In Brief
The Personal Property Securities Act 2009 (Cth) (PPSA) establishes a new, nationwide regime regulating interests in personal property. The PPSA is scheduled to commence on 30 January 2012.
HOW DOES THE PPSA CHANGE THE LAW?
The PPSA changes the order of priority of some security interests, changes the way in which those interests (especially ownership) can be enforced and creates a new registration system for interests in personal property. For further information on the new PPSA terminology click here.
For example, previously a retention of title clause (commonly found in terms and conditions of sale) was not capable of any kind of registration and yet was potentially enforceable against an administrator with priority over even registered charges against a company's assets. Under the PPSA, a retention of title arrangement will need to be registered if it is to take priority over and be enforceable against those other interests.
WHAT PROPERTY IS COVERED BY THE PPSA?
The act covers assets (such as motor vehicles, equipment, stock, crops and livestock, intellectual property and financial instruments) which secure payments or the performance of obligations. Security interests covered by the PPSA include charges, mortgages and pledges, conditional sale agreements (including sales of goods subject to retention of title), hire purchase agreements, consignments and leases of goods.
WHAT IS NOT COVERED BY THE PPSA?
The PPSA does not extend to real property (including rights relating to water, land and fixtures).
HOW DO YOU OBTAIN PIORITY FOR YOUR SECURITY INTEREST?
In order to enjoy priority of your interest in personal property under the PPSA, you will need to register your security interest on an online register called the Personal Property Securities Register (PPSR). This will involve registration of financing statements with respect to security interests, which must specify (amongst other things):
- identity of the secured party and the person granting the secured party the security interest (the grantor)
- description of the collateral/ proceeds secured
- the end date of the registered interest
- subordination
- description of the security interest (eg 'security interest over circulating assets', 'purchase money security interest' etc)
- any other matter prescribed by the regulations
The three critical aspects to ensure priority of your security interest are:
- attachment of the security interest to the collateral (where the grantor accepts consideration giving rise to the security interest in the collateral);
- enforcement where, following attachment, the collateral is either controlled by the secured party or the parties enter a written agreement with respect to the collateral; and
- perfection, being either registration of the interest on the PPSR or the collateral being in the secured party's possession or control.
GIVEN COMMENCEMENT ON 30 JANUARY, WHAT ARE THE IMMEDIATE REGISTRATION AND TRANSITIONAL ARRANGEMENTS?
Some security interests such as those currently registered on ASIC databases will be automatically transferred to the PPSR. However, other forms of registered interest (such as intellectual property interests registered on IP Australia's trade mark, design and patent databases) will not be automatically transferred.
Parties with existing registrations which are not subject to automatic transfer have two years in which to re-register on the PPSR, as do those with existing interests that did not previously require registering (such as an existing retention of title interest, which after commencement can be registered as a purchase money security interest or PMSI).
There is also a two-year grace period from commencement of the PPSA to allow for implementation of new arrangements and registration of security interests under those arrangements correctly. However, note that the longer the period taken to register such interests, the greater the potential effect on your priority position. In addition, security interests in goods supplied on a retention of title basis after commencement will not necessarily have the benefit of the transitional grace period so that in many cases financing statements may need to be registered promptly after commencement.
WHAT PRIORITIES APPLY TO SECURITY INTERESTS UNDER THE PPSA?
The PPSA fundamentally alters existing law relating to priorities. In broad terms, the order of priority under the PPSA regime will be as follows
- a perfected security interest will generally have priority over an unperfected security interest;
- security interests perfected by control are of first priority;
- security interests perfected by means other than control are of second priority; and
- finally, unperfected security interests are of last priority.
There are exceptions to these basic priority rules. Importantly, PMSIs will generally be given super priority over other, prior registered security interests.
WHAT ARE THE KEY IMPLICATIONS?
The PPSA will affect not only financing transactions, but also many basic transactions for the supply of goods and services (including the transfer and licensing of intellectual property). Whilst existing charges registered with ASIC will be automatically migrated to the PPSR as 'security interests over non circulating assets' and 'security interests over circulating assets', there are a number of specific arrangements which will need to be re-considered or the terms of which will need re-visiting with the commencement of the PPSA, including the following:
- Retention of title: supply contracts that contain a retention of title clause will need to be reviewed and may require registration as purchase money security interests in order to protect the interests of the seller.
- Equipment hire: equipment leases or bailments of more than 12 months may require registration in order to protect the interests of the equipment owner.
- Serial numbered goods: leases (of more than 90 days) of serial numbered goods may require registration in order to protect the owner's interests.
- Joint venture agreements: interests arising under cross charges and some default charges in joint venture agreements will need to be reviewed.
WHAT SHOULD YOU BE DOING NOW AND GOING FORWARD?
- Identify all existing security interests and whether these will be subject to automatic migration, or whether new registrations should be made.
- Review terms and conditions of contracts including standard terms of trade and financing arrangements, in particular retention of title interests and consignment arrangements.
- Amend contracts to be PPSA compliant, taking into account new terminology and concepts relating to attachment, perfection and priority.
Please let us know if you have any questions or if you need any assistance in connection with the commencement of the new PPSA regime.
For further information please contact:
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.
