The PPSA (Personal Property Securities Act) will
celebrate its first birthday on 30 January 2013.
The PPSA introduced fundamental changes for business structuring
arrangements. Assets that are subject to non-arms' length lease
or hire arrangements can be at risk if the entity that has
possession of the property under the lease or hire agreement is
placed in liquidation or receivership.
What is a PPS lease?
A 'PPS lease' is the lease or hire of property for a
period (including options):
for serial numbered goods (for example, motor vehicles), that
is longer than 90 days; or
for all other personal property, that is for more than 1
Caution: Arrangements without a set end date
are automatically caught under the PPS lease rules.
How do the changes affect your business?
Many businesses are set up so that one entity owns the assets of
the business and another entity operates the business (and has the
usual risks that go with operating a business).
If a liquidator or a receiver is appointed over the operating
company, under the PPSA the operating company is deemed to own the
property in its possession at the date of appointment. This would
include property that the operating company possesses under a
lease. The related entity that actually owns the property will
generally rank as an unsecured creditor if it has not properly
registered a PPS lease.
Where are the traps?
You must have a written 'security agreement'
Many are undocumented. Prudent businesses should document internal
arrangements and then register them on the PPS Register.
To avoid the need for a new agreement each time the operating
company leases new equipment from the related entity, your security
agreement should adequately cover:
all property leased at the date of the agreement; and
all new property that is acquired and leased in the
There are specific time frames within which a PPS lease is
required to be registered.
Failure to register within the time frames will mean that your PPS
lease does not get 'super' priority over other security
interests and the entity that owns the property may not be able to
reclaim its assets from the liquidator.
The temporary protection for agreements entered into before 30
January 2012 comes to an end on 30 January 2014. Also, any new
equipment leased after 30 January 2012 will not be covered by the
Cooper Grace Ward's PPSA team can assist you with
identifying, documenting and registering PPS leases. We also offer
training for you and your staff on how use the PPS register.
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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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