Commonwealth Consolidated Acts Commonwealth Consolidated Acts(1) A limited recourse debt is an obligation imposed by law on an entity (the debtor ) to pay an amount to another entity (the creditor ) where the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are limited wholly or predominantly to any or all of the following:
(a) rights (including the right to money payable) in relation to any or all of the following:
(i) the * debt property or the use of the debt property;
(ii) goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the debt property;
(iii) the loss or disposal of the whole or a part of the debt property or of the debtor's interest in the debt property;
(b) rights in respect of a mortgage or other security over the debt property or other property;
(c) rights that arise out of any * arrangement relating to the financial obligations of an end - user of the * financed property towards the debtor, and are financial obligations in relation to the financed property.
(2) An obligation imposed by law on an entity (the debtor ) to pay an amount to another entity (the creditor ) is also a limited recourse debt if it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest:
(a) are capable of being limited in the way mentioned in subsection (1); or
(b) are in substance or effect limited wholly or predominantly to rights (including the right to money payable) in relation to any or all of the following:
(i) the * debt property or the use of the debt property;
(ii) goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the debt property;
(iii) the loss or disposal of the whole or a part of the debt property or of the debtor's interest in the debt property.
Note: Paragraph (b) could apply to a special purpose entity. For example, an entity's only significant asset is one that it financed by way of a bank loan. The bank's rights to recover the debt (if the entity defaults) are not contractually limited, however they are in effect limited to rights in relation to the asset.
(3) An obligation imposed by law on an entity (the debtor ) to pay an amount to another entity (the creditor ) is also a limited recourse debt if there is no * debt property and it is reasonable to conclude that the rights of the creditor as against the debtor in the event of default in payment of the debt or of interest are capable of being limited.
(3A) In reaching a conclusion for the purposes of subsection (2) or (3), have regard to the following:
(a) the debtor's assets (other than assets that are indemnities or guarantees provided in relation to the debt);
(b) any * arrangement to which the debtor is a party;
(c) except for the purposes of paragraph (2)(b)--whether all of the debtor's assets would be available for the purpose of discharging the debt (other than assets that are security for other debts of the debtor or any other entity);
(d) whether the debtor and creditor are dealing at * arm's length in relation to the debt.
(4) A notional loan arising because of Division 240 (about arrangements treated as a sale and loan) under a * hire purchase agreement is also a limited recourse debt .
(5) However, an obligation that is covered by subsection (1) is not a limited recourse debt if the creditor's recourse is not in practice limited due to the creditor's rights in respect of a mortgage or other security over property of the debtor (other than the financed property) the value of which exceeds, or is likely to exceed, the amount of the debt.
(6) Also, an obligation that is covered by subsection (1), (2) or (3) is not a limited recourse debt if, having regard to all relevant circumstances, it would be unreasonable for the obligation to be treated as limited recourse debt.
(7) A * limited recourse debt is a non - arm's length limited recourse debt if the debtor and creditor do not deal with each other at * arm's length in relation to the debt.