Australia: Warning! PPSA – how are you affected!!??

Last Updated: 20 February 2012
Article by Sarah Jane E Spencer and Marguerite Jones

Most Read Contributor in Australia, September 2016

The Personal Properties and Securities Act Cth (2011) ("PPSA") came into effect on 30 January 2012. The PPSA establishes a priority registration regime relating to security interests in personal property and introduces new concepts of attachment and perfection of security interests which replace the traditional notions of title and ownership.

The Personal Properties and Securities Register ("PPSR") brings together approximately 40 registers established under up to 70 Acts which previously existed in Australia (e.g. company charges registered with ASIC). This process of harmonisation aims to reduce compliance costs for business and to bring Australia in line with similar regimes already in operation in countries such as the United States, Canada and New Zealand.

The PPSA may have serious consequences for you and your business if you do not take steps to protect your interests.

The operation of the PPSA

The PPSA affects all 'security interests' in personal property. In substance, a 'security interest' is an interest in relation to personal property (e.g. aircraft, engines, goods or intellectual property) under a contract, agreement or lease which secures payment or performance of an obligation. This relationship is illustrated below:

Which interests can be registered?

Broadly speaking, a personal interest capable of registration includes everything except land. The PPSA covers a wide range of property including motor vehicles, boats, aircrafts, livestock, agriculture, contractual rights and financial property. It also includes intangible property such as certain licenses in intellectual property designs, patents, trademarks and copyright.

Protecting your property

Timing is vital.

Priority of securing interests is determined by the time of registration on the PPSR. If you do not take steps to register your security interests, other parties may gain priority rights to deal with your property, including selling the property, irrespective of your ownership.

How to Register

Registration is done online and is available 24/7, 365 days a year. To register a 'security interest' you will need:

  • Particulars of the grantor (property owner);
  • Description of the property. Certain types of property must have a serial number e.g. motor vehicles, boats and aircraft;
  • The class of property (e.g. 'Purchase Money Security Interest' or 'Perfected');
  • Nature of the security claimed; and
  • Particulars of the secured party who has been granted the security interest.

Once your interest is registered you will be identified on the PPSR with the date and time of registration. The register can be searched by certain parties (for a nominal fee of $3.70 in most cases).

Effect of the PPSA on the owner of goods

The PPSA has changed the landscape of property law. Key implications for the owner of goods under these arrangements include:

  1. Retention of title ("RoT") clauses must be registered to "perfect" their security; and
  2. Legal title is not relevant if the interest has not been registered. If you do not register your interests within strict timeframes you are at risk of losing ownership.

It is an imperative that if you are supplying or leasing goods (e.g. subject to deferred payment terms), that you perfect your interest as soon as possible. If you are the holder of an unperfected security interest you could lose it in the event of insolvency or voluntary administration.

Effect of PPSA on corporate insolvency

Businesses that do not register their interests have no rights in an insolvency situation and lose priority to parties who are registered.

Before the introduction of the PPSA the right to assets held by an insolvent company were determined by whichever party had superior title. The new rules under the PPSA override this common law principle.

This is a major change to corporate insolvency as the focus has shifted to security of interests rather than establishing good and free title. It effectively alters the meaning of what is included as the property of the company. For example:

  1. If a seller fails to register a RoT interest to a company that goes into liquidation, the property will vest in the company in liquidation.
  2. The security interest created by a lease to a company that goes into receivership may lose priority or be defeated by a third party. Failure to register a lease (including financing leases, hire-purchases leases and some operating leases) may result in the secured property vesting with the lessee or title passing to a third party and you will not be able to repossess it.
  3. When a company goes into voluntary administration the administrator has the power to take possession of property the company is using but does not own.

Risk Management

The registration process will differ on a case-by-case basis according to the needs and circumstances of the particular business.

As a general guide, to avoid the potentially dire consequences of failing to perfect security interests, businesses need to:

  1. Develop processes for identifying any security interests;
  2. Search the PPSR to ensure there are no registered interests in relation to your property;
  3. Register your security interests;
  4. Prevent disclosure of confidential information;
  5. Review contracts to ensure appropriate protection is provided for all property including intellectual property; and
  6. Regularly monitor the PPSR to reduce exposure to risk.

Take steps now to secure your property under the new regime or risk losing it!

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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