has not been tested by an Australian court, it is the market approach to include a featherweight security clause in a security document as a means to allow the secured party to present an argument that, in a default scenario, it has security over all or substantially all of the assets of the com- pany – this entitles them to enforce that charge within the first 13 business days following the appointment of the administrator and to appoint a receiver. Without the featherweight, where security has been taken (and assuming this does not comprise all or substantially all of the assets of the company), the secured party would not
have a right to appoint a receiver during the vol- untary administration of the company. This does not affect the quality or existence of the secured party’s security interests, but it means that they will be unable to enforce their security for the duration of the administration (without the leave of the administrator or the consent of the court). The courts are generally not involved in the enforcement of consensual security interests against corporate borrowers, and there is gener- ally no requirement to obtain a judgment before enforcement. A range of enforcement remedies are available under the PPSA, depending on the nature of the collateral, including: • seizure; • retention (ie, foreclosure without the need for a court order, by which the collateral is forfeited to the secured party and the secured debt is extinguished in full); and • disposal of the collateral to a third party or to the secured party itself. Certain sections of the PPSA enforcement provi- sions may be contracted out of. When enforcing security over real property, the secured party will be required to satisfy various notice requirements contained in state-based property legislation, and the common law remedies of sale, possession, foreclosure or the appointment of a receiver will be available depending on the nature of the security interest.
6. Guarantees 6.1 Types of Guarantees
Guarantees in an acquisition finance context are typically “all monies” cross-guarantees, which extend to all obligations owed by each borrower
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