Australia: PPS ready or PPS worried?

The new Personal Property Security regime commences on 30 January 2012.

Some businesses are not ready, but Gadens has the solution.

If your business does any of the following, it needs to amend its transaction documents, get a good understanding of the PPS, and develop systems for searching and registration.

Affected businesses include:

• real estate lenders who take security over company title home units;
• commercial property finance real estate lenders;
• lessors of operating leases, finance leases, and hire purchase agreements;
• landlords who lease chattels (i.e. goods which are not fixtures) with real estate; and
• businesses which sell goods on a deferred payment basis.

What's required?

Affected businesses need to urgently take the following steps:

• establish one or more Secured Party Groups (SPGs);
• find and claim migrated securities (i.e. that is charges that are registered on the old registers such as REVS, bills of sale, ASIC registered charges);
• amend security documents.

Develop processes for:

• document preparation;
• searching;
• registering;
• settling;
• partial releases;
• full releases; and
• sending notices of verification statements.
• identifying any security that your business takes other than real estate. Remember leases, hire purchases, finance leases and retention on title transactions create a security interest. If you ever, as part of your business, part with possession of your property, you may be affected by the PPS regime. This is because possession of property now may give better rights to property than being the owner.

How important is this?

The degree of change is graphically demonstrated by some cases in New Zealand (which has similar, but not the same legislation).

In one case, Portacom leased portable buildings to NDG Pine Limited. Portacom did not register the lease on the PPS register. NDG granted a General Security Agreement (GSA – the replacement of a fixed and floating charge) to HSBC. HSBC registered the charge on the PPS register. Subsequently, a receiver was appointed.

HSBC's registered security interest had priority over Portacom's owner and so HSBC could sell the portable buildings and retain the proceeds. This is a graphic example of the owner losing title to goods. This is a fundamental change to the way the law operates in Australia because until now, in the vast majority of cases, the legal owner of property could come and claim back its property from third parties.

Another example in New Zealand occurred when Glen Morgan Farm Limited entered a hire purchase agreement to purchase a stallion 'Generous'. Generous was repossessed after three year's possession by Glen Morgan. Even though the lessor had repossessed the horse, when Glen Morgan went into receivership, the court found that despite the lessor having legal title to Generous, this was not relevant as the interest of the owner was not registered and should have been. The result was that Generous was sold by the receivers for approximately $2 million.

Act now!

Are you PPS ready? Gadens can provide the solutions now.

For more information, please contact:

This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.