05 November 2018
UNIDROIT is finalising the MAC Protocol, which will establish an international legal framework for financing mining, agriculture and construction equipment. The Protocol is expected to be adopted in 2019. It may affect a wide range of Australian entities, especially those in the mining, agriculture, construction and banking industries. We take a preliminary look at its scope, main provisions and potential effects on Australian players.
The Cape Town Convention aims to address uncertainties involved in financing assets that can be moved between countries with vastly differing security and title reservation laws. It establishes an international regime for the creation, enforcement, registration and priority of security interests in certain categories of high-value, uniquely identifiable mobile equipment. The Protocols to the Convention set out the categories of mobile equipment to which the Convention applies.
Australia has already ratified the Cape Town Convention and the associated Protocol on Matters Specific to Aircraft Equipment (commonly known as the Aircraft Protocol).
The MAC Protocol will cover mining, agriculture and construction (MAC) equipment. Various countries have engaged in consultation in preparation for the Protocol's expected adoption in a Diplomatic Conference during the second half of 2019. UNCITRAL and UNIDROIT held Australia’s first public consultations in August 2018.
The Cape Town Convention and Protocols provide for the creation of international security interests and a range of default remedies for creditors. Key features include:
Contracting States can choose by way of declaration whether certain parts of the Cape Town Convention and its Protocols will apply. Australia has already made declarations in relation to the Cape Town Convention and Aircraft Protocol.
The MAC Protocol covers certain specified categories of MAC equipment, defined using the World Customs Organization’s Harmonised System codes (HS Codes). Some of these codes are for fixed equipment.
The categories are still under negotiation. There are currently 42 HS Codes in the draft MAC Protocol, with interested Contracting States invited to submit any additional HS Codes for consideration by the end of November 2018. When finalised, however, the relevant HS Codes will be set out in annexures to the MAC Protocol, with separate annexures for mining equipment, agriculture equipment and construction equipment.
Some examples of equipment currently listed in the annexures include:
The MAC Protocol is expected to improve the predictability and enforceability of security, title reservation and leasing rights, and increase the availability of MAC equipment around the world. The Protocol is also expected to reduce credit risk, improve access to finance and open new markets to MAC equipment suppliers. The harmonisation of Australia’s security laws with those of other Contracting States is also likely to make Australia more attractive to overseas investors by reducing legal risks and due diligence costs.
UNIDROIT estimates that the MAC Protocol will have a $7 billion positive impact on GDP in developed countries, and a $23 billion impact in developing countries.
Security interests in MAC equipment in Australia are currently regulated by the Personal Property Securities Act 2009 (Cth) (PPSA). If Australia adopts the MAC Protocol, it will prevail over the PPSA to the extent that there is any inconsistency between the regimes.
Some potential areas to consider between the regimes are:
Drawing on experience with the Aircraft Protocol, it will be best practice to register assets to which the MAC Protocol applies under both regimes.
The draft MAC Protocol is currently being considered and negotiated by 51 countries, including Australia. UNIDROIT is still encouraging private sector input.
Those in the MAC and banking industries should, however, start considering how this framework will affect them.
 https://www.unidroit.org/instruments/security-interests/cape-town-convention. There are 3 existing protocols – Aircraft Protocol (for aircraft equipment), Rail Protocol (for railway rolling stock) and Space Protocol (for space assets), and the MAC Protocol will be the fourth Protocol.
The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.