The PPS start date is getting closer every day. Here's some current thinking from Gadens Lawyers.
There were some 'Instruments' issued recently which stated:
- migration date 21 November 2011
- start date 30 January 2012.
These were issued for technical reasons, and do not necessarily indicate that migration has commenced, nor that the start date will be 30 January 2012.
The latest official statement is: 'The Attorney-General's Department will continue to monitor progress, liaise with key stakeholders and will provide further advice to the Attorney-General to confirm the registration commencement time in mid December'.
Notice of verification statement
As soon as practicable after receipt of the verification statement, the person who receives the verification statement (usually the secured party) must send a statement about the registration in an approved form to the 'person registered as a grantor' – s157.
Personal Property Securities (Approved Form) Instrument 2011 was issued on 17 November 2011 which provides that the notice can be:
- a copy of the statement in its entirety but:
- any information provided by the National Exchange of Motor Vehicle and Driver Information System (NEVDIS) may be excluded; and
- the birth dates of individual grantors must be excluded when the notice is given to a grantor other than the individual to whom the birth details apply; or
- a document which replicates the information contained in the verification statement (amended as per (a) and (b) above), and states that it is a 'Notice of Verification Statement' provided for the purposes of section 157 of the Personal Property Securities Act 2009 (Cth).
This requirement does not apply to serial numbered consumer property, and can be waived for commercial property – s157(3).
The notice will need to be sent for new registrations, transfers by secured parties, discharges, and changes of address for service of the Secured Party Group.
Given the definition of security interest (an interest in relation to personal property provided for by a transaction that, in substance, secures payment or performance of an obligation), why doesn't a beneficiary of a trust which holds personal property have a security interest? The relevant obligation is the obligation on the trustee to hold the personal property on trust for the beneficiary.
A beneficiary does not have a security interest. In a New Zealand case (Stiassny v North Shore City Council  1 NZLR 342), the court held 'a mere proprietary interest of a beneficiary under a trust is not a security interest' for the purpose of PPSA. The beneficiary's interest must secure the payment or performance of an obligation for it to be a security interest (other than the mere declaration of trust). The interest held by a beneficiary does not secure any obligations independent of those arising pursuant to the trust.
Priority Agreements, Subordination Agreements, and Turnover Trusts
Section 12(6) makes it clear that a simple priority or subordination agreement is not a security interest.
However, a turnover trust in a subordination or priority agreement gives rise to a security interest because it secures the obligation to pay money as specified in the priority agreement (i.e. there is a contractual obligation on top of the trust relationship – see 'Trusts' above). However, it will often be acceptable not to register the security interest given the status of the contracting parties (i.e. if the parties are banks).
Certain turnover trusts under which the junior creditor receives personal property from the debtor are specifically excluded from being made void by the appointment of an administrator, liquidator, or bankruptcy trustee under s267 PPSA by virtue of s268(2).
Assignment of rentals, insurance, and other personal property associated with land mortgages
The right to receive rentals is a contractual right owned by the owner of land. The owner of land could assign that right to a third party to secure payment of money and the third party could register this security interest under PPSA.
In addition there is often other personal property associated with mortgages over real estate such as insurance, development approvals, fittings, and other chattels. So, at least for non-residential mortgage lending, it will often be appropriate to register this security interest under PPSA. The charge over these items may be in the real estate mortgage itself or in a separate charge.
Most mortgagees of non residential land are accustomed to taking a fixed and floating charge as collateral security in addition to the mortgage over real estate. Under PPS it will be appropriate to take a GSA from natural person mortgagors as well as company mortgagors.
Should you register all security interests?
An unregistered security interest is quite valid (subject to some exceptions on insolvency), although it risks losing priority. Accordingly, it will be a commercial decision whether in specific transactions it is appropriate to register a security interest as a risk mitigant.
Factors that are relevant in considering whether to register are:
- the nature of the purchaser or lessee (there might be little point in registering security interests against financially strong purchasers and lessees);
- the period for which the security interest will exist. For example, if retention of title only applies for 14 days, there is little point in registering a specific security interest. However a 'revolving' or 'circulating' security interest may be appropriate to register;
- the amount secured by the security interest compared to the overall assets of the security holder (if the amount is small compared to the net assets of the security holder then registration may be overly precautious).
You will see that it is a commercial decision for the business to decide whether to register security interests in the PPS register.
Who should register what?
Many lenders have yet to settle their procedures for registration under the new regime. Our suggestions are:
- if a panel lawyer settles, panel lawyer stamps (if required) and registers;
- if the lender settles, lender stamps (if required) and registers;
- in each case, the lender will send the Notice of Verification Statement to the mortgagor (when required). (Some lenders may wish to send it to the panel lawyer for on-forwarding).
What's the process for registration?
- Each lender will have one Secured Party Group (SPG) (or possibly one for each major division of the lender).
- Panel lawyers will be provided with the SPG number.
- On registration, the security interest will be allocated a registration number, change number, and registration token. The token is sent to the lender's nominated e-mail address and so the panel lawyer does not know the token. (Knowing both the token and the registration number is essential to amend a registration).
Example of registration
Big Bank establishes an SPG of which the only member is Big Bank. The SPG is allocated an SPG number and an SPG access code which only Big Bank and its agents know. The SPG number and access code should be kept secure.
If you know the SPG number, you can register security interests for the SPG. The users could include employees of the lender, law firms, and law stationers.
On registration a security interest is allocated:
- a registration number (publicly available) – like registration numbers under existing registration schemes;
- a change number (publicly available) – the change number indicates the order in which security interests are created and changed, which is relevant to establishing priorities;
- a registration token (private) – a private key needed to deal with the security interest.
Need a hand?
Gadens Lawyers can help your prepare for PPS. Our services include training, documentation, and procedures. Our practical and cost effective approach ensures a smooth transition to the new regime.
For more information, please contact:
t +61 2 9931 4927
t +61 2 9931 4753
t +61 2 9931 4952
t +61 8 9323 0910
t +61 8 9323 0933
This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.