Most Read Contributor in Australia, September 2016
With the commencement date fast approaching (on or about 10
October), it is time for businesses to ensure that they are ready
for the introduction of the Personal Properties Securities Act 2009
(Cth) (PPSA). In particular, the PPSA will create
new rules applicable to the supply of personal property on credit
terms and to leases of goods which are not widely understood.
The new legislation fundamentally alters existing laws relating
to priorities in respect of insolvent entities. In many cases,
owners of goods supplied or leased to insolvent customers will need
to take additional steps under the PPSA to perfect their interest
in those goods. Failure to take these steps to appropriately
protect security interests under the new laws may result in
liquidators of insolvent customers seizing and disposing assets
leased or supplied to the customers. Liquidators are generally
unable to do this under laws currently in place.
Supply of personal property on credit terms
Contracts for the supply of personal property containing
retention of title clauses will need to be reviewed and amended.
Suppliers under such contracts will need to ensure that their
interests are registered or otherwise perfected under the PPSA.
Although there are some transitional protections in the PPSA
relevant to retention of title arrangements, after the new regime
takes effect unregistered retention of title interests will
generally no longer give priority to their holders over secured
creditors of a customer in the event that customer becomes
Once registered, a 'security interest' in a retention of
title arrangement will be referred to as a 'purchase money
security interest' (PMSI). A PMSI is given
super priority over other security interests that are registered
before the PMSI (with the exception of other PMSIs).
In order to be given priority in the event of insolvency, it is
vital that a PMSI is registered to ensure that a party is not
treated as an unsecured creditor. Without the registration of the
PMSI, assets subject to retention of title clauses may be generally
available to liquidators of insolvent customers for realisation and
the reimbursement of secured creditors.
PPS leases will also be significantly affected by the PPSA and
need to be reviewed and amended. A PPS lease will include a lease
or bailment of goods for an automatically renewable term of one
year or more, for a term of one year, for an indefinite term or a
lease of 90 days or more (or automatically renewable for 90 days or
more) for goods that can be described by a serial number.
The PPSA provides that a lessor may register an interest over
the leased property to secure payment in relation to a PPS lease. A
PPS lease interest will also be a PMSI and have super priority.
Again, subject to certain transitional arrangements contained in
the PPSA, businesses should be aware that failure to register or
otherwise perfect the interest of the lessor under a PPS lease may
result in loss of priority and liquidators of an insolvent lessee
seizing and disposing of leased assets in the event that a lessee
Preparing for PPS
Accordingly, businesses who lease goods or supply them on credit
terms should begin reviewing and amending their contractual
arrangements prior to October 2011 and prepare for the introduction
of the new laws to ensure that they are appropriately protected
when the PPS regime takes effect.
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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