The PPSA and the Construction Industry
December 17, 2012
Anyone who provides any type of finance or credit for sale of goods or leases or hires out plant and equipment must become acquainted with the new Personal Properties Securities Act (“PPSA”) which came into effect on 30 January 2012.
The PPSA is a significant piece of legislation, reforming the law relating to security interests in property (other than real estate). It deems many arrangements to be securities which have never previously been seen as securities and can have some odd and even arguably unfair results. If you entrust your personal property to be held by anyone else, you need to think about the new PPSA regime or you could lose that property.
This article considers the impact of the PPSA on those involved in the construction industry, particularly those businesses which sell goods on a retention of title basis.
The PPSA regime
The PPSA applies to almost all forms of tangible and intangible property including money, goods, accounts receivable, motor vehicles, leases, hire purchase agreements and documents of title.
Any party with an interest in the personal property which for any reason is held, even temporarily, by another person or company, needs to register its security interest on the PPSA register to cement its ownership rights. The new general rule is, if you let someone else have possession of any item of property, you must consider registering your rights to that property otherwise you run the risk of losing your property rights to a creditor or banker of that party or that party’s liquidator. In most instances, you must register your interest in the goods before they are delivered into the possession of your customer.
PPSA and the Construction Industry
The PPSA affects multiple parties including principal, contractor, sub-contractors and design consultants and applies to many different types of construction property including, as follows:
What should you do?
Standard construction and other transaction documents will need only minor changes to operate under the PPSA. Developers, contractors, suppliers of goods on credit and owners who hire out plant and equipment will have to (if not already) implement administrative processes to ensure timely registration of security interests under the PPSA regime. Note though that unregistered “security” interests are still valid, but if you don’t register you risk losing out to an interest with a higher priority. So, ultimately whether or not you register under PPSA regime is a risk mitigation issue. For instance, registration of a security interest on the PPS register may not be considered absolutely necessary if the party you are dealing with is undoubtedly financially sound and/or the value of the property is low.
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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.