Client Alert

Two of the oldest statutes in NSW (the Bills of Sale Act 1898 and the Liens on Crops and Wool and Stock Mortgages Act 1898) are to be repealed and replaced with a new Act. The Security Interests in Goods Bill 2005 received assent on 19 October 2005 and is expected to commence on 1 February 2006. If you are a financier who provides finance secured over agricultural produce or goods (or personal chattels) located in New South Wales, you need to review your security documents to ensure they are ready for this new regime.

The new legislation deals with how financers take security over:

• agricultural goods
• goods previously secured by way of either a trader’s bill of sale or an ordinary bill of sale.

What do financiers need to do?

We understand that the NSW Government is working towards 1 February 2006 as the commencement date for the Security Interests in Goods Act. Before commencement, financiers who provide finance secured over agricultural produce or goods located in New South Wales need to:

• review and update their existing stock mortgages, crop liens, wool mortgages and bills of sale
• consider whether they are prepared to take security over any of the agricultural produce covered by the new concept of an agricultural goods mortgage (and if so, extend their securities appropriately)
• review and update their procedure manuals for taking these types of securities.

Agricultural goods mortgages

The Wool and Stock Mortgages Act 1898 regulates “crop liens”, “wool liens” and “stock mortgages”. However, as lawyers and financiers experienced in this field are well aware, the existing legislation has certain practical limitations. The new legislation attempts to overcome some of these issues and creates an overall category of security known as an “agricultural goods mortgage”. There are three types:

• a crop mortgage
• a stock mortgage (which may also include a wool mortgage)
• an aquaculture fish mortgage.

The types of crops which may be mortgaged will be expanded to include, for example, olives and grapes. The crop mortgage can cover crops for a maximum of five years (as opposed to the current legislation which only allows for liens to be taken over the crop to be grown in the year in which the advance on the crop is made). Special provisions dealing with sharefarming arrangements are also included in the new legislation.

The types of animals which may be mortgaged under a stock mortgage will be expanded to include, for example, ostriches, llamas, alpacas, goats, poultry and swine. A mortgage of stock may also include the next clip of wool from the stock, or a separate wool mortgage can be taken. Stock mortgages extend to any progeny of the stock, any sperm and embryos (unless expressly excluded) and stock acquired in the future of the kind identified in the mortgage.

A significant change is the potential to take security over farmed fish (including oysters) under an aquaculture fish mortgage.

The new legislation sets out fundamental requirements for agricultural goods mortgages and provides for registration of the mortgages (and dealings in connection with them) in the General Register of Deeds. If an agricultural goods mortgage is not registered within 45 days of its execution, it is void (the current legislation allows only 30 days).

If an agricultural goods mortgage is granted by a corporation, it will require registration under Part 2K of the Corporations Act 2001 (Cth). It is intended that Commonwealth regulations will be introduced to ensure that if an agricultural goods mortgage is registered under the Corporations Act 2001 (Cth) it will not also require registration under the Security Interests in Goods Act.

Goods mortgages

The current distinction between a “trader’s bill of sale” and an “ordinary bill of sale” is removed and the term “bill of sale” is replaced by “security interest in goods”. The definition of “goods” is similar to the definition of “personal chattels” under the Bills of Sale Act 1898 and comprises personal chattels, fixtures or other things capable of complete transfer by delivery whether immediately or at any future time.

Under the new registration regime, registration of a “goods mortgage” is optional. Under the current legislation, a bill of sale that is unregistered is void. It must also be renewed every five years. Under the new legislation, even though registration is not mandatory, registered security interests take priority over unregistered interests or subsequently registered interests. Financiers will no longer need to renew registration.

The current Register of Encumbered Vehicles (REVs) will continue to operate and the new legislation will not affect the current system for registration of security interests in motor vehicles and boats.

Further information

We already have a good understanding of the new regime and would be happy to discuss how to most efficiently update your procedures and precedent package.