Australia: Structured receivables financing: Your path to cheaper credit?


In a trend that emerged out of Western Europe and Asia, but adapted and implemented by Australian banks, borrowers with healthy accounts receivables are now being offered attractive financing products to leverage off high-quality, long-term service contracts.


Structured Receivables Financing (SRF) involves a company securitising or "monetising" its accounts receivable for the purposes of a financing arrangement. The company sells the stream of future cash flow from its accounts receivable for a lump sum amount.

If the company's debtors are creditworthy organisations, such as government agencies or listed corporates, and the future cash flow streams are long term and unconditional, an SRF arrangement can be significantly cheaper than other traditional debt structures.

Financiers in SRF arrangements are primarily concerned with the creditworthiness of the debtor in the underlying contracts rather than the seller of the cash flows. If the creditworthiness of the debtor is superior to that of the seller, an SRF arrangement may be cheaper for the seller than if it was to seek funding based on its own credit profile.

If the SRF arrangement is documented as a "true sale", the receivables will be distinct from the assets of the seller. This benefits the financier by reducing the risk associated with the seller's insolvency.

From the seller's perspective, SRF arrangements create additional liquidity by turning future income streams into useable cash that can be applied to present business needs.


Financiers bear the obvious risks that the debtor may default on their payments, dispute the obligation to pay, or become insolvent.

Thorough due diligence processes limit these risks and appropriate eligibility criteria should be negotiated for the receivables.

In deciding whether an SRF arrangement is appropriate, a major legal consideration for borrowers/sellers and financiers is whether the proposed assignment should be legal or equitable.

While a legal assignment is the most resilient means of assigning receivables, it has clear commercial drawbacks. Legal assignment requires the financier to comply with the relevant conveyancing legislation, including providing the debtor with written notice of the assignment.

As sellers typically want to maintain strong relationships with their debtors, they will generally insist upon an equitable assignment and the continuation of their ongoing servicing obligations in relation to their debtors.

An advantage to legal assignment is that it prevents a debtor from exercising any equity, defence, remedy or claim (including a right of set-off) to reduce payments to the buyer, and it prevents payments to the seller satisfying the debt. This position is effectively replicated by the Personal Property Securities Act 2009 (Cth) (PPSA).

When entering into SRF arrangements, parties also need to consider the risk of "recharacterisation" where the SRF arrangement could be determined to be a secured loan rather than the 'true' sale of an asset.

If the sale is a true sale then the receivables will not be considered assets beneficially owned by the seller. Thus, if the seller was wound up, the receivables would be bankruptcy remote and beyond the reach of any external controllers.

Australian law will recognise the sale as being a "true sale" provided that the transaction is intended to be a sale, is clearly documented as a sale and not documented as a secured loan.

This is in contrast to the accounting concept of true sale which is relevant to determining whether the SRF arrangement will have off-balance sheet treatment and the US legal concept of true sale, each of which depend on a complex factual analysis of risk allocation.

Notably, the distinction between a true sale and a security interest from an Australian legal perspective is becoming less important since the introduction of the PPSA.

Under the PPSA, an assignment of receivables is deemed to be a security interest. So long as the transaction is enforceable and perfected under the PPSA, the PPSA priority rules will apply.

Financiers/buyers of receivables should obtain legal advice about perfection and due diligence on the existence of any other registered security interests and, to the extent possible, the priority of such interests.


Contracts that contain express provisions prohibiting assignment have traditionally not been capable of being assigned. A similar commercial result has been achieved via the declaration of a trust over the proceeds of the relevant receivable. A contractual restriction of assignment of receivables arising from the sale of inventory or services in the ordinary course of business has now been expressly overridden by the PPSA. However, it is important that the seller of the receivable is aware that they may be liable for breach of contract as a result of an assignment that is prohibited in contract.


The tax treatment may differ depending on which State or Territory the transaction occurs within. For example, in New South Wales and South Australia, SRF arrangements may be subject to stamp duty. Specific tax advice should be obtained prior to entry into any structured finance transaction.

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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