Australia: PPSA - make sure you register your interest

The Personal Property Securities Act 2009 (Cth) (PPSA) commenced on 30 January 2012 and established a new regime for the registration and enforcement of security interests in personal property. Personal property includes most forms of property other than land, and includes both tangible and intangible property.

A security interest is an interest in personal property created by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property). Security interests include charges and mortgages, hire purchase agreements and certain leases of goods. A security interest can be registered on the Personal Property Securities Register (PPS Register), which is the national security interest register established under the PPSA.

As the PPSA regime is well underway, it is essential that universities procuring goods and entering into construction contracts understand how the PPSA may impact their contracting requirements.

Universities need to be aware of the importance of registering security interests. They should also consider the impact of the PPSA on exercising step-in rights under procurement contracts and acquiring goods from outside of Australia.

Registration is paramount

In July this year the Supreme Court of New South Wales confirmed that under the PPSA regime, registration of security interests is of paramount importance. The Court held, in Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC 852, that a registered security interest will defeat an unregistered security interest, even if the holder of the unregistered security interest is the actual owner of the goods. It is vital that security interests are registered on the PPS Register to ensure that a security interest is not defeated by other security interests or is ineffective in the event of the insolvency of the grantor.

Step-in rights and the NZ McCloy decision

If a university has a contractual right to step-in and take a contractor's property or goods upon default by the contractor this may constitute a security interest. Universities should consider registering such security interests on the PPS Register.

In the recent decision of the High Court of New Zealand in McCloy v Manukau Institute of Technology [2013] NZHC 936, it was held that step-in rights under the construction contract under consideration constituted a security interest as such rights secured payment or performance of the contractor's obligations to the principal.

While the decision is not binding in Australia and required an analysis of the particular contractual provisions, it reinforces the importance of registering step-in rights on the PPS Register.

Competing security interests

Universities should undertake a search of the PPS Register before entering into contracts to check for any security interests. This will enable them to review whether there are any security interests registered against the contracting party that will take priority over any security interest they intend to register.

Universities should also consider whether they should preclude parties with which they contract from being able to register a security interest. For example, they may preclude a head contractor from registering a security interest over certain subcontractor's property or goods so that any security interest the university has in such property or goods does not rank behind a security interest of the head contractor.

Overseas transactions

The PPSA applies to security interests in goods if the goods are located in Australia or the grantor is an Australian entity. Accordingly, if a university is procuring goods from outside of Australia from an overseas entity, the PPSA will not apply to any security interest in the goods until the goods reach Australia. In procuring goods from overseas where the supplier is granting a security interest to the university it is preferable, subject to the other requirements of the university, to contract with an Australian entity—for example, the Australian subsidiary of an overseas supply company—so that the security interest can be effectively registered on the PPS Register before the goods land in Australia.

If a university does intend to contract with an overseas entity it should:

  • consider whether any security interest granted by the overseas entity can also be registered on any equivalent PPS Register in the supplier's country to assist in securing the goods before they arrive in Australia, and
  • ensure that the security interest applies to the goods located overseas and allows for registration of the security interest in both the supplier's country and Australia.

Purchase money security interests (PMSI)

Universities should also consider whether the security interest should be registered as a PMSI, which may attain "super-priority" status on the PPS Register. A PMSI is either a security interest in personal property where the secured party provided credit to purchase that personal property or an interest of a lessor under a PPS lease or consignor under a commercial consignment. There are strict timeframes for registering a PMSI.

Achieving effective registration

A security interest can be registered as soon as there is a "reasonable belief of a security interest". If the grantor of the security interest is a company, a security interest not registered within 20 business days of creation becomes void if, within six months after its creation, a liquidator or administrator is appointed to the company or the company enters into a deed of company arrangement. Accordingly, it is critical that security interests are registered on the PPS Register as soon as possible.

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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