Over the last few weeks I've had the opportunity to present
a practical paper on the Personal Properties Securities Act (PPSA).
There are a number of planning opportunities and potential traps
that come out of that Act, which were dealt with in the paper. In
this short update, I deal with a couple of those issues.
By way of background, an unperfected security interest under the
PPSA vests in a liquidator, voluntary administrator, deed
administrator or trustee in bankruptcy, pursuant Section 267. As a
result it is extremely important that clients have perfected
security interests, otherwise they risk losing the asset. For
example if they have previously provided goods on Retention of
Title terms, if they do not perfect their interest, the goods could
be lost to a liquidator. In addition unperfected security interests
lose priority to a perfected security interest in the same
Goods or assets that are required to be registered under the
PPSA but which are not registered become an "unperfected
security interest" and upon insolvency vest in a grantor
pursuant to Section 267(2). As a result if a financier fails to
register its interest in a motor vehicle, that motor vehicle will
vest in the grantor (being the debtor) on the day the grantor
becomes bankrupt, goes into administration or liquidation. In those
circumstances, it's possible that the financier will be nothing
more than an ordinary unsecured creditor. If the grantor becomes
bankrupt ultimately the trustee in bankruptcy may sell the vehicle
and return the first $7,200 to the bankrupt and the rest will be
available to the unsecured creditors.
This is also the case if a financier registers with an incorrect
serial number (in this case, a VIN Number for a vehicle). Section
164 provides that registration will be ineffective if there is a
seriously misleading defect in data relating to that registration.
Section 165 provides that in a case in which the collateral is
required by the regulations to be described by a serial number and
there is an error in that serial number, that this will be regarded
as a seriously misleading defect in the registration.
Interestingly, it is not necessary to show that anyone has been
misled in relation to the registration.
The timing of registration is quite tight under the legislation.
For a purchase monies securities interest (PMSI), in relation to
inventory, registration must be prior to supply under Section 62
(2). For goods that are non-inventory the registration timeframe is
15 business days under Section 62(3)(b) for a PMSI. A general
security agreement is required to be registered on the PPS Register
within 20 business days.
There is a planning benefit that can be available to your
clients as a result of the PPSA. This arises as a result of the
ability of a PMSI supplier (usually previously a supplier who was
supplying on retention of title terms), to trace their security
interest through to commingled goods. This is the benefit of
Section 100 of the Act which provides that perfection of a security
interest in goods that subsequently become part of a product or
mass is to be treated as perfection of the security interest in
that product or mass. As a result, whilst previously altered or
manufactured goods were not able to be returned pursuant to
retention of title arrangements, they will be able to be traced
with a validly registered PMSI. As a result, if your client
registers a valid PMSI, in relation to commingled goods, they may
share pro-rata with anyone else who also has a perfected security
interest in those goods. Suppliers of goods that become accessions
may also get benefit by registering a valid PMSI as Section 88 of
the PPSA provides that security interests continue in accessions.
Accessions are such things as gearboxes in trucks.
As a result, there are a number of opportunities and potential
traps in the PPSA that have become evident since its inception on
30 January 2012. With only a 24 month transitional period in which
to register security interests that were seen as transitional, this
period is quickly disappearing and we encourage all of your clients
to register their interests urgently on the Personal Properties
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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