Background

The commencement date for the Commonwealth Government’s long-awaited Personal Property Securities Act (PPSA) has now been pushed back to 30 January 2012.  However, because of the dramatic and far-reaching changes the PPSA will introduce it very much remains timely and appropriate for business people to inform themselves of the PPSA’s effect on a wide range of transactions.

The PPSA completely replaces the existing laws and regulations for taking and registering security interests over personal property – that is, security over most types of property except land. So, for example, following the PPSA’s commencement, mortgages over motor vehicles will no longer be registered on REVS, and fixed & floating charges over companies will no longer be registered at ASIC. Instead, they will all be registered on a completely new “PPS Register” established by the PPSA.

In addition, and perhaps more importantly, transactions that were formerly not regarded as security interests – such as retention-of-title arrangements, equipment leases, factoring agreements and commercial consignments – will now be deemed to create security interests. Consequently, and somewhat radically, they too will need to be registered, in order to fully protect the title of the true owner of the goods against, say, the claims of a liquidator or bankruptcy trustee of the customer, or parties who come into possession of the goods with no knowledge of the prior transaction.

Who is affected?

•  Suppliers utilising retention-of-title terms
•  Landlords
•  Equipment lessors
•  Bailors
•  Consignors
•  Buyers and sellers of businesses
•  Intellectual Property owners
•  Lenders and credit providers

How businesses should prepare

If you fall into one of the categories listed above, it is now necessary to consider the implications for your business and to determine what action, if any, you will need to take in anticipation of the commencement of the new regime. Things you could begin to do include:

• undertaking an audit of all security interests you hold over personal property (including intellectual property (IP)),
• identifying existing security interests, such as ASIC charges and REVS registrations, which, whilst they will be automatically migrated to the PPS Register, will ideally need data checking beforehand or upon migration,
• recognising that other newly classified security interests (basically the deemed security interests plus security over IP) will not be transferred,
• arranging for those previously unregistrable and therefore non-migrated security interests to be recorded on the PPS Register, and
• implementing a diary system to renew PPS registrations every 7 years for consumer goods and serial-numbered property (cars, boats, planes and IP with serial numbers), and up to 25 years for other personal property, depending upon the periods specified in the relevant security agreement.

All of this means an added administrative burden on organisations, particularly at the PPSA’s commencement time.  Also ideally a firm’s commercial contracts, in particular its agreements which provide credit support to the recipients of goods will need to be checked and, if necessary upgraded for the PPSA.

How will the new register work?

The PPS Register enables parties taking security over personal property to protect (“perfect”) their security interests by the process of registration. As we have noted above, personal property “security interests” will now be of two kinds: the traditional “in substance” security interests, such as fixed & floating charges and mortgages, and the newer “deemed” security interests, such as retention-of-title clauses in supply contracts, goods leases and commercial consignments.

The PPS Register will be on-line and internet-based, accessible 24 hours a day. It will also be accessible by fax, SMS and physical means, such as by a person attending a city-based registry office, as is currently the current practice with ASIC and bills-of-sale registries.  The register will be operated by an existing federal government body, the Insolvency & Trustee Services Australia (ITSA).

Details of security interests will be notified to the PPS Register primarily on-line by the addition of information to specified electronic data fields. When complete, these fields will comprise a “financing statement”, from which a “verification statement” will issue to the registrant. An incorrectly completed financing statement will most likely render a registration ineffective. However, unlike with existing registers, a copy of the document creating the security interest will not be deposited on the PPS Register – with the ensuing advantage that security interests can be notified in advance of the actual signing of the underlying documentation.

What else do you need to know?

The initial two year period from the PPSA’s commencement time will be deemed a transition period. This means in particular that security interests created before that time, but which were not previously registrable (the “deemed security interest” referred to above), will continue to be effective during that period, without registration on the PPS Register. Once the transition period has elapsed, however, a registered security interest over the relevant property will override a deemed security interest which remains unregistered.

In addition to establishing the new register, the PPSA introduces –

• new terminology – “attachment” and “perfection” when security interests are created; also the floating charge asset is replaced by a “circulating asset”,
• a complex set of priority rules, based primarily on registration – but note the new concept of super-priority which is statutorily conferred on some types of security interests relative to others, and
• a prescriptive enforcement regime for the holders of security interests, most of which can be contracted out of for business-to-business transactions.

Conclusion

The PPSA is an important step forward in providing a national, one-stop solution to searching, recording and regulation of security interests over personal property throughoutAustralia. If you are an existing holder of security interests you must act now to understand the steps you need to take to ensure your interests are properly recorded and protected. If you never thought you were taking security over personal property then once the PPSA commences you must ensure that if your usual business transactions now fall under the PPSA that you register them. Even if you are considering buying a company after the PPSA’s commencement time you must be mindful of the impact on corporate valuations of any registered security interests.

Contact partners@pigott.com.au to discuss your business’s risks and opportunities following the commencement of this important new legislation.

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.