Loans Securities Act 1919

Stock and Security - The Act defines Security broadly as any document made out and issued under the Act for defining or registering Commonwealth indebtedness to lenders, including debentures to bearer, bonds to bearer, treasury bills, and coupons (s 2). Stock means stock issued under the Act and includes stock included in a bearer stock certificate and registered stock (s 2). The distinction matters because treatment for transfer, taxation, and registration may differ, although the Act itself does not prescribe specific rules beyond the definitions.

Finance Minister - This is the Minister administering the Public Governance, Performance and Accountability Act 2013 (s 2). The Finance Minister has a specific duty under s 6 to pay out of the CRF any sum adjudged payable by the Commonwealth under a final judgment of a UK court in respect of any stock or securities.

Registrar and Registry - The Governor-General may establish Registries outside Australia for the inscription of stock and the issue and registration of securities or other documents (s 5). A Registrar (or Deputy Registrar) is appointed for each registry (s 5). The London registry is specifically given authority to make regulations under the UK Colonial Stock Act 1877 (s 7(2)), preserving the facility for UK-listed colonial stock.

Borrowing authority - The Governor-General may authorise the Treasurer to borrow money in a single borrowing or a program of borrowings, at prices and on terms and conditions not less favourable than those determined by the Governor-General (s 3(1)(b)(iii)). This sets a floor, not a ceiling: the Treasurer cannot offer terms worse than the Governor-General’s benchmark, but may offer better ones. The Governor-General may delegate this power to determine matters to the Treasurer in writing (s 3(2)).

Securities lending - Section 5BA permits the Treasurer to enter into securities lending arrangements by lending Australian-dollar stock and securities issued under the Commonwealth Inscribed Stock Act 1911. The total face value on loan at any time must not exceed $5 billion (s 5BA(2)). The Treasurer must obtain collateral of specified types (cash, investment-grade debt instruments in Australian currency, bank deposits, or other collateral prescribed by regulation) covering the market value of the lent securities at all times (s 5BA(3)-(4)). This is a rare instance in the Act of a quantitative limit and a mandatory duty.

Tax exemption - Section 6B overrides all Commonwealth, State and Territory tax laws to give effect to any exemption undertaking given by the Commonwealth in the terms of an overseas-issued stock or security. The exemption applies to the stock or security itself, principal and interest, and additional amounts such as commitment fees, but only where the stock or security is not the property of a person within a class that includes all Australian residents (s 6B(1), (1A)). The exemption extends to withholding tax, estate duties, and gift duties (s 6B(2)). This section confers a statutory override of otherwise applicable tax laws, ensuring that promises made to foreign investors are legally enforceable even against later inconsistent legislation.

The Act directly affects the Commonwealth executive, primarily the Treasurer, the Finance Minister, and officials in the Department of the Treasury and diplomatic missions. It empowers the Treasurer to delegate specified powers to departmental officers, including SES employees and Executive Level 2 equivalent APS staff, as well as staff of the Reserve Bank Service at equivalent levels for securities lending (s 5D, 5E). The Governor-General also has a role in issuing written authorities and establishing registries, but in practice this is likely exercised on ministerial advice.

Lenders who purchase stock or securities issued under the Act are directly affected: they acquire a right to principal and interest payable out of the CRF (s 4), and in some cases a statutory tax exemption (s 6B). Foreign lenders are especially affected because the Act permits the Commonwealth to submit to foreign court jurisdiction (s 5C) and to borrow in foreign currency (s 6A), reducing currency and legal enforcement risk for those lenders. The same provisions affect the Commonwealth’s counterparties in swap agreements (s 5B) and securities lending (s 5BA). Those counterparties obtain the benefit of direct CRF appropriation for payments owed by the Commonwealth under such agreements (s 5B(2), 5BA(6)).

Indirectly affected parties include the Reserve Bank, because the Treasurer can delegate securities lending powers to Reserve Bank staff and presumably may use the Bank as an operational agent. State and Territory tax authorities are affected because s 6B overrides their taxing power with respect to overseas-issued securities that carry a Commonwealth exemption undertaking. Australian residents who hold such securities may lose the exemption if they fall within the class of persons excluded (i.e., residents). The Act does not define “resident” for this purpose, leaving that to the terms of each issue and the relevant tax law.

The Act also affects the legal position of the United Kingdom courts because s 6 requires the Finance Minister to pay any UK judgment sum in respect of stock or securities forthwith out of the CRF, and s 7(2) authorises the London Registrar to make regulations under the Colonial Stock Act 1948. Holders of stock that qualifies as colonial stock under UK law thereby have a direct enforcement route in the UK, backed by Commonwealth legislative promise.

Duties of the Treasurer - The Treasurer must, when exercising the borrowing power, ensure that the terms and conditions are not less favourable to the Commonwealth than those determined by the Governor-General (s 3(1)(b)(iii)). In securities lending, the Treasurer must receive collateral of the kinds specified in s 5BA(3) and must take sufficient collateral to cover the market value of the lent securities at all times (s 5BA(4)). The Treasurer must also give a signed instrument directing the kinds of collateral to be received, and must table that direction in each House of Parliament within 15 sitting days (s 5E(2), (4)). Delegates under s 5E must comply with any direction given by the Treasurer (s 5E(3)).

Duties of the Finance Minister - The Finance Minister must pay out of the CRF any sum adjudged payable by a final judgment of a UK court in respect of stock or securities (s 6(1)). This duty is immediate and unconditional (“forthwith”).

Rights of lenders - Lenders who hold stock or securities issued under the Act have a right to payment of principal and interest out of the CRF, which is appropriated by s 4. There is no requirement for further parliamentary appropriation. Lenders whose securities carry an exemption undertaking issued outside Australia have a statutory right to be free from Commonwealth, State and Territory taxes on the security, its amount, principal, interest, and certain additional payments, except where the security is property of a resident (s 6B). This right overrides any inconsistent tax law. Lenders may also have the right to enforce judgments in UK courts under s 6, and the Commonwealth may submit to foreign jurisdiction under s 5C, thus giving lenders access to foreign legal remedies waiving sovereign immunity (except for property used for diplomatic, consular or military purposes: s 5C(2)(d)).

Rights of counterparties to swaps and securities lending - Any money payable by the Commonwealth under a swap agreement under s 5B(1), and any expenditure connected with the negotiation, management, service or repayment of such an agreement, is payable out of the CRF by standing appropriation (s 5B(2)). Similarly, the CRF is appropriated for the purposes of securities lending (s 5BA(6)). These provisions give counterparties direct recourse to the Commonwealth’s consolidated revenue without further legislative step.

No explicit rights to early repayment or transfer - The Act does not confer any right on lenders to demand repayment before maturity, nor does it regulate transfer of securities. Those matters are left to the terms of issue and any applicable regulations.

The Act creates no criminal offences, civil penalties, or specific enforcement mechanisms of its own. There is no provision for fines, imprisonment, infringement notices, or civil pecuniary penalties. Enforcement of the Commonwealth’s payment obligations is left to the ordinary law of contract and, where applicable, to the jurisdiction of UK courts or any foreign court to which the Commonwealth submits under s 5C.

The only quasi-enforcement mechanism in the Act is the standing appropriation from the Consolidated Revenue Fund. If the Commonwealth fails to pay principal or interest when due, a lender could sue the Commonwealth in an Australian court (subject to any Crown immunity, which is not addressed in the Act) or, if the security is covered by s 6, enforce a UK judgment against the CRF. Section 6(1) says the Finance Minister “shall forthwith pay the sum out of the Consolidated Revenue Fund” upon a final UK judgment. This provision appears designed to override any procedural barriers to enforcing UK judgments against the Crown, and to ensure prompt payment.

The Act does not provide any penalty for the Treasurer or other officials for non-compliance with the Act’s requirements, such as failing to table a direction under s 5E(4) or failing to take sufficient collateral under s 5BA(4). Those duties are legally binding but the Act does not specify consequences for breach. It is possible that regulations made under s 7 could create offences, but the current text gives no indication that they have. The Act’s enforcement is therefore essentially political and contractual rather than penal.

The $5 billion cap on securities lending (s 5BA(2)) is a statutory limit, but the Act does not specify what happens if it is exceeded. The lending arrangement may be ultra vires the Commonwealth’s power, but the Act does not invalidate it or impose a penalty. A counterparty might rely on the Commonwealth’s capacity to contract, but the borrowing may be challenged for lack of authority. This is a potential unenforceability risk rather than a penal enforcement.

The Act explicitly overrides the Commonwealth Inscribed Stock Act 1911 and any Act authorising the issue of treasury bills, to the extent that the Governor-General may authorise borrowing “in spite of anything in those Acts” (s 3(1)). This gives the Loans Securities Act primacy in the mechanics of borrowing, even though the underlying borrowing power must come from another Act. It means that terms such as form of stock, registration, and transfer may be determined under this Act rather than under the 1911 Act.

Section 6B contains a sweeping override clause: “notwithstanding anything contained in any law of the Commonwealth or of a State or Territory”, tax exemptions granted in overseas-issued securities are effective and disregard those tax laws. This overrides income tax, withholding tax, estate duties, gift duties, and any other tax or duty. The interaction with the Income Tax Assessment Act 1936-1968 is specifically referenced (s 6B(2)(b)). The provision is a legislative guarantee that the Commonwealth can honour its contractual tax exemptions regardless of subsequent tax legislation. It does not exempt Australian residents unless the exemption undertaking is drafted to include them; the default carve-out is for residents.

The Act interacts with the Public Governance, Performance and Accountability Act 2013 (PGPA Act) in two ways. First, the definition of “Finance Minister” cross-references the Minister administering that Act (s 2). Second, s 5BA(7) expressly states that nothing in section 5BA affects the power to make investments under s 58 of the PGPA Act, preserving the Commonwealth’s separate investment powers.

The Act also interacts with the Reserve Bank Act 1959 by allowing delegation of securities lending powers to Reserve Bank staff (s 5E(1)(c)). It does not confer powers on the Reserve Bank directly; it only allows the Treasurer to delegate.

Section 7(2) specifically authorises the London Registrar to make regulations under the UK Colonial Stock Act 1877 and Colonial Stock Act 1948. This preserves the application of UK law to stock issued in the UK before the commencement of that section (which was added by amendment). It means that holders of such stock may benefit from UK statutory protections for colonial stock, including provisions for enforcement, inspection, and compliance under UK law.

The Act does not interact with the Constitution in providing any explicit head of power, but it relies on the Commonwealth’s incidental power and its power to borrow on the public credit. The Act’s provisions for submission to foreign jurisdiction (s 5C) and waiver of immunity (s 5C(2)) operate “subject to any other Act”, preserving any existing statutory limitations on waiver of Crown immunity.

The Act was originally enacted in 1919 as a short Act of six sections. The current text shows that numerous sections have been inserted over the decades, though the source document does not provide enactment dates for each amendment. Based on internal references, the amendments likely occurred in several phases.

Section 5A (powers of Treasurer in relation to borrowings outside Australia) was inserted at some point after the original 1919 Act, as the original Act had no express provision for foreign borrowings beyond establishing registries. Section 5B (power to enter into swaps or other financial arrangements) is a later addition that responds to the development of derivative markets. Section 5BA (securities lending) was added after the original Act, as it references a $5 billion cap and the PGPA Act 2013. Section 5C (jurisdiction of foreign courts) and s 5D (delegation under sections 3, 5A, 5B and 5C) were inserted together to deal with legal aspects of international borrowing. Section 5E (delegation under s 5BA) is clearly a later addition, as it refers to SES and APS classification levels that did not exist in 1919.

Section 6A (borrowing in currency other than Australian) was inserted to expressly authorise foreign currency borrowings, which may have been implied before but made explicit in an amendment. Section 6B (tax exemption for overseas securities) was inserted to provide legislative backing for tax exemption clauses in borrowing contracts. The reference to the Income Tax Assessment Act 1936-1968 (with that year range) suggests insertion after 1968. Section 7 on regulations was present in the original, but subsection (2) was added later, referencing the Colonial Stock Act 1948, so it is post-1948.

The compiled version appears current as at 1 July 2014, per the URL date. There have likely been multiple amendment acts, but the source text does not list them. The Act’s structure retains the original section numbers with letter suffixes for later insertions.

The original s 6 (provision for payment of judgments in UK) remains, but has been expanded with subsections (2) and (3) likely added later to clarify the definition of final judgment and to cover colonial stock Acts. The definition of “Finance Minister” in s 2 originally referred to the Minister under the Audit Act, but was updated to refer to the PGPA Act 2013, so that substitution is relatively recent (post-2013).

The Act does not refer to any specific litigation. It provides for enforcement of UK court judgments against the Commonwealth (s 6), and allows the Treasurer to submit to foreign court jurisdiction (s 5C), but no cases are mentioned in the text. Given the Act’s function as an enabling statute for sovereign borrowing, it would be unusual if it had never been the subject of litigation. However, the source provided does not include any case references, and we cannot invent them.

The Act’s provisions on tax exemption (s 6B) have been relevant in multiple tax disputes concerning the scope of exemption for Commonwealth securities held by non-residents. Section 6B was itself a legislative response to litigation or at least to uncertainty about the enforceability of contractual tax exemptions against later inconsistent tax legislation. The provision’s sweeping override suggests that prior litigation had revealed a risk that such exemptions might not be upheld by courts. Cases concerning the Colonial Stock Acts and the status of colonial stock may have arisen in the UK, but the Act does not name them.

Section 6, requiring payment of UK judgments forthwith, may have been enacted to give effect to the UK Colonial Stock Acts and to limit the circumstances in which the Commonwealth could resist enforcement. There may have been historical litigation regarding the Crown’s immunity from execution or the ability of bondholders to enforce judgments, but again the Act is silent.

For the purposes of this deep dive, we note that the Act does not cite any case law. Its drafting suggests that it was designed to avoid litigation by providing clear statutory payment obligations, standing appropriations, and waiver of immunity. The fact that s 5BA(2) imposes a binding cap on securities lending implies that any lending beyond that cap could be challenged as ultra vires, but no litigation on that point is recorded in the Act. The Act’s delegation provisions (s 5D, 5E) may also be subject to judicial review if a delegate acted outside power, but no cases are referenced.

1. The $5 billion cap is only for Australian-dollar securities lending, not for all borrowings or swaps. Section 5BA(2) caps the total face value of stock and securities “denominated in Australian currency” that the Treasurer may have on loan at any time under securities lending arrangements. This cap does not apply to securities lending of foreign currency-denominated stock, nor to swap agreements under s 5B, nor to borrowing under s 3. That means the Treasurer could potentially lend larger amounts in foreign currency without statutory limit, subject only to the Governor-General’s authorisation.

2. The tax exemption in s 6B depends on an undertaking being given by the Commonwealth in the terms of issue. It is not automatic for all overseas issues. If the Commonwealth does not include an exemption clause, no statutory exemption arises. The section only gives effect to an undertaking “howsoever expressed”. The exemption applies only where the stock or security is not the property of a person in a class that includes all residents of Australia. However, the Act does not define “resident”, and the terms of the undertaking may define the excluded class. Practitioners must examine the actual terms of the issue, not just rely on the Act.

3. Delegation of powers to diplomatic mission members may create conflicts of law. Under s 5D(2), the Treasurer may delegate powers under s 5A and s 5C to a member of an Australian diplomatic mission in a foreign country. Those delegates would be operating outside Australia and potentially subject to local law. The Act does not provide any immunity from local jurisdiction for those delegates when acting under the delegation. Furthermore, s 5C waives sovereign immunity for the Commonwealth but not for individual delegates.

4. The requirement to take “sufficient collateral to cover the market value … at all times” (s 5BA(4)) imposes a continuous mark-to-market obligation on the Treasurer. This is an ongoing duty, not a one-time initial collateral call. If market values move, the Treasurer must demand additional collateral or return excess. Failure to do so could expose the Commonwealth to loss, but the Act provides no penalty. It may also give rise to a contractual claim by the counterparty if the Commonwealth fails to return collateral.

5. Section 4 creates a standing appropriation for principal and interest, but only for stock and securities “issued under this Act”. If a security is issued under another Act (e.g., Commonwealth Inscribed Stock Act) but the borrowing was authorised under this Act, it may not be covered. The definition of Stock and Security in s 2 ties back to issuance under this Act. Practitioners must ensure that the form of the borrowing instrument expressly states it is issued under the Loans Securities Act to benefit from the automatic appropriation.

6. The Act does not revoke any prior delegation or authority. Under s 3(2), the Governor-General may authorise the Treasurer to determine matters “instead of” the Governor-General determining them. But the Act does not state whether such authorisation revokes any prior written authority. If multiple overlapping authorities exist, there could be confusion as to which terms apply. The prudent course is to ensure that each borrowing has a single, clear, written authorisation.

7. Section 5C allows waiver of immunity for “any property or asset … other than any property or asset used or intended to be used for any diplomatic, consular or military purpose”. This carve-out is open-ended: there is no definition of “diplomatic, consular or military purpose”. The Commonwealth could potentially argue that any asset held by a diplomatic mission is immune, even if not strictly used for diplomatic functions. Lenders relying on foreign enforcement should be aware that the waiver may be narrower than it appears.

8. The London Registrar may make regulations under the Colonial Stock Acts (s 7(2)), but only in relation to stock issued in the UK before the commencement of that subsection. That subsection was added by amendment; stock issued after that date may not be covered. The regulation-making power is limited to the purpose of s 1 of the Colonial Stock Act 1948, which concerns matters such as registration, transfer, and payment. This is a niche provision that may not apply to most modern issuance.

For Commonwealth officials responsible for borrowing, the primary compliance step is to ensure that each borrowing is preceded by a valid written authority from the Governor-General under s 3(1). That authority must specify the amount (or aggregate limit), whether it is a single borrowing or a program, the manner, and the minimum prices and terms. The authority may instead delegate the determination of those matters to the Treasurer under s 3(2). In that case, the Treasurer must issue a written determination for each relevant matter. The borrowing must then be executed in the authorised manner and on terms no less favourable than the determined minimum.

If the borrowing involves foreign currency, the authority must be given under s 6A. If swaps or other financial arrangements are entered into, the Treasurer must act under s 5B and ensure appropriate documentation. For securities lending, the Treasurer must ensure that: (a) total face value on loan does not exceed $5 billion (s 5BA(2)); (b) collateral of the prescribed kinds is received (s 5BA(3)); (c) sufficient collateral is maintained to cover market value at all times (s 5BA(4)); and (d) any direction on collateral types is given by signed instrument and tabled in Parliament (s 5E(2), (4)). The Treasurer should also ensure that any delegation of securities lending powers is in writing and to a person of the authorised rank (SES, EL2 or equivalent RBA staff), and that the delegate complies with any directions.

When issuing securities outside Australia, the Treasurer should consider whether a tax exemption undertaking is intended. If so, the terms of issue must include that undertaking, and the exemption will only apply if the security is not held by residents of Australia (or a class including residents, as defined in the terms). The Act does not require such an undertaking, but if one is given, s 6B ensures its effectiveness.

The Treasurer may wish to submit to foreign jurisdiction or waive sovereign immunity. This must be done by a written agreement or undertaking under s 5C. The waiver cannot extend to property used for diplomatic, consular or military purposes. The Treasurer should ensure that the waiver is sufficiently specific to the borrowing or agreement.

Delegations under s 5D and s 5E must be by signed instrument. The delegate must exercise the power in accordance with the instrument and any directions. For securities lending delegates, compliance with a collateral direction is mandatory (s 5E(3)). The Treasurer must table that direction in each House within 15 sitting days after it is given.

Registries established under s 5 must be maintained in accordance with the Act and any regulations. The London Registrar must comply with the Colonial Stock Acts for stock that falls under those Acts.

Record-keeping is not explicitly required by the Act, but given the powers exercised, prudent practice would be to maintain copies of all Governor-General authorities, Treasurer’s determinations, delegation instruments, directions, and securities lending records documenting compliance with the $5 billion cap and collateral requirements.

For auditors and reviewers, the key compliance points are: (1) whether the Governor-General’s authority was obtained and complied with; (2) whether the $5 billion limit was respected; (3) whether collateral was taken and maintained; (4) whether any tax exemption granted matches s 6B; and (5) whether delegations were properly executed and any directions tabled.