AUSTRALIA Law and Practice Contributed by: Alastair Gourlay, Lewis Grimm, Joanne Dwyer and Kathryn Sutherland-Smith, Jones Day
In terms of structuring around priming liens, negotiating intercreditor agreements is essen - tial to ensure that priority is captured and altered where required. Further, account bank control agreements can be drafted in a way to effect control, thereby providing security to third par - ties. However, it is often difficult to obtain such agreements from ADIs in Australia. 5.9 Cash Pooling and Hedging/Cash Management Obligations Cash pooling is commonly used by corporate groups to manage cashflow at a group level, minimise administrative burden, and protect against balance sheet and counterparty risks. These arrangements permit the consolidation of cash balances from various accounts into a sin - gle account, reducing borrowing costs, improv - ing liquidity management, and maximising inter - est income. The treatment of lender claims against those of a cash pooling bank depends on whether the claims are secured/unsecured, as well as the terms of the agreements. Generally, lenders who are secured and hold collateral will have higher priority compared to those who are unsecured. In cash pooling arrangements, the cash pooling bank may have a claim on the pooled funds, with the ranking dependent on whether the arrange - ment is secured and whether a security interest in the pooled funds exist. Further, since cash pooling banks often require certain protections from entities (such as to provide cross-guaran - tees and full legal rights of set-off), they take on a lower default risk, pursue repayment from a larger pool of collateral, and may have a com - paratively stronger financial position. Separately, cash management obligations are addressed in private credit transactions via cer - tain mechanisms like control agreements and
cash sweeps, with secured hedging typically involving collateral-backed derivates governed by ISDA agreements. 5.10 Bank Licensing There are no licensing or regulatory limitations on the taking or holding of collateral by non- bank lenders. Where there are multiple lenders, a security trustee would typically hold the security on trust for the benefit of the secured lenders. This arrangement tends to be documented by a security trust deed and is appropriate where lenders rank pari passu, or in an intercreditor agreement where lenders have differing priori - ties. The security trustee acts as an intermediary to manage and enforce the security interests of the beneficiaries, with the scope and nature of their powers primarily dictated by the deed. Security generally does not need to be re-taken when a loan is assigned, since security inter - ests are attached to a debt and can be assigned therewith. This is typically documented in a deed of assignment and has legal effect when the debtor receives written notice of all assign - ments. Commercial benefits include the ability of incoming lenders to retain the same priority as the outgoing lender rather than registering a new interest on the PPSR, which would otherwise be subordinated to the existing interest. However, assignments are subject to the terms of the existing security or loan agreement which may contain anti-assignment clauses (see 5.5 Other Restrictions ). Given these limitations are usually contractual, private credit lenders can negotiate their agreement in order to lend on commercially acceptable terms.
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