AUSTRALIA Law and Practice Contributed by: John Schembri and Erin Cartledge, Gilbert + Tobin
7. Lender Liability 7.1 Equitable Subordination Rules Unlike the position in jurisdictions such as the USA, there is no concept of equitable subordina- tion in Australia. However, the Corporations Act provides that shareholder claims, in their capac- ity as a member of the company (eg, for divi- dends), generally rank behind all other claims. Moreover, any debt claims that a shareholder may have against members of the obligor group are typically contractually subordinated to the The Corporations Act and PPSA both contain provisions that can potentially affect a creditor of an Australian entity in an insolvency scenario. If a transaction is voidable, the court can make a range of orders, including the repayment of money received by the creditor under the trans- action and the discharge/release of debts and security. claims of the lenders. 7.2 Claw-Back Risk A security interest will be voidable under the PPSA and the Corporations Act if the secured party has failed to perfect it. In order to be enforceable against third parties, a security inter- est must be perfected (by either control, regis- tration or possession). If perfecting by registra- tion of a financing statement on the PPSR, the financing statement must be registered within 20 business days of the relevant security agree- ment coming into force (subject to some shorter timeframes for certain security interests, as out- lined in 5.3 Registration Process ), or at least six months before the start of the winding-up or vol- untary administration for most security interests (though this is not applicable to certain deemed security interests that do not secure payment or performance of an obligation, nor to security
and each other guarantor. As is customary in most markets, the guarantors’ secondary obli- gations under the guarantee provisions are sup- plemented by indemnification obligations. There are no substantive differences between Austral- ian law-governed guarantees and those used in other common law jurisdictions. As mentioned in 5.1 Types of Security Com- monly Used , the terms of most acquisition financings require guarantees from sufficient entities to comply with the guarantor coverage test. Such guarantees are typically contained in the facility agreement or security trust deed, although standalone guarantees may be pro- vided in unsecured financings or by third parties outside the obligor group. There are no registration requirements with respect to guarantees under Australian law. 6.2 Restrictions A company can grant a guarantee for the debt of a borrower regardless of whether the borrower is located in Australia or elsewhere, provided that the company is not restricted from doing so in its constitution and it has complied with the finan- cial assistance legislation and corporate benefit issues outlined in 5.5 Financial Assistance and 5.6 Other Restrictions , which apply equally to the giving of a guarantee. 6.3 Requirement for Guarantee Fees There is no requirement under Australian law for there to be a guarantee fee (or fees associated with the enforcement of guarantees).
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