securitisation 2016 - bell gully documents/sec16... · welcome to the ninth edition of the...

w

The International Comparative Legal Guide to:

A practical cross-border insight into securitisation work

Published by Global Legal Group, with contributions from:

A&L GoodbodyAssociation for Financial Markets in EuropeAli Budiardjo, Nugroho, ReksodiputroAshurst LLPBaker & McKenzie – SantiagoBell GullyBrodies LLPCaspi & Co.Cervantes SainzCuatrecasas, Gonçalves PereiraDrew & Napier LLCElvinger Hoss PrussenEstudio Beccar VarelaFreshfields Bruckhaus Deringer LLPFrost & Fire ConsultingGárdos Füredi Mosonyi Tomori Law OfficeK&L Gates Studio Legale AssociatoKing & Spalding LLP

King & Wood MallesonsLatham & Watkins LLPLECAPLevy & Salomão AdvogadosMaples and CalderMcMillan LLPNishimura & AsahiPestalozzi Attorneys at Law LtdRoschier Advokatbyrå ABSchulte Roth & Zabel LLPShearman & Sterling LLPSidley Austin LLPStibbeTsibanoulis & PartnersVerita Legal (K. Argyridou & Associates LLC)Vieira de Almeida & Associados – Sociedade de Advogados, R.L.Wadia Ghandy & Co.

9th Edition

Securitisation 2016

ICLG

WWW.ICLG.CO.UK

The International Comparative Legal Guide to: Securitisation 2016

General Chapters:

Country Question and Answer Chapters:

1 Documenting Receivables Financings in Leveraged Finance and High Yield Transactions – James Burnett & Mo Nurmohamed, Latham & Watkins LLP 1

2 CLOs and Risk Retention in the U.S. and EU: Complying with the Rules – Craig Stein & Paul N. Watterson, Jr., Schulte Roth & Zabel LLP 8

3 US Taxation, Including FATCA, of Non-US Investors in Securitisation Transactions – David Z. Nirenberg, Ashurst LLP 14

4 The Transformation of Securitisation in an Evolving Financial and Regulatory Landscape – Bjorn Bjerke & Charles Thompson, Shearman & Sterling LLP 25

5 Reviving Securitisation in Europe: the Journey Lengthens – Richard Hopkin, Association for Financial Markets in Europe 32

6 Albania Frost & Fire Consulting: Franci Nuri 36

7 Argentina Estudio Beccar Varela: Javier L. Magnasco & María Victoria Pavani 46

8 Australia King & Wood Mallesons: Anne-Marie Neagle & Ian Edmonds-Wilson 56

9 Belgium Stibbe: Ivan Peeters & Philip Van Steenwinkel 67

10 Brazil Levy & Salomão Advogados: Ana Cecília Manente & Fernando de Azevedo Peraçoli 78

11 Canada McMillan LLP: Don Waters & Rob Scavone 89

12 Cayman Islands Maples and Calder: Scott Macdonald & Christopher Wall 100

13 Chile Baker & McKenzie – Santiago: Jaime Munro Cabezas & Cristóbal Larrain Baraona 109

14 China King & Wood Mallesons: Roy Zhang & Zhou Jie 120

15 Cyprus Verita Legal (K. Argyridou & Associates LLC): Karolina Argyridou & Fotini Kaimaklioti 133

16 England & Wales Sidley Austin LLP: Rupert Wall & Rachpal Thind 142

17 France Freshfields Bruckhaus Deringer LLP: Hervé Touraine & Olivier Bernard 157

18 Germany King & Spalding LLP: Dr. Werner Meier & Dr. Axel J. Schilder 170

19 Greece Tsibanoulis & Partners: Emmanouil Komis & Evangelia Kyttari 185

20 Hong Kong King & Wood Mallesons: Paul McBride & YuCheng Lin 195

21 Hungary Gárdos Füredi Mosonyi Tomori Law Office: Erika Tomori & Péter Gárdos 208

22 India Wadia Ghandy & Co.: Shabnum Kajiji & Nihas Basheer 218

23 Indonesia Ali Budiardjo, Nugroho, Reksodiputro: Freddy Karyadi & Novario Asca Hutagalung 228

24 Ireland A&L Goodbody: Peter Walker & Jack Sheehy 238

25 Israel Caspi & Co.: Norman Menachem Feder & Oded Bejarano 250

26 Italy K&L Gates Studio Legale Associato: Andrea Pinto & Vittorio Salvadori di Wiesenhoff 262

27 Japan Nishimura & Asahi: Hajime Ueno & Koh Ueda 275

28 Luxembourg Elvinger Hoss Prussen: Philippe Prussen & Marie Pirard 290

29 Mexico Cervantes Sainz: Diego Martínez Rueda-Chapital 301

30 Netherlands Freshfields Bruckhaus Deringer LLP: Mandeep Lotay & Ivo van Dijk 311

31 New Zealand Bell Gully: Murray King & Jennifer Gunser 326

Mark Nicolaides, Latham & Watkins LLP

Sales Director Florjan Osmani

Account DirectorsOliver Smith, Rory Smith

Sales Support ManagerToni Hayward

EditorTom McDermott

Senior EditorRachel Williams

Chief Operating Officer Dror Levy

Group Consulting EditorAlan Falach

Group PublisherRichard Firth

Published byGlobal Legal Group Ltd.59 Tanner StreetLondon SE1 3PL, UKTel: +44 20 7367 0720Fax: +44 20 7407 5255Email: [email protected]: www.glgroup.co.uk

GLG Cover DesignF&F Studio Design

GLG Cover Image SourceiStockphoto

Printed byAshford Colour Press LtdApril 2016

Copyright © 2016Global Legal Group Ltd.All rights reservedNo photocopying

ISBN 978-1-910083-91-8ISSN 1745-7661

Strategic Partners

Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720

DisclaimerThis publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication.This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

Contributing Editor

Continued Overleaf

EDITORIAL

Welcome to the ninth edition of The International Comparative Legal Guide to: Securitisation.This guide provides the international practitioner and in-house counsel with a comprehensive worldwide legal analysis of the laws and regulations of securitisation.It is divided into two main sections:Five general chapters. These chapters are designed to provide readers with a comprehensive overview of key securitisation issues, particularly from the perspective of a multi-jurisdictional transaction.Country question and answer chapters. These provide a broad overview of common issues in securitisation laws and regulations in 34 jurisdictions.All chapters are written by leading securitisation lawyers and industry specialists and we are extremely grateful for their excellent contributions.Special thanks are reserved for the contributing editor, Mark Nicolaides of Latham & Watkins LLP, for his invaluable assistance.Global Legal Group hopes that you find this guide practical and interesting.The International Comparative Legal Guide series is also available online at www.iclg.co.uk.

Alan Falach LL.M. Group Consulting Editor Global Legal Group [email protected]

The International Comparative Legal Guide to: Securitisation 2016

Country Question and Answer Chapters: 32 Portugal Vieira de Almeida & Associados – Sociedade de Advogados, R.L.:

Paula Gomes Freire & Mariana Padinha Ribeiro 339

33 Russia LECAP: Elizaveta Turbina & Ivan Mahalin 353

34 Scotland Brodies LLP: Bruce Stephen & Marion MacInnes 364

35 Singapore Drew & Napier LLC: Petrus Huang & Ron Cheng 374

36 Spain Cuatrecasas, Gonçalves Pereira: Héctor Bros & Elisenda Baldrís 387

37 Sweden Roschier Advokatbyrå AB: Johan Häger & Dan Hanqvist 405

38 Switzerland Pestalozzi Attorneys at Law Ltd: Oliver Widmer & Urs Klöti 416

39 USA Latham & Watkins LLP: Lawrence Safran & Kevin T. Fingeret 428

WWW.ICLG.CO.UK326 ICLG TO: SECURITISATION 2016© Published and reproduced with kind permission by Global Legal Group Ltd, London

Chapter 31

Bell Gully

Murray King

Jennifer Gunser

New Zealand

Whether or not a particular rate is oppressive will depend on a range of factors including the nature of the contract, the identity of the parties and their relative bargaining strengths. However, the New Zealand courts have held that a rate of 36% was not oppressive.

(b) There is no express statutory right to demand payment of default interest under New Zealand law. However, such a right is commonly included as part of the contractual arrangement between the parties.

The CCCFA allows a lender to charge default interest under a consumer credit contract only:■ in the event of a default in payment, in respect of the

amount of the default, and while the default continues; or■ in the event of a debtor causing a credit limit under a

contract to be exceeded and while the credit limit is exceeded.

If a loan is accelerated, a creditor may not charge default interest on the accelerated amount unless the facility is an on-demand facility.

The default interest charges must be clearly specified in the initial disclosure statement given to the consumer before they enter into the consumer credit contract.

(c) The CCCFA allows consumers to cancel a consumer credit contract by giving written notice of the cancellation to the lender within a specified period of the contractual terms being disclosed by the lender to the borrower in accordance with the CCCFA. The period can vary from five to nine working days of the initial disclosure being made by the lender depending on whether disclosure is made personally or by other means (such as electronically or by post). If a borrower exercises this right to cancel:■ in the case of certain credit sales specified in the CCCFA,

the borrower must pay the cash price of the property within the specified period; or

■ in any other case, the borrower must return to the lender any advance and any other property received by the consumer under the contract within the specified period.

The CCCFA also provides that consumer credit contracts must not prohibit the full prepayment of the loan. The method of calculation of that prepayment amount is also prescribed by the act.

(d) The CCCFA provides a number of key protections for consumers such as rules concerning disclosure requirements, charging of fees, payments, responsible lending requirements and hardship applications (i.e. a statutory right to vary the contract where a consumer has suffered an illness, injury or loss of employment).

Other statutory protections provided generally to consumers include those under:

1 Receivables Contracts

1.1 Formalities. In order to create an enforceable debt obligation of the obligor to the seller: (a) is it necessary that the sales of goods or services are evidenced by a formal receivables contract; (b) are invoices alone sufficient; and (c) can a receivable “contract” be deemed to exist as a result of the behaviour of the parties?

There is no general requirement under New Zealand law for an agreement for the sale of goods or services to be evidenced by a formal written contract. However, there are limited exceptions to this general rule. Of particular importance in this context are contracts for the sale of land (which must be in writing), credit contracts under the Credit Contract and Consumer Finance Act 2003 (“CCCFA”) (which sets out detailed form and substance requirements in relation to consumer credit contracts) and the Personal Property Securities Act 1999 (“PPSA”) which prescribes that a security agreement will only be enforceable against third parties if a written agreement has been entered into and signed (or assented to by other means) by the relevant debtor.Where none of the above exceptions apply, invoices alone may be sufficient to create an enforceable debt obligation, provided that the basic elements of contract formation are evidenced (including, but not limited to, evidence of an agreement, consideration and intention to create legal relations). Further, where these contract formation components exist, a contract may be deemed to have been created by the parties on the basis of their conduct.

1.2 Consumer Protections. Do your jurisdiction’s laws: (a) limit rates of interest on consumer credit, loans or other kinds of receivables; (b) provide a statutory right to interest on late payments; (c) permit consumers to cancel receivables for a specified period of time; or (d) provide other noteworthy rights to consumers with respect to receivables owing by them?

The CCCFA is the principal New Zealand law governing the entry into and administration of credit contracts. The CCCFA applies to “credit contracts” generally but is primarily focused on the regulation of consumer lending.(a) The CCCFA does not impose an express cap on interest

rates. However, a rate will not be enforceable if it is viewed as “oppressive”. The term “oppressive” is defined in the CCCFA as meaning “oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice”.

ICLG TO: SECURITISATION 2016 327WWW.ICLG.CO.UK© Published and reproduced with kind permission by Global Legal Group Ltd, London

New

Zea

land

2 Choice of Law – Receivables Contracts

2.1 No Law Specified. If the seller and the obligor do not specify a choice of law in their receivables contract, what are the main principles in your jurisdiction that will determine the governing law of the contract?

In these circumstances, the court will assess which legal system has the closest and most real connection with the transaction. The court will consider all of the surrounding circumstances, including:■ the place where the contract was made;■ the place where the contract is to be performed;■ the nature and location of the subject matter of the contract;■ the currency in which payment is to be made;■ the place of the parties’ residence or business; and■ the terms of the contract.

2.2 Base Case. If the seller and the obligor are both resident in your jurisdiction, and the transactions giving rise to the receivables and the payment of the receivables take place in your jurisdiction, and the seller and the obligor choose the law of your jurisdiction to govern the receivables contract, is there any reason why a court in your jurisdiction would not give effect to their choice of law?

No. New Zealand courts will generally give effect to an express choice of law. There are limited circumstances in which they may not, for example if the choice is not bona fide, if public policy considerations mean the court should not give effect to the choice of law, or if the choice of law would be unlawful in New Zealand. None of these considerations are likely to arise in the stipulated situation.

2.3 Freedom to Choose Foreign Law of Non-Resident Seller or Obligor. If the seller is resident in your jurisdiction but the obligor is not, or if the obligor is resident in your jurisdiction but the seller is not, and the seller and the obligor choose the foreign law of the obligor/seller to govern their receivables contract, will a court in your jurisdiction give effect to the choice of foreign law? Are there any limitations to the recognition of foreign law (such as public policy or mandatory principles of law) that would typically apply in commercial relationships such as that between the seller and the obligor under the receivables contract?

New Zealand courts will generally give effect to an express choice of law, subject to the provisos set out in the answer to question 2.2 above. New Zealand legislation may sometimes override the parties’ choice of law for certain purposes. For example, the Credit Contracts and Consumer Finance Act 2003 applies to credit contracts (among other things) that would be governed by the law of New Zealand but for a choice of law provision.

2.4 CISG. Is the United Nations Convention on the International Sale of Goods in effect in your jurisdiction?

Yes, New Zealand acceded to the Convention on 22 September 1994.

■ the Fair Trading Act 1986: this Act prohibits traders from undertaking conduct that is misleading or deceptive, making a false representation, or engaging in unfair practices. It also restricts the use of unfair terms in standard form contracts, provides protections against unsafe goods and services and provides for consumer information disclosure; and

■ the Consumer Guarantees Act 1993: this Act imposes obligations on manufacturers and suppliers of goods and on suppliers of services (which includes the provision of a loan).

In addition, there is currently ongoing litigation in New Zealand regarding whether or not certain types of fees charged under consumer credit contracts constitute “penalties” and are therefore unenforceable as a matter of common law.

1.3 Government Receivables. Where the receivables contract has been entered into with the government or a government agency, are there different requirements and laws that apply to the sale or collection of those receivables?

Generally speaking, the rules concerning the sale and collection of receivables under a receivables contract to which the Crown, a government entity/agency, or a statutory corporation (each a government entity) is a party should be the same as the rules that apply to a receivables contract entered into with a New Zealand company. However, this is a fact-specific question that should be considered by the transaction parties on a case-by-case basis.As is the case with other types of New Zealand entity, the government entity must have the necessary capacity and authority to enter into a receivables contract. The capacity and authority of a New Zealand government entity to enter into a contract will usually be addressed under legislation. The relevant legislation will depend on the identity of the government entity. If a government entity enters into a contract outside the scope of its powers, it is possible that the contract could be declared by a court to be void and, therefore, unenforceable.When contracting with a government entity, it is also important to note:■ it is possible that legislation may be passed that could affect

contracts previously entered into by the government entity;■ there is no statutory regime in New Zealand that contemplates

the insolvency of the Crown or any of its government departments or divisions. Accordingly, if the Crown were to become insolvent, it is likely that special legislation would be enacted to deal with various aspects of that insolvency;

■ the Crown Proceedings Act 1950 sets out the law relating to the civil liability and rights of the Crown, and to civil proceedings by and against the Crown. The Crown Proceedings Act preserves the right of a person to bring proceedings against the Crown based on contract; and

■ the New Zealand courts have adopted the “restrictive theory” of sovereign immunity. The restrictive theory distinguishes between sovereign public acts (acta jure impereii), which are granted immunity, and private or commercial acts (acta jure gestionis), which are not.

Bell Gully New Zealand


New

Zea

land

3.3 Example 2: Assuming that the facts are the same as Example 1, but either the obligor or the purchaser or both are located outside your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller), or must the foreign law requirements of the obligor’s country or the purchaser’s country (or both) be taken into account?

Assuming that the receivable and the receivables purchase agreement are governed exclusively by the law of New Zealand, the answer to question 3.2 applies. The law of the purchaser’s or the obligor’s country may sometimes be relevant to the transaction (e.g. if legislation in that jurisdiction expressly applies to it). As discussed above in the answer to question 3.1, if the lex situs of the receivable is outside of New Zealand (as may be the case if the obligor is located outside of New Zealand) then the law of that jurisdiction may also be relevant to the effectiveness of the transfer.

3.4 Example 3: If (a) the seller is located in your jurisdiction but the obligor is located in another country, (b) the receivable is governed by the law of the obligor’s country, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the obligor’s country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the obligor’s country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller) without the need to comply with your jurisdiction’s own sale requirements?

In general, yes. The answers to questions 3.2 and 3.3 also apply.To the extent that a party needs to enforce in New Zealand a foreign judgment granted in relation to the receivables purchase agreement, there are circumstances in which the court will not enforce such a judgment, including where the courts of the country of the original court had no jurisdiction, the judgment debtor did not receive notice of proceedings in sufficient time to be able to defend the proceedings and did not appear, the judgment was obtained by fraud, the enforcement of the judgment would be contrary to public policy in New Zealand, or the rights under the judgment are not vested in the person by whom the application for registration was made.

3.5 Example 4: If (a) the obligor is located in your jurisdiction but the seller is located in another country, (b) the receivable is governed by the law of the seller’s country, (c) the seller and the purchaser choose the law of the seller’s country to govern the receivables purchase agreement, and (d) the sale complies with the requirements of the seller’s country, will a court in your jurisdiction recognise that sale as being effective against the obligor and other third parties (such as creditors or insolvency administrators of the obligor) without the need to comply with your jurisdiction’s own sale requirements?

In general, yes. The answer to question 3.4 also applies.

3 Choice of Law – Receivables Purchase Agreement

3.1 Base Case. Does your jurisdiction’s law generally require the sale of receivables to be governed by the same law as the law governing the receivables themselves? If so, does that general rule apply irrespective of which law governs the receivables (i.e., your jurisdiction’s laws or foreign laws)?

There is no general requirement that a receivables purchase agreement be governed by the same law as the law governing the receivables. Subject to the provisos set out in section 2 above and question 3.2 below, New Zealand courts will generally give effect to an express choice of law provision, irrespective of the law governing the receivables. Irrespective of the law of the receivables purchase agreement, issues arising under the receivables will still be determined under the law governing the receivables. The lex situs of the receivable may also be relevant (especially to the question of whether the receivable is capable of assignment). As far as we are aware, the New Zealand Courts have never had to consider a situation in which the lex situs was different to the law of the contract in this context, so it is unclear which would prevail.

3.2 Example 1: If (a) the seller and the obligor are located in your jurisdiction, (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of your jurisdiction to govern the receivables purchase agreement, and (e) the sale complies with the requirements of your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller, the obligor and other third parties (such as creditors or insolvency administrators of the seller and the obligor)?

In general, yes. However, even if the sale is otherwise valid, the New Zealand insolvency regime may impact of the effectiveness of the sale in some circumstances. For example, liquidators have powers to avoid some antecedent transactions, including assignments of receivables: see question 6.3 below.In addition, the PPSA contains its own conflict of laws regime, which may affect the purchaser’s rights in respect of the receivable irrespective of the law of the receivables purchase agreement. This is because a sale of a receivable is deemed to constitute the creation of a security interest in the receivable by the seller in favour of the purchaser (see the discussion in the answer to question 4.2 below). In brief summary, the starting point is that the validity, perfection, and effect of perfection or non-perfection of a security interest in a receivable is governed by the laws of the jurisdiction where the debtor is located when the security interest “attaches” in terms of the PPSA. Even if foreign law applies, if the receivable is payable in New Zealand then, in some circumstances, a purchaser’s rights may be subordinated to the rights of other creditors with security in the receivable.



New Zealand

New

Zea

land

It is important to note that a financing statement will automatically expire five years after the date of registration. To maintain the original priority, the financing statement must be renewed before it expires.It is also possible to perfect a security interest in certain types of personal property, including marketable debt securities and chattel paper (e.g. finance leases or hire purchase agreements) by taking possession of the collateral. If the securitised assets fall into one of these classes it will be important to consider whether to perfect by taking possession as well as registering a financing statement on the PPSR.Property Law ActUnder the Property Law Act, an assignment is perfected against the obligor where actual notice of the assignment is given to the obligor. Under section 50, assignment in writing passes all rights of the assignor to the assignee, subject to any equities arising before the obligor has actual notice of the assignment. Although the giving of notice is not mandatory and is not usual in the securitisation context, there are certain consequences if notice is not provided, as discussed in more detail in the answer to question 4.4 below. CCCFAThe CCCFA also prescribes certain requirements in relation to the sale of receivables. Under the CCCFA, any transfer of rights by a creditor/seller under a consumer credit contract (whether by assignment or operation of law) requires disclosure to the underlying debtors/guarantors of certain information relating to the identity of the assignee/purchaser and their contact and regulatory compliance details. Such disclosure must be made within ten business days following the transfer/assignment. However, a specific exemption to the disclosure requirements under the CCCFA applies to securitisations where it can be demonstrated that certain conditions have been satisfied including that either (i) the seller (or a related party) has been contractually appointed by the purchaser to collect the payments under the receivables contracts, manage such contracts and deal with the underlying debtors/guarantors and the underlying debtors/guarantors have been provided with the contact and regulatory compliance details of such party prior to the transfer, or (ii) the assignee/purchaser was already collecting the payments under the receivables contracts, managing such contracts and dealing with the underlying debtors/guarantors, and the underlying debtors/guarantors have been provided with the assignee’s/purchaser’s contact and regulatory compliance details.

4.3 Perfection for Promissory Notes, etc. What additional or different requirements for sale and perfection apply to sales of promissory notes, mortgage loans, consumer loans or marketable debt securities?

The general requirements relating to the sale and perfection are as specified in questions 4.1 and 4.2.The requirements relating to promissory notes are governed by the Bills of Exchange Act 1908. A promissory note endorsed by the maker is transferable by delivery or assignment.In relation to mortgages over real property, as well as the giving of notice, there will often be further formalities such as registration of the mortgage transfer at Land Information New Zealand as required by the Land Transfer Act 1952. Until notice has been given and registration of the transfer has been effected, the rights of an assignee may be adversely affected by dealings in the underlying property.While there are no particular requirements for the sale and perfection of marketable debt securities, any marketable securities sold through NZClear or other clearing system will be subject to the rules of that system.

3.6 Example 5: If (a) the seller is located in your jurisdiction (irrespective of the obligor’s location), (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the purchaser’s country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the purchaser’s country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller, any obligor located in your jurisdiction and any third party creditor or insolvency administrator of any such obligor)?

See question 3.5 above.

4 Asset Sales

4.1 Sale Methods Generally. In your jurisdiction what are the customary methods for a seller to sell receivables to a purchaser? What is the customary terminology – is it called a sale, transfer, assignment or something else?

The legal term used in New Zealand to describe the transfer of rights in a receivable is “assignment”. An assignment may be legal or equitable. Typically assets transferred in a securitisation will be transferred by way of legal assignment. As a matter of practice, the terms assignment, sale and transfer are used interchangeably. Where rights and obligations are transferred, the term “novation” is used (although this is uncommon in the securitisation context).

4.2 Perfection Generally. What formalities are required generally for perfecting a sale of receivables? Are there any additional or other formalities required for the sale of receivables to be perfected against any subsequent good faith purchasers for value of the same receivables from the seller?

There are three primary statutes in New Zealand which contain rules relating to perfecting a sale of receivables. Personal Property Securities ActThe PPSA provides a regime for the creation of security interests in personal property. The transfer of rights under a receivable gives rise to a deemed security interest granted by the seller in favour of the purchaser over the transferred receivable. To perfect this security interest, the secured party (the purchaser) must register a financing statement on the online Personal Property Securities Register (PPSR). The financing statement contains details of the seller, the purchaser and the assigned property. The assignment document itself is not registered.It is possible to register a financing statement at any time (including prior to entry into the receivables purchase agreement). Given that the time of registration will ultimately determine priority, this step should be completed as soon as possible and prior to funding. In very general terms a prior registered security interest over the same property will defeat an interest, including that of a subsequent purchaser, which is registered later in time. While failure to register does not itself invalidate the assignment as between the purchaser and the seller, as outlined above it may affect the priority of the purchaser’s claim to the assigned assets.



New

Zea

land

to be delivered to obligors. However, for a legal assignment to be complete, the notice must be in writing. There is also no time limit beyond which notice is ineffective. However, as noted above, the timing of delivery of notice will be relevant insofar as it affects the rights of third parties.

4.6 Restrictions on Assignment – General Interpretation. Will a restriction in a receivables contract to the effect that “None of the [seller’s] rights or obligations under this Agreement may be transferred or assigned without the consent of the [obligor]” be interpreted as prohibiting a transfer of receivables by the seller to the purchaser? Is the result the same if the restriction says “This Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]” (i.e., the restriction does not refer to rights or obligations)? Is the result the same if the restriction says “The obligations of the [seller] under this Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]” (i.e., the restriction does not refer to rights)?

New Zealand courts would interpret the first two such contractual restrictions as prohibiting an assignment of receivables from the seller to purchaser without consent in order to give effect to the commercial expectations of the parties. In the third example, the lack of an express restriction on the assignment of rights, and the specific reference to “obligations”, means that a court may interpret such a clause as permitting a transfer of rights only without the need for express consent from the obligor.

4.7 Restrictions on Assignment; Liability to Obligor. If any of the restrictions in question 4.6 are binding, or if the receivables contract explicitly prohibits an assignment of receivables or “seller’s rights” under the receivables contract, are such restrictions generally enforceable in your jurisdiction? Are there exceptions to this rule (e.g., for contracts between commercial entities)? If your jurisdiction recognises restrictions on sale or assignment of receivables and the seller nevertheless sells receivables to the purchaser, will either the seller or the purchaser be liable to the obligor for breach of contract or tort, or on any other basis?

The New Zealand courts will generally give effect to a contractual prohibition on assignment under the receivables contract, unless to do so would be contrary to public policy.If assignment occurs in breach of a contractual restriction on sale, then certain remedies may be available to the obligor against the seller for breach of contract and, potentially, the purchaser in tort.

4.8 Identification. Must the sale document specifically identify each of the receivables to be sold? If so, what specific information is required (e.g., obligor name, invoice number, invoice date, payment date, etc.)? Do the receivables being sold have to share objective characteristics? Alternatively, if the seller sells all of its receivables to the purchaser, is this sufficient identification of receivables? Finally, if the seller sells all of its receivables other than receivables owing by one or more specifically identified obligors, is this sufficient identification of receivables?

The sale document must adequately identify the receivables being sold so that such receivables can be distinguished for the purposes of the sale and for the purposes of registering the deemed security

Refer to question 4.2 for the specific requirements relating to consumer loans.

4.4 Obligor Notification or Consent. Must the seller or the purchaser notify obligors of the sale of receivables in order for the sale to be effective against the obligors and/or creditors of the seller? Must the seller or the purchaser obtain the obligors’ consent to the sale of receivables in order for the sale to be an effective sale against the obligors? Whether or not notice is required to perfect a sale, are there any benefits to giving notice – such as cutting off obligor set-off rights and other obligor defences?

As a general rule, notification of the obligor is not required to make the sale effective. However, the following statutes are relevant:Under the PPSA, registration of a financing statement acts as notification of the purchaser’s deemed security interest in the sold receivable. No additional notice is required under the PPSA. The Property Law Act 2007 (PLA) imposes separate but overlapping requirements in relation to buying and selling property, mortgaging property and leasing. The PLA contains specific provisions which govern the legal and equitable assignment of “things in action” which includes a “right to receive payment of a debt”.Under section 50 of the PLA, rights under a receivable may be legally assigned without notice being given to the obligor. The assignment (in writing) passes all rights of the assignor to the assignee, subject to any equities arising before the debtor has actual notice of the assignment. Although the giving of notice is not mandatory, under section 51 of the PLA, if a debtor does not have actual notice of the assignment:(a) the underlying debtor can discharge its debt by payment to

the assignor (not the assignee); and(b) if the assignor purports to assign its interest to a third party

(the “subsequent assignee”) in addition to having already assigned its interest to a party (the “original assignee”) and that subsequent assignee gives notice to the underlying debtor, the rights of the subsequent assignee have priority over the rights of the original assignee.

Failure to notify an obligor of a transfer in accordance with the CCCFA (see the discussion in the answer to question 4.2 above) could give rise to a claim for statutory damages or other discretionary relief.As a matter of market practice, typically underlying obligors are not notified of a transfer where receivables are securitised (unless a title perfection event, event of default or similar occurs under the programme documents).Assuming there is no contractual agreement to the contrary, as a matter of New Zealand law, the consent of the obligor is not required where the seller only transfers its rights against the obligor. Where rights and obligations are to be transferred, consent of the obligor will be required.

4.5 Notice Mechanics. If notice is to be delivered to obligors, whether at the time of sale or later, are there any requirements regarding the form the notice must take or how it must be delivered? Is there any time limit beyond which notice is ineffective – for example, can a notice of sale be delivered after the sale, and can notice be delivered after insolvency proceedings against the obligor or the seller have commenced? Does the notice apply only to specific receivables or can it apply to any and all (including future) receivables? Are there any other limitations or considerations?

There are no particular form requirements in relation to the notice



New

Zea

land

Refer to question 6.5 below in relation to the effect of the seller’s insolvency on an agreement to assign future receivables.

4.11 Future Receivables. Can the seller commit in an enforceable manner to sell receivables to the purchaser that come into existence after the date of the receivables purchase agreement (e.g., “future flow” securitisation)? If so, how must the sale of future receivables be structured to be valid and enforceable? Is there a distinction between future receivables that arise prior to or after the seller’s insolvency?

Yes, as per question 4.10. Provided that the sale documentation adequately identifies the receivables being sold, there is no reason why a seller cannot commit to sell receivables that come into existence after the date of the sale agreement. The assignment of future receivables should occur automatically once they come into existence without any further action being required by either party.Refer to question 6.5 below in relation to the effect of the seller’s insolvency on an agreement to assign future receivables.

4.12 Related Security. Must any additional formalities be fulfilled in order for the related security to be transferred concurrently with the sale of receivables? If not all related security can be enforceably transferred, what methods are customarily adopted to provide the purchaser the benefits of such related security?

The formalities required for the transfer of security depend on the nature of the security itself. For example, the transfer of a mortgage security will necessitate the transfer of the mortgage instrument at Land Information New Zealand, and the transfer of a PPSA security will require the transfer of any related financing statement to be registered on the PPSR. Where a security is perfected on the PPSR, it is possible to register the rights of the seller and the (future) purchaser against the underlying debtor at the time the receivable is originated. If this is done, no additional filing by the purchaser will be required when the receivable is transferred.

4.13 Set-Off; Liability to Obligor. Assuming that a receivables contract does not contain a provision whereby the obligor waives its right to set-off against amounts it owes to the seller, do the obligor’s set-off rights terminate upon its receipt of notice of a sale? At any other time? If a receivables contract does not waive set-off but the obligor’s set-off rights are terminated due to notice or some other action, will either the seller or the purchaser be liable to the obligor for damages caused by such termination?

This is a complex area of law and the termination or continuation of a right of set-off will depend on the specific facts. However, as a general statement, under New Zealand common law the mutuality required for set-off will only be broken (and therefore the obligor’s right of set-off will only be terminated) following receipt of notice of the sale. Rights of set-off existing prior to receipt of notice should remain enforceable. The PPSA includes an express provision dealing with the rights of an assignee of an account receivable which appears to endorse the common rule law outlined above (although this section has not been the subject of any judicial commentary).

interest on the PPSR (see also the answer to question 4.2 above). However, there is no particular requirement to specifically list each individual receivable provided that the class of receivable being sold is identified with sufficient certainty. There is also no requirement for the receivables being sold to share objective characteristics, although in the context of a securitisation transaction the receivables will often be identified by reference to specified eligibility criteria. Where the seller sells “all of” its receivables, this will be sufficient for identification purposes provided that “receivables” is appropriately defined, and a sale of all receivables other than receivables owed by one or more specifically identified obligors will also generally be sufficient for identification purposes.

4.9 Respect for Intent of Parties; Economic Effects on Sale. If the parties describe their transaction in the relevant documents as an outright sale and explicitly state their intention that it be treated as an outright sale, will this description and statement of intent automatically be respected or will a court enquire into the economic characteristics of the transaction? If the latter, what economic characteristics of a sale, if any, might prevent the sale from being perfected? Among other things, to what extent may the seller retain: (a) credit risk; (b) interest rate risk; (c) control of collections of receivables; or (d) a right of repurchase/redemption without jeopardising perfection?

When determining whether a transaction is a true sale as opposed to a security arrangement, a New Zealand court will have regard to both the intention of the parties and the form of transaction but, more particularly, will look to the substance of the transaction, the position of the parties and the entire circumstances under which the transaction came about. This is irrespective of the label given to the transaction by the parties. A key consideration will be the nature and permanence of the assignee’s/purchaser’s enjoyment of the property. Factors which have been taken into account in determining this are whether the disposition is unqualified and indefinite in its duration, whether the purchaser is precluded in any way from dealing with the property, and whether the purchaser acquires an unconditional stake in the property which will be unaffected by the future relationship between the parties – essentially, a court will consider which party is intended to be the beneficial owner of the property. If it is apparent that there are unusual limits upon the rights of the purchaser – such as a requirement to sell the property back to the seller or a stipulation that any interest earned remains the property of the seller – it is likely the beneficial ownership has remained with the seller and the transaction cannot be characterised as a true sale. If the transaction is determined to not be a true sale there is a risk that those assets will, on the seller’s insolvency, be considered part of the seller’s assets and will thus be available to the seller’s creditors.

4.10 Continuous Sales of Receivables. Can the seller agree in an enforceable manner to continuous sales of receivables (i.e., sales of receivables as and when they arise)? Would such an agreement survive and continue to transfer receivables to the purchaser following the seller’s insolvency?

An agreement to the effect that a seller agrees to the continuous sale of receivables as and when they arise will be enforceable and will take effect as an agreement to assign. The receivables will be automatically assigned to the purchaser as and when they come into existence.



New

Zea

land

5.4 Recognition. If the purchaser grants a security interest in receivables governed by the laws of your jurisdiction, and that security interest is valid and perfected under the laws of the purchaser’s country, will it be treated as valid and perfected in your jurisdiction or must additional steps be taken in your jurisdiction?

The PPSA contains conflict of laws rules with respect to the validity, perfection and effect of perfection or non-perfection of a security interest in personal property which has some connection with New Zealand. Subject to certain exceptions, the general rule is that New Zealand law, and therefore the PPSA, will apply to:(a) security interests in goods and possessory security interests

in certain specified intangibles if, at the time that the security interest attaches, the collateral is situated in New Zealand; and

(b) security interests in intangibles if the debtor is located in New Zealand.

This reflects the common law lex situs rule, which holds that the law of the jurisdiction in which the collateral was located at the time the security was taken governs whether the security interest was validly created and perfected. The PPSA also provides that the validity, perfection and effect of perfection or non-perfection of a security interest in goods or a possessory security interest will be governed by New Zealand law if the security agreement provides that New Zealand law is the law governing the transaction. Therefore, where a purchaser located outside New Zealand grants a security interest under a foreign law over receivables governed by the laws of New Zealand, the validity and perfection requirements of the PPSA may still need to be satisfied depending on the specific nature of the assets and the nature of the security interest.As a matter of commercial practice, given the complexity of this area of law, it would not be uncommon for a purchaser to perfect its interest on the New Zealand PPSR in this scenario.

5.5 Additional Formalities. What additional or different requirements apply to security interests in or connected to insurance policies, promissory notes, mortgage loans, consumer loans or marketable debt securities?

There are no additional formalities required to create a security interest in these types of assets (although note the discussion in the answer to question 4.3 above which will be relevant to the extent the security interest involves a transfer of the relevant asset). Additional perfection steps may be required depending on the specific asset and the manner in which the asset is held (e.g. directly or via a custodial service).

5 Security Issues

5.1 Back-up Security. Is it customary in your jurisdiction to take a “back-up” security interest over the seller’s ownership interest in the receivables and the related security, in the event that an outright sale is deemed by a court (for whatever reason) not to have occurred and have been perfected?

It is not usual in New Zealand to take a backup security interest over the receivables and any related security to address the risk that a court may deem an outright sale of receivables not to have occurred and been perfected.

5.2 Seller Security. If it is customary to take back-up security, what are the formalities for the seller granting a security interest in receivables and related security under the laws of your jurisdiction, and for such security interest to be perfected?

Refer to question 5.1 above and question 5.3 below.

5.3 Purchaser Security. If the purchaser grants security over all of its assets (including purchased receivables) in favour of the providers of its funding, what formalities must the purchaser comply with in your jurisdiction to grant and perfect a security interest in purchased receivables governed by the laws of your jurisdiction and the related security?

The granting of general security over all present and after acquired personal property is a common form of security interest in the New Zealand finance market. There are a number of formalities that must be complied with in order to grant and perfect security for the purposes of the PPSA. Firstly, security is taken through entry into a written security agreement, signed by the relevant debtor (or assented to by other means) which contains an adequate description of the collateral. Once a security agreement is in place, a security interest in property is created when it “attaches” to the property. Under the PPSA, attachment occurs when:■ value is given by the secured party; and■ the debtor has rights in the collateral.Once a security interest has attached, its priority will be determined by the point in time at which it is “perfected”. If the security interest is not perfected, the secured party remains entitled to enforce the security against the debtor, but it may be subject to prior claims held by third parties. A security interest is perfected when:■ that security interest has attached; and■ either:

■ a financing statement has been registered on the PPSR; or■ the secured party, or another person on the secured party’s

behalf, has possession of the collateral. Timing of perfection is key to determining the priority between competing security interests in the same collateral. Generally speaking, a perfected security interest has priority over an unperfected security interest, and priority between perfected security interests is determined by the order of registration on the PPSR.



New

Zea

land

6 Insolvency Laws

6.1 Stay of Action. If, after a sale of receivables that is otherwise perfected, the seller becomes subject to an insolvency proceeding, will your jurisdiction’s insolvency laws automatically prohibit the purchaser from collecting, transferring or otherwise exercising ownership rights over the purchased receivables (a “stay of action”)? If so, what generally is the length of that stay of action? Does the insolvency official have the ability to stay collection and enforcement actions until he determines that the sale is perfected? Would the answer be different if the purchaser is deemed to only be a secured party rather than the owner of the receivables?

New Zealand law does not provide for an automatic “stay of action”.In many cases, rights arising from the assignment of a receivable will be “deemed security interests” in terms of the PPSA. In that case, even if the transaction provides for an absolute legal assignment, the assignee’s entitlement to the receivables and any proceeds will be determined in accordance with the priority regime in the PPSA and the legislation applicable to the relevant insolvency process.The PPSA does not apply to all assignments of receivables. If the sale falls within one of the categories exempted from the PPSA (e.g. if the assignment takes place solely to facilitate collection of the receivable, or if it takes place in the context of a sale of a business and the purchaser will assume apparent control of the receivable), then: ■ If the sale of a receivable is a true sale by way of absolute

legal assignment of the entire receivable, a seller’s insolvency should not interfere with a purchaser’s rights (subject to those matters discussed in the answers in section 3).

■ If the sale of a receivable is a true sale, but only by way of equitable assignment (e.g. if it is not in writing or if only part of the right is assigned), the position is more complex. For example, the seller will need to be involved in any action to collect the receivables, which may present practical issues if it is insolvent.

If there is a dispute as to whether the receivable has been assigned, the insolvency official or the debtor may be able to obtain interim orders preventing the purchaser from exercising its rights pending resolution of the dispute.

6.2 Insolvency Official’s Powers. If there is no stay of action under what circumstances, if any, does the insolvency official have the power to prohibit the purchaser’s exercise of rights (by means of injunction, stay order or other action)?

An insolvency official does not generally have the power to prohibit the purchaser’s exercise of rights in connection with an effective sale of receivables, other than in the circumstances discussed in questions 6.1 and 6.3. However, practical issues may arise if the purchaser requires the co-operation of the insolvency official to enforce those rights.In limited circumstances, New Zealand’s statutory management regime could apply to restrict the ability of a purchaser to exercise rights over the purchased assets.The statutory management regime is only invoked in circumstances where the insolvency is unusually complex or the insolvency of the relevant entity poses a systemic risk to the New Zealand economy.A statutory manager can be appointed to a company under the Corporations (Investigation and Management) Act or a registered bank under the Reserve Bank of New Zealand Act (RBNZ Act).

5.6 Trusts. Does your jurisdiction recognise trusts? If not, is there a mechanism whereby collections received by the seller in respect of sold receivables can be held or be deemed to be held separate and apart from the seller’s own assets until turned over to the purchaser?

Trusts are recognised under New Zealand law, and trusts over collections received by the seller in respect of sold receivables will be recognised.

5.7 Bank Accounts. Does your jurisdiction recognise escrow accounts? Can security be taken over a bank account located in your jurisdiction? If so, what is the typical method? Would courts in your jurisdiction recognise a foreign law grant of security (for example, an English law debenture) taken over a bank account located in your jurisdiction?

The concept of funds being held in a bank account in escrow is recognised under New Zealand law. However, this is uncommon and the more usual approach where rights are to be granted over bank deposits is to take security over the relevant bank account itself by way of specific security agreement. The New Zealand courts will recognise and enforce a foreign law grant of security taken over a New Zealand bank account. However, New Zealand laws relating to validity and perfection requirements may apply depending on the identity of the account debtor. In particular, the PPSA provides that New Zealand law will apply to a security interest over an intangible (which includes an account receivable) if the account debtor is located in New Zealand.

5.8 Enforcement over Bank Accounts. If security over a bank account is possible and the secured party enforces that security, does the secured party control all cash flowing into the bank account from enforcement forward until the secured party is repaid in full, or are there limitations? If there are limitations, what are they?

On enforcement, a secured party with security over a bank account controls all cash flowing into the bank account from enforcement forward until its debts are satisfied. However, in the event of the liquidation or insolvency of the debtor, and to the extent that the assets of the debtor are insufficient to meet the claims of preferential creditors, pursuant to Schedule 7 of the Companies Act 1993, the preferential claims have priority over the claims of the secured party where the security interest is over a bank account. It is also possible that third parties may have tracing claims to the extent that the cash represents the proceeds of assets over which those third parties held security.

5.9 Use of Cash Bank Accounts. If security over a bank account is possible, can the owner of the account have access to the funds in the account prior to enforcement without affecting the security?

Unless there are any contractual restrictions in the underlying security agreement, the owner of a bank account can have access to any funds deposited in the account prior to enforcement without affecting the security interest of the secured party.



New

Zea

land

or a shareholder may apply to the court under the Companies Act for orders that their assets and liabilities be pooled for the purposes of this liquidation (or that one company pay some of the debts of the other). This type of order may be made where the companies are effectively managed as one and the affairs of the two companies are closely intermingled. If the purchaser and the seller are not related companies, and the “true sale” requirements discussed in question 4.9 are satisfied, an insolvency official is generally unable to consolidate the assets and liabilities of the purchaser and the seller unless New Zealand’s statutory management regime applies.If a statutory manager was appointed to the seller it is possible that the assets of and liabilities of the purchaser could be consolidated with those of the seller. See question 6.2 above.

6.5 Effect of Insolvency on Receivables Sales. If insolvency proceedings are commenced against the seller in your jurisdiction, what effect do those proceedings have on (a) sales of receivables that would otherwise occur after the commencement of such proceedings, or (b) sales of receivables that only come into existence after the commencement of such proceedings?

Applying to the court to have an insolvency official appointed does not itself affect the capacity of the company to enter into or perform contracts. Once an insolvency official is appointed, no new sales of receivables can be agreed without their consent (or, in some cases, an order of the court).Once an insolvency official is appointed, a purchaser’s right to receivables will depend:■ First, on whether the PPSA applies. As set out in question

6.1 above, a purchaser’s interest in a receivable is often a deemed “security interest” under the PPSA. In those cases, if the seller becomes insolvent before the assignment is complete, then the purchaser’s rights to the receivables will be determined under the rules of priority under the PPSA and the legislation applicable to the relevant insolvency process.

■ If the PPSA does not apply, the purchaser’s right to the receivables will depend on whether title has passed according to the terms of the assignment. If title has not passed, then the purchaser will have an unsecured claim against the company for any loss it suffers. If the assignment is a true sale, and is complete before the insolvency official is appointed, then the seller’s insolvency alone will not affect the purchaser’s rights in relation to the receivable (subject to the discussion in questions 6.1 and 6.3 above).

Even if the PPSA does not apply, the insolvency process may disrupt an ongoing contract in other ways. For example, if title has not passed, or if the seller is obliged to take further steps under the contract, liquidators may be able to disclaim the contract as being onerous or unprofitable (which could leave the purchaser with an unsecured damages claim against the seller). If the seller is in voluntary administration, there are strict restrictions on how and when the purchaser may enforce its rights against the seller.

6.6 Effect of Limited Recourse Provisions. If a debtor’s contract contains a limited recourse provision (see question 7.3 below), can the debtor nevertheless be declared insolvent on the grounds that it cannot pay its debts as they become due?

As far as we are aware, the New Zealand courts have not addressed this issue.

Although the regimes are broadly similar, the provisions under the RBNZ Act potentially allow the appointment of a statutory manager to a broader range of parties.In the case of a typical New Zealand master trust securitisation structure, it is possible that upon the insolvency of a bank seller a statutory manager could be appointed to the SPV Trust purchaser which would adversely impact on the bankruptcy remote nature of the trust.The narrower regime which applies to non-bank sellers of receivables is unlikely to affect the bankruptcy remote nature of the SPV Trust purchaser. However, this is a relatively complex area of law which has yet to be considered by the courts and any conclusions are likely to be very fact-specific.

6.3 Suspect Period (Clawback). Under what facts or circumstances could the insolvency official rescind or reverse transactions that took place during a “suspect” or “preference” period before the commencement of the insolvency proceeding? What are the lengths of the “suspect” or “preference” periods in your jurisdiction for (a) transactions between unrelated parties, and (b) transactions between related parties?

The liquidation regime provides for the clawback of pre-liquidation transactions in some circumstances. The key periods are, in brief summary:■ Preferential transactions: Under s 292 of the Companies

Act 1993, a transaction entered into within two years of the application to put the company into liquidation is voidable by a liquidator if (a) it was entered into at a time when the company could not pay its due debts, and (b) if the transaction enabled the person to receive more towards the satisfaction of a debt than they would have received in the liquidation.

■ Voidable charges: Under s 293 of the Companies Act 1993, a charge over property of a company granted within two years of the application to put the company into liquidation is voidable by a liquidator if, immediately after the charge was given, the company was unable to pay its due debts.

■ Transactions at an undervalue: Under s 297 of the Companies Act 1993, if a company enters into a transaction within two years of the application to put the company into liquidation, and the company is insolvent at the time (or as a result of the transaction), then the liquidator may recover from the counterparty any difference in value between what the company provided and what it received.

■ Transactions with directors and others for inadequate or excessive consideration: Section 298 of the Companies Act 1993 relates to transactions with a director, their relatives, related entities, and others. It allows a liquidator to recover from those people any difference in value between what the company provided and what it received in any transaction for the acquisition of business or property or services within three years of the application to put the company into liquidation.

Section 298 of the Property Law Act 2007 further empowers the court to set aside dispositions of property which are intended to prejudice creditors, if the company is insolvent or in certain other similar circumstances.

6.4 Substantive Consolidation. Under what facts or circumstances, if any, could the insolvency official consolidate the assets and liabilities of the purchaser with those of the seller or its affiliates in the insolvency proceeding?

If the purchaser and the seller are related entities (and both companies) and are both in liquidation, the liquidator or a creditor



New

Zea

land

We are not aware of the court ever having to consider such a clause in the context of an application to liquidate an insolvent company. Difficult issues may arise in that context.

7.5 Priority of Payments “Waterfall”. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) distributing payments to parties in a certain order specified in the contract?

In general, the court will uphold a priority of payments provision, as long as the paying party is solvent and there are no supervening claims to the assets.In the insolvency of a company, the default position is that the statutory priority regime will apply. Unsecured creditors may agree to accept a lower priority (see s 313(3) of the Companies Act 1993 in relation to pre-liquidation agreements). However, contracts which purport to lower a creditor’s priority without their consent will not be effective.

7.6 Independent Director. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) or a provision in a party’s organisational documents prohibiting the directors from taking specified actions (including commencing an insolvency proceeding) without the affirmative vote of an independent director?

The constitution of a company may provide that the company can only take specified steps in accordance with resolutions that are supported by an independent director. A company may agree not to take specified steps without approval from a third party (e.g. an independent director). However, this would not affect the company’s capacity to take the specified step. It could still take the specified step, in breach of the agreement. The court may be willing to grant an injunction to enforce the restriction, depending on the circumstances.

8 Regulatory Issues

8.1 Required Authorisations, etc. Assuming that the purchaser does no other business in your jurisdiction, will its purchase and ownership or its collection and enforcement of receivables result in its being required to qualify to do business or to obtain any licence or its being subject to regulation as a financial institution in your jurisdiction? Does the answer to the preceding question change if the purchaser does business with other sellers in your jurisdiction?

If the purchaser will be providing credit to persons in New Zealand (e.g. obligors) under a credit contract (e.g. the underlying receivables contract), the purchaser would likely be subject to the obligations imposed on creditors under the CCCFA. In addition, subject to certain limited exceptions, the purchaser will be subject to the general fair dealing requirements under the Fair Trading Act. See question 1.2 above for more information on the CCCFA and the Fair Trading Act. In addition, obligations for the purchaser (and, potentially, other securitisation participants, such as the trustee and trust manager) may also be triggered under one or more of the following financial services regulatory regimes:

A company may be placed into liquidation if it is “unable to pay its debts”. There is a good argument that a limited recourse provision as set out in question 7.3 below would mean that the company is never in the position of being unable to pay a debt. However, we are aware of overseas authority which suggests the contrary (depending on the terms of the limited recourse provision). This authority would be persuasive, but not binding, to a New Zealand court.The equivalent position for vehicles established as trusts is more complicated, as a trust is not a separate legal entity from its trustee.

7 Special Rules

7.1 Securitisation Law. Is there a special securitisation law (and/or special provisions in other laws) in your jurisdiction establishing a legal framework for securitisation transactions? If so, what are the basics?

New Zealand does not have a specific legislative framework for securitisation transactions (although specific legislation is in place for covered bond transactions).

7.2 Securitisation Entities. Does your jurisdiction have laws specifically providing for establishment of special purpose entities for securitisation? If so, what does the law provide as to: (a) requirements for establishment and management of such an entity; (b) legal attributes and benefits of the entity; and (c) any specific requirements as to the status of directors or shareholders?

New Zealand does not have laws specifically providing for the establishment of special purpose securitisation entities.

7.3 Limited-Recourse Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) limiting the recourse of parties to that agreement to the available assets of the relevant debtor, and providing that to the extent of any shortfall the debt of the relevant debtor is extinguished?

Yes, in most cases, though some statutes impose obligations which cannot be contracted out of (e.g. the Consumer Guarantees Act 1993). The New Zealand courts readily apply these types of clauses in the context of limiting trustees’ liability: see for example, Foundation Custodians Ltd v Thornton HC Auckland CIV-2009-404-3112, 2 November 2009; Frimley Estate Limited v Stonewall Homes Limited CIV 2009-441-237, HC Napier, 15 December 2010.Where the contract is governed by the law of another country, the Courts will apply the foreign law to determine whether the clause is effective.

7.4 Non-Petition Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) prohibiting the parties from: (a) taking legal action against the purchaser or another person; or (b) commencing an insolvency proceeding against the purchaser or another person?

Non-petition clauses are likely to be effective as a matter of contract, though there is little judicial authority on the issue.



New

Zea

land

answer to question 1.2, which sets out various protections granted to an obligor under the CCCFA. In particular, a purchaser will need to comply with the lender responsibility principles contained in the CCCFA. These require the purchaser to, at all times, exercise the care, diligence and skill of a responsible lender before entering into a consumer credit contract and when dealing with the obligor, and to comply with the specific lender responsibilities set out in the CCCFA. A Responsible Lending Code has been published which provides guidance on how lenders can comply with the CCCFA requirements. The general consumer protection laws discussed in the answer to question 1.2 will also be relevant.In addition, it is likely that the purchaser will become a financial service provider and will therefore have to register under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. Where the underlying obligors are retail customers, the purchaser will also have to join an approved dispute resolution scheme.

8.5 Currency Restrictions. Does your jurisdiction have laws restricting the exchange of your jurisdiction’s currency for other currencies or the making of payments in your jurisdiction’s currency to persons outside the country?

No, there are no such general restrictions under New Zealand law, although New Zealand’s anti-money laundering laws and laws relating to countering the financing of terrorism may restrict payments in specific circumstances.

9 Taxation

9.1 Withholding Taxes. Will any part of payments on receivables by the obligors to the seller or the purchaser be subject to withholding taxes in your jurisdiction? Does the answer depend on the nature of the receivables, whether they bear interest, their term to maturity, or where the seller or the purchaser is located? In the case of a sale of trade receivables at a discount, is there a risk that the discount will be recharacterised in whole or in part as interest? In the case of a sale of trade receivables where a portion of the purchase price is payable upon collection of the receivable, is there a risk that the deferred purchase price will be recharacterised in whole or in part as interest?

New Zealand withholding taxes apply to payments of “interest” on receivables paid to a seller or purchaser. The specific withholding tax that applies to such interest depends on the tax residence status of the seller or purchaser (as applicable), and certain other attributes of the obligor. In the case of a seller or purchaser who is resident in New Zealand for tax purposes or a non-resident seller/purchaser that carries on business through a fixed establishment (e.g. branch office) in New Zealand, interest payments made by obligors will potentially be subject to the deduction of resident withholding tax (RWT). However, no RWT will be deducted if the seller or purchaser (as applicable) holds an RWT exemption certificate. There will also be no RWT withheld by an obligor if that obligor does not carry on a taxable activity, or is not resident in New Zealand and has no fixed establishment in New Zealand (among other exclusions). RWT is not a final tax and is creditable against the income tax liability of the purchaser or seller (as applicable).

■ the carrying on business rules that apply to overseas companies under Part XVIII of the Companies Act 1993 and, in turn, the financial reporting obligations that apply to registered overseas companies and the requirements imposed on “reporting entities” under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009;

■ the requirement to register on the financial service providers register and, in certain circumstances, join a dispute resolution scheme under the Financial Service Providers (Registration and Dispute Resolution) Act 2008; and

■ the rules concerning the collection, storage, security, accuracy, use and disclosure of personal information about identifiable individuals under the Privacy Act 1993.

The question of whether obligations under each of the above regimes would be triggered for the purchaser (or other securitisation participants) is a transaction, specific question and would largely depend on issues such as the specific activities undertaken by the purchaser in New Zealand, whether or not it has a physical presence in New Zealand, whether its representatives or agents visited New Zealand (and the frequency of those visits).Does the answer to the preceding question change if the purchaser does business with other sellers in New Zealand?The fact that the purchaser does business with other sellers in New Zealand would need to be taken into account in the determination of whether the purchaser is carrying on business as an overseas company in New Zealand for the purposes of the registration requirement under Part XVIII of the Companies Act.

8.2 Servicing. Does the seller require any licences, etc., in order to continue to enforce and collect receivables following their sale to the purchaser, including to appear before a court? Does a third party replacement servicer require any licences, etc., in order to enforce and collect sold receivables?

Assuming the seller held all necessary licences prior to the sale, no additional licence is required merely to continue to enforce or collect receivables on behalf of the purchaser (although it is possible that the terms of the existing licences may need updating to reflect the revised factual matrix).

8.3 Data Protection. Does your jurisdiction have laws restricting the use or dissemination of data about or provided by obligors? If so, do these laws apply only to consumer obligors or also to enterprises?

The Privacy Act 1993 regulates the collection, storage, use, and disclosure of personal information concerning natural persons. The Act restricts the purposes for which personal information about individuals can be used or communicated. The Act applies irrespective of whether the obligor is a consumer. It does not apply to corporate entities.

8.4 Consumer Protection. If the obligors are consumers, will the purchaser (including a bank acting as purchaser) be required to comply with any consumer protection law of your jurisdiction? Briefly, what is required?

The CCCFA will apply where an obligor is a “consumer” and the contract constitutes a “consumer credit contract”. If a “consumer credit contract” is acquired by the purchaser, the obligor will have the same rights under the CCCFA against the purchaser as it would have had against the original lender. See the



New

Zea

land

The supply of collection services to the extent that they involve the servicing, managing and administering of receivables that are not in default will generally not be subject to GST on the basis of such supply being an exempt supply of financial services. However, active debt collection services in respect of receivables that are in default are at risk of being subject to GST.

9.5 Purchaser Liability. If the seller is required to pay value added tax, stamp duty or other taxes upon the sale of receivables (or on the sale of goods or services that give rise to the receivables) and the seller does not pay, then will the taxing authority be able to make claims for the unpaid tax against the purchaser or against the sold receivables or collections?

New Zealand tax authorities would not typically be able to recover GST payable on the transfer of receivables or on the underlying supply of goods or services from the purchaser. The main exception to this principle is where the seller and purchaser are members of the same GST group, as all such group members have joint and several liability for GST of the group. As noted above in the answer to question 9.3, New Zealand does not impose stamp duty or any other documentary tax on the sale of receivables.

9.6 Doing Business. Assuming that the purchaser conducts no other business in your jurisdiction, would the purchaser’s purchase of the receivables, its appointment of the seller as its servicer and collection agent, or its enforcement of the receivables against the obligors, make it liable to tax in your jurisdiction?

We assume that the purchaser would be a company (possibly acting as trustee) that is incorporated outside of New Zealand, and does not have its head office or centre of administrative management in New Zealand, and is not controlled by its directors from New Zealand. In that case, the purchaser’s acquisition of the receivables, its appointment of the seller as its servicer and collection agent, or its enforcement of the receivables against the obligors, would not (on its own) cause the purchaser to become a New Zealand tax resident. As a non-resident, the purchaser would be liable to tax on New Zealand-sourced income, subject to the overriding effect of a Double Tax Agreement where applicable. In the context of such agreements, the key question is often whether the business conducted by the purchaser would be enough to give rise to a permanent establishment in New Zealand. Appointment of a New Zealand-based seller as a servicer and collection agent (on its own) would not typically give rise to a permanent establishment for the purchaser. However, a permanent establishment could arise if, for example, the seller was a dependent agent of the purchaser that habitually exercises authority to conclude contracts in the name of the purchaser. Other deemed permanent establishment tests may be relevant depending on the terms of the relevant Double Tax Agreement. The risk of a permanent establishment arising would need to be managed appropriately. (As noted above, if the purchaser was a non-resident that did not carry on business in New Zealand through a fixed establishment, and had no permanent establishment in New Zealand for the purposes of a Double Tax Agreement, then the interest payments received from obligors could be subject to NRWT. NRWT is a minimum and final tax where interest is paid between unassociated parties, with the consequence that no deductions for expenditure incurred could be claimed against that interest income.)

In the case of a seller or purchaser that is not resident in New Zealand for tax purposes or that does not carry on business in New Zealand through a fixed establishment, non-resident withholding tax (NRWT) is potentially applicable to interest payments made by obligors. NRWT is imposed at a rate of 15% (reduced to 10% under most Double Tax Agreements entered into between New Zealand and other jurisdictions). If the obligor and the seller/purchaser were not associated then the NRWT will be a final tax. No deductions for expenditure incurred would be allowed. Obligors may be able to pay a 2% Approved Issuer Levy (AIL) in lieu of NRWT, where the obligor:1. is not associated with the seller or purchaser (as applicable); and2. registers to become an approved issuer and registers the

receivables as registered securities. However, the AIL regime requires obligors to register as approved issuers, and it may not be possible for the seller/purchaser to cause the obligors to make that registration depending on the terms of the underlying contracts. For the purposes of the withholding taxes outlined above, “interest” refers to any payment for money lent (including a redemption payment), excluding the repayment of the principal sum advanced. The recovery of a discount on the acquisition of trade receivables would not usually be characterised as interest for withholding tax purposes under current law.

9.2 Seller Tax Accounting. Does your jurisdiction require that a specific accounting policy is adopted for tax purposes by the seller or purchaser in the context of a securitisation?

New Zealand tax law does not require that specific accounting policies are adopted in the context of securitisation. However, if the holder of the receivables applies New Zealand IFRSs for financial reporting purposes then that can influence the timing of income and expenditure, from financial arrangements for that entity for income tax purposes.

9.3 Stamp Duty, etc. Does your jurisdiction impose stamp duty or other documentary taxes on sales of receivables?

New Zealand does not impose stamp duty or any other documentary tax on the sale of receivables.

9.4 Value Added Taxes. Does your jurisdiction impose value added tax, sales tax or other similar taxes on sales of goods or services, on sales of receivables or on fees for collection agent services?

New Zealand has a goods and services tax (GST) which is chargeable on supplies of goods and services made in New Zealand by a GST registered person in the course of or furtherance of a taxable activity (subject to some exemptions). The standard rate of GST is 15%. The sale of receivables is typically exempt from GST on the basis of that being an exempt supply of financial services. A possible exception to this position is where an arrangement is entered into that has the effect of any GST arising from the original transaction that gave rise to the receivable not being payable by anyone (this might arise, for example, where the obligor returns GST on an invoice basis and the seller returns GST on a payments basis). In this case, the transfer of the receivable becomes a taxable supply itself.



New

Zea

land

AcknowledgmentThe authors would like to acknowledge the assistance of Phoebe Morley in writing this chapter. Ms. Morley is an intermediate solicitor in Bell Gully’s banking and finance team with experience advising funders and borrowers on a broad range of financing transactions. She has particular experience in the area of asset backed securitisation. Email: [email protected].

Murray KingBell GullyVero Centre, 48 Shortland StreetAucklandNew Zealand

Tel: +64 9 916 8971Email: [email protected]: www.bellgully.com

Jennifer GunserBell GullyVero Centre, 48 Shortland StreetAucklandNew Zealand

Tel: +64 9 916 8757Email: [email protected]: www.bellgully.com

Bell Gully is a full-service law firm with a team of over 200 lawyers, and is consistently recognised as a leading firm in New Zealand by the independent international legal directories. We work closely with many of New Zealand’s leading companies and public sector entities and have expertise in a wide array of areas including corporate, commercial, financial services, tax, property and dispute resolution teams. We have a market leading securitisation practice and advise originators, funders and trustees on all aspects of securitisation transactions. We have advised on most of the securitisation transactions which have completed in New Zealand in recent years.

Murray King is an experienced banking and finance lawyer advising clients across a broad range of debt capital markets and lending transactions. He has particular experience in acquisition financing and a well-established securitisation practice. Murray advises some of our leading corporates on their funding requirements as well as acting for a number of leading financial institutions such as ANZ Bank New Zealand, Bank of New Zealand, BNP Paribas, Citibank and Goldman Sachs.

Murray is ranked as a leading lawyer in all of the major directories and The Legal 500 Asia Pacific 2016 notes that clients describe him as “one of the best securitisation lawyers”.

Jennifer Gunser is a senior associate in the banking and finance team. She has experience in representing private equity clients, financial institutions and public and private companies in a wide variety of corporate finance transactions, including acquisition and other leveraged financings (first lien, second lien and asset-based loans), recapitalisations, distressed debt financing, refinancings and restructures.


Other titles in the ICLG series include:

■ Alternative Investment Funds■ Aviation Law■ Business Crime■ Cartels & Leniency■ Class & Group Actions■ Competition Litigation■ Construction & Engineering Law■ Copyright■ Corporate Governance■ Corporate Immigration■ Corporate Recovery & Insolvency■ Corporate Tax■ Data Protection■ Employment & Labour Law■ Enforcement of Foreign Judgments■ Environment & Climate Change Law■ Franchise■ Gambling■ Insurance & Reinsurance

59 Tanner Street, London SE1 3PL, United KingdomTel: +44 20 7367 0720 / Fax: +44 20 7407 5255

Email: [email protected]

www.iclg.co.uk

■ International Arbitration■ Lending & Secured Finance■ Litigation & Dispute Resolution■ Merger Control■ Mergers & Acquisitions■ Mining Law■ Oil & Gas Regulation■ Outsourcing■ Patents■ Pharmaceutical Advertising■ Private Client■ Private Equity■ Product Liability■ Project Finance■ Public Procurement■ Real Estate■ Shipping Law■ Telecoms, Media & Internet■ Trade Marks

securitisation 2016 - bell gully documents/sec16... · welcome to the ninth edition of the...

Documents