Gadens Lawyers outlines some of the common issues Secured Parties are facing as they adapt to the new PPS regime.
The Personal Property Securities Act 2009 (Cth) (PPSA) commenced on 30 January 2012. It replaced most existing Commonwealth, state and territory laws and registers for company charges, bills of sale, ship mortgages, motor vehicle securities, crop liens, stock mortgages and other securities affecting tangible and intangible personal property.
This rationalisation of laws and registers has lead to new issues and speed humps when security is taken or provided over personal property. As the market slowly adapts to these changes we wanted to highlight some of the common issues being faced by Secured Parties.
Please release me
Previously, an ASIC Form 312 was provided to an incoming lender to wholly or partially release a charge registered on the ASIC register. This form no longer exists. Under the PPSA, it is now up to the outgoing Secured Party to register the release of a Security Interest. The outgoing Secured Party releases the Security Interest by registering a Financing Change Statement with the Personal Property Securities Register (PPSR). In order to register a Financing Change Statement the outgoing Secured Party needs to ensure the registration number and registration token for the particular Security Interest are available.
The Australian Banker's Association (ABA) has collaborated with the Australian Finance Conference (AFC) to draft an industry standard form titled "Release and Undertaking to Amend Registration" which is intended to replace the ASIC Form 312 (the ABA/AFC Release). This release is available on the ABA website.
For a full release, upon signing the ABA/AFC Release, the Security Interest over the personal property is released and the Secured Party undertakes to register a Financing Change Statement within a certain numbers of days to effect the release on the PPSR. Currently, the market position appears to be to attend to this undertaking within 10 business days of the date of the ABA/AFC Release. For a partial release, upon signing the ABA/AFC Release, the Security Interest over the specific property is released from the Security Interest and the Secured Party undertakes to register a Financing Change Statement within 10 business days only if the specific property is actually described on the PPSR. If the specific property is not described on the PPSR it is unnecessary for the Secured Party to provide an undertaking to register a Financing Change Statement so this undertaking may be deleted from the relevant ABA/AFC Release.
It should be noted that if a partial release leads to a material change on the PPSR, the outgoing Secured Party should register a new Financing Statement which can be linked to the old registration. However, the old registration should not be released (at least for six months) to avoid the risk of the new Security Interest being void against a liquidator.
As easy as ABC...or is it?
In the migration process, although ASIC registrations were to migrate according to ACNs, 900,000 registrations where the Grantors possessed an ACN and an ABN were migrated according to their ABNs rather than their ACN. The significance of this is that ABNs are subject to change whereas ACNs exist so long as the company exists.
ASIC has identified the ACNs for the 390,671 distinct ABNs that were migrated across and the PPSR proposes to switch the migrated registrations to have them listed according to ACN.
This change process will trigger the generation of a verification statement. This in turn will require the Secured Party to send a notice of the Verification Statement to the Grantor if the Secured Party has not contracted out of this requirement. The PPSR has put forward two solutions: (1) approve a much shorter version of the Verification Statement for this instance or (2) the Registrar publishes a Verification Statement in accordance with s158 absolving the responsibility from the Secured Parties. The solutions are still being reviewed with stakeholders.
Our advice is to do PPSR searches according to the ACN, the ABN and the Grantor's name. This is both time consuming and costly, however, it is necessary to ensure all existing security interests on the PPSR are identified.
When two become one
27,000 registrations that have multiple Secured Parties were migrated across with only one Secured Party.
The two main areas where this has occurred are: (1) syndicated deals – where the Secured Parties are not related entities; and (2) internal deals – where the Secured Parties are related entities, such as subsidiaries of a large bank or financier.
The Registrar suggests that a new SPG be created containing the relevant Secured Parties and the Secured Parties then transfer the relevant registrations to that new SPG. Industry is pushing back on this approach so further solutions are still being reviewed with stakeholders.
The ones that got away
PPSR and ASIC have confirmed that 6,084 registrations simply did not migrate over. ASIC have commenced and will continue to notify the Secured Party to enable re-registration. A list of these phantom registrations has been listed, as of 8 March 2012, on an Excel spreadsheet available on the ASIC website. The registrations can be done at no cost to the Secured Party and if done before 31 January 2014, the priority of the Secured Interest will not be affected.
Back from the dead
Many ASIC charges that had been discharged before the 30 January go live date have migrated over to the PPSR as current Security Interests. This is an issue for those doing PPSR searches and finding Security Interests under the Grantor that should not exist.
PPSR suggest that SPGs discharge these registrations themselves. However, the Registrar is considering allowing such discharges without a fee as well as proposing to make a public Verification Statement under s158 notifying the change. Alternatively, the Registrar may remove the Security Interests from the register altogether which should not trigger a Verification Statement. These solutions are still being reviewed with stakeholders.
Find and claim – nothing but a number
The post registration commencement time (RCT) find and claim process is of particular importance for SPGs. Once you find and claim all the relevant names, the registrations under those names migrate over in a pool.
The PPSR then produces a report with the new registration numbers and corresponding tokens. The problem is that list only contains a registration number and a token. There is no indication of the Grantor of the interest.
If using this PPSR report to ensure you have claimed the registered Security Interest over John Doe's motor vehicle, at present, there is no way to find it other than to do a registration number search on every single one of your claimed registrations to ascertain the Grantor. For large banks and financiers who have thousands of registrations, this will be a costly exercise. We have been advised that the PPSR should have a more in-depth list available by the end of April 2012.
Amendment demand procedure – I need you to move on
Whether you are protecting your Secured Interest from an alleged interest of another, or someone else is claiming that your Secured Interest is unauthorised, it is important to know exactly how the Amendment Demand procedure works.
Part 5.6 of the PPSA provides a mechanism to either end the registration or to omit particular collateral from a registration as a resolution to a dispute. Parties can resolve the dispute themselves and amend the registration through a Financing Change Statement. If, however, there is no resolution within five business days of an Amendment Demand being issued by the complaining party, that complaining party can submit an Amendment Statement to the Registrar. The Registrar will send the respondent a notice with only five business days to respond. After the expiry of those five business days, the Registrar may make an arbitrary decision whether to issue the Financing Change Statement or not.
With such a tight schedule, it is important to have all evidence showing your claim in the relevant Security Interest easily available.
Do you need help with the PPSA or PPSR? Gadens can provide the solutions now.
For more information, please contact:
t: +61 2 9931 4927
t: +61 2 9931 4759
This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.