Australia: PPSA impact on Technology and Telecommunications businesses

What is the PPSA?

The Personal Property Securities Act 2009 (PPSA) is one of the most significant commercial law reforms in recent times. It has now come into effect as at 12.01 am on 30 January 2012

The PPSA will affect all "Security Interests" in Personal Property.

Impact on technology and telecommunications businesses

The PPSA will have a significant effect on the Technology and Telecommunications industries. Some examples where security interests may be created are as follows:

  • Equipment leases: Any leases or bailments of IT or telecommunications equipment may be caught by the PPSA. This would include for example servers, desktops, PABXs and photocopiers.
  • Retention of title: Any situation where a vendor retains title to any equipment will be caught by the PPSA. This includes situations where title transfers at a later date (e.g. on final payment). This may include for example a hardware roll-out agreement where title transfers on payment.
  • Consumer contracts: Any consumer contracts whereby a vendor maintains ownership of any hardware will be caught. This may include for example mobile phones, set-top boxes or modems.
  • Software licences: Software licences are not security interests under the PPSA. However, the PPSA makes it easier for a person to take security over an intellectual property asset such as software or a software licence.
  • Goods provided as security: A company may finance its retail stock by providing security over the stock. This may include goods delivered on consignment.
  • Assignment of receivables: Many technology contracts include assignments of receivables (e.g. for the purposes of factoring). These will be caught by the PPSA.

What is a security interest?

A security interest is an interest in relation to personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). It covers:

  • security interests with which we are familiar – charges, mortgages, pledges; and
  • arrangements not currently considered security interests (e.g. conditional sale agreements, retention of title clauses, leases of goods, consignments, hire purchase agreements), including those examples set out above.

Why is the PPSA important?

All PPSA security interests will need to be perfected in accordance with the procedures set out in the PPSA (which include registration, possession or control). In the majority of circumstances, registration will be the appropriate means of perfection. Perfection of security interests is important because:

  • a security interest has to be perfected to survive insolvency of the grantor;
  • an unperfected security interest:
    • will be void if certain insolvency events occur, e.g. the grantor is wound up or made bankrupt, or an administrator is appointed (certain exceptions apply);
    • may be extinguished as a result of the grantor's dealings with 3rd parties; or
    • may suffer loss of priority (generally a perfected security interest has priority over an unperfected security interest).

We recommend that you review all documents used in your business to determine if any security interest is or may be granted.

If security interests are granted under those documents:

  • amendments will need to be made to account for the PPSA; and
  • procedures will need to be put in place for the security interest to be perfected.

A simple example

The effect of the PPSA is best illustrated by an example. Let's say you are an IT vendor and you lease equipment to ABC Ltd. You do not register your interest on the PPS register. What is the situation if ABC Ltd grants a fixed and floating charge over its assets to a bank and the bank enforces the charge? Under existing laws, you would maintain rights over the leased assets as ownership never transfers to ABC Ltd. In the PPSA world, the bank would take priority assuming that it has registered its charge on the PPS register.

What transitional arrangements are in place?

Existing security interests can be divided into two categories:

  • security interests that are currently registered on a 'migrating register'; and
  • security interests that are not currently registrable, are not registered or are not on a 'migrating register' (e.g. retention of title arrangements).

Most security interests that have already been registered (e.g. charges registered with ASIC) will migrate to the Personal Property Securities Register (PPSR). However, this does not apply to all registers. You can check here to see which registers will be migrated. No further action will be required to perfect the security interest. Consideration will however need to be given to the 'end time' of the security interest. We are able to advise further in this regard.

If your security interest should have been registered on a migrating register by migration cut off time but was not, it must be registered on the PPSR as soon as possible on or after 30 January 2012.

Any unregistered security interest of this type will not be a transitional security interest. Its priority will be dealt with according to the normal rules of priority of security interests under the PPSA.

If the security interest is not currently registrable on a migrating register (that is, it is registrable only on a non-migrating register or is not currently required to be registered on any register) the PPSA, gives this type of security interest temporary perfection for a period, subject to the next paragraph, of 24 months from 30 January 2012 (30 January 2014). To continue protection beyond that 24 month period you will be required to register that security interest on the PPSR before the end of that 24 month period.

However, you should be aware that you will stop temporary perfection of non migrated transitional security interests if you do any of the things listed in section 322(2) of the PPSA, for example, registering on the PPSR.

The migration cut off time for most registers was on Friday 27 January 2012 although it may have been earlier for some registers.

How can we help you?

We are happy to help you as you prepare for the arrival of the PPSA.

For example, we can:

  • review the documents used in your business to determine whether security interests are granted;
  • draft any required amendments to deal with the PPSA; and
  • advise how the security interest may be perfected.

The fact that the PPSA will affect arrangements not currently considered security interests (e.g. conditional sale agreements, retention of title clauses, leases of goods, consignments, hire purchase agreements) will require fundamental changes to the way that many businesses operate.

Please contact us if you would like to discuss how the PPSA affects you.

This PPSA Legal Update to clients is for general information only and is not legal advice. It should not be regarded as a comprehensive statement of the law and practice in this area. You should take specific legal advice on any particular matter which concerns you.

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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