On 31st January 2014, the 2 year window of opportunity ends for holders of security interests in personal property. If you own goods or things in the possession of others this affects you.
Following that date, the completed or ‘perfected’ status of security interests in personal property – things like cars & trucks, inventory, plant & equipment and intellectual property – will only run from the time of registration of the interest on the PPS register. It will no longer run from the earlier date when the PPS Act deemed the security interest to have been created.
Because the Australia-wide PPS Act introduced dramatic changes in the law the government had allowed a grace period of 2 years for people to get used to them. During this time, companies and business people who were now deemed to be security holders could fix up the registration of the contracts which the PPS Act characterised as security interests. From 31st January 2014, that opportunity disappears.
So what, you may say. The answer is that if you own or manage a business that, for example, leases or hires out good, sells inventory on conditional (ROT) contracts, or sells art or other valuable objects on consignment, you may lose your priority rights to get back the asset as your own.
This is because the PPS Act says that another person with a perfected (basically meaning registered) security interest in the same property may have a higher priority or better right than you to claim the asset in question.
That person with the higher priority will be paid out ahead of you in the event that the customer, say, who has actual possession of your goods or equipment, defaults on its legal obligations in respect of the asset.
For example, the customer may owe money both to you for the inventory you supplied, but also to its bank for general borrowings. If you didn’t register your supply contract, but the bank had registered its mortgage, the bank has first right to sell your inventory to pay itself out for the money owed to it.
Even though the PPS Act’s “grandfathering” periods ends on 31st January 2014, it’s not too late to do something about any security interest-creating contracts you may now find yourself with. If you think you might need help contact partners@pigott.com.au.
This article is intended to provide general information in summary form on a legal topic, current at the time of publication. The contents do not constitute legal advice and should not be relied on as such. Formal legal advice should be sought in specific circumstances.