On 9 May 2016, the security register under the Personal Property Security Act 2011 (PPSA) commenced operation in Papua New Guinea (PNG).
The PPSA was originally enacted in 2011, and is in many respects similar to the Australian Personal Property Securities Act 2009 (Cth) (AUS PPSA). However, there are key differences between the two pieces of legislation (some of which are highlighted below) and parties affected by the PPSA will need to obtain specialist advice.
The PPSA governs security interests over personal property, including priorities between competing security interests.
Personal property is essentially all property except land but some things are excluded such as certain mining tenements, certain oil and gas licences and rights of set-off. It covers not only tangible property (like motor vehicles, plant and equipment, crops and livestock), but also intangibles (such as intellectual property, contractual rights and shares).
The PPSA takes a functional approach to security interests and is expressed to apply to every transaction that in substance creates a 'security interest' without regard to its form and without regard to the person who had title to the collateral.
A 'security interest' under the PPSA is defined as:
- a legal interest in personal property that secures payment or performance of an obligation (this covers generally recognised security interests such as charges and mortgages as well as arrangements which may not be considered to be security interests, for example, conditional sale agreements, retention of title clauses and leases of goods);
- the interest of a transferee under a transfer of certain monetary obligations (such as book debts) or a transfer of 'chattel paper' (such as leases or hire purchase contracts);
- the interest of a consignor under a commercial consignment of goods; and
- the interest of a lessor under a lease for a term of more than one year (which includes a lease for an indefinite term or for a term less than a year but which is automatically renewable so that it may exceed 1 year, as well as a lease which is originally for a term of less than one year once the lessee retains uninterrupted possession of the leased goods for more than one year).
The holder of a security interest affected by the PPSA will need to perfect it in accordance with the PPSA to ensure that it has the best possible priority position and to protect against the interests of third parties. Perfection will most commonly be achieved by registration on the Personal Property Security Registry. In some cases, it is also possible to perfect a security interest by taking possession of the collateral or by effecting control over the collateral in accordance with specific requirements set out in the PPSA.
A security interest may be affected by the PPSA where, for example, the debtor is located in PNG, the security interest covers property taken to be located in PNG or property which may move to PNG or the security interest arises under an agreement governed by PNG law.
Time limits for registration and transitional provisions are generally shorter than those provided for under the AUS PPSA. In particular:
- some transitional protections for security interests in existence prior to commencement of the PPSA will be lost if those security interests are not registered within 180 days of the commencement of the PPSA (and there is no automatic migration of existing registered security interests); and
- security interests created after commencement of the PPSA do not benefit from any transitional protections.
Therefore those with existing security interests in PNG which fall within the new PPSA regime should attend to registration within the next 6 months (i.e. by 31 October 2016) to ensure their interests are duly perfected. Any interest taken after 4 May 2016 should be registered as soon as possible.
Some other key differences from the AUS PPSA to note include:
- purchase money security interests (PMSIs) need to be registered within 7 days after the debtor obtains possession of the relevant collateral (or for intangible property, within 7 days after the security interest attaches) in order to obtain the best possible priority;
- the holder of a PMSI over inventory needs to give notice to the holder of a prior registered interest in order to obtain the best possible priority in respect of proceeds of the inventory;
- there are special rules relating to security interests over fixtures and to timber and minerals extracted from land which, among other things, require identification of the land in order to obtain the best possible protection;
- a secured party may lose priority in respect of advances made after the appointment of a liquidator or trustee in bankruptcy;
- a security interest perfected under the PPSA will rank behind a security interest registered over a vessel under the Merchant Shipping Act and behind a security interest registered over an aircraft under the Civil Aviation Act 2000; and
- there is no equivalent to the AUS PPSA vesting rule.
This alert is a summary of recent developments and does not constitute legal advice. If you have any queries please do not hesitate contact us.