Which clause is standard in a deed of trust or security deed and affects the foreclosure process that can be used if the borrower defaults?

On 11 September 2017, the Australian Parliament passed reforms to insolvency law in Australia. The reforms took effect from 1 July 2018.

The reforms amend the law relating to the enforceability of "ipso facto" clauses. Importantly, in general the stay on enforcement of rights under ipso facto clauses will only apply to agreements entered into on or after 1 July 2018. Existing agreements will not usually be impacted.

Subject to limited exceptions (which notably include syndicated loans), clauses which allow a contract to be terminated or varied solely due to the fact that an "insolvency event" has occurred, will be stayed during a formal restructure in the context of voluntary administration, schemes of arrangement or compromise, or where a managing controller has been appointed over all or substantially all of the property of the company.

The stay on enforcement of ipso facto clauses applies to self- executing provisions and not just to the exercise of rights by counterparties.

However, a counterparty would maintain the right to terminate or amend an agreement with the debtor company for any other reason, including for a breach involving non-payment or non-performance.

The counterparty creditor will not be required to provide any new money to a debtor company while the stay on termination is in effect.

The reforms also included a "safe harbour" regime, which provides protection for directors from personal liability for insolvent trading if they take a course of action that is reasonably likely to lead to a better outcome for the company and its creditors and the debt was incurred as part of the course of action.

The protection will apply from the time the director starts to take a course of action after beginning to suspect that the company may become insolvent and will apply until either the course of action ends, the course of action stops being reasonably likely to lead to a better outcome for the company and its creditors or the company enters into external administration.

Australia's foreign investment regime consists of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), associated legislation and various regulations (FIRB Regime). The FIRB Regime is also supported by Australia's Foreign Investment Policy and 53 guidance notes released by the Foreign Investment Review Board (FIRB), which are updated from time to time. It regulates foreign direct investment such that the acquisition of certain entities, assets and land are subject to prior notification to and approval from the Australian Treasurer, as advised by FIRB (FIRB Clearance). Ultimately, decisions under the FATA are made at the discretion of the Australian Treasurer having regard to whether an investment is "contrary to Australia's national interest".

The FIRB Regime applies differently to "foreign persons" and "foreign government investors" (FGIs). FGIs include foreign government or separate government entities, or a corporation, trust or limited partnership in which foreign government entities/separate government entities/FGIs from:

A single country, together with associates, hold (directly or indirectly) an interest of 20% or more (including through actual or potential voting power).

Multiple countries, together with associates, hold (directly or indirectly) interests of 40% or more in aggregate (including through actual or potential voting power). This is provided that the interest holders do not meet certain passive investor requirements.

Recent major reforms to the FIRB regime came into effect from 1 January 2021. The reforms include:

• A new call in power, enabling the Treasurer review of transactions that are not otherwise caught by FATA.

• A new last resort power, allowing the Treasurer to review a previously approved (or deemed approved) action if the circumstances or market in which the action was taken have materially changed since the time of the approval or deemed approval within a ten-year period.

• The introduction of a foreign ownership register for all transactions (previously this only covered agricultural land and water rights).

• A new set of rules for screening national security businesses, which will include critical infrastructure under the Security of Critical Infrastructure Act 2018 (Cth) (SOCIA), carriers or carriage service providers under the Telecommunications Act 1997 (Cth), critical goods or technology intended for military end use, businesses that store or access security classified information, or businesses that store or maintain, or have access to personal information collected by defence or national security agencies. Note that in a separate but related consultation process, the government has proposed changes to expand the application of the SOCIA which could impact the scope of the definition. The impact of this remains to be seen but has the potential to be very broad.

• A carve-out to the moneylending exemption so that lenders taking and enforcing security under a genuine moneylending agreement, and in the course of a moneylending business, will have to obtain prior FIRB Clearance to when taking a security over shares or assets of a national security business, or over national security land.

• Change to the definition of foreign government investor to exclude the 40% aggregation from the foreign government investor test, where the role of those investors is entirely passive.

• A new fee scale designed to align the fees with the transaction value. The fees scale ranges from AUD6,350 through to AUD500,000.

Most pertinent to lenders is the change relating to the moneylending exemption. That is:

• Lenders previously had a full exemption from the FATA when they took and enforced security, as long as the security was held for a genuine moneylending agreement (done in the course of a moneylending business) and with some nuances when security was taken over residential land or by FGI.

• The moneylending exemption is no longer be available if a security is being enforced in relation to the shares or assets of a national security business, or over national security land, and enforcement is not being done by way of appointment of a receiver, or a receiver and manager.

• There is no dollar or percentage threshold below which FIRB Clearance is not required when an interest is taken in a national security business or national security land (this change is not proposed to apply retrospectively).

In April 2014, the federal government commissioned a review of the PPSA. The Final Report on the review was tabled before Parliament on 18 March 2015. The report considers the:

• Effect of the reforms introduced by the PPSA.

• Level of awareness and understanding of the PPSA.

• Incidence and causes of non-compliance with the PPSA.

• Opportunities for minimising regulatory and administrative burdens including cost.

• Opportunities for further efficiencies.

The Final Report made 394 recommendations on how to improve the PPSA. For example, the Final Report recommended that the layout of the register, and the order and manner in which it asks questions of a registrant or a searcher, be reviewed in order to make the register as simple and easy to use as possible, particularly from the perspective of an unsophisticated user.

The Final Report definitively stated that the PPSA must not be repealed, but amended instead to enable it to better achieve its potential.

While amendments have been made to the definition of a "PPS Lease", no wider reforms have yet been introduced.

The Australian Banking Association (ABA) published a new Banking Code of Practice (BCOP) which came into effect from 1 July 2019 and replaced the previous Code of Banking Practice (2013). Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, a second release of the BCOP came into effect 1 March 2020. The BCOP is voluntary, although retail banks with personal or small business customers in Australia are required to sign up to the BCOP as a condition of their membership of the ABA. "Small businesses" are generally those with all of the following:

• An annual turnover of less than AUD10 million in the previous financial year.

• Fewer than 100 full time equivalent employees.

• Less than AUD3 million total debt to all credit providers (including any undrawn amounts under existing loans, any loan being applied for and the debt of all its related entities that are businesses).

If a lender is lending, or providing other banking services, to a company meeting the "small business" test, or to an individual, it will need to consider the effect of the BCOP and any implications it may have on documentation to meet BCOP requirements.