Personal Property Securities Reform: It's finally here! (20 January 2012)
by Rhonda Arnott and Nicola Young Berryman
On 30 January 2012 the Personal Property Securities Act 2009 (Cth) (“PPSA”) comes into force. After numerous delays, the reform 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.
Personal property and personal property securities
Personal property is any property other than land. It includes tangibles such as goods, crops, livestock and motor vehicles; and intangibles such as licences, intellectual property and financial instruments.
A personal property security 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). Examples of security interests are discussed below.
Impact on business
Many businesses and individuals are affected by the PPSA, and those who do not take action risk losing their assets. Three of the areas where there is the greatest impact are: the leasing of plant and equipment, the granting of credit, and personal guarantees with charging clauses.
(a) Leasing
While in the past lessors have not registered financing or operating leases, there is now the ability to register such leases on the Personal Property Securities Register and gain protection in the event of a lessee’s default or insolvency.
All leasing documents and arrangements should be reviewed with a view to amending existing leases to oblige lessees to do all things required for the lessor to register its security interest.
Lessors who do not register their security interest 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.
(b) Credit facilities
Businesses which supply goods on retention of title (“ROT”) or provide credit facilities of any sort are also affected by the introduction of the PPSA. Under the Act, the definition of security interest includes traditional forms of security such as company charges, as well as ROT arrangements in terms and conditions of trade where a purchaser has possession of property but does not acquire title until the full purchase price has been paid.
In a significant departure from previous practice, there is now the ability to register the interest of a ROT supplier on the Personal Property Securities Register. It would be prudent for all businesses to review their terms and conditions of trade to consider, first, whether those terms need to be amended in light of the PPSA and, secondly, whether a security interest over personal property should be registered. Where registration is not undertaken and the purchaser becomes insolvent, any goods supplied may be available to a liquidator or trustee in bankruptcy and the ROT supplier may lose priority to another party, such as a bank, with a competing security interest.
(c) Personal guarantees with charging clauses
It should be noted that personal guarantees that include a charging clause (i.e. the guarantor charges - similar to a mortgage - all his or her property in favour of the creditor) are also affected by the PPSA. While a guarantee does not by itself create a security interest, a guarantee which includes a charging clause against personal property becomes a security agreement which is registrable on the Personal Property Securities Register. Existing personal guarantees should be reviewed and, where new personal guarantees are sought, the terms should be carefully prepared to allow registration where appropriate.
Registration and migration
The Personal Property Securities Register is the new register of security interests held in personal property. It is web-based, available in real time and accessible 24 hours a day, 7 days a week: www.ppsr.gov.au. The website can be used to create registrations and undertake searches.
The Personal Property Securities Register replaces numerous existing registers of securities and related interests currently administered by Commonwealth, State and Territory agencies. Most current interests on existing registers, such as security interests recorded on the ASIC Register of Company Charges, have been migrated to the Personal Property Securities Register. A security interest that has not been migrated, or was not on an existing register, will be temporarily “perfected” meaning that the secured party has two years to register its interest on the Personal Property Securities Register.
In terms of newly created security interests, businesses should be alert to the benefits of registration at the earliest opportunity as it can afford priority over competing security interests and protection in event of a grantor’s insolvency, and serious risks in not registering interests.
For further information or assistance in relation to the PPSA, please do not hesitate to contact Rhonda Arnott, Partner, B2B Lawyers: JLIB_HTML_CLOAKING or (03) 8602 4000.
The content of this publication is intended only to provide a summary and general overview of the subject matter covered. It is not intended to be comprehensive nor does it constitute legal advice.
