Contents:
July 2009
Contents:
In Henderson Global Funds v Securities Commission (2009) 10 NZCLC 264, the High Court considered whether to grant an issuer of securities to the public relief from the requirement under section 37 of the Securities Act 1978 ("Act") to register a prospectus.
Henderson Global Funds and Henderson UK and Europe Funds ("Funds") offered shares in open ended investment companies registered in England and Wales. The shares were marketed in New Zealand through AMP Capital Investors (New Zealand) Limited ("AMP") in reliance on the Securities Act (Great Britain Collective Investment Schemes) Exemption Notices 1999 and 2004 ("Exemption Notices").
The Exemption Notices allowed the shares to be offered in New Zealand without the need to prepare and register a separate New Zealand prospectus as would otherwise have been required under s 37 of the Act. The Exemption Notices required the United Kingdom prospectus to be filed with the New Zealand Registrar of Companies and a key features document or investment statement to be provided to investors. The Funds failed to comply with the conditions. As a result, some shares allotted to New Zealand investors were void and the Funds were liable to repay subscriptions for those shares. The Funds applied for relief pursuant to the Act.
The grant of relief is mandatory under s 37AC where the subscriber has been notified and not objected, and if the subscriber has objected, where the contravention of the relevant exemption notice is not materially prejudicial.
The grant of relief is discretionary under the s 37AH where the court considers it "just and equitable" to grant relief having regard to a number of factors, including "any other matters that the court thinks fit".
In this instance failure to register the prospectus was held to not materially prejudice the decision to invest by subscribers. However, AMP was unable to satisfy the court as to whether the subscribers who objected to relief being granted had received an investment statement before subscribing. This was despite every objector having "ticked the box" online to indicate they had received an investment statement. The High Court declined to grant relief in these cases and held that the objectors were entitled to a refund of subscriptions paid.
Receive" was held to mean more than just providing access to an electronic version of a document. It is the responsibility of the issuer to ensure that an investor receives the document.
Liberty Financial Limited v Finco Holdings Limited & Anor and JT Jamieson & Co Ltd v F M Custodians Ltd
The recent case of Liberty Financial Limited v Finco Holdings Limited & Anor (DC, Auckland CIV-2008-004-002688, 12 February 2009, Sinclair J) turned on the interpretation of a deed of priority between two mortgagees of the same property.
Liberty Financial Limited ("Liberty") advanced a loan to the Starnes Family Trust ("Trust") secured by a first mortgage in March 2007. In September 2007, Finco Holdings Limited ("Finco") advanced funds to the Trust secured by a second mortgage. The priority of each mortgagee was fixed under a deed of priority ("Deed") modelled on the NZBA's deed of priority. The Deed recorded that Liberty had priority in respect of all moneys secured under the first mortgage, interest from the Enforcement Date and all reasonable expenses.
The Enforcement Date was defined as the earlier to occur of:
- the expiry date of a notice issued in respect of a Mortgage under section 90 or 92 of the Property Law Act 1952 [now sections 118 or 119 of the Property Law Act 2007], pursuant to which a Mortgagee enters into possession, or exercises that Mortgagee's power of sale, of any Land; and
- the date on which a Mortgagee appoints a receiver of income in respect of any Land.
The Trust defaulted under the first mortgage. In January 2008, Liberty served a Property Law Act notice on the Trust, which expired in February 2008. With Liberty's consent, the Trust sold the property in July 2008. The net sale proceeds, $194,024.91, were paid into a solicitor's trust account. The amount outstanding under the first mortgage at the date of settlement, including interest, was $186,315.07.
Finco argued that, pursuant to the Deed, Liberty's priority was limited to $170,865.18, being the principal amount and costs. Liberty was not entitled to interest because the Enforcement Date had not yet passed. This, it was argued, was because Liberty had neither entered into possession of the property nor exercised any power of sale pursuant to a notice issued under the Property Law Act.
Liberty argued that the definition of Enforcement Date did not refer to a particular notice; that the words used were merely descriptive of the type of notice. The court disagreed with Liberty's interpretation. Accordingly it was held that the Enforcement Date had not occurred and that Liberty was not entitled to claim priority for interest under the Deed.
The Court emphasised that a deed of priority should be carefully drafted. It will be of no assistance that the deed is based on another deed that is in general use (in this case the NZBA Deed of Priority).
Unfortunately, the District Court made a conflicting decision in JT Jamieson & Co Ltd v F M Custodians Ltd (DC, Civ-2008-004-003067, 4 May 2009, Bouchier J).
In this case, the first and second mortgagees had also entered into a deed of priority modelled on the NZBA's deed of priority. The second mortgagee had served multiple Property Law Act notices on the borrower. The mortgaged property was sold pursuant to the third sale notice. However, Bouchier J found that it was the expiry of the first sale notice which determined when the Enforcement Date occurred.
Contrary to the decision in Liberty v Finco, the words "pursuant to which a Mortgagee enters into possession, or exercises that Mortgagee's power of sale, of any Land" were descriptive of the mortgage and the first mortgagee was entitled to interest from the expiry date of the first notice. While problems of interpretation persist with the NZBA's form of deed of priority, lenders should take care to include accrued interest in the definition of Priority Amount.
In ANZ National Bank Limited v Sataya Nandan Pillay (HC, Auckland CIV 2009-404-001220) ANZ National Bank Limited ("ANZ") received judgment in its favour on an application to strike out a plaintiff's counterclaim.
Mr Pillay had claimed that when ANZ lent him money to purchase a business, ANZ had entered into a fiduciary relationship with him, and assumed a duty of care. The High Court rejected Mr Pillay's claims. Christiansen J stated that if a bank examines the details of a project for the purpose of deciding whether or not to make a loan, it does not thereby assume any duty of care.
Furthermore, the Court declined to impose fiduciary duties where the parties had agreed to govern their relationship by contract.
The Overseas Investment Amendment Regulations 2009 ("Amendment Regulations") came into force on 9 July 2009, and amend regulation 33 of the Overseas Investment Regulations 2005. Regulation 33 provides that certain transactions are exempt from the requirement in the Overseas Investment Act 2005 to obtain consent to a transaction that will result in an overseas investment in sensitive land, significant business assets or fishing quota. The Amendment Regulations change one of the existing exemptions in regulation 33 and create three new exemptions.
The exemption in regulation 33(1)(a) is amended to lower the ownership threshold from 100% to 95% in relation to certain intra-group transactions.
The three new exemptions are:
- the insertion of a new regulation 33(1)(ja) which permits an overseas person to acquire two or more security arrangements (ie security interests that in substance secure payment or performance of an obligation entered into in good faith and in the ordinary course of business that are required to be extinguished on the payment or performance of the obligation) if they are acquired as a portfolio or bundle and the total value of consideration provided for that portfolio or bundle is NZ$100 million or less;
- the addition of a new regulation 33(1)(o) which permits an overseas person to acquire (and hold for less than six months) securities for underwriting or sub-underwriting purposes; and
- the addition of a new regulation 33(1)(p) which permits an overseas person to acquire securities identical (ie as to attached rights, privileges, limitations and conditions) to securities that the overseas person has previously obtained consent to acquire, provided that subsequent acquisition(s) are completed within five years of the date of the initial consent and the total number of further securities acquired is less than 5% of the total number of the initial securities acquired.
On 30 June 2009 the Reserve Bank announced the release of its prudential liquidity policy for registered banks. The policy sets various requirements and disclosure obligations for banks around their internal liquidity management. The Reserve Bank began liquidity policy discussions with banks in early 2008 and issued a consultation paper in October 2008. The new requirements will be phased in over a 2-year period. On 30 June 2009 the Reserve Bank also set out its proposed process for implementing the policy for locally-incorporated banks, including transition arrangements. The Reserve Bank will be finalising its proposed liquidity requirements for all registered banks in the near future.
On 8 July 2009 a report to Cabinet on the recommendations arising from a policy review of New Zealand's approach to clearing and settlement was released on the Ministry of Economic Development's website. A copy of the report can be found at http://www.med.govt.nz/upload/68697/paper.pdf.
On 28 July 2009 the Securities (Disclosure) Amendment Act 2009 ("Amendment Act") came into force, amending the Securities Act 1978 ("Act"). The Amendment Act's principal purpose is to permit an issuer to offer securities to the public via a simplified disclosure prospectus (in place of an investment statement and full prospectus) if the issuer is subject to a "disclosure obligation" which means:
- the requirements of the continuous disclosure provisions as defined in the Securities Markets Act 1988; and
- any obligation that:
- requires ongoing disclosure of information to the public or a person who has a role in monitoring the person who disclosed the information; and
- is imposed by an enactment; and
- is specified in the Securities Regulations 1983 ("Regulations").
The purpose of the new simplified disclosure prospectus regime is to enable listed issuers to offer certain debt and equity securities without the need to duplicate information that they have already publicly disclosed under their continuous disclosure obligations.
The new Regulations prescribing the content of the simplified disclosure prospectus have not yet been released. However, draft Regulations (released in May 2009) can be found at:
http://www.med.govt.nz/upload/68032/Securities_Amendment_Regulations_2009.pdf
The Amendment Act also makes a number of other significant amendments to the Act, including:
- deeming an offer made by an issuer to persons who have previously paid a minimum subscription price of at least $500,000 to that issuer for securities in a single transaction (ie the exclusion from the public in section 3(2)(a)(iia)) in the past 18 months to be an offer otherwise than to members of the public;
- now permitting a single offer of securities to both eligible persons (ie an exempt offer to wealthy or experienced persons who fall within section 5(2CB) of the Act) and to persons who do not constitute members of the public (ie those persons outlined in section 3(2)(a) of the Act) without requiring the issuer to prepare a prospectus and investment statement;
- requiring an experienced person (as defined in section 5(2CC)(a) and (b)) to whom an offer is made (ie an exempt offer) to sign a written acknowledgement that they understand that they will not receive information usually provided by an issuer in respect of an offer of securities to the public (eg investment statement and prospectus);
- clarifying that a trustee acting in that capacity is a person for the purposes of applying the eligible person criteria for a wealthy person; and
- allowing certification that a person is wealthy, and so eligible for disclosure exemptions under the Act, every 12 months rather than every 6 months.
The June 2009 issue of the New Zealand Business Law Quarterly contains the article Real Estate Agents: Duties of Disclosure by Cynthia Hawes, Associate Professor of the Faculty of Law at Canterbury University. Hawes outlines the recent Supreme Court case Stevens v Premium Real Estate Ltd [2009] NZSC 15 which considered the duties of real estate agents to their principal and the basis for awarding damages against real estate agents in breach of their fiduciary duties.
Mr and Mrs Stevens appointed Premium Real Estate to sell their home. The agent failed to disclose that the eventual purchaser was a property developer for whom the agent had acted in a number of previous transactions. The vendors claimed the agent was in breach of her fiduciary duty to them for not disclosing the developer's intention to resell the property at a profit.
The Supreme Court was unanimously of the view that the agent owed a duty of loyalty to the vendors and that she had breached it by actively misleading the vendor about the purpose for which the purchaser was seeking to buy the property. It was held that the vendor's consideration of the purchaser's offer price would likely have been affected if the vendor had been aware of the purchaser's intention.
The Supreme Court calculated damages by measuring the plaintiff's actual loss, which was the loss of opportunity to sell at a higher price. A refund of the commission paid to the agent was also ordered at equity. The Court held that commission was only payable if the agent had completed the transaction in good faith; a dishonest agent should not be allowed to retain an unearned reward. Hawes notes that if the vendors' claim had been framed as breach of contract, the commission would not have been refundable, but the Contractual Remedies Act 1979 would have had to be considered by the court depending on the contractual analysis.
Hawes argues that Stevens will result in much future jurisprudence in relation to both agents' duties and the calculation of damages. Tipping J's remarks on damages appear to signal an approach which relies less on the historical bases and origins of awards of monetary relief for civil wrongs, but on a broader and more general taxonomy.
Mortgage Fraud and Damages
Fraud Loss under the Australian Electronic Funds Transfer Code: is it Efficient?
Issue 7, 2009 of the Journal of International Banking Law and Regulation contains two articles of interest.
The first article is entitled Mortgage Fraud: Nationwide Building Society (Cheshire Building Society) v Dunlop Haywards & Cobbettsby Michael Isaacs. The case, decided in February 2009, dealt with a significant mortgage fraud against the Society. An employee of property valuers Dunlop Haywards ("DHL") acted in concert with a fraudulent borrower to overvalue the security for two commercial loans totalling £11 million. The Society brought an action for deceit against DHL as well as a claim for negligence against DHL's solicitors (Cobbetts) for failing to advise it of the indicia of mortgage fraud. At summary judgement DHL was found liable in fraud and negligence. In the subsequent case before Justice Clarke, the Society sought a final award of damages against DHL.
Deceit is a tortious remedy, meaning damages are assessed on the basis of an amount that would have put the Society in the position that it would have been in but for the deceit. The usual limitations on tortious damages do not apply: reasonable forseeability and contributory negligence are not considered.
Justice Clarke found that if the Society had not been induced to lend to the fraudulent borrower, the funds would have been available to lend to other customers and therefore the Society could claim back not only the £11 million but also the loss of return on lending the £11 million to another customer (minus anything actually received from the borrower). In addition, the court found the Society was entitled to claim for costs of the investigation into the fraud, wholesale market funding costs, losses from the need to decrease margins on products to attract customers, and lost opportunity to reduce back-stop committed facilities. Justice Clarke found that all the awarded damages flowed directly from DHL's fraud.
Concurrently, Cobbetts made a contribution claim against DHL in respect of the settlement sum Cobbetts had paid to the Society for contributory negligence. Cobbetts was able to pursue this claim under the Civil Liability (Contribution) Act 1987 (UK), which provides for an "equitable" assessment of each party's level of responsibility for the damage in question. The article sets out Justice Clarke's analysis in reaching the decision that Cobbetts were 20% responsible for the damage and therefore was entitled to the difference between the monetary value of that 20% and the settlement sum it had paid to the Society.
Isaacs concludes that the court's approach in this case was logical and fair and that it serves as a helpful guide for future cases involving negligent professional advisers.
The second article is entitled Fraud loss under the Australian Electronic Funds Transfer Code: Is it Efficient? by Robin Edwards. Electronic funds transfer (“EFT”) fraud loss in Australia is governed by the Australian Electronic Funds Transfer Code of Conduct (the “Code”) issued by the Australian Banker’s Association. Most financial institutions adhere to the Code and it typically becomes part of the contract between customer and bank. There have been two versions of the Code, the first in 1989, and the second in 2002. A review of the Code is underway and is due for completion in 2009. However it has already been decided that the test for allocating fraud loss will not be changed.
The Code apportions liability for unauthorised use of the card between the card user and the issuing institution. The financial institution has the burden of proving that the user was negligent on the balance of probabilities and that this contributed to the loss. The author notes how time consuming, expensive and difficult this is in practice.
The author compares the Code with the EFT allocation rules in the United States and concludes that the test for allocating liability for loss in the second EFT Code (which is to be reproduced in the third Code) is not as efficient as the simpler and more robust US test. Under American law, the card holder is only liable if he/she fails to report the unauthorized use of the card to the issuer upon becoming so aware. The idea of fixing liability to notification seems appealing for its simplicity and is consistent with the principle of efficient adjudication (ie that the best rule is the least costly rule to enforce).
The insider trading "generally available" and "materiality" carve-outs: Are they achieving their aims?
A rapid response to questionable trading: Moving towards better enforcement of Australia’s securities laws
Australian court shoots down British Eagle
The June 2009 issue of the Company and Securities Law Journal contains three articles of interest.
The first article, entitled The insider trading "generally available" and "materiality" carve-outs: Are they achieving their aims? by Gill North, outlines and critiques Australian insider trading law, in particular the "generally available" and "materiality" exemptions.
North concludes her survey of recent case law by observing that insider trading cases have established a materiality test based on short-term price efficiency theory that greatly restricts the potential for enforcement action by ASIC.
North suggests that Australian policy-makers, regulators and the judiciary may need to reconsider the rationale and intended effect of the insider trading regime: economic efficiency and market fairness.
The second article entitled A rapid response to questionable trading: Moving towards better enforcement of Australia’s securities laws by Janet Austin, considers whether changes are needed to improve enforcement of Australia’s securities laws prohibiting market misconduct.
In Australia, the power to take action for market misconduct is split between the Australian Securities and Investments Commission (“ASIC”) and the Australian Securities Exchange (“ASX”). ASIC is responsible for enforcing the Corporations Act 2001 which contains prohibitions against market misconduct such as market manipulation and insider trading. It may commence an investigation, bring civil penalty proceedings or seek a wide range of remedies in relation to a breach, such as freezing orders or injunctions.
ASX is required to supervise the market and ensure that it is fair, orderly and transparent. ASX’s detection and investigation functions are vested in ASX Markets Supervision Pty Ltd (“ASXMS”), which conducts surveillance using its Securities Market Automated Research Trading and Surveillance (“SMARTS”) computer system. When suspicious trading has been detected, ASX is required to refer it to ASIC. However, in the past decade, only a handful of ASX referrals have resulted in enforcement action by ASIC and even fewer of such actions have been successful.
In order to improve the detection and investigation of market misconduct and restore market confidence, the author suggests that ASIC's enforcement powers and the division of regulation between ASIC and ASX should be reconsidered. ASIC could be given the ability, for example, to apply for telephone interception warrants and grant immunity to whistle blowers.
The third article, entitled Australian court shoots down British Eagle by Michael Lishman, asks whether there exists, in Australian insolvency law, an "anti-deprivation principle". Lishman concludes that there is no such principle in Australian law and argues that neither should there be.
The "anti-deprivation principle" purports to set aside arrangements that would otherwise be enforceable because they secure a better result on insolvency for a party than would otherwise be the case.
In Australian law, where the provisions of an insolvency statute conflict with arrangements between parties, the statute prevails. The United Kingdom's House of Lords had suggested, in British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758, that an "anti-deprivation principle" could be read into insolvency legislation based on public policy arguments.
The recent decision of the High Court of Australia in International Air Transport Assoc v Ansett Australia Holdings Ltd has clarified that no such principle exists in Australian law. Under Australian law parties are at liberty to structure arrangements seeking to avoid the impact of insolvency laws on particular assets. Whether or not such arrangements are successful depends on the application of contractual and property law principles and the express terms of the applicable insolvency statutes.
The June 2009 issue of New Zealand Business Law Quarterly contains the article Regulating Private Offers of Securities: Time for a major rethink by Shelley Griffiths, Senior Lecturer, Faculty of Law, University of Otago. The article examines the regulation of offers of securities under New Zealand's Securities Act 1978 ("Act") and argues for a fundamental change to the exemption regime from disclosure requirements for offers not considered to be "to the public". Griffiths focuses on the current exclusions under section 3 and exemptions under section 5 of the Act and describes them and their interaction as "perplexing" and "ambiguous".
Section 3 of the Act defines offers "to the public" first by inclusion and then by categories of exclusion, which Griffiths asserts create inconsistency and interpretative difficulties, making private offers risky. Section 5 of the Act exempts "eligible persons" who are either "wealthy" or "experienced" from certain parts of the Act. Griffiths highlights the inconsistencies of interpretation and application of section 5 with section 3 and the inability of issuers to rely on both sections at the same time, an "eligible person" being a member of the public (this has now been rectified by the passing of the Securities (Disclosure) Amendment Act 2009, as summarised in the legislation section above).
Griffiths outlines private offer regimes used overseas, in particular the European and Australian models. The European Prospectus Directive is based on objective categories that are not dependent on any particular relationship between issuer and offeree. Australian legislation no longer distinguishes between public and private offers. Instead, Australian law includes exceptions for "small scale offerings" and "sophisticated investors". Despite the trans-Tasman mutual recognition of securities offerings, Griffiths argues that the Australian model is "complex" and "less than optimal" for New Zealand. Griffiths suggests the Government should adopt a modified version of the European model and that the exemption for wealthy and experienced investors in section 5 of the Act should be removed.
Reliquefication bills: risks and solutions
The Octaviar case: some reflections
Personal property securities reform and the Conceptual Impossibility Doctrine
Tensions in negotiations between lenders and swap providers
What is old and new again: the return of the Australian domestic retail bond market
The June 2009 issue of the Journal of Banking and Finance Law and Practice contains five articles of interest.
The first article entitled Reliquefication bills and Australian dollar loan agreements: risks for unwary borrowers by Martin Lovell, discusses the risks associated with reliquefication bills to borrowers and how they can manage those risks.
Reliquefication bills are bills of exchange prepared and signed by a lender in the name of and on behalf of the borrower in respect of amounts payable by the borrower under a loan. The bills are then generally accepted by the lender and sold into the market. Although reliquefication bills clauses are rarely seen in international loan agreements, they are treated as boilerplate in Australian dollar loan agreements and accepted by borrowers in Australia. Under most of these loan agreements, reliquefication bills may be drawn without notification or consultation to the borrower.
A borrower that permits the lender to draw reliquefication bills is not only exposed for the amounts payable under the loan, but also as a drawer of the bills. In addition, the bills may also create cash flow and refinancing risks if the borrower is forced to repay the reliquefication bill to a third party at an earlier date than the scheduled repayment under the loan. These risks are particularly pronounced when the lender's solvency becomes a concern.
A borrower can protect his or her interests by negotiating the reliquefication bills clauses more carefully. Thus, in addition to lender indemnity clauses (which would be of limited value if the lender becomes insolvent), the risk of double liability can be further managed by insertion of a clause stating that any payment made in respect of a reliquefication bill will be deemed to have been applied against amounts payable to the lender.
The borrower may also manage the potential double liability and cash flow and refinancing risks by ensuring that any reliquefication bills under the loan agreement are drawn "without recourse" to it as drawer or endorser. Including an express stipulation to this effect is permitted under Section 21 of the Bills of Exchange Act 1909 (Cth). This will limit the liability of the borrower in relation to third parties, while allowing a lender to raise funds on the strength of its own, as opposed to the borrower's, reputation and credit rating.
The second article is entitled The Octaviar case: Some reflections by Andrew Boxall and Nuncio D'Angelo. The April 2009 Russell McVeagh Banking Law Update contained a case summary of the decision in Re Octaviar Ltd; Re Octaviar Administration Pty Ltd [2009] QSC 37 ("Octaviar").
The article outlines the decision of the Queensland Supreme Court in Octaviar and the consequences of the decision for secured financing arrangements. The authors contend that the decision in the case is wrong, on both the premises and assumptions on which it appears to be based, and in the conclusions drawn. It is noted however, that it would be dangerous to ignore the implications of the decision as it currently stands.
It has been common practice in Australia, and in other jurisdictions, for security documents to have a mechanism allowing for later designation of instruments as "Transaction Documents" thus enabling new financial accommodation, or a different set of liabilities, to be secured by an existing charge. It has never been common practice in Australia to lodge either a notice of variation of charge, or a new notice of charge, with ASIC in these circumstances.
Following Octaviar, documents which increase the underlying secured obligations would entail a notice being registered with ASIC. This has dramatic implications not only for future secured transactions but also for many past transactions. Furthermore, if the Octaviar decision means that a charge includes not only the deed of charge but all the agreements under which the liabilities secured by the deed of charge are created, each of these agreements needs to be lodged with ASIC. This would entail documents with commercially sensitive information being made public.
The authors contend that the decision was based on an erroneous interpretation of decisions concerning section 73 of the Property Law Act 1974 (Qld) and an incorrect view of the legislative policy behind the Corporations Act. Furthermore, the authors compare the importance given to public registration of details of liabilities in Octaviar with the rejection of such an approach in the Personal Property Securities Bill 2008 (Cth).
A Notice of Appeal of the decision has been lodged with the Court of Appeal of the Supreme Court of Queensland. The decision of the appellate court is awaited with interest by the Australian banking and finance market.
The third article is entitled Personal property securities reform and the Conceptual Impossibility Doctrine by Peter Ward. The article identifies weaknesses in the provisions of Australia’s Personal Property Securities Bill 2008 (Cth) (“PPSB”) that seek to reverse the Conceptual Impossibility Doctrine.
The Conceptual Impossibility Doctrine posits that a person cannot take a charge over a debt which the same person owes to another person (a “chargeback”). A chargeback arises most commonly where a bank seeks to take a charge over a customer’s account. The amount credited to the customer’s account is a debt owed by the bank to the customer. Under the Doctrine, any charge purportedly taken over the debt is invalid.
The author refers to decisions in the United Kingdom, including the House of Lords, which, contrary to the Doctrine, gave effect to the commercial intention of the parties. As a result the status of the Doctrine has remained unclear. The strongest line of judicial support for the Doctrine has been developed in Australia, yet its application in that jurisdiction also remains unclear.
The article outlines legal concepts of property and security along with the four “impossibility arguments” on which the Doctrine is based. Ward then analyses the application of the Doctrine to personal property security regimes in the United States, Canada, New Zealand and in Australia, in the form of the PPSB.
Ward concludes that while the preferable view is that the Doctrine should not be followed with respect to transactions under, for example, New Zealand’s Personal Property Securities Act 1999 (“PPSA”) the legal analysis remains uncertain. The author queries the drafting of section 17(2) of the PPSA (derived from Saskatchewan’s section 9(4)) and the definition of “account receivable”, which enables chargebacks over a monetary obligation but excludes its application to chattel paper, investment securities and negotiable instruments. Ward suggests the PPSB be amended to allow chargebacks to apply to a broader range of chose in action that under the PPSA.
The fourth article is entitled The tensions between lenders and swap providers by Tracey Dembo. The author examines tensions that can arise in negotiations for provision of finance to a borrower between lenders and swap providers.
Lenders may want a borrower to enter into a swap with a counterparty to reduce the borrower's exposure to risk of, for example, interest rate movements. However lenders will be concerned about the potential for the borrower to incur loss under the swap or for the swap provider to receive payment ahead, or to the detriment of the lending syndicate.
Conversely, the swap provider will be concerned about the lender impinging on the swap provider's ability to reduce credit risk by imposing restrictions and limitations on the terms of the swap transaction. The potential for documentary mismatches between the loan facility and the swap also created economic risk of payment mismatches.
The author suggests how such tensions may be addressed. Points to consider include:
- the scope and ranking of any security that is to be granted by a borrower to the swap counterparty;
- termination/default rights, representations, warranties and undertakings in the loan and the swap documentation;
- the extent of a swap provider's subordination, its application of close-out amounts, and rights of set-off; and
- the extent of a swap provider's voting rights where it is also a syndicated lender or is sharing in the lender's security.
The author concludes that failure to address these tensions can have detrimental consequences for all parties.
The fifth article is entitled What is old and new again: the return of the Australian domestic retail bond market, by Paul Cerchè and James Darcy. Recent bond issues in the Australian retail market by Tabcorp Holdings Ltd and the AMP Group prompted the authors to consider the reasons why retail bond issues have been uncommon in Australia over the past two decades and how the market could develop into a more flexible funding source more suited to the needs of corporates.
Compared to wholesale off-shore issuances, domestic retail bonds have higher initial and ongoing costs, as well as additional legal and commercial burdens. For example, retail issues require a prospectus to be prepared in accordance with the Corporations Act 2001 (Cth). The greater level of compliance and regulation required has meant that other sources of funding have been more attractive than retail bond issues.
However, recent economic and market circumstances, as well as the development of the continuous disclosure regime (replacing the periodic disclosure regime) now found in the ASX Listing Rules and given the force of law by the Corporations Act, mean more corporates will be willing to consider issuing domestic retail bonds.
The article also considers other aspects of a retail offer, namely practical measures to assist managing a broad investor base, the development of ASIC's less rigid vetting process for prospectuses, and possible standardisation of the content and format of prospectuses.
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