Australia's new Personal Property Securities Act 2009 (PPSA) has introduced radical changes to the law in relation to personal property. Research institutions must make sure that their equipment and other property is properly protected.

Personal property includes machinery, equipment, consumables, computer hardware, cars, livestock and many other types of property – but not "real" property, ie land, or prescribed statutory licences (eg water rights). A security interest includes an interest in personal property under a transaction that secures payment or performance of an obligation (eg traditional securities such as mortgages and charges, as well as "quasisecurities" such as retention of title and flawed asset arrangements). It also includes the interest of a consignor, lessor or bailor in certain circumstances, even though consignments, leases and bailments do not usually secure any obligations.

What are some examples of circumstances where an institution needs to register an interest in personal property?

LENDING EQUIPMENT TO A THIRD PARTY

Your institution lends some equipment to a company. It turns out the company is not trustworthy and sells the equipment to a third party. Under the PPSA, your institution had a security interest in the equipment, but it did not register its interest on the Personal Property Securities Register. The third party buyer of the equipment takes ownership of the equipment free of your institution's interest. Your institution is left only with a right against the company in relation to the proceeds – it has no right to recover the equipment.

SELLING EQUIPMENT TO A THIRD PARTY ON DEFERRED PAYMENT TERMS

Your institution has developed prototype equipment for a customer, with a series of staged payments having been agreed. The major payment is due upon formal acceptance of the equipment by the customer, after which title to the equipment will pass to the customer.

After you deliver the equipment to the customer but before formal acceptance, the customer encounters financial difficulties and defaults on its loan from a bank. The bank registered its security interest over all the customer's assets. Your institution did not register its interest. The bank's interest takes priority over yours and the bank may sell the customer's assets, including the prototype equipment, to satisfy its claims. Your institution has to wait in line as an unsecured creditor and may receive nothing. But if you had properly registered your institution's interest, it would have taken priority over the bank's interest (even if you registered after the bank).

Below is a summary of when you may need to register security interests over personal property.

SCENARIO REGISTER? REASON
You license your intellectual property to a third party. No. IP licences are not security interests, hence not registrable under the PPSA. But you may wish to register on the relevant IP register, eg the Register of Patents. The PPS Register does not replace any aspect of the IP registration regimes.
In outsourcing your IT operations, you provide equipment to the outsourcer but you still own it. Yes. By registering, you maximise your rights against third parties in case the outsourcer hits financial difficulties or improperly disposes of the equipment.
You lend equipment to a third party. Yes. See example above.
You sell equipment to a third party on deferred payment terms. Yes. See example above.
You obtain an option to purchase particular intellectual property. No. This right is, notably, not registrable – it is usually not a security interest.

Of course, for small value transactions, it may not be worthwhile to register your interest. As an indication, the base cost to register an interest online for up to 7 years is $7.40. At the other end of the spectrum, the fee to register an interest online for an unlimited time is $130.00.

TRANSITION

We are currently in a two year transition period.

This transition period gives you until 30 January 2014 to register any interests existing as at 30 January 2012. If they are not registered by then, you risk losing your rights in relation to the relevant personal property.

You should review your existing agreements which involve the above scenarios, and determine whether to register your interests.

If a new interest arises now, it may need to be registered promptly (or even in advance of it arising) in order to maximise your rights.

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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