Australia: Pacific Islands: Securing Transactions under the PPS Regime

Last Updated: 20 December 2011
Article by Anthony McFarlane and Laura Houlihan

As the commencement date for the Australian personal property securities ("PPS") regime quickly approaches (see " Brief guide to PPSA readiness"), Pacific Island countries such as Vanuatu, Solomon Islands and Tonga ("Pacific PPS Countries") already have in place PPS legislation. 

Whilst the regimes in the Pacific PPS Countries have their own quirks and differences, common concepts and procedures underlie how a party secures (and enforces) the performance of an obligation or a payment by another party.

The following questions should be considered and addressed prior to securing a payment or the performance of an obligation.

Is my transaction caught?

The PPS regime generally applies to all transactions which secure an obligation with collateral (ie. personal property). The regime provides for the creation and enforceability of security interests in such property, which can include tangibles such as cars, art, machinery and crops as well as intangibles such as intellectual property and contract rights.

Depending where a security interest is created, it is important to check the scope of the relevant legislation. For example, in Tonga a building or other improvement to real property can also be subject to a security interest in Tonga. In the Solomon Islands, personal property is defined more broadly as 'movable' property which includes fixtures.

Given the scope of the legislation, traditional retention of title or 'Romalpa' clauses found in supply and services agreements will fall within the ambit of the regime (as they create a security interest) and must therefore be registered. This is one of the fundamental shifts under the PPS regime which looks more to the substance, not the form, of the transaction.

What is a security interest?

Broadly, it is a right or interest in personal property (ie. 'collateral') that secures the performance of an obligation.

The security interest must 'attach' to collateral. Generally a security interest attaches to collateral and becomes enforceable against a debtor and third parties when:

  1. the debtor has signed an agreement that provides a description of the collateral;
  2. value has been given by the secured party to the debtor; and
  3. the debtor has rights in the collateral.

Is that all I need to do?

No. Unless a possession or control rule applies, chances are your security interest is not 'perfected' under the PPS regime. In most cases perfection involves taking additional steps to give the public notice of a security interest so as to be enforceable against third parties. In most cases, a security interest must be registered on an electronic register to achieve perfection. The agreement is not lodged but each PPS regime sets out requirements at to what information must be filed by way of notice on the register.

How do I describe the collateral in a notice or financing statement?

Good question. In most cases a general description of the collateral by item, kind or class will be sufficient. However, for some items of collateral a more specific description is needed to ensure enforceability/effectiveness of the security interest against third parties and to ensure the notice is not 'seriously misleading' – for example descriptions of consumer goods and serial numbered property . These requirements differ from country to country in the Pacific. Information collected by the secured party therefore becomes important prior to registering a notice.

Does my notification to the PPS register last forever?

Depends... on what country the security interest is registered/perfected. In Tonga and the Solomon Islands the duration of the notice of a security interest lasts 5 years (which can be continued). In Vanuatu, the duration of the notice is the expiry date specified in the notice. Notices need to be monitored to maintain the perfection and therefore priority of a security interest in Tonga and the Solomon Islands.

What if the collateral (subject to the security interest) changes over the life of the agreement?

The agreement should be drafted in such a way that avoids the need to amend documentation every time the collateral (subject to the security interest) changes. Only the notice details should be amended on the register.

What next?

PLN has experience across the Pacific with the various PPS regimes. We can assist in documenting and registering security interests arising from transactions to ensure the priority of a security interest is achieved and maintained throughout the life of the interest.

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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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