Who will be affected?
Any New Zealand supplier to Australian businesses who retains title pending payment, or takes any other form of security over non-land assets, will be directly affected. Just as in New Zealand, the Australian Act will cover all transactions that have the economic effect of creating security, as well as certain "deemed" security interests, including many leases.
Two useful websites contain further information. The Attorney General's Office is responsible for the development of the Act, Regulations and Register. And, although the Personal Property Securities Register is not yet live, the site is up and running and you can sign up for newsletters to keep yourself informed.
It will be possible to register online. Those familiar with New Zealand's register should have no difficulty with registering in Australia. Similar, although not identical, information will be required. Data from a large number of existing Australian registries will also be automatically migrated to the new Australian PPSR.
When should you register in Australia?
If you want to maintain the priority of your security interest in goods being shipped to Australia, you should, before you send the goods, make sure that:
- your security agreement is enforceable against 3rd parties (have a signed security agreement), and
- your registration on the New Zealand PPSR is effective.
Once the goods become located in Australia (or ideally, before that time), you must register your security interest on the Australian PPSR either:
- by the end of 56 days after the day the collateral becomes located in Australia, or
- by the end of 5 business days after the day you first have actual knowledge that the collateral has become located in Australia.
For certain intangible property or financial property, you will need to register either when the debtor becomes located in Australia, or when the debtor transfers the collateral to a person who is located in Australia.
A single Trans-Tasman register?
A single Trans-Tasman PPSR is being considered as part of the broader trans-Tasman harmonisation programme, with the end of 2014 the indicative date for completion. New Zealand's MED is currently consulting interested parties.
There will be considerable practical challenges in developing a single register but the development ought to be encouraged. The ability to register once in respect of Trans-Tasman trade should be of real benefit both to individual traders, and at a more macro-economic level. Experience suggests that failure to register is the single biggest problem facing users of the PPSA.
How does the Australian PPSA compare to New Zealand's?
The two Acts are conceptually very similar, but different and additional details in the Australian Act make it more complex. As a result, it presents more difficulties and risks than the New Zealand Act for some users, particularly retention of title (ROT) creditors and lessors.
The essential scheme of the Australian Act is the same as in New Zealand.
- Broadly, the definitions of security interest are the same. Substance matters over form. The interest must secure payment or performance of an obligation. The location of title is irrelevant.
- The deemed security interests are essentially the same, although leases need only last 90 days in respect of serial numbered collateral, in order to be a "PPS lease" in Australia (the equivalent to New Zealand's "Lease for a term of more than one year").
- Just as in New Zealand, where the creditor does not have possession of the collateral, there must be a written security agreement. The Australian Act is a little less strict in that confirmation of the written terms can come from an act or omission (e.g. the placing of further orders) and need not itself be in writing.
- Perfection must be by possession or by registration on the PPSR in both jurisdictions. In Australia, perfection by "control" is also possible in relation to some financial assets.
- The fundamental priority rules are the same in both jurisdictions, with some additional exceptions in Australia.
There are, however, many differences in detail, some of which will lead to significant differences in practice and outcomes for creditors.
Serial numbered collateral – The draft Australian regulations list seven types of collateral which can be registered by reference to serial numbers, 1 whereas in New Zealand there are only two (aircraft and vehicles). Registration using serial numbers is not always compulsory in Australia, but the absence of serial numbers (even where not compulsory) increases the risk of losing priority.
Vesting on liquidation and bankruptcy – A fundamental difference is that, unlike in New Zealand, an unperfected security interest becomes completely ineffective on the liquidation or bankruptcy of the debtor (it "vests" in the debtor). The rule applies only to "in substance" security interests, so does not catch a pure operating lease, but that will be of no comfort to a retention of title supplier, for example, who has failed to register.
Purchase money security interests (PMSIs) – A creditor with a PMSI over non-inventory has 15 working days within which to register in Australia, instead of 10 working days in New Zealand. More significantly, in Australia that creditor must record on the financing statement that the creditor claims a PMSI. Failure to do so means the creditor will not achieve "super priority" over the pre-existing GSA registrations. Just as dangerously, claiming a PMSI in respect of a security interest which is not, in fact, a PMSI, will result in the financing statement being ineffective. The result, under the vesting rules, will be that the entire security interest is extinguished.
Factoring – In New Zealand, there is no special priority rule for purchasers of accounts receivable. In Australia, those purchasers will be able to send a notice which will then give them priority over the ROT supplier (of the inventory that was sold to create the receivable). On receipt of the notice, the ROT supplier's only choice (in order to avoid the effect of the notice) will be to stop giving credit.
1. Aircraft, motor vehicles, water craft, designs, patents, plant breeders' rights and trade marks.
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.