Abstract
This chapter analyses regulatory provisions pertaining to the issue of mortgage-backed securities in Australia. Provided that the special purpose vehicle (SPV) is a trustee of a trust, in most cases, this chapter begins with analysing regulation of trustees, its rights, obligations, and duties in the light of the trustee powers under the Trust Act. The discussion is further extended towards the nature of the relationship between the trustee and bondholders while discussing investment powers of the trustee and the trustee’s right of indemnity. This chapter extends the discussion towards legislative requirements for assuming the role of trustee, as per the Corporations Act of Australia, including disclosure requirements relevant to residential mortgage-backed securities (RMBSs). The chapter winds up by analysing contractual concerns between the bank and the mortgagor while emphasising the importance of notice to borrowers.
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Notes
- 1.
See sections 9 and 92. Debt instruments that cannot be characterised as “debentures” under the Act automatically fall within the ambit of the Managed Investment Scheme (“MIS”) provisions of the Corporations Act.
- 2.
Standard and Poor’s, ‘RMBS, CDO Activity Lead Australian Securitisation Issuance Growth in 2003’ Credit Ratings and Commentary (Melbourne, 16 July 2003) 5.
- 3.
See section 283AA of the Corporations Act. Because the Corporations Act is examined in some detail in Sect. 6.3, this section of the chapter outlines provisions of that Act only insofar as they are relevant to explaining the trust law aspects of RMBS programmes in Australia. See also, P. Rajapakse, ‘Corporations Act and Trust Aspects of Asset Securitisation in Australia’, in D. Campbell (ed.), International Asset Securitisation and Other Financing Tools (N.Y.: Transnational Publishers Inc., 2000) 66–75.
- 4.
Corporations Act, section 283BD.
- 5.
Corporations Act, section 283BC.
- 6.
For a more comprehensive discussion of these aspects of trust law, see generally, H. A. J. Ford and W. A. Lee, Principles of the Law of Trust (Sydney: Law Book Company, 2004) paragraphs 14000–14080; and K. R. Ayers, ‘Limiting Trustee Liability to Lenders’ (1996) New Zealand Law Journal 181. Also see, in general, S. Senarath (2016), Not so “‘Bankruptcy-Remote’: An insight into Sri Lankan Securitization Practices in a Post-GFC Context” (Paper presented at the MAC-MME conference, Prague, Czech Republic); Senarath, S. ‘The Dodd-Frank Act doesn’t solve the principal-agent problem in asset securitisation’ (2017) blogs.lse.ac.uk (11 November 2018).
- 7.
Trusts Act 1973 (Qld) sections 21–24; Trusts Act 1925 (NSW) sections 14–14C; Trust Act 1958 (Vic) sections 6–8.
- 8.
See sections 283DB(1)(c)(d), and 283DB(2).
- 9.
Wilkins v Hogg (1861) 3 Giff 116, 120, 66 ER 346, 348; Pass v Dundas (1880) 43 LT 665, 666; Knox v Mackinnon (1888) 13 App. Cas 753, 765 (HL); Rae v Meek (1889) 14 App Cas 558, 572. (HL). See also T. Frankel, Securitization: Structured Financing (Boston: Little Brown & Co, 1991) paragraphs 14.2–14.3.
- 10.
R. D. Ellis, ‘Securitisation Vehicles: Fiduciary Duties and Bondholders’ Rights’ (1999) 24 The Journal of Corporation Law 296, 310.
- 11.
For example, where the lower tier subordinated bonds are included as a form of credit enhancement for the main tier senior bonds. See, for example, Master Information Memorandum, PUMA Fund P-7, paragraph 4.5 and Master Information Memorandum, PUMA Sub-Fund Series 2014, pp 16, 22–23.
- 12.
(1991) 34 NSWLR 368; William v Bartor [1927] 2 Ch 9.
- 13.
[1986] 3 All ER 75, 77 per Lord Templeman.
- 14.
Gisborne v Gisborne (1877) App Cas 300; Karger v Paul [1984] VR 161. It might be thought that the trustee could be removed if all of the trust beneficiaries, acting together, seek its removal or replacement: Saunders v Vautier (1841) 4 Beav 115, 49 ER 282; Re Brockbank [1948] Ch 206, [1948] 1 All ER 287; Stephen v Barclays Bank Trust Co [1975] 1 All ER 625, 637. However, in the context of an RMBS programme, the beneficiaries are in fact normally entities controlled by the SPV, so that this situation would rarely, if ever, arise.
- 15.
See, for example, Master Information Memorandum, PUMA Fund P-7, paragraph 7.2.
- 16.
Sections 283EA and 283 EB of the Corporations Act.
- 17.
The order of priorities under the trust deed is as follows: The proceeds from the enforcement of the charge must be applied first, for payment of all fees incurred to the performance by the trustee of his or her powers; second, for payment of all other outgoings in relation to the fund; third, for payment of any securities having priority over the charge; fourth, on payment of moneys owing to the secured creditors.
- 18.
See generally, sections 12(1), 21, 57, 76, 77, 80, and 96 of the Trusts Act 1973 (Qld).
- 19.
For example, the Standard and Poor’s rating agency requires that the trustee secure custody of all the title deeds and charge certificates in respect of registered mortgages: see Standard and Poor’s Credit Review: International Structured Finance, April 1991, 51; and also Master Information Memorandum, PUMA Fund P-7, paragraph 7.1 and Master Information Memorandum, PUMA Sub-Fund Series 2014, pp 99–100. In fact, ensuring the security of title deeds may not only be a practical necessity (and a rating requirement), but can also be a legal obligation because of the general duty imposed on trustees to exercise the same care and control in respect of trust property as they would do in respect of their own: see Trusts Act 1973 (Qld) sections 21–24; and Partridge v Equity Trustees Executors and Agency Co Ltd (1947) 75 CLR 149. In an RMBS issue, the title deeds and related documents will typically be held by a third-party depository. This practice is generally stipulated by the trust deed, which also authorises the payment of associated fees or expenses out of the income of the trust property. The trust deed may even go further, and purport to exclude the trustee from liability in respect of losses incurred in connection with such deposits: see H. Saban, Corporate Debt Securitisation (Singapore: Butterworths, 1994) 77–78.
- 20.
See generally, for example, Master Information Memorandum, PUMA Fund P-7, paragraphs 7.2 and 7.3.
- 21.
The trust deed will invariably contain provisions entitling the trustee to appoint agents to conduct the day-to-day administration of the trust on its behalf. Under general law, a trustee must take the requisite degree of care when exercising a power conferred by a trust deed to appoint an agent; and there is some authority to the effect that the trustee will not be liable for an agent’s defaults, where the trustee can show that it acted in good faith and with sufficient care when choosing and supervising the agent: Shepherd v Harris [1905] 2 Ch 310. Interestingly, however, this begs the question of how the agent’s default occurred in the first place, and many commentators consider that this does not relieve the trustee of its primary duty of care in appointing and supervising its agents: see P. Jones, ‘Delegation by Trustees, A Reappraisal’ (1990) 22 The Modern Law Review 381, 395; and P.V. Baker, Snell’s Equity (London: Sweet & Maxwell, 1990) 266, in which it is argued that the liability of a trustee for any loss no longer depends on reasonableness, but merely on whether it acted in good faith.
To attempt to remove doubt, an express power to appoint agents may be included in securitisation trust deeds, requiring the trustee to exercise care in choosing an agent, but purporting to relieve it of any supervisory obligation thereafter: see, for example, Master Information Memorandum, PUMA Fund P-7, paragraph 7.1. The trust deed will provide that a trustee is not liable for the acts, receipts, neglects, or defaults of any banker, broker, or other person with whom any trust money or securities may be deposited, nor for the insufficiency or deficiency of any securities, nor for any other analogous loss (Re Vickery, Vickery v Stephens [1931] 1 Ch 572, 582), unless the same happens through its own wilful default. However, the validity of such clauses is very much debateable. Although it has been held in Re Vickery, Vickery v Stephens [1931] 1 Ch 572, 582 that wilful default in this context requires either a consciousness of negligence or breach of duty, or recklessness in the performance of that duty, this decision has been criticised, and may be out of line with earlier cases in which wilful default was also held to encompass unconscious failure by a trustee to exercise the requisite care. See for instance, P. Jones (1990) 395. Mortgage securitisation trust deeds therefore generally include an express indemnity to allow a trustee to be reimbursed for losses: see, for example, Master Information Memorandum, PUMA Sub-Fund Series, 2014, p 102.
- 22.
Section 283EC of the Corporations Act.
- 23.
See, for example, Master Information Memorandum, PUMA Fund P-7, paragraph 7.1.
- 24.
See, Master Information Memorandum, PUMA Fund P-7, 2000, paragraphs 1.12 and 4.1.
- 25.
Cf. The position of trustees of client trusts, who invest in RMBSs. Amendments to the Trusts Acts in the various States have facilitated sales of RMBSs, insofar as trustees of client trusts are now permitted to invest in RMBSs, whereas previously they were limited to investing in certain low-risk, “authorised” investments, such as government bonds: see section 24 et seq of the Trusts Act 1973 (Qld); and A. Finch, ‘Securitisation’ (1995) Journal of Banking and Finance Law and Practice 247, 272–273. Formerly, trustees were restricted to investing in certain listed “authorised investments: see, for example, P. Collinson, ‘Trustee Investments Status for Mortgage-Backed Securities’ in Conference on Impediments to the Securitisation of Housing Mortgages, Proceedings (Canberra: AGPS, 1988) 96–104.
- 26.
See, Master Information Memorandum, PUMA Sub-Fund Series 2014, p 100.
- 27.
Octavo Investments Pty Ltd v Knight (1979) 54 ALJR 87, 89. That is, the debts incurred by a trustee on behalf of a trust are classified as its own, as if they were incurred by the trustee on its own account: D. G. Glennie and E. C. De Bouter, Securitisation (London: Kluwer Law, 1998) Ch. 1, 5.
- 28.
See, Lumsden v Buckanan (1865) 4 Macq 950; and see H. Saban (1994) 78; and R. Hughes, ‘The Right of a Trustee who Carries on Business to Indemnify out of Trust Property’ (1991) Australian Business Law Review 5. Merely contracting as trustee will not be sufficient to achieve this: Muir v City of Glasgow Bank (1879) 4 App Cas 337; and see B. Taylor, (1998) 268–272.
- 29.
See, for example, Master Information Memorandum, PUMA Sub-Fund Series 2014, p 100.
- 30.
See J.W. Broomhead Pty Ltd (in liq) v J.W. Broomhead Pty Ltd [1985] VR 891. Theoretically, a trust creditor’s primary remedy is against the trustee personally and its estate. Where the trustee’s personal estate is insufficient, a trust creditor can then proceed against the trust’s assets derivatively by subrogation to the trustee’s rights of indemnification for the trust’s debts. See R. P. Meagher, W. M. C. Gummow and J. R. F. Lehane, Equity Doctrines and Remedies (4th edition, 2002) Ch. 9.
- 31.
Worrall v Harford (1802) 32 ER 250, 252; and B. Taylor, (1998) 268–270. See, Master Information Memorandum, PUMA Sub-Fund Series 2014, p 100.
- 32.
Re The Exhall Coal Company (Ltd) (1866) 55 ER 970; and Stott v Milne (1884) 25 Ch D 710.
- 33.
Re Frith [1902] 1 Cg D 342, 345; Re Dacre [1916] 1 Ch D 344.
- 34.
Re Johnson (1880) 15 Ch D 548, 555. In other words, a balance must be struck between what is due by way of compensation to the trust estate and what is due to the trustee by way of indemnity and only if that balance is in favour of the trustee can it recover from the estate and then only to the extent of that balance: RWG Management Ltd v Commissioner for Corporate Affairs [1985] VR 385, 398.
- 35.
Octavo Investments Pty Ltd v Knight (1979) 54 ALJR 87, 89.
- 36.
This might include the originator, for example.
- 37.
For example, the security trustee appointed in respect of Macquarie Bank’s PUMA Fund is Perpetual Trustee Company Ltd: see, Master Information Memorandum, PUMA Sub-Fund Series, 2014, p 102.
- 38.
In the context of Macquarie Bank’s PUMA Fund, these parties are collectively known as the “secured creditors” of the Fund. For more detail on the security trust deed for the PUMA Fund, see, Master Information Memorandum, PUMA Sub-Fund Series, 2014, p 107.
- 39.
See, Master Information Memorandum, PUMA Sub-Fund Series, 2014, p 108.
- 40.
See, for example, Master Information Memorandum of PUMA Sub-Fund Series, 2014, p 108.
- 41.
See generally, Clayton Utz, A Guide to the Law of Securitisation in Australia (Sydney: Clayton Utz, 2004); B. J. McWilliams, ‘Companies and Securities Impediments to Mortgage Securitisation’ in Conference on Impediments to the Securitisation of Housing Mortgages, Proceedings and Conference Papers (Canberra: AGPS, 1988) 96–104. Senarath, ‘Securitisation and the global financial crisis: can risk retention prevent another crisis?’, (2017) 18 International Journal of Business and Globalisation, 153.
- 42.
FANMAC Ltd was incorporated in 1985, with the NSW government a 26% shareholder and the balance held by private investors. For further details, see B. Taylor, ‘The Enforceability of Debt Securities Issued by Trustees in Securitisation Programs’ (1998) 26 Journal of Banking and Finance Law and Practice 261.
- 43.
B. Salter, ‘Changes to the Law Relating to Securitisation’ Discussion Paper, Clayton Utz, Sydney, 1993, 2; A. Boyd, ‘Securitisation market shrank 14% last year’, Australian Financial Review, 24 February 1994, 30.
- 44.
See E. Ferran, Mortgage Securitisation: Legal Aspects (London: Butterworths, 1992) 10.
- 45.
See, for example, R. Bruce, B. McKern, I. Pollard and M. Skully, Handbook of Australian Corporate Finance (5th edition, Sydney: Butterworths, 1997) 257.
- 46.
See Standard and Poor’s, Structured Finance in Australia and New Zealand (Melbourne, 1999) 5.
- 47.
B. Taylor, (1998) 261, 263. Historically, another factor that supported the use of debt securities, rather than equity securities, was that the restrictions on life insurance companies acquiring interests in trust schemes under section 39 of the previous Life Insurance Act 1945 (Cth) did not apply to acquisition of debt securities issued by trustees. In the current Life Insurance Act 1995 (Cth), there is no similar provision to section 39. It has also been argued that debt instruments better reflect investor expectations, as securitisation investments are structured to provide a debt risk and return, with an intended low risk and return: see J. B. Tevis, ‘Asset-Backed Securities: Secondary Market Implications and Regulation’ (1991) 23 Pacific Law Journal 135, 142.
- 48.
The definition does not cover a futures contract or an excluded security. An “excluded security” is defined in section 9 of the Corporations Act and is basically any share, debenture, or prescribed interest in retirement village schemes.
- 49.
In comparison, the definition of “security” in the United States Securities Act 1933 perhaps more helpfully sets forth a number of examples of what constitutes a security: See generally, T. Frankel, (1991) 130–131. However, even in the United States, it has been left to the courts to refine the definition in order to determine whether a particular instrument is a “security” for the purposes of Federal securities laws. For example, in Leigh Valley Trust Co v Central National Bank of Jacksonville 409 F2D 989 (5th Cir 1969), the US Court of Appeal applied a literal reading of the statute and found that a loan sub-participation was a “security” for the purpose of the Securities Exchange Act 1933. (A sub-participation refers to the sale of part of the loan held by the lender to a third party on a non-recourse basis. Sub-participation may take two forms: a funded sub-participation and a risk sub-participation. For a detailed discussion of this topic, see T. Frankel, (1991) Ch 11; J. P. Carver, ‘The Market in Participation—Current Issues in International Finance’ (1990) Malaya Law Review 308. Subsequently, in Bellah v First National Bank of Hereford 495 F2D 1109 (5th Cir 1974), the court ruled that notes issued in the context of a commercial loan did not constitute “securities” for the purpose of the Act. However, since Reves v Ernst and Young US 110 S Ct 945,108 L Ed 2d 47 (21 February 1990), the courts have presumed that all notes, including promissory notes, are “securities”, unless this presumption can be rebutted—for example, by showing that the note bears a “family resemblance” to one of the specified instruments in the Act because:
-
1.
It is sold as an investment instrument.
-
2.
There is a plan of distribution.
-
3.
There is a reasonable expectation of the investing public that the note is a security.
-
4.
There are other regulatory schemes, which reduce the risk of the instruments, including collateral and insurance support.
If this definition were accepted in Australia, most RMBSs would be classified as “securities” for the purpose of the fundraising provisions of Ch. 6D of the Australian Corporations Act. However, the manner and extent to which the Corporations Act applies, depends on the characteristics of the debt instruments and the underlying assets, as set out below.
-
1.
- 50.
The intention of the definition is to focus on the legal right to repayment of the debt, rather than on the piece of paper evidencing the debt (the development of which has been so effective in facilitating primary and secondary trading in debentures). For readers without a legal background, a “chose in action” is a right that is enforceable by legal action.
- 51.
Burns Phillip Trustee Co Ltd v Commissioner of Stamp Duties (1983) 83 ATC 4477; Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 62 ALR 204, 216–217.
Historically, the expression “debenture” has applied not to the indebtedness but to the paper, which is the evidence of the debt: this was certainly the meaning in the previous Corporations Law. The meaning of debenture usually quoted is “a document, which either creates a debt or acknowledges it, and any document, which fulfils either of these conditions is a “debenture””: Levy v Abercorris Slate and Slab Co (1887) 37 Ch D 260, 264 per Chitty J. See also R. Tomasic, J. Jackson and R. Woellner, Corporations Law: Principles, Policy and Process (4th edition, Sydney: Butterworths, 2002) paragraph 9.8; H. A. J. Ford, et al., Ford’s Principles of Corporations Law (10th edition, Chatswood: Butterworths, 2001) and D. Janet, Company Law (London: Palgrave, 2001) 66–68. In Broad v CSD (NSW) (1980) 11 ATR 59, Lee J held that debenture for the purpose of New South Wales loan security duty provisions only applies to debentures issued by bodies corporate and hence does not apply to securities given by an individual, as was the situation in that case. In Handevel Pty Ltd v CS (Vic) (1985) 16 ATR 1044, 1055, the High Court accepted that one essential characteristic of a debenture is that “it is issued by a company.” It has been held, in a stamp duty context, that a debenture differs from a mortgage in that there is no need for any charge on any property to be contained in it: British India Steam Navigation Co v IRC (1881) 7 QBD 165, 172; Lemon v Austin Friars Trust Ltd [1926] Ch 1; Edmonds v Blaina Furnaces Co (1887) 36 Ch D 215, 219; Re Shipman Boxboards Ltd [1942] 2 DLR 781; Handevel v CS (Vic) 1985) 16 ATR 1044.
The possibility of a debenture evidencing a future debt was raised in Handevel’s case (1985) 62 ALR 204, 217, where the High Court stated that:
[I]n Burns Philip Trustee Co Ltd v Commissioner of Stamp Duties… Hunt J stated that in order to constitute a debenture the debt which is acknowledged or created must be, existing not a future debt… however, the statement needs to be qualified to allow for a document which makes provision for the repayment of a loan to be made thereafter.
It is unclear whether it is the loan or the repayment, which is “to be made thereafter”. If it is the loan, then the contingent future debts may be covered. In England, Lloyd J in NV Slavenburg’s Bank v International Natural Resources Ltd [1980] 1 All ER 955, 976 was prepared to go even a step further and rejected a proposition that a document relating to a future unspecified debt could not be a debenture. This suggestion made by a single judge was obiter and conflicts with a number of cases interpreting stamp duty provisions similar to those in the Corporations Act, which requires an acknowledgement or creation of a specific debt: Associated Broadcasting Services Ltd v Comptroller of Stamps (Vic) (1988) 88 ATC 4359, 4363; Commissioner of Stamp Duties (NSW) v Board (1980) 11 ATR 59, 69.
However, the suggestion that the definition of debenture may cover future debts adds some weight to that interpretation of Handevel’s case. Significantly, Handevel’s case and Burns Philip both dealt with a definition of debenture, which referred to “debentures, stock and other securities”, but the definition in the previous provisions of the Corporations Act included a reference to “money that is or may be deposited with or lent to the body”. See also Association Broadcasting Services and Humes Ltd v Comptroller of Stamps (Vic) (1989) 89 ATC 4,646. Handevel’s case opens up the possibility that contingent debts and possibly general indebtedness may constitute a “debenture”. This gives greater weight to an argument that the previous Corporations Law definition of debenture extended to future debts.
It is conceptually difficult to understand how a document can acknowledge or evidence a debt (the essential requirements of the previous Corporation Law), which may never come into existence. This difficulty is exacerbated when the amount of the debt will be determined in the future depending, for instance, on how much is drawn down by the borrower. The CLERP Act 1999 (Cth) has replaced the previous debenture definition with a new provision excluding those words “money that may be lent to the body”, which should eliminate the uncertainties associated with the definition of “debenture” in corporations legislation in the past.
- 52.
See, for example, the bonds issued as RMBSs by Macquarie Securitisation Ltd in Master Information Memorandum, PUMA Fund P-7.
- 53.
The MIS is a statutory creation originally derived from the recommendations of the English Anderson Committee on Fixed Trusts (1936) and the current legislation is based on those recommendations: see Prevention of Fraud (Investment) Act 1939 (UK). The definition of an MIS is extremely wide, to a degree which is “barbarous” according to Jones J. in W.A. Pines Pty Ltd v Hamilton (1981) WAR 225, commenting on the definition of “prescribed interest”. See also the judgement of Mason J. in Australian Softwood Forests Pty Ltd v Attorney General for New South Wales (1981) 6 ACLR 45. Many forms of securitisation are likely to constitute managed investment schemes for purposes of the Corporations Act. For example, a unit in a unit trust constitutes a “managed investment” for the purposes of the Corporations Act: see Attorney General of NSW v Australian Fixed Trusts [1974] ACLC 40–100, in which it was held that a unit in a unit trust constituted a “prescribed interest” for MIS purposes.
- 54.
As noted earlier, the repayment obligations under the initial housing loans are generally secured in favour of a security trustee, who serves under the terms of the trust deed. The provisions of the trust deed are, of course, regulated not only by the Corporations Act, but as noted earlier, also by the Trusts Act 1973 (Qld).
- 55.
See Ch. 2 L.4, sections 283DA–283 DC.
- 56.
This requirement is also set out in the Listing Rules of the Australian Stock Exchange (ASX).
- 57.
For a detailed discussion, see N. Calleja, ‘Current Issues relating to Prospectus Advertising and Securities Hawking’ (2000) 18 Companies and Securities Law Journal 23.
- 58.
For example, the Corporations Act no longer requires that there be an “offer to the public” to determine the circumstances in which a prospectus must be registered with the ASIC. Instead, there is a general prohibition—that is, a person is prohibited from making an offer or distributing an application form for an offer of securities that needs disclosure unless a disclosure document for the offer has been lodged with the ASIC: section 727(1). Prior to the amendments made by the CLERP Act 1999 (Cth), prospectuses had to be both lodged, and in most cases, registered with the ASIC before being distributed to investors. The registration process was designed to give ASIC opportunity to pre-vet prospectuses to ensure they complied with the prospectus content requirements and did not contain any misleading statements or material misrepresentations. While sections 718 and 727(1) insist that disclosure documents must still be lodged with ASIC, the CLERP Act has removed the previous requirement of ASIC registration. The FSRA amendments also shifted the disclosure requirements applicable to managed investment schemes from Ch. 6 D of the Corporations Act. to the financial product disclosure provisions of Pt 7.9 of the Corporations Act.
- 59.
See, for example, Master Information Memorandum-PUMA Fund P7, 2000, paragraph 1.11 and PUMA Sub-Fund Series 2014, pp 8–9, 83.
- 60.
“Issue” is defined in section 9 of the Act to include “circulate, distribute and disseminate”.
- 61.
“Offer” is now generally accepted as having broad meaning. The law will regard an “offer” as also including the distribution of material that would encourage an investor to enter into a course of negotiations calculated to result in the issue or sale of securities: Attorney General for NSW v Australian Fixed Trusts Ltd [1974] 1 NSWLR 110; Australian Softwood Forests Pty Ltd v A-G for NSW (1981) CLC 40–734.
- 62.
Which type of disclosure document is appropriate for a particular issue of securities is determined by the nature of the prospective investors in the issue, and the level of disclosure required by the Act: see section 705.
- 63.
Section 710 (1) specifies that the following information must be disclosed in relation to an offer to issue shares, debentures, or interests in an MIS:
-
The rights and liabilities attaching to the securities offered.
-
The assets and liabilities, financial position and performance, profits and losses, and prospects of the body that is to issue the shares, debentures, or interests.
-
- 64.
In general terms, the more complex the securities being offered, the greater the level of disclosure required: see, for example, the Corporations and Securities Panel’s decision in Re Email Ltd (2000) 18 ACLC 708.
- 65.
See generally, P. Hanrahan, I. Ramsay and G. Stapledon (eds.), Commercial Applications of Company Law (Sydney: CCH, 2003) 25–110.
- 66.
The Policy Paper Corporate Disclosure: Strengthening the Financial Reporting Framework (CLERP 9) 2002 proposed that the sophisticated investor exemption be harmonised with the similar “wholesale clients” exemption that applies to product disclosure statements for financial products.
- 67.
See section 708(19). An Australian ADI is defined in section 9 as an authorised deposit-taking institution within the meaning of the Banking Act 1959(Cth) and a person who carries on State banking within the meaning of paragraph 51(xiii) of the Constitution.
- 68.
A. Finch, (1995) 247, 267; Clayton Utz, A Guide to the Law of Securitisation (Sydney: Clayton Utz, 2004).
- 69.
See Master Information Memorandum, P-7 and Master Information Memorandum PUMA Sub-Fund Series 2014, p 9.
- 70.
B. Salter, (1993) 5.
- 71.
Section 728 is broadly similar to its predecessor, section 996, but there are some important differences. First, while section 996 was concerned with those who authorised or caused the issue of prospectus, the statutory duty imposed by section 728(1) is placed upon the person offering the securities under a disclosure document. In the case of an offer to issue mortgage-backed securities in a securitisation programme, the person is the issuing body, which is the trustee of the securitisation fund. Second, while section 996 was confined to a disclosure defect in the prospectus, section 728(1) applies to a misstatement in the disclosure document or any offer document.
- 72.
Section 728(3).
- 73.
426 US 438, 450 (1976). The United States has a long history of judicial analysis of the meaning of “material”: see, for example, Escott v Barchris Construction Corp (283 F Supp 544, 1968, 1967–1969) CCH December, 92, 179 (“Material” means the facts which have an important bearing upon the nature or condition of the issuing corporation or its business); Feit v Leasco Data Equipment Corp (332 F Supp 544 1971); Ross v Warner (SD NY Dec 11 1980) 1980 CCH December, 97,735 (A fact is material if there is a substantial likelihood that, under all the circumstances, a reasonable investor would consider it important in reaching an investment decision). The essence of this history has been codified in the SEC’s regulations as follows:
“The term “material” when used to qualify a requirement for the furnishing of information as to any subject, limits the information required to those matters as to which an average prudent investor ought reasonably to be informed before purchasing the security registered”: see (1968) CFR 230.405(1): H. Saban (1994) 82; P. von Nessen, ‘The Americanisation of Australian Corporate Law’ (1999) 26 Syracuse Journal of International Law and Commerce 239.
- 74.
(1902) 2 Ch 456, 460.
- 75.
(unreported, Supreme Court of Victoria, No. 2493 of 1990). The approach of the court in Tricontinental involved an assessment of whether the relevant omitted information was material. This was also adopted by the Full Court in Fraser v NRMA Holdings (1995) 13 ACLC 132–133.
- 76.
(1989) 23 FCR 553.
- 77.
However, section 176 of the Crimes Act 1900 (NSW) and section 191 of the Crimes Act 1958 (Vic) impose primary criminal liability on directors and officers for a misstatement in a prospectus.
- 78.
Section 769C(1) also provides that representations about future matters will be considered misleading if they are not made with reasonable grounds.
- 79.
Cackett v Keswick [1902] 2 Ch 456, 464. Thus, a matter is material in this context if its disclosure is necessary to enable an investor to make an informed assessment of the offer: Australian Consolidated Investments Ltd v Rossington Holdings Pty Ltd (1992) 35 FCR 226.
Finally, section 729(4) states that Pt. 6D.3 does not affect any liability that a person has under any other law. Presumably this includes professional negligence or negligent misstatement on the part of an issuer, director, or manager of a securitisation programme: R. Sammonds, ‘Directors’ Negligent Misstatement Liability in a Scheme of Securities Regulation’ (1979) Ottawa Law Review 633; M. Rajacic, P. Rajapakse and E. Webb, ‘The Impact of the Trade Practices Act 1974 (Cth) on the Auditors’ Liability’ (2000) 19 University of Tasmania Law Review 205, 226–227. Cases such as Al-Nakib Investments (Jersey) Ltd v Longcroft [1990] 3 All ER 321 have also held that prospectuses of company are capable of sustaining a cause of action for negligence for the offerees.
- 80.
Cleary and Ors v Australian Co-operative Foods Ltd (1999) ACSR 701; Explanatory Memorandum, Financial Sector Reform Bill 1998, paragraph 4.12.
- 81.
Section 1041H(2) states that “engaging in conduct in relation to a financial product” includes (but is not limited to) any of the following:
-
(a)
Dealing in a financial product
-
(b)
Without limiting paragraph (a)
-
(i)
Issuing a financial product
-
(ii)
Publishing a notice in relation to a financial product
-
(i)
-
(a)
- 82.
Section 1041H is based on the former section 995 of the Corporations Act. The Corporations Act provides its own definitions of “financial product”, “financial services”, and “dealing” for the purposes of section 1041H. Broadly, these are the same as the equivalent definitions in the ASIC Act for section 12DA: see definitions provided in sections 12BAA; 12BAA(7); 12BAA(8); 12BAB(7) of the ASIC Act.
- 83.
The relevance of section 18 of CCA case law to the former section 995 of the Corporations Act was recognised in Fame Decorator Agencies Pty Ltd v Jeffries Industries Ltd and Ors (1998) 16 ACLC 1235; Fraser v NRMA Holdings Ltd (1995) 15 ACSR 590; C. Lockhart, The Law of Misleading and Deceptive Conduct, (Sydney: Butterworths, 1998); D. Crocker, Prospectus Liability Under the Corporations Act (Melbourne: Centre for Corporate Law and Securities Regulation, 1998) Ch. 8.
- 84.
Global Sportsman v Mirror Newspapers (1984) ATPR 40–463, 45,343.
- 85.
(1999) 17 ACLC 55.
- 86.
See also Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2000) 18 ACLC 665, 668.
- 87.
Explanatory Memorandum, Financial Sector Reform Bill 1998, paragraphs 4.12 and 4.13.
- 88.
See generally, Annand and Thompson Pty Ltd v TPC (1979) ATPR 40–116, 18,272; Sterling v TPC (1981) ATPR 40–212, 42,918; Snoid v Handley (198) ATPR 40–219.
- 89.
Warners v Elders Rural Finance Ltd (1993) 41 FCR 399; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, 32.
- 90.
(1995) ATPR 41–374. See also NRMA Ltd and Ors v Morgan (1999) 17 ACLC 1029, 1045; Commonwealth Bank of Australia v Mehta (1990) ATPR 52,598; Warner v Elders Rural Finance Ltd (1993) 41 FCR 399; and Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31.
- 91.
See Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, 40; and Fraser v NRMA Holdings (1995) 13 ACLC 132, 141].
- 92.
(1977) ATPR 40–041, 17,441–17,443; see also Paula Brock v The Terrace Times Pty Ltd (1982) ATPR 40–267, 43,412.
- 93.
See, for example, Puxu Pty Ltd v Parkdale Custom Built Furniture Pty Ltd (1980) ATPR 40–171, 42,360; World Series Cricket v Parish (1977) ATPR 40–040, 17,437; and the comprehensive discussion contained in CCH’s Australian Trade Practices Reporter.
- 94.
See sections 224, 236, and 237 of CCA.
- 95.
See, Adams v Thrift [1915] 1 Ch 557. The words “reasonable grounds” require a consideration of objective criteria and an assessment as to reasonableness: Group Four Industries Pty Ltd v Brosnan and Anor (1991) 9 ACLC 1181, 1184. Those grounds must be objective and verifiable, well founded, and bona fide.
- 96.
See section 731. This third element deals with omissions instead of statements. The comments made in relation to the previous two elements apply equally in the context of this third element.
The text of section 731 is quite different from the former “due diligence” defence under then-section 1011 of the Corporations Law, and to the current “due diligence” defence under section 85(1)(c)(ii) of the Trade Practices Act, which the courts have interpreted to mean a “proper system to provide against contravention of the Act and that it had provided adequate supervision to ensure that the system was properly carried out”: Universal Telecasters (Qld) Ltd v Guthrie (1978) 18 ALR 531, 534. The former section 1011 had provided that “a person who authorised … the issue of prospectus is not liable … if it is proved that the false or misleading statement or omission (a) was due to a reasonable mistake; (b) was due to a reasonable reliance on information supplied by another person; or (c) was due to the act or default of another person, to an accident or to some other cause beyond the defendant’s control.”
- 97.
In Adams v Eta Foods Ltd [1987] ATPR 40–831, the court held that the “due diligence” defence was not available in the case of the former sections 995 and 996 (to which sections 1041H and 728(1) respectively are now functionally almost equivalent), where the “diligence” activities had been approached in an ad hoc fashion, or where the defence was effectively an ex post facto rationalisation of the true facts.
- 98.
For the “reasonable reliance” defence to succeed, the person relied upon must be someone other than a director, employee, or agent: section 733(1). It is not clear how this defence interacts with directors’ general duty to act with skill, care, and diligence. For example, as was held in the decision in Daniels v Anderson (1995) 13 ACLC 614, a director is obliged to actively monitor delegated activities, and is under a duty to make further enquiries if he or she has suspicions concerning the adequacy of disclosure, or where a prudent person could be concerned about a matter.
- 99.
See, Master Information Memorandum, PUMA Sub-Fund Series 2014, p 57.
- 100.
(Unreported, 21 October 1999: 7th Cir 1999).
- 101.
(1999) SASC 186.
- 102.
See, for example, NRMA Ltd v Morgan (1999) 17 ACLC 1029. It is also likely, as a matter of the proper construction of section 733, that the “reasonable reliance” defence implies some element of causation, in a somewhat similar fashion to the law’s approach to liability for negligence: Duke Group Ltd (on liquidation) v Palmer and Ors (1999) SASC 97.
- 103.
Based on the seminal case of Hedley Byrne and Co. Ltd. v Heller and Partners Ltd [1974] AC 465.
- 104.
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; Hill v Van Erp (1997) 188 CLR 159; and Duke Group Ltd (in liquidation) v Palmer (1991) 31 ACSR 213.
- 105.
Heilbut, Symons and Co v Buckleton [1913] AC 30.
- 106.
See, for example, Master Information Memorandum, PUMA Sub-Fund Series 2014, p 7.
- 107.
M.K. Hutchence and Ors (Trading as “INXS”) v South Sea Bubble Co Pty Ltd (1986) 8 ATPR 40–667 (These cases are based on section 52 of TPA); and A. Terry, ‘Disclaimers and Deceptive Conduct’ (1986) Australian Business Law Review 478, 479.
- 108.
The provisions giving rise to civil liability for misleading or deceptive conduct in an Information Memorandum (section 12GF of the ASIC Act and section 1041I of the Corporations Act) each require that the applicant establish its reliance upon that conduct in incurring the damages claimed. The two sections are based on section 82 of the CCA.
- 109.
(1983) 50 ALR 231, 238.
- 110.
(1990) ATPR 40–050.
- 111.
(1987) ATPR 40–782. Similar comments were given by Heerey J in Karmot Auto Spares Pty Ltd v Dominelli Ford (Hurstville) Pty Ltd (1992) ATPR 41–175, and McDonald J in NatWest Australia v Tricontinental Corporation Ltd (cited earlier).
- 112.
(1989) ATPR 46–048.
- 113.
(1985) ATPR 40–535.
- 114.
(1990) ATPR 46–050, 53,222.
- 115.
(1985) ATPR 40–605.
- 116.
(1990) ATPR 40–043.
- 117.
Mackman v Stengold Pty Ltd (1991) ATPR 41–105.
- 118.
The objective of securities regulation is to seek a balance between the interests of investors and those responsible for the preparation of a prospectus. Thus, for registered prospectuses, civil liability is imposed on those who are responsible for the preparation of the prospectus for any misleading or deceptive statements and any omission from the standard of disclosure: sections 710, 728, and 729. However, the balance is achieved by extending to the class of section 729 persons, the benefit of the defences in sections 731–733. Section 12DA of ASIC Act on the other hand, is essentially a consumer protection device. It favours consumers at the expense of the company. The Corporations Law Simplification Task Force recommended exempting registered prospectuses from the operation of section 18 of the CCA and 995 of the Corporations Law (the predecessor of section 1041H) on grounds that “Despite taking every possible precaution to comply with the requirements of the Corporations Law, business is likely to remain exposed to liability because it is not able to rely on the defences. The result is to increase the cost of fundraising by Australian business”: see M. Legg ‘Misleading and Deceptive Conduct in Prospectuses’ (1996) 14 Corporations and Securities Law Journal 47, 48; and Corporations Law Simplification Task Force, Report on Fundraising, Attorney General’s Department, 1995, 18–20. Logically, if sections 52 of former TPA and the former section 995 of the Corporations Law were inappropriate for the business because they disturbed the balance between the interests of investors and securities issuers and impeded the raising of capital, then this must also be the case for mortgage securitisation markets.
- 119.
Albeit subject to section 1041I of the Act.
- 120.
In June 1996, the Financial System Inquiry, also known as the Wallis Inquiry after its Chairman Mr Stan Wallis, was commissioned to provide a stocktake of the results of the financial deregulation of the Australian financial system since the early 1980s. The FSI’s main aim was to recommend further improvements to the regulatory arrangements governing Australia’s financial system.
- 121.
Following the FSI, many of the recommendations were implemented; establishing two different regulators—one focusing on market conduct and disclosure and the other on prudential issues. For instance, the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) were created. Many of the recommendations of the FSI were engulfed in a set of reforms of the Corporations Law known as the Corporate Law Economic Reform Program (CLERP). The financial services reform aspect became known as “CLERP 6”. In March 1999, the CLERP 6 Consultative Paper “Financial Products, Service Providers, and Markets—An Integrated Framework” was issued, providing a regulatory framework for the licensing of financial product markets and service providers, and disclosure requirements for such service providers and their representatives; and financial product disclosure.
- 122.
The definition of “financial product” under Ch. 7 of the Corporations Act is broad, and presumably designed to “cover the field” of financial products and instruments in practice. Section 763A provides that a “financial product” is a facility through which, or through the acquisition of which, a person:
-
Makes a financial investment
-
Manages a financial risk
-
Makes non-cash payments
A detailed list of “financial products”, which includes “debentures” (a term which, as noted earlier, in practice invariably encompasses RMBSs issued in Australia), is provided by section 764.
-
- 123.
As with the definition of financial product, “financial services” are defined very broadly. Section 766A of the Corporations Act provides five limbs for defining a “financial service”:
-
1.
Providing financial product advice (section 766B). The provision of “financial product advice”, “dealing in a financial product”, and “providing a custodial or depository service” are plainly of relevance for participants in RMBS programmes. Under section 766B, “financial product advice” is defined as:
[A] recommendation, statement of opinion or report on either of the above, that is intended to influence a person/section in making a decision in relation to a particular financial product or class of financial products; or could reasonably be regarded as being intended to have such an influence.
-
2.
Dealing in financial product (section 766C).
-
3.
Making a market for a financial product (section 766D).
-
4.
Providing a custodial or depository service (section 766E); generally, a person provides a custodial or depository service to a client if they have an arrangement with the client to hold a financial product or a beneficial interest in a financial product in trust for, or on behalf of the client: section 766E. An RMBS transaction normally involves custodial or depository services in the context of the trustee providing such a service to the sponsoring bank or IMP. Such services might also be provided by the security trustee to the bondholders, in the event that a default occurs and their security is enforced.
-
5.
Operating a registered scheme: section 766A(1)(d). See generally, Australian Securitisation Forum, Submission to the ASIC: Licensing Relief for Securitisation Structures, 23 October 2003, http://www.securitisation.com.au/asf.
-
1.
- 124.
See generally, Australian Securitisation Forum, Submission to the ASIC: Licensing Relief for Securitisation Structures, 23 October 2003, http://www.securitisation.com.au/asf.
- 125.
More generally, the importance of the distinction between wholesale and retail clients in relation to various types of financial products is fleshed out in Ch. 7, Pt. 7.1, Division 2 of the Regulations. The extent of the legislative-style detail in these Regulations is somewhat surprising—the Regulations contain the types of provisions that would normally be found in legislation that has been passed through Parliament, rather than subordinated legislation promulgated by the bureaucracy. The question arises as to whether the legislation, replete with significant logical gaps and lacking in detail, was hurriedly passed through Parliament for political purposes, with the bureaucracy left to fill in the detail after it was passed.
- 126.
Besides the providers of APRA-regulated services to wholesale clients, other people who are exempted by section 911A(2) from the need to hold an AFSL include representatives of entities who are already licensees; issues that are the subject of an “intermediary authorisation”; operators whose services are provided within an already-licensed market; general advice in the media; overseas-regulated entities; entities who provide financial services only to related companies; self-managed superannuation trustees; and providers of services that have been specifically exempted in writing by ASIC and gazetted as such.
- 127.
To remove any doubt, section 761G of the legislation makes a distinction between “retail” and “wholesale” clients, with all of the following clients being “wholesale” clients: (a) clients who purchase a product whose price or value is at least $500,000 (see Regulations 7.1.18–7.1.27); (b) clients who purchase a product for use in connection with a business that is not a small business; (c) individuals purchasing the product for non-business use who meet the minimum asset or income requirements in the Regulation 7.1.28 (i.e. currently $2.5 million in net assets, or gross income of at least $250,000 over both of the last two years); or professional investors. In a sense, therefore, the test in section 716G of the Corporations Act is somewhat similar to that in section 708, which mandates the provision of prospectus or other disclosure documents in respect of an issue of securities. The effect of this “wholesale” client status is set out in Regulation 7.1.27. As noted earlier, historically in practice in Australia, RMBSs have invariably been marketed only to professional investors in the wholesale markets. In essence, the FSRA (now Ch. 7 of the Act) and the attendant Regulations have not changed this market practice. Regulations 7.1.18 and 7.1.20 specify that clients who pay more than $500,000 for a financial product are “wholesale” clients in respect of that product.
- 128.
There is a plethora of economic theory to this effect. See, for instance, A. Koutsoyiannis, Modern Microeconomics (2nd edition, N.Y.: Macmillan, 1979) 257, 393–394; and R. A. Posner, Economic Analysis of Law (6th edition, N. Y.: Aspen Law and Business, 2002). In the context of ethical theory, see for instance, J. Rachels, The Elements of Moral Philosophy, with Dictionary of Philosophical Terms (4th edition, Boston: McGraw Hill, 2002) Ch. 14.
- 129.
(1993) 31 NSWLR 246, 254; (1993) ASC 56–227, 58,354.
- 130.
Spurling (J) Ltd v Bradshaw [1956] 1 WLR 461, 466; [1956] 3 All E.R. 121, 125 per Denning LJ (as he then was).
- 131.
Thompson v London, Midland and Scottish Railway Co [1930] 1 KB 41; Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163; White v Blackmore [1972] 2 QB 651, 664 (per Lord Denning MR): P. S. Latimer, Australian Business Law (Sydney: CCH, 2004) paragraphs 5.190 and 6.220.
- 132.
Mendelssohn v Normand Ltd [1969] 3 WLR 139, 143, per Lord Denning MR.
- 133.
White v Blackmore [1972] 2 QB 651, 664 as per Lord Denning MR; Olley v Marlborough Court [1949] 1 KB 532; Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197.
- 134.
See the decision of the Full Court of the Federal Court of Australia in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546, 556–557 per Lockhart J; Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, 32, per Black CJ; and Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) 46–054, 53,195 per French J. Cf. At common law, silence is not generally regarded as a misrepresentation. As noted in Smith v Hughes (1871) L R 6 QB 597,604, “The general rule, both of law and equity, in respect to concealment, is that mere silence with regard to a material fact, which there is no legal obligation to divulge, will not avoid the contract, although it operates as an injury to the party from whom it is concealed.”
- 135.
See, for example, Clenae Pty Ltd and Ors v ANZ Banking Group Ltd [1999] VSCA 35 (9 April 1999); David Securities Ltd and Ors v Commonwealth Bank and Ors, unreported, Full Federal Court, per Lockhart, Beaumont and Gummow JJ, 10 May 1990; the same case at first instance in the Federal Court of Australia per Hill J, 11 May 1989; Chiarabaglio v Westpac Banking Corporation (1989) ATPR 40–971; and Leitch and Ors v Natwest Australia Bank Ltd and Anor, unreported, 12 October 1995, Federal Court of Australia, per Cooper J. See also, A. Tyree, Banking Law in Australia (4th edition, Sydney: Butterworths, 2002); W. S. Weerasooriya, Banking Law and the Financial System in Australia (Sydney: Butterworths, 2001).
- 136.
See generally, B. Marshall, ‘Loans, Losses and Liability: Lessons from Foreign Currency Litigation in Australia’ (2000) 11 Journal of Banking and Finance Law and Practice 175.
- 137.
Selangor United Rubber Estates v Cradock (No. 3) [1968] 1 WLR 1555; Bank of Baroda Ltd v Punjab National Bank Ltd [1944] AC 176; and Riedell v Commercial Bank of Australia Ltd [1931] VLR 362.
- 138.
In the view of Tadgell J in Abound Catering Conventions and Receptions Pty Ltd v National Australia Bank Ltd, there was a duty on the bank to take reasonable care to explain all the technical aspects of the loan, and it was reasonable to provide some explanation of the way that (in that context) an overseas loan is obtained by the bank, and the risks (e.g. because of currency fluctuations) inherent in that type of financing: see Abound Catering Conventions and Receptions Pty Ltd (unreported VSC 26 October 1989), 26.
- 139.
Issues that arose in the foreign currency loan cases, and which would be likely to arise in the context of any litigation involving home loan borrowers and RMBSs, include:
-
Whether a duty to advise even arises and, if it does, what the nature of that duty owed by the lender to the borrower is, in a situation of extraordinary risk: see David Securities Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1; Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84.
-
Whether, if the banks owe a duty of disclosure, that duty is higher than in more “normal” commercial transactions.
-
The degree to which any information, recommendation, or advice provided must be complete and unequivocal: see Westpac Banking Corporation v Potts (1992) Aust Torts Reports 81.
-
Whether, if a duty is owed, that duty is not just to warn of the risk inherent in the particular financing arrangement, but to articulate that risk as a type of “gamble”: see Commonwealth Bank of Australia v Mehta (1993) 23 NSWLR 84; and Abound Catering Conventions and Receptions Pty Ltd (unreported, Victorian Supreme Court, 26 October 1989).
-
- 140.
Potts v Westpac Banking Corporation [1993] 1 QdR 135, 138; Commonwealth Bank of Australia v Smith (1991) 102 ALR 453, 475; Cornish v Midland Bank [1985] All ER 513.
- 141.
For a more comprehensive discussion of hedging agreements, see T. Valentine, G. Ford and R. Copp, Financial Markets and Institutions (Sydney: Pearson Education, 2003) Ch. 14–15; B. Hunt and C. Terry, Financial Markets and Institutions (3rd edition, Melbourne: Thomson Publishing, 2002) Ch. 17–21; and S. L. Schwarcz, Structured Finance: A Guide to Principles of Asset Securitisation (N.Y.: Practicing Law Institute, 1993) 13–15.
- 142.
For example, in the case of Macquarie Bank’s PUMA Fund, the relevant interest rate swap providers include Deutsche Bank, J P Morgan Chase Bank, Commonwealth Bank of Australia, and UBS Australia Ltd. The interest rate swap agreements are governed by the terms of the standard form International Swap and Derivatives Association (ISDA) Master Agreement.
- 143.
See for instance, Master Information Memorandum, PUMA Fund P-7, paragraph 5.7 and Master Information Memorandum, PUMA Sub-Fund Series 2014, pp 33 and 115.
- 144.
For example, if an interest rate swap provider fails to perform its obligations under the agreement, or the interest rate swaps are terminated, the bondholders may be subject to losses from interest rate fluctuations. The security trustee, on behalf of the bondholders, could claim against the fund manager for any failure to provide financial advice and information about the risks, and the fund manager’s (and probably the swap counterparty’s) failure to perform their obligations under the hedge contract.
- 145.
See, for example, R. Bruce et al., (1997) 257.
- 146.
See A. Finch, (1995) 272.
- 147.
And licensing requirements, where relevant: see Regulation 7.6.01(1)(r) of the Corporations Regulations.
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Rajapakse, P., Senarath, S. (2019). Law and Regulation of the Issue of Mortgage-Backed Securities. In: Commercial Law Aspects of Residential Mortgage Securitisation in Australia. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-00605-1_6
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