With the Personal Property Securities Act (2009) (Cth) (PPSA) to commence on 30 January 2012, now, more than ever, it is necessary to consider the practical issues associated with its commencement. Does PPSA have any unintended adverse consequences to your business?
One practical matter from a secured party's perspective is the impact of the migration process relating to security interests currently registered on a number of registers in Australia, including the ASIC charges register.
In this update we highlight the find and claim procedures relevant to any party which has the benefit of an existing charge or other registered security interest which becomes a migrated security interest after the commencement of the PPSA.
Amongst other things, the PPSA is intended to provide for a single national register of security interests (as that term is defined in the PPSA). In order to achieve this objective, and to avoid the need for secured parties to re-register existing security interests on the new Personal Property Securities Register (PPSR), security interests registered on certain existing registers will be "migrated' to the PPSR.
Migration essentially means the transfer of the data relating to the security interest from the existing register to the PPSR.
Due to differences in the information required to register a security interest on current registers relative to the information necessary to register a security interest on the PPSR, concerns have been raised that the data to be transferred/migrated may not be complete or accurate. The information which may not be complete or correct includes the name of the secured party as well as the address for notices (if applicable) contained on the existing register.
In order to deal with these issues, the Attorney General has introduced a process known as "find and claim" which is intended to allow secured parties which have security interests on existing registers to find such security interests on the migrated data and claim them as their own.
Impact on secured parties
For those parties which have an existing security interest registered on an Australian register (such as the ASIC charges register), the find and claim process is very important. For certain large secured party organisations that have been approved by the Attorney General, the find and claim process has commenced and will continue to be available up to the commencement of the PPSA. This "pre registration commencement time (RCT) find and claim process" is limited to the major banks and larger financial institutions who have been working with the Attorney General and the various PPS Business and IT working groups since the legislation was passed and who have been given access to the data migration system.
For other parties that hold security interests, such as foreign banks and financial institutions which occasionally take security over Australian entities or assets and corporates or other entities who, in various transactions, have taken security from other entities which have been registered on a register in Australia, the pre-RCT find and claim process is not available.
In order for them to be able to deal with their migrated security interests, they will need to take advantage of the find and claim process which will be available after the commencement of the PPSA.
What should secured parties do?
For those secured parties who have not been involved in the pre-RCT find and claim process, they will need to wait until the PPSA commences. From that time, a secured party that is registered on the PPSR has a "secured party group" number will be able to take advantage of the find and claim procedure which will be available online.
A "post-RCT catalogue" will be available to participants on-line after RCT which list all claimed and unclaimed secured party groups or names. If a registered secured party identifies its name and such name is unclaimed, the secured party will be able to claim the secured party group as its own and provide its secured party group number and associated details to the PPS Registrar. The Registrar will then transfer the registered migrated security interests linked to the secured party group to the secured party's secured party group number and issue the relevant verification statements and tokens (i.e PIN numbers) to the secured party.
We recommend that foreign banks and financial institutions as well as any other parties which have taken security over Australian companies or their assets which has been registered either on the ASIC charges register or any of the other 25 registers which will be migrated arrange to be registered on the PPSR (and obtain as secured party group number) as soon as possible. Once registered, they can undertake the find and claim processes from RCT to ensure that their migrated security interests continue to be registered in their name and are available to be dealt with by them on the PPSR.
What is the consequence of failing to take advantage of the find and claim process?
At a practical level, there does not appear to be any significant adverse consequence to the secured party if it does not take advantage of the find and claim process. The migrated security interest will still be registered on the PPSR and the security interest will continue to be enforceable against the grantor of the security interest. The PPSR is merely a notice board of security interests and does not of itself create the security interest.
Although the secured party will not be able to deal with the registration (as it will not have the token for the security registration necessary to initiate dealings with it on the PPSR), such dealing would generally be either a discharge or variation of the registration. If such dealings do ultimately occur, the registration and find and claim process could be undertaken at the relevant time.
The security interest will continue to give the secured party the priority against other creditors it has by reference to the priority rules. These rules do not appear to be affected by the find and claim process.
Potentially of more concern is the ability of other parties to claim a migrated security interest as belonging to them. In the absence of fraud, if this were to happen, then the issue would be identified once a dealing was intended to be undertaken by the secured party. At that time, after registering on the PPSR to get a secured party group number, the secured party would be able to obtain details of the party which had incorrectly claimed the security interest from the "post-RCT catalogue." The dispute mechanism which has been developed by the Attorney-General to deal with these circumstances could then be initiated (see Insolvency and Trustee Service Australia Find & Claim Migrated Registrations Disputed Claim Procedures, Version 1.0, 24 November 2011.)
Clearly, in a case where such dispute arose, there could be substantial time delays involved in finalising the proposed transaction to which the dealing relates.
If fraudulent parties sought to claim migrated registrations in the name of a particular secured party group as their own (which in fact belonged to another secured party), although likely to be a contravention of the Criminal Code, any dealing by such party with the relevant security interest may have an adverse impact on the true secured party (eg by adversely affecting priorities or the ability of the secured party to withstand the vesting of its security interest if the grantor became insolvent.)
It is therefore recommended that secured parties register on the PPSR and take advantage of the find and claim process as soon as possible after RCT.
With the commencement date for the PPSA now determined, parties whose businesses may be affected by the operation of PPSA will need to ensure that they become familiar with how the PPSA operates and how it will impact on their business. Please feel free to contact any member of our PPS team to discuss how we can assist you in this regard.
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