Australia: How the Personal Property Securities Act will affect Australian businesses

Banking and Finance
Last Updated: 30 January 2011

Article by Paul Cullen, Partner and Daniel Pinti, Senior Associate

The Personal Property Securities Act 2009 (PPSA) will have a wide-ranging impact on Australian businesses. Because it will apply to most security interests in personal property, even businesses that have never had to register security interests before will now need to take care to protect their rights.

The Personal Property Securities Act 2009 (Cth) and the Personal Property Securities (Consequential Amendments) Act 2009 (Cth), which both received Royal Assent on 14 December 2009, will take effect from May 2011. While the PPSA will clearly affect all financiers, there are numerous other industries whose core business services will be regulated by the PPSA.

What you need to do now

Anyone who has been granted a security interest or has entered into any form of arrangement that may be regulated by the PPSA should now be reviewing their documents and considering what steps (if any) they need to take before the PPSA commences. The new legislation will not only affect financiers, but also manufacturers, suppliers and anyone else that has entered into, or will in the future enter into, any arrangement constituting a security interest under the PPSA.

What is personal property?

The PPSA will apply to most security interests in personal property. Personal property includes:

  • tangible property (such as goods or other assets); and
  • intangible property (such as intellectual property and licences),

but specifically excludes:

  • land; and
  • any right, entitlement or authority that is granted by a law and declared by that law not to be personal property for the purposes of the PPSA.

The major changes introduced by the PPSA

The PPSA will replace over 70 pieces of legislation in Australia, and will regulate company charges, bills of sale, motor vehicle securities, ship mortgages, crop liens and other securities over personal property. It will also establish the Personal Property Securities Register to replace over 40 Commonwealth, State and Territory registers. Replacing the myriad of laws and registers currently in place will address the various anomalies and inconsistent priority rules between jurisdictions. Inspired by similar regimes established by reforms in New Zealand, Canada and the USA, the PPSA will take a functional approach, applying to all security interests over personal property regardless of:

  • the legal personality of the grantor;
  • the jurisdiction in which the grantor is located;
  • the type of security;
  • the jurisdiction in which the personal property is located; or
  • the type of personal property to be secured.

Accordingly, the PPSA will regulate any interest or right in personal property which in substance secures payment or performance of an obligation, notwithstanding the form of the secured property (described in the PPSA as "collateral") or who has title to it. This can include arrangements not traditionally thought of as security interests such as consignments, hire purchase agreements, leases of goods and conditional sale agreements (including an agreement to sell subject to retention of title). In addition, certain interests in personal property will be deemed security interests, and the PPSA will apply to these interests regardless of whether or not the interest secures the payment of money or the performance of an obligation. Examples of deemed security interests include the interest of:

  • a lessor or bailor of goods under a "PPS lease" (certain leases or bailment of goods arrangements specified in the PPSA to be a "PPS lease");
  • a consignor under a commercial consignment; and
  • a transferee of accounts receivable or chattel paper (examples of a chattel paper include equipment leases, hire-purchase agreements and chattel mortgages).

The combination of the wide definition of "security interest" and the concept of deemed security interests means that there will be numerous arrangements that can be registered under the Register and regulated by the PPSA, including interests that are not currently capable of registration on any Commonwealth, State or Territory register. While this will give the holders of these interests the benefit of a legislative priority and enforcement regime, interest holders will need to take care to ensure that their rights are recorded and protected within the required time frames. Further, for future transactions, financiers and other parties affected by the PPSA will need to make appropriate amendments to documents and modify their procedures in relation to charges, mortgages (other than mortgages solely over land), vehicle leases, equipment and chattel leases, hire purchase arrangements and possibly some forms of retention of title arrangements.

While we expect that large financiers will already have procedures in place, small to medium financiers and organisations within industries that are not accustomed to registering their interests (the most notable examples being manufacturers and suppliers) will need to take special care and obtain appropriate advice to ensure that their interests are protected. For example, retention of title clauses are used in agreements where the title to delivered goods is retained by a manufacturer or supplier until the amount owing on the goods is paid. Retention of title clauses are not currently able to be registered, although they are still recognised at law. Once the PPSA takes effect, retention of title clauses will be regulated by the PPSA and will be capable of registration.

The Personal Property Securities Register and the transitional period

All security interests (including deemed security interests) granted after the commencement date will need to be registered to obtain "perfection" by registration. The term "perfection" is an important concept under the PPSA, and is particularly relevant in the context of enforceability and priority. For example, while the priority rules are complex and there are exceptions, a perfected security interest will generally have priority over an unperfected security interest. Accordingly, ensuring that security interests are perfected (including, where applicable, by registration) will be a primary concern.

Some existing registered security interests will be electronically migrated to the Register. For those security interests that will not be migrated, and those interests that did not require (or were not capable of) registration under current regimes (for example, retention of title arrangements), there will be a transition period to register or re-register. Parties that hold the benefit of an interest capable of registration on the Register should ensure that they take all necessary steps to record their interest and to ensure the intended priority of their interest is maintained and recorded.

For more information about the Personal Property Securities Act 2009 (Cth) or advice on how it will affect your business, please contact HopgoodGanim's Banking and Finance team.

© HopgoodGanim Lawyers

Gold Employer of Choice - ALB magazine, April 2010
Finalist, Brisbane Law Firm of the Year, ALB Australasian Law Awards 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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