The PPSA - The Personal Property
Securities Act 2009 (Cth)
("PPSA") will commence on 30 January
2012 ("Commencement Date"). The PPSA
will have a significant impact on the taking, registration and
enforcement of security over almost all kinds of property (except
land and statutory licenses). For more information see Brief
Guide to PPSA Readiness.
What is changing? - the PPSA captures new
transactions that did not previously require registration pre-PPSA
to provide protection in an insolvency situation.
Are "Romalpa" or Retention of Title (RoT)
clauses caught?- Yes. RoT clauses, typical in supply
agreements, lease and conditional sale arrangements, are deemed to
be a "security interest" under the PPSA and must now be
registered under the PPSA to ensure maximum protection to a seller
of goods on RoT terms.
A seller of goods under an RoT clause will remain the owner of
the goods. For the purposes of the PPSA, however, ownership
of the goods is largely irrelevant. The PPSA will treat
the arrangement as if it were akin to a secured loan, and will
apply as if the purchaser had become the owner of the goods and had
granted security over the goods back to the seller.
Implications - This has some key implications
for suppliers that rely on RoT clauses:
a seller's sale documents and procedures must comply with
the PPSA to create and register a security interest otherwise the
RoT clause may not work as intended;
a seller can no longer "enforce" its RoT clause by
simply taking goods back (there are enforcement procedures under
the PPSA); and
the purchaser will now be able to grant security over the goods
to third parties.
Will sellers need to amend documents?- Yes.
Sellers will need to amend their trading terms that contain RoT
new relationships established after the
commencement of the PPS regime (the registration commencement
existing RoT arrangements where a seller will
continue to supply goods under those arrangements after the
registration commencement time (note: the counterparty to this
arrangement will need to accept the amendments, as the amendments
will vary an existing contractual relationship.)
Registration - A seller on RoT terms must also
"perfect" their security interest by registration on the
PPS register through what is called a "financing
statement". A single financing statement can be registered at
the outset of the trading relationship to cover all supplies made
(so long as the description of the collateral in the financing
statement is broad enough to cover all types of property to be
PMSI - The RoT security interest, to the
extent it secures the purchase price of the relevant goods, can and
should be registered as a Purchase Money Security Interest
("PMSI"). PMSI's have priority over
non-PMSI security interests. A PMSI must be registered with a
specified timeframe (for inventory, the PMSI must be registered
before the purchase takes possession of the goods).
Do I need to register pre-commencement RoT
arrangements? Not if the seller will not supply goods
after the commencement date (currently 30 January), except for
arrangements where monies are likely to remain outstanding beyond
the two year transitional period.
An example from New Zealand - The case of
Graham v Portacom New Zealand Ltd  2 NZLR 528 was
the first New Zealand case and a good example of why you should
register a security interest. The case reports show that Portacom
was a company that had leased portable toilets to NDG Pine.
Separately, NDG Pine took a loan from HSBC secured by a fixed and
floating charge over all of its property. Unlike Portacom, HSBC
registered its security interest on the PPS register. NDG Pine
defaulted on its loan and HSBC appointed receivers to NDG Pine.
Under the pre-PPS law, Portacom would have been able to take
possession of the toilets because it owned them. The Court held
that HSBC's registered security interest had priority over
Portacom's unregistered interest as the owner and lessor.
Portacom's failure to register its lease meant the receivers
could sell the toilets and pay the proceeds to HSBC, even though
Portacom was the lawful owner and had only leased them to NDG.
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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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