Personal property security (PPS) law is facing a major
overhaul with the Personal Property Securities Bill 2008 set to
replace over 70 pieces of Commonwealth, State and Territory
Legislation. The new PPS regime will standardise the law and
practice of personal property securities through a single
national Act, supported by a single national online register.
With a likely commencement date scheduled for the first half of
2010, companies and business need to consider the impact these
changes will have on their activities.
What is PPS?
Personal property is any form of property other than land.
Security interests in all types of property other than real
estate are personal property securities.
A security interest is any interest in personal property
which is created or evidenced by an agreement that secures
payment or performance of an obligation. The security interest
can relate to dealings such as hire purchase and lease
arrangements, conditional sale agreements, commercial
consignments, the factoring of book debts and retention of
Why is the law changing?
Current PPS law is inconsistent in dealing with different
types of property and security interests. Additionally, each
State has its own system for dealing with personal property and
it can be difficult to know where to search for registered
interests. The new PPS system will create a national PPS
register and a completely new system of creation,
documentation, registration and enforcement of securities over
assets of both companies and individuals.
A comprehensive national PPS scheme will allow more certain
and consistent outcomes, reduce financing costs and encourage
more diverse financing options. A new system operating under
uniform laws across Australia on one electronic register should
also reduce legal disputes and make secured finance more cost
effective and attractive to lenders.
The new system
The PPS register will keep track of the creation and
extinguishment of security interests in personal property. The
new rules determine priority between competing interests in
personal property (including where property or security
interests are transferred) and would facilitate the resolution
of priority disputes. Prospective purchasers and lenders will
be able to search the register to determine whether personal
property is subject to a pre-existing security interest.
The new PPS scheme will apply to all security interests in
personal property such as fixed and floating charges, chattel
mortgages, conditional sale agreements, hire purchase
agreements, pledges and security trust deeds, regardless of the
form of the transaction, the legal personality of the grantor,
or the jurisdiction in which the property or parties are
located or in which the transaction occurred.
Attachment and perfection
The PPS Bill introduces the concepts of attachment and
Attachment is the process by which a security interest comes
into existence. Without attachment, there can be no security
interest in personal property. A security interest attaches
when a written agreement which includes valid legal
consideration and properly describes the secured property, is
signed by both parties.
A security agreement which has not attached may create
personal rights or contractual rights between the parties, but
might not be enforceable against third parties.
Perfection is the process which gives the holder of the
security interest priority over other parties claiming a
security interest over the same personal property. A security
interest is perfected when the secured party has either taken
possession and/or control of the secured property or registered
it on the PPS register. Priority is based on the date of
The new PPS scheme will change the way in which security
from companies is provided and enforced.
The scheme will affect contract and security documentation,
and business processes. New debtor and lending policies, credit
risk assessment models, procedural manuals and forms complying
with the legislation will be required.
Although the new PPS scheme is still some time away from
coming into force, it is important to consider the impact these
changes will mean for your business. We will be providing
updates on the PPS scheme as the legislation develops.
Swaab was recently named winner
'Best Law Firm in Australia (Revenue <
$20m)' and 'Attribute Award for Exceptional
Service (Australia Wide)' and at the
2008 BRW- Client Choice Awards.
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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