Since before the operational commencement of the Personal
Property Securities Act 2009 (Cth)
("PPSA") in January 2012, and certainly
since then, law firms have been settling their position on the many
issues it raises. They have also been revising their precedent
documentation. A document that was heavily affected by the PPSA was
the traditional fixed and floating charge. The extensive changes
made to the law and registration requirements by the PPSA resulted
in substantial rewriting of firms' standard charge documents.
The replacement for the fixed and floating charge is now usually
called a General Security Agreement (or Deed)
("GSA"). Evidence in the market is that
different firms have taken different approaches to some essential
elements of GSAs. The differences are not necessarily a matter of
right or wrong, or better or worse (there are often several ways to
deal with an issue), but these differences can cause confusion and
unnecessary negotiation as parties seek to impose their preferred
position on others, often based on an imperfect understanding of
other firms' different approaches. Without guidance, it may
take a long time before the market settles.
The PPSA model clauses set out some suggested clauses and
definitions for certain core provisions of a GSA. Five
international firms have worked together to prepare these. They
Herbert Smith Freehills
King & Wood Mallesons
These clauses represent a distillation of the firms'
thinking on several important issues and are consensus positions.
They are not biased towards either grantors' or secured
parties' interests. In many senses they represent a "line
of best fit", designed to accommodate the competing views on
some issues. The footnotes that accompany the clauses explain the
PPSA thinking behind the decisions made in settling them. They help
understand the intended operation of these provisions. However,
they do not constitute advice to any person.
These clauses have been adopted into the firms' precedent
GSAs. The firms have no objection to them being used by any other
person in the market if they consider them appropriate for their
precedents or a particular transaction. The objective in jointly
publishing the clauses is to assist the functioning of the market
post-PPSA, with a view to helping the market to develop a settled
practice. We believe that this is in clients' interests, and
that is why we have invested the time in this project. It is not
necessarily in clients' interests for firms to be negotiating
their respective differing views on points of PPSA law in the
context of a live transaction where there is no substantive
advantage to be gained by or for a client one way or the other.
Just as the fixed and floating charge eventually reached a point
where most firms' key clauses were similar within a narrow
range and did not generate much (if any) negotiation, we think it
is important for the market to quickly and efficiently reach a
consensus position on the key PPSA-affected provisions of a
It should also be noted that these clauses have not been
approved by, and do not represent the views of, any particular
firm's client or a particular client sector. When used by the
firms, they may appear in first drafts prepared by them in this
form or in a different form. Slight variations may also arise due
to differences in drafting styles between the firms. Most aspects
of them can be open to negotiation and, of course, they will always
be subject to clients' instructions in any particular
Many of the issues addressed by the clauses also arise in
connection with security over specific assets such as shares and
contractual rights, where mortgages and charges have been replaced
by Specific Security Agreements (or Deeds). Some of these clauses
will be applicable to those documents.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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