The new national personal properties security scheme is due to commence in October 2011 and will have widespread impact on the way businesses record and conduct their commercial transactions. The reform promises to merge more than 40 separate Australian wide security registers into a uniform and functionally consistent national registration system.

Will your business be affected?

If your commercial dealings involve any one of the following security interests, your business will inevitably be affected by the introduction of the Personal Property Securities Act 2009 ('PPSA'):

  • Fixed and floating charges
  • Conditional sale agreements, including agreements to sell subject to a retention of title ('ROT')
  • Hire purchase agreements
  • Consignments
  • Leases of goods
  • Chattel mortgages.

Review of your standard terms and conditions

For many businesses, security interests such as those listed above lie at the heart of contractual relations with customers and end-users. If this applies to your business, we recommend you immediately arrange a review of your current standard terms and conditions to:

  • Ensure those terms and conditions reflect the new key concepts introduced under the PPSA (such as 'collateral', 'attachment' and 'perfection')
  • Contract out of the PPSA to the extent required
  • Ensure that you preserve priority of your security interest over the interest of other creditors.

Retention of titles arrangements

The PPSA makes some fundamental changes to existing law regarding retention of title arrangements:

  • No longer will a supplier's title in goods be preserved until full payment, even with a well drafted ROT clause. Now a positive step, such as registration of the ROT, is necessary in order to preserve priority in the event of competing creditors
  • If you fail to register (or register outside of the relevant registration period) your ROT security interest, other creditors may rank ahead in priority and seize your goods
  • Priority rules vary depending on the nature of the security interests
  • There are technical rules of registration that must be complied with in order to preserve priority
  • Registration must take place within certain time limits.

Significantly, businesses will need to ensure their internal practices are  updated. In most cases under the reform, merely relying on contractual terms will not be enough to preserve the priority of your security interest over other creditors without further positive steps being taken to possess, control or register the security interest.

As the below example demonstrates, timing is critical when competing interests exist over the same collateral:

Day 1       Day 100
Bank has General Security Agreement registered over assets of Purchaser Supplier supplies Batch A goods to Purchaser under ROT agreement Supplier registers security interest over Batch A goods as well as any subsequently supplied goods Supplier supplies Batch B goods to Purchaser Purchaser goes into receivership

Outcome – Supplier has priority only in respect of Batch B, because of its failure to register before the supply of the Batch A goods.

Due to the broad nature and effect of the PPSA, this newsletter provides a brief introduction to only some aspects of the PPSA and is not intended as and should not be relied upon as legal advice. We recommend you promptly seek legal advice in respect of your particular circumstance.

If you have any queries in relation to the above or require assistance in preparing for the changes, please contact either Grant Sefton (Partner) or Lee-Anne Dimmock (Senior Associate) of our Newcastle office.

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.