You may have been asked to enter into a General Security
Agreement ('GSA') to provide security over your assets to a third
party, before that party will advance you money, goods or services.
What does this mean?
What is a General Security Agreement?
A GSA is a common form of security often used to secure
commercial loans or credit arrangements. It can be an effective way
to obtain security over the assets owned by a person or
When entering into a GSA with your bank, you or your company
will often be asked to provide security over all of your present
and after-acquired property, meaning the bank will have security
over everything you own now and everything you will own in the
future. A bank could, for example, require a GSA from you or your
company to secure loan monies advanced by the bank.
When entering into a GSA with one of your suppliers, you will
typically provide security over just some of your assets, often the
assets that they supply to you together with the sale proceeds of
A GSA will usually secure all moneys owed to the secured party
now and in the future (called 'secured moneys'). This will include
collateral liability and the costs of enforcement.
What if I default?
The primary remedy of a GSA is that if you are in default of
your obligations, the secured party can take possession of and sell
the secured property. If a Company defaults on a GSA, the secured
party can appoint a receiver (in accordance with the Receiverships
Act 1993) to manage the company's affairs. The receiver is then
able to sell off Company assets in order to repay debts to the
To avoid defaulting under the GSA you will need to ensure you do
not breach the specific obligations imposed under your agreement.
Key obligations of the commonly used Auckland District Law Society
- The obvious (but sometimes overlooked) obligation to pay to the
secured party the secured moneys owed to them under any agreement,
in accordance with the terms of that agreement.
- You must not allow anyone else to take security over any
property a secured party already has security in, without first
obtaining the secured party's consent. As a practical example this
will mean you may need your bank's consent before you open a line
of credit with a supplier.
- If the GSA covers farm land, you must farm and manage the land
in accordance with established practice, including keeping the land
clear of all weeds and noxious plants, animals and insect pests and
taking reasonable steps to control disease, crops, pastures, plants
- You must not sell any secured property, nor alter or remove any
improvements, nor deal with any resource consent that affects
secured property without the secured party's consent.
- If a Company enters into a GSA they must not materially change
the control of the Company without first obtaining the secured
- You must pay all rates, taxes, charges and other outgoings in
relation to all secured property, must repair and maintain all
improvements and must adequately insure all secured property.
A GSA is a complex legal document that imposes onerous
obligations. It can provide powerful wide-ranging powers to the
secured party to take control of your assets to recover moneys owed
if a GSA is breached. With this in mind, a GSA should not be
entered into lightly. Where in doubt you should always take legal