THE PERSONAL PROPERTY SECURITIES AMENDMENT (REGISTRATION COMMENCEMENT) BILL 2011("BILL") CONTEMPLATES THE POSSIBILITY OF A FURTHER DELAY IN THE INTRODUCTION OF THE PERSONAL PROPERTY SECURITIES ACT 2009 (CTH) ("PPSA"). THE PROPOSED AMENDMENTS MAY STILL NOT GIVE ANY CERTAINTY AS TO THE COMMENCEMENT DATE FOR THIS SIGNIFICANT REFORM.
When the PPSA does commence, there may be a misconception amongst businesses that the new regime will cover security over all personal property and that the old law will no longer be relevant. In fact, this is not the case.
PPSA MAY BE FURTHER DELAYED
As mentioned in our last update, the start date for the PPSA was delayed beyond 31 October 2011. The www.ppsr.gov.au website currently states that the PPSA will commence "early in 2012"and that the registration commencement date is planned for 30 January 2012.The commencement will be delayed until the Federal Government is satisfied that the new online system for registering securities and doing searches in relation to them (being the new Personal Property Securities Register ("PPS Register")) is fully effective.
The PPSA contains two critical timing points, the migration time and the RCT. The migration time is the point from which data on existing registers (which are to be transferred or migrated to the PPS Register) will be able to be transferred. This migration time is intended to start one month before the RCT.
The RCT is the time from which the PPS Register will go live and replace the existing registers from which data has been transferred and will also be the date from which the PPSA will be effective.
Due to the possibility of further delays in the Federal Government being satisfied with the operation of the PPS Register, it was necessary to allow for both the migration time and the RCT to occur beyond the start dates provided for in the PPSA itself (being 1 January 2012 for the migration time and 1 February 2012 for the RCT).
The Bill was introduced into Parliament on 12 October 2011. If passed, the amended PPSA will allow the Attorney-General to determine a time later than the automatic times provided for in the PPSA as being the migration time and the RCT.
This leaves open the possibility that commencement of the PPSA is delayed beyond 1 February 2012. In addition, the mechanism incorporated into the PPSA by the Bill will continue to create uncertainty as to when the PPSA will commence.
Under the amendments proposed by the Bill, the Attorney- General has a number of options available to him in respect of the start of the PPSA. These are:
- Do nothing, in which case the default start dates provided for in the PPSA will apply.
- Do nothing in relation to the proposed migration time and then leave open the possibility to make a determination to extend the RCT beyond the one month period after the migration time provided for by the PPSA.
- Determine a start date for both the migration time and the RCT. In this case, the Attorney-General could still make a subsequent determination to extend the RCT. Clearly, other than in the case of the first option, the circumstances referred to in the other options will continue to leave the commercial community in unclear waters as to when the PPSA will finally commence.
Clearly, other than in the case of the first option, the circumstances referred to in the other options will continue to leave the commercial community in unclear waters as to when the PPSA will finally commence.
WHAT'S NOT COVERED?
Much has been written and said about the PPSA regime, particularly how it will now apply to many title-based security arrangements, like title retention sales and finance leases; and deemed security interests, like the transfer of accounts. Unsurprisingly, there has been less focus on what remains outside the scope of the PPSA.
The pre–PPSA law will continue to apply in relation to taking effective security over any property that is not covered by the PPSA. In other words, general law principles and formalities in relation to mortgages and charges and the common law and equitable principles used to determine priority issues will continue to apply to non–PPSA property. The existing state and territory property laws will continue to apply to mortgages and other security interests in land. In relation to any statutory rights that are excluded from being PPSA property, the existing statutory requirements dealing with security interests over those rights will generally continue to apply.
Section 8 excluded 'interests'
The list of excluded interests under section 8(1) can be summarised as follows (although the detailed wording of each paragraph of section 8(1) should be referred to in any particular situation):
- the interest of a seller who has shipped goods to a buyer under a negotiable bills of lading;
- a statutory lien;
- a lien that arises by operation of law;
- a right of set–off;
- any netting arrangement or contract (like under an ISDA m aster agreement);
- an interest provided for by any of the following transactions:
- the creation or transfer of an interest in land;
- the creation or transfer of a right to payment in connection with an interest in land;
- a transfer of an unearned right to payment under a contract with a person who is to perform the transferor's obligations under the contract;
- a transfer of remuneration (wages etc) payable to an individual;
- a transfer of an interest or claim in a contract of annuity or policy of insurance, except a transfer of a right to an insurance payment as indemnity or compensation for loss or damage to collateral;
- a transfer of an account made solely to facilitate the collection of the account on behalf of the person making the transfer;
- a transfer of an account, if the transferee's sole purpose in acquiring the account is to collect it;
- a transfer of an account or negotiable instrument to satisfy a pre–existing indebtedness;
- a sale of an account as part of a sale of business, unless the seller remains in apparent control of the business after sale; and
- a transfer of the beneficial interest in a monetary obligation where, after the transfer, the transferee holds the monetary obligation on trust for the transferor;
- certain interests in property created under the Bankruptcy Act 1966;
- a Quistclose trust arrangement;
- any general law or statutory right granted in relation to the control, use or flow of water (so called "water rights");
- an interest in a fixture;
- a security interest in personal property valued at $5,000 or less, securing $5,000 or less, taken by a licensed pawnbroker;
- an interest of a person under a superannuation fund, an approved deposit fund, a retirement savings account or a superannuation annuity;
- a charge created under either section 6 of the Commonwealth Inscribed Stock Act 1911 or section 5 of the Loans Redemption and Conversion Act 1921;
- a statutory right declared not to be personal property for the purposes of the PPSA; or
- an interest prescribed by the regulations.
It is apparent that some of the excluded interests create an exclusion from what would otherwise be personal property (for example, fixtures). Other excluded interests create an exclusion of transactions that may have otherwise constituted a security interest in personal property (for example, set–off rights).
This diverse list of exclusions under section 8 can be broadly grouped as follows:
- certain ordinary commercial transactions that may have been caught by the wide "in substance" definition of a security interest, but are generally not intended by commercial parties to give rise to a security interest. For example, the interest of a seller under a negotiable bills of lading (paragraph (a)), the transfer of unearned performance income or wages (paragraphs (f)(iii) and (f)(iv)), the transfer of an annuity or insurance policy (paragraph (f)(v)), the transfer of an account solely for collection (paragraphs (f)(vi) and (f)(vii)) or to satisfy a pre–existing indebtedness (paragraph (f)(viii)), the transfer of accounts as part of a sale of business (paragraph (f)(ix)), or low value ($5,000 or less) pawnbroker transactions (paragraph (ja));
- liens and charges arising under statute or the general law – see paragraphs (b) (statutory liens), (c) (general law liens), (g) (Bankruptcy Act statutory interests) and (jc) (certain statutory charges for Commonwealth borrowings);
- set–off and netting arrangements – paragraphs (d) and (e);
- transactions relating to land – paragraphs (f)(i) and (f) (ii);
- certain trust transactions – the transfer of the beneficial interest in a monetary obligation to a transferee holding on trust for the transferor (paragraph (f)(x)) and a "Quistclose trust" financing for a specific purpose (paragraph (h));
- certain excluded property – water rights (paragraph (i)), fixtures (paragraph (j)) and any other excluded statutory rights (paragraph (k)); and
- superannuation funds and accounts – paragraph (jb).
Under the PPSA, land includes all estates and interests in land, whether freehold, leasehold or chattel, but does not include fixtures.
It will generally be clear when an asset is an interest land. The area of most uncertainty relates to when a chattel becomes a fixture and therefore forms part of the land under general land law principles.
Because fixtures are excluded from the definition of land, they fall within the PPSA concept of personal property. However, section 8(1)(j) provides that the PPSA does not apply to an interest in a fixture. This has the result that the pre–PPSA law continues to apply to taking effective security over fixtures.
The PPSA defines a fixture as meaning "goods, other than crops, that are affixed to land". It is generally assumed that this definition imports the general land law concept of what constitutes a fixture, based on the degree of annexation and the purpose of annexation to the land. In other words, even though a chattel may be "affixed" to land, the chattel only ceases to be personal property if it is a fixture for the purposes of the relevant general law.
Under section 8(1)(i), general law and statutory water rights have been expressly excluded. Section 8(5) provides in effect that water rights include any right that a person has against another person to receive (or otherwise gain access to) water.
Water rights have been specifically excluded because of federal, state and territory government policy considerations. To the extent that the particular water right is "a right entitlement or authority" granted by statute, the statute itself may declare the particular right not to be PPSA personal property and therefore exclude the operation of the PPSA (either under section 8(k) or the definitions of "licence" and "personal property" in section 10).
Mining tenements and petroleum licences
In general, mining tenements are statutory rights to explore for - or extract, exploit or use - minerals or other resources. Similarly, petroleum licences are statutory rights to explore for - or extract, exploit or use - oil, gas or other hydrocarbons.
Legislation passed (or expected to be passed) by most states and territories declares that most (if not all) mining tenements and petroleum licences in the relevant state or territory will not be personal property under the PPSA regime.
Many other statutory licences
In addition to mining tenements and petroleum licences, the Federal Attorney–General's list of excluded statutory licences (as at March 2011) shows that there is a broad range of excluded state and territory licences, to the extent that they are transferrable, for example:
- liquor licences (in Queensland, NT, WA and the ACT);
- betting and gaming licences (in Victoria, Queensland, NT);
- fishing licences (in NSW, Victoria, WA and NT);
- pearling licences (in WA);
- forestry licences (in Queensland); and
- energy (electricity and gas) generation, transmission and retail licences (in Victoria, Queensland, SA, WA and NT).
While the Attorney–General's list is very useful, it is not current, nor is not necessarily comprehensive. In particular situations, it will be important to check which state and territory licences are valuable property, which are transferrable and whether or not the relevant statutes have excluded those licences from being PPSA property.
Some statutory licences may not even be "property" because they are not transferrable – see the definition of "licence" in section 10.
SOME EXCLUDED TRANSACTIONS
Set–off rights (without a fawed asset or other security interest)
A simple contractual right of set–off or a banker's general right of set–off will not be a security interest under the PPSA.
However, section 12(2)(l) provides that a flawed asset arrangement will be a security interest in relation to the asset, if the transaction in substance secures payment or performance of an obligation.
Financiers often require blocked account arrangements as part of their security package. If the financier is an Authorised Deposit–taking Institution ("ADI") under the Banking Act 1959, the ADI will be able to protect its security interest in the blocked account by way of perfection by control (rather than by registration). Any other financier will need to perfect its flawed asset arrangement by registration and, if necessary, enter into a priority agreement with the ADI that holds the blocked account.
Short-term rentals (which are not PPS leases)
A "PPS lease" is a deemed security interest.
A lease that is not a PPS lease, including if it is for a term of less than one year (or less than 90 days, in the case of serial numbered goods) may nevertheless be an in- substance security interest if the lease secures payment or performance of an obligation.
If the relevant lease or rental arrangement is neither a PPS lease (and therefore a deemed security interest) nor a finance lease (and therefore an in-substance security interest), then the PPSA regime will not apply and the general law will apply, including rights to repossession on termination of the lease.
With the PPSA due to commence in early 2012 (covering all states and territories and all forms of security interests in personal property), for the purposes of taking effective security over all the assets of a particular entity, it would have been helpful to have avoided the gap between real property mortgages and PPSA general security agreements.
However, as described in this update, there is clearly a gap between PPSA personal property on the one hand and real property on the other, which needs to be considered by a secured creditor when that creditor is seeking to take security over all assets of the particular entity. This will be particularly relevant if there are high-value assets that arise from statutory rights that are excluded from the PPSA regime, including water rights, mining tenements and a range of other federal, state and territory licences.
The PPS regime creates interesting issues in relation to a multitude of factual situations. If you would like us to assist you in relation to any matters, please do not hesitate to contact one of our PPS team members.
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