A General Security Agreement (GSA) is a contract between a lender (creditor) and borrower (debtor) providing security to the lender over a borrower’s personal property. In the case of a breach of contract, the lender will have rights in relation to the outlined property. There are several benefits to a GSA, which makes it an invaluable tool for lenders to secure their loans.
A GSA enables lenders and borrowers to have an active voice in stipulating the terms and responsibilities of parties in a lending transaction. It is recommended a GSA is updated every 4 or 5 years for a creditor to maintain its priority position in a security line. When registering an interest, it is important to describe the property with accuracy and precision so there is no cause for confusion.
Provision of Certainty
Legislation such as the Companies Act (CA), does indeed provide general protections to lenders and borrowers. For example, under the CA a GSA holder has a statutory right to appoint an administrator in the absence of a written term within the security agreement. However, a written agreement with specific terms provides unparallel clarity and certainty for parties. Common provisions included in a GSA include consequences of borrower default, events that may trigger the appointment of a liquidator or receiver, procedures following the appointment, and instances of compromise with a debtor.
All these scenarios can be accounted for through a GSA and will resolve potential disputes that may arise over the course of a business relationship. The appointment of a receiver is an important right should the debtor default on payment. A receiver can theoretically be appointed within an hour of serving a demand.
Personal Property Securities Register
Once a GSA is completed, a creditor has the right to register their interest on the Personal Property Securities Register (PPSR). This step should be taken immediately after executing a GSA for the creditor to maintain priority. Registering on the PPSR improves a creditor’s chance of recovering their loan should a borrower become unable to pay their debt. This is a prudent step and can be described as “perfecting” the creditor’s interest in the borrower’s property. By doing so, a public record of the interest is created, which strengthens the creditor’s right and generates priority among a group of potential creditors. Under s 66(a) of the Personal Property Securities Act 1999 (PPSA), “a perfected security interest has priority over an unperfected security interest in the same collateral.”
