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LGFA Document : Amendment and Restatement Deed (Guarantee and Indemnity )

C Gilmore made this Official Information request to Department of Internal Affairs

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From: C Gilmore

From: C Gilmore
3 December 2024

Dear Department of Internal Affairs

Official Information Request

The LGFA website clearly states:

"A council’s obligation under the guarantee is secured against rates
revenue.”

and yet on the same website, the Amendment and Restatement Deed (Guarantee and Indemnity )Document page 36 states :

"security" includes a guarantee or indemnity, a security interest (as construed and defined in the Personal Property Securities Act 1999), mortgage, lien, pledge, any interest in land of a security nature, any other security arrangement creating in effect security for the payment of a monetary obligation or the observance of any other obligation, and any other arrangement having like economic effect over any property, assets or revenues.

Should the “security’ as per the Deed not read “rates revenue”, and no more than that?

Yours faithfully,

C Gilmore

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From: Mark Butcher

Hi

 

Thank you for your enquiry that has been passed onto LGFA by DIA to
respond to.

 

The term “security” is broadly defined to include a wide variety of
instruments/measures in lending or guarantee documents. This provides
flexibility for the borrower and lender to choose the type of security if
need be.

 

While councils could provide security over assets as part of lending or
guarantee documents, they typically provide only security over rates
revenue.

 

I can confirm that the security provided by councils when they borrow from
LGFA or in favour of the guarantee and indemnity deed is rates revenue.

 

Thanks

 

Mark Butcher

Chief Executive

[email address]

 

 

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C Gilmore left an annotation ()

The response from Mark Butcher , Chief Executive of the LGFA , still does not allay my concerns because there is still "flexibility for the borrower and lender to choose the type of security if need be"

If as Mark Butcher wrote, ” I can confirm that the security provided by councils when they borrow from LGFA or in favour of the guarantee and indemnity deed is rates revenue”, why is “rates revenue” not the term used instead of the broader term?

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C Gilmore left an annotation ()

To clarify my 1st annotation,
Mark Butcher stated is his response that:
"The term “security” is broadly defined to include a wide variety of instruments/measures in lending or guarantee documents. This provides flexibility for the borrower and lender to choose the type of security if need be.

So “if need be”, the borrower and lender could chose any of the “instruments/measures” listed under “securities”on page 36 of the Guarantee and Indemnity Document as below:

"security" includes a guarantee or indemnity, a security interest (as construed and defined in the Personal Property Securities Act 1999), mortgage, lien, pledge, any interest in land of a security nature, any other security arrangement creating in effect security for the payment of a monetary obligation or the observance of any other obligation, and any other arrangement having like economic effect over any property, assets or revenues.

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From: C Gilmore

Dear Mark Butcher,

Thank you for your response to my request and I trust the Christmas/Holiday break was everything you expected.

Mark, to clarify, when you confirmedI “ the security provided by councils when they borrow from LGFA or in favour of the guarantee and indemnity deed is rates revenue”, could it be interpreted that if rates revenue did not cover the debt owing, the Creditor(s) could then choose one or more of the "instruments/measures* in lending or guarantee documents” , to make up the shortfall?
* " The term “security” is broadly defined to include a wide variety of instruments/measures in lending or guarantee documents. This provides flexibility for the borrower and lender to choose the type of security if
need be”.
In other words, any of the instruments below, listed in the Amendment and Restatement Deed (Guarantee and Indemnity ) :
* security" includes a guarantee or indemnity, a security interest (as construed and defined in the Personal Property Securities Act 1999), mortgage, lien, pledge, any interest in land of a security nature, any other security arrangement creating in effect security for the payment of a monetary obligation or the observance of any other obligation, and any other arrangement having like economic effect over any property, assets or revenues

Yours sincerely,

C Gilmore

Yours sincerely,

C Gilmore

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From: Mark Butcher

Hi

We only take security over rates revenue - we and any other lenders (from what I am aware) do not take security over council assets or council property.

The broader definition of security with loan documents simply provides councils with the flexibility to offer that if they wanted to. In reality, most council assets do not generate direct ringfenced revenue to support a loan and the assets would be difficut to sell if a council ever defaulted on a loan that was secured against those assets.

I hope that helps.

Thanks
Mark

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From: C Gilmore

Dear Mark Butcher,

Thank you immensely for your prompt reply, this is my final question, promise!

Under the Deed, could ratepayers’ assets/property be sold by Councils to pay outstanding debt:I only ask this because a there is a provision in the Local Government Act 2002 to apply to the High Court to sell ratepayers property to recover unpaid rates?

Yours sincerely,

C Gilmore

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From: Mark Butcher

Hi

Under the Deed that is not possible as under the Local Government Rating Act 2002, only a council can apply thorugh the courts to sell a property (not a ratepayers other assets) if there are outstanding rates that have not been paid.

There is a very remote and unlikley event that if a council ever went into default then a receiver could be appointed by the trustee on behalf of lenders. If the receiver decided to assess a special rate to repay the council debt when it fell due, and a property owner refused to pay the rates then that could be pursued through the courts.

Thanks

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From: C Gilmore

Dear Mark Butcher,

Thanks for that Mark, and for your patience.

Best Wishes for 2025

Yours sincerely,

C Gilmore

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