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Simmonds, Ralph --- "A User's Guide to Australian Secured Transactions Law Reform" [2002] BondLawRw 8; (2002) 14(1) Bond Law Review 8

A User's Guide to Australian Secured Transactions Law Reform [2002] BondLRev 8; (2002) 14(1) Bond Law Review Article 8

Ralph Simmonds

Ralph Simmonds is Dean and Professor of Law, Murdoch University

What Reform?

1.Talking about law reform, before we have a bill, let alone before reform has been enacted, has the appearance of hubris of the rankest sort. Talking about secured transactions law reform looks even worse. After all, it has been talked about for a long time. And there are many who consider a sufficient case has not been made for it. I look at the matter another way. For me, the persistence of the discussion of the case for reform suggests there is ground for a concern that will not go away.

2.Now we have new draft legislation, for a Personal Property Security Act for Australia . It might be enacted as uniform state law, or as federal law under a suitable new referral of legislative power. It addresses the case for reform in the following ways:

a.A Uniformity Principle: The draft legislation seeks to bring greater order to the chaos of secured transactions law that we have at present, by providing for modernised, simplified, largely uniform and much easier to apply rules for the creation, enforcement and priority position of consensual security interests. It would replace both the current legislative jungle of state and federal law and the varied and difficult to apply common law . It does involve bringing under the legislation a number of transactions that our law largely – but not entirely – does not deal with as secured transactions. The major example in practice will be the retention of title transactions of the Romalpa sort . But there are compensations.
b.A Flexibility Principle:The draft legislation seeks to make the life of the drafter of secured transactions easier by making the enforceable effect of commercially realistic arrangements easier to predict. This should be of special interest to lawyers left uncertain about the effect of fixed and floating charge arrangements over such things as book debts and attempts to extend retention of title clauses into manufactured products and proceeds .

3.Further, the draft legislation is firmly based on a successful model that has already been translated into the Personal Property Security Act 1999 (NZ) . This model is the Canadian (provincial) Personal Property Security legislation, and particularly the latest forms of that legislation . This model in turn gives direct access to a sizeable body of case-law and commentary, including case-law and commentary on forms of Article 9 of the Uniform Commercial Code in the US, on which the Canadian Acts themselves are based . This North American model is influencing international conventions on secured financing law .

What Would the Reform Look Like?

4.I will take the draft Australian legislation, and the corresponding provisions of the Personal Property Security Acts of Saskatchewan and of New Zealand, to give the flavour of this sort of law. This helps one appreciate the simplicity, coherence and comprehensiveness of the proposed legislation.

Scope of the Legislation

5.It applies to any transaction that in substance, regardless of its form, creates a security interest . Such transactions are called security agreements. This includes such things as conditional sale agreements. There is also an extension to assignments of book debts, but only for the purposes of the priority rules.

Effect of security agreements

6.Generally, they are to take effect according to their terms, subject to contrary specified law . Thus, the old precedents may continue to be used. But major issues in drafting are specifically addressed. Thus, security interests extend to identifiable proceeds without the need for a fiduciary relationship . Security interests may extend to after-acquired property without specific appropriation by the debtor , and they may secure further advances , if the security agreement so provides. Security interests in raw materials that lose their identity upon incorporation into a product or mass continue in the product or mass in the same proportions as the obligations they secure .

Enforcement of security agreements

7.The secured creditor has the rights and remedies provided for in the legislation as well as any provided for in the security agreement. Those rights and remedies are principally to take possession as the collateral permits ; to sell in a commercially reasonable manner ; or to foreclose . There are, however, provisions to protect the interests of the debtor in respect of any equity it has left in the collateral .

Priority of security interests under security agreements:

8.The base priority rule as between competing secured parties is the first to register or take possession, which applies unless another priority rule governs . A security interest in any collateral may be registered , and registration is by the filing of a notice of the security interest in a single computerised registry . There are special priority rules for such matters as purchase money security interests, to protect such as the supplier of goods on Romalpa terms, but generally speaking only on the basis that such supplier has registered . Security interests that have been registered are good against purchasers of the collateral subject to exceptions such as for purchasers of inventory . The location or character of title, whether legal or equitable, is irrelevant to any of these rules. So too is notice. And in any event registration is not notice .

Where to from here?

9.Once the simplicity, coherence and comprehensiveness of the model is appreciated, the case for reform for a lawyer is fairly easy to argue. However, that does not clinch the matter . What is necessary to complete the case is the demonstration of the commercial benefits of the proposed reform.
10.Here New Zealand has done Australian an enormous favour. The coming into force of the New Zealand legislation will give us a demonstration of how the system works, for the benefit of both lenders and borrowers that have operations on both sides of the Tasman.
11.The benefit is of course, as has been argued for some time, reform that would permit us practical solutions to problems in the structuring, conclusion, administration and effectiveness of secured financing arrangements that are “cheaper, faster, easier, simpler, safer”.

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