AUSTRALIA Law and Practice Contributed by: Alastair Gourlay, Lewis Grimm, Joanne Dwyer and Kathryn Sutherland-Smith, Jones Day
ness days from the date the security agreement comes into effect. 5.2 Floating Charges and/or Similar Security Interests Prior to the PPSA, borrowers granted a general security interest over all or substantially all of their property by way of a “fixed” charge over major assets (ie, machinery) and a “floating” charge over assets such as currency, inventory, and bank accounts which fluctuated in content and able to be dealt with freely in the ordinary course of business. However, taking security post-PPSA has meant a move away from a distinction between fixed and floating charges. The PPSA also introduced “circulating assets” and a regime reliant on attachment, with general security agreements creating interests over all or substantially all of a borrower’s present and future assets. While floating charges are no longer used in the tra - ditional sense, these charges are nevertheless permitted under Australian law where general security agreements provide a list of circulat - ing assets similar to the fluctuating assets over which floating charges were formally made. 5.3 Downstream, Upstream and Cross- Stream Guarantees The provision of guarantees is permitted in Aus - tralia, subject to certain regulatory and legal con - siderations which include: • rules in respect of financial assistance (see 5.4 Restrictions on the Target ); • compliance with fiduciary duties owed by directors when resolving to give a guarantee (eg, to act in good faith for the benefit of the company as a whole, in good faith and for a proper purpose); and
• the power to provide a guarantee being lim - ited by the company’s constitutional docu - ments. However, section 187 of the Corpo - rations Act 2001 (Cth) (CA) stipulates that a director of a wholly owned subsidiary has acted in good faith and in the best interests of that company where they have acted in such manner in respect of its holding company (subject to certain conditions being met). 5.4 Restrictions on the Target Pursuant to section 260A CA, a company is prohibited from providing financial assistance to facilitate the acquisition of its shares or its holding company’s shares unless certain condi - tions are satisfied or if exceptions apply. Such conditions/exceptions include: • that the giving of assistance would not mate - rially prejudice (i) the interests of the company or its shareholders; or (ii) their ability to pay creditors; • shareholder approval under section 260B CA; or • exemptions falling under section 260C CA. The common procedure adopted in Australia has been to obtain shareholder approval under sec - tion 260B CA (ie, undertaking a “whitewash”), whereby the shareholders of the target and the ultimate Australian holding company approve the financial assistance (with notice and special resolutions to be lodged with ASIC within rel - evant timeframes). A breach of the financial assistance provisions does not affect the validity of the transaction, and the company would not be guilty of an offence. However, any person “involved” in the contravention (which may include directors and lenders) may be subject to civil penalties and, if that person acted dishonestly, criminal penal -
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