THE PPSA & AGRIBUSINESS
The Personal Property Securities Act 2009 (Cth) has been in force for more than two years. The regime brings the different Commonwealth, State and Territory laws and registers regarding personal property securities under one national law and one national electronic Personal Property Securities Register (PPSR). Many businesses and individuals are affected by the PPSA, including agricultural producers, and those that do not take action risk losing their assets.
INTRODUCTION TO THE PPSA
"Personal property" is any property other than land. It comprises tangibles such as goods, crops, livestock (including unborn young and the products of livestock) and motor vehicles; and intangibles such as licences, intellectual property and financial instruments.
A personal property "security interest" is an interest in personal property that 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).
The PPSA creates a rule-based system to determine priorities between competing security interests. In many cases, the first to register will have priority.
IMPACT ON AGRIBUSINESS
Farming businesses that enter into arrangements that deal with personal property may be impacted by the PPSA. For example, the following arrangements may be affected:
- Lease agreements for plant and equipment;
- Agist, feedlot and fattening arrangements;
- Share farming agreements;
- Embryo transfer agreements;
- Other genetic transfer agreements such as those relating to semen straws.
The PPSA may make it easier for farmers and agricultural producers to borrow against crops, livestock, farm machinery, agricultural products and other personal property.
Special priorities apply to security interests over the products of agribusiness when granted to enable crops to be produced, or livestock to be fed or developed. A registered (or "perfected") security interest in crops or the proceeds of crops takes priority over any other security interests granted by the same grantor in the same crops or proceeds if:
- the priority interest is granted for value to enable the crops to be produced; and
- either the security agreement providing for the priority interest is made while the crops are growing, or the crops are planted within six (6) months after the security agreement is made.
A perfected security interest in livestock or the proceeds of livestock has priority over any other security interest (other than a purchase money security interest) that is granted by the same grantor in the same livestock or proceeds if:
- the priority interest is granted for value to enable the livestock to be fed or developed; and
- either the livestock are held by the grantor at the time the security agreement is made, or acquired by the grantor within six (6) months after the security agreement is made.
(By way of background, a purchase money security interest is a special type of security interest that generally enjoys a super priority over other types of security interests).
In essence, the PPSA contains special rules for crops and livestock under which priority would be given to an otherwise lower ranking interest where value is given for the purpose of growing, feeding or developing the crops or livestock provided certain requirements are met.Retention of title
One of the areas where the PPSA has the greatest impact is the granting of credit either by businesses supplying goods on retention of title (ROT) or providing credit facilities of any sort. For example, goods such as fruit crops supplied on ROT terms are considered security interests under the PPSA. The fruit grower is no longer able to rely on their legal title to protect their interest in the fruit and will no longer have automatic priority over other secured parties. Under the PPS regime, to be enforceable against third parties, supplier (fruit grower) must:
- have a document which is signed or accepted by the purchaser incorporating the retention of title; and
- register their interest on the PPSR.
Generally, registration must be undertaken before the supply of goods.Plant & equipment leasing
The leasing of plant and equipment is also affected by the PPSA. While in the past, lessors and hire businesses have not registered financing or operating leases, there is now the ability to register such leases on the PPSR and gain protection in the event of a lessee's default or insolvency.
Lessors who do not register their security interests may lose priority to another party with a competing security interest, and the subject plant and equipment may become available to a liquidator or trustee in bankruptcy. Conversely, a lessee of plant or equipment should be aware that leasing documents may oblige the lessee to do all things required for the lessor to register its security interest.Guarantees
It should be noted that the PPSA also impacts personal guarantees that include a charging clause. While a guarantee does not of itself create a security interest, a guarantee which includes a charging clause against personal property becomes a security agreement which is registrable on the PPSR. Existing personal guarantees should be reviewed and, where new personal guarantees are sought, the terms should be carefully prepared to allow registration where appropriate. Conversely, if you are asked to provide a personal guarantee, you should be aware of the terms of the guarantee so that you do not inadvertently grant a security interest over your property.
HOW MSQ LEGAL CAN HELP YOU
At MSQ Legal we specialise in providing PPSA-specific solutions including:
- Documenting all arrangements you have with other businesses;
- Reviewing terms and conditions of trade, and leasing or hire agreements;
- Preparing and reviewing security agreements (including inter-company arrangements), attending to registration, amendment and discharge of security interests on the PPSR; and
- Searching security interests registered against business and individuals.
This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2014 Moore Stephens Australia Pty Limited. All rights reserved.