Express law No. 33

24 February 2006

Simplified requirements for goods mortgages

The Security Interests in Goods Act
2005 (NSW) ('the Act') is designed to simplify and
modernise the requirements for, and registration procedures
relating to, goods mortgages such as bills of sale, stock
mortgages, crop liens. The Act commences on 1 March 2006,
repealing the Liens on Crops and Wool and Stock Mortgages
Act 1898 (NSW) and the Bills of Sale Act 1898 (NSW).

What are the benefits of the Act?

The Act simplifies the requirements for bills of sale
(or chattel mortgages) in NSW. In particular, the Act will:

  • remove the distinction between 'ordinary' and 'traders' bills
    and the mandatory registration requirement for them
  • simplify the registration process for non-agricultural
    bills.

The Act introduces a new regime to replace the existing
regime in NSW for liens on crops and agricultural products
and stock mortgages, including various prescribed forms
for agricultural goods mortgages.

Security interests in goods

The phrase 'security interest' has been used
to describe the interest created by a bill of sale, mortgage
or charge granted by way of security for the payment of
a debt or the performance of an obligation. The document
that creates a security interest is referred to as a 'security
instrument'.

Bills of sale and goods mortgages

The requirements for bills of sale have been significantly
simplified.

The previous requirement for registration of bills of
sale has been abolished. Furthermore, there is now no time
period within which a bill of sale or goods mortgage must
be registered as registration will be optional rather than
mandatory.

Registration will, however, confer priority over unregistered
interests or subsequent interests granted over the same
goods.

Under the new regime there will be no limit to the period
for which a bill of sale may be registered. Bills of sale
executed after the introduction of the Act will no longer
need to be renewed every five years.

Execution of bills of sale or goods mortgages will also
be simplified, with the abolition of the current requirement
for a statutory declaration by the mortgagor and an affidavit
by the witness.

Agricultural goods mortgages

At common law there has always been a difficulty with
granting a mortgage over goods not yet in existence. This
is a problem particularly for agricultural goods such as
crops not yet sown, or wool still growing on a sheep's
back. The legislation enables a person to grant a mortgage
over certain identified agricultural goods.

Special provisions apply to security instruments granted
over agricultural goods, the most significant being that
an agricultural goods mortgage must be registered within
45 days of its execution.

The Act makes provision for four separate categories of
agricultural goods mortgages:

Crop mortgage

The definition of 'crop' includes:

  • wheat, maize, canola, sorghum, barley, oats, lucerne,
    grass (whether for hay or grain), cotton, tobacco, rice,
    sugarcane and any other kind of agricultural produce
  • oranges, grapes (whether as fruit or for wine or spirit)
    and any other kind of fruit or horticultural produce
    (s 3).

A crop mortgage may be granted by a person who owns the
land on which the crops are grown, or has exclusive possession
of it with a right to harvest the crops grown. A sharefarmer
may also grant a crop mortgage provided that the written
consent of the owner or lessee is obtained (s 7).

A crop mortgage must be in the prescribed form and must
identify the crops secured as well as the land on which
the crops are growing, or will grow. The duration of the
mortgage must be specified, but can not exceed a total
period of five years.

Stock mortgage

'Stock' is defined to include '…any
sheep, goats, cattle, horses, swine, poultry, alpacas,
llamas, ostriches or other animals (except fish)' (s
3).

A stock mortgage may be granted over stock owned by the
mortgagor and/or over the wool produced by the stock. A
person may grant a stock mortgage over the wool of stock
already mortgaged but only with the consent of the stock
mortgagee (s 12(2)).

A stock mortgage must be in the prescribed form and must
identify the stock secured by the mortgage as well as identifying
the land on which the stock are, or will be, kept.

Wool mortgage

A stock mortgage that relates only to wool may be referred
to as a wool mortgage (s 13). A wool mortgage will be limited
to the next clip of wool of the stock concerned unless
the mortgage expressly provides otherwise (s 12(6)).

A wool mortgage must comply with the general requirements
for a stock mortgage.

Aquaculture fish mortgage

The Act introduces a new category of agricultural mortgage
which can be granted over fish. The definition of fish
is taken from s 5 of the Fisheries Management Act 1994 (NSW), which includes marine, estuarine or freshwater fish
or other aquatic animal life, including oysters and other
aquatic molluscs and crustaceans.

A person may grant an aquaculture fish mortgage over any
fish that is cultivated or kept for the purposes of aquaculture
(s 15).

An aquaculture fish mortgage must be in the prescribed
form and must identify the fish secured by the mortgage
as well as identifying the land or water source on, or
in which the fish are being, or will be, kept. The fish
can be described by reference to their species or in some
other way that reasonably allows the fish to be identified.

Prescribed forms

The Act prescribes a form which can be used for agricultural
goods mortgages. The prescribed forms are:

  • crop mortgage (set out in Schedule 1 of the Act)
  • stock mortgage or wool mortgage (set out in Schedule
    2 of the Act)
  • aquaculture fish mortgage (set out in Schedule 3 of
    the Act).

All agricultural goods mortgages must either be prepared
in or to the effect of the forms set out in Schedules 1–3
or must include the matters specified in s 17 of the Act.

There is no prescribed form for a bill of sale or security
instrument granted over non-agricultural goods.

Lodgment and registration

Security interests in goods are registered in the General
Register of Deeds kept by the Registrar-General under the
provisions of the Conveyancing Act 1919 (NSW). The formal
requirements for preparation of documents are contained
within the Conveyancing (General) Regulations 2003 (NSW).

A Deeds Index Particulars Form must accompany security
instruments lodged for registration. The Deeds Index Particulars
Form will contain details such as:

  • the type of security instrument
  • its date
  • the parties.

Where an instrument that secures agricultural as well
as non-agricultural goods is lodged for registration, the
stricter requirements that apply to agricultural mortgages
(such as the 45-day period for registration) must be complied
with.

Transitional provisions

The Act applies to all security instruments executed on
or after 1 March 2006. The Bills of Sale Act 1898 or
the Liens on Crops and Wool and Stock Mortgages Act
1898 will
continue to apply to relevant instruments executed prior
to 1 March 2006 even where the instrument is presented
for registration after that date.

Old forms of bills of sale or stock mortgages etc. may
continue to be used after 1 March, with appropriate amendments.
The pre-printed affidavit and statutory declaration that
appears on the old form of bill of sale need not be completed
if executed after 1 March 2006.

Register of Encumbrances on Cars and Boats (REVS)

Nothing in the Act applies to motor vehicles or boats
or any other goods to which the Registration of Interests
in Goods Act 1986 (NSW) applies. Encumbrances on motor
vehicles or boats should continue to be registered in the
REVS Register maintained by the NSW Office of Fair Trading.

Security Interests granted by corporations

Corporations are bound by the Corporations Act 2001 which
requires companies to register charges over certain property
of the company. Security interests granted by a corporation
should be registered with ASIC as a company charge under
the provisions of the Corporations Act.

Searching security interests

Security instruments may be accessed through a search
index in the same way as other deeds registered in the
General Register of Deeds. A search of the mortgagors name
would normally be undertaken.

Practical implications

On a practical level, the Act will provide a mortgagee
or creditor with greater certainty that they will obtain
security over the assets they expected to receive, with
the added comfort that they will not need to incur further
legal costs to either renew an existing security or obtain
a fresh security.

In contrast, the old regime was unduly pedantic. For example,
under the old regime, a bill of sale was void if it was
not registered within the applicable time period. Moreover,
it was ineffective against the trustee in bankruptcy of
the mortgagor or debtor if it was not renewed within 5
years of its creation. Similarly, a crop lien was only
effective for 1 year under the old legislation. The Act
allows for a crop mortgage to specify the period of its
duration (s 17(1)(vii).

Text of the legislation is available at:
Security
Interests in Goods Act 2005

For further information please contact:

Michael Brann
Senior Lawyer
T 02 9581 7431 F 02 9581 7445
michael.brann@ags.gov.au

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