Open for Reg­is­tra­tion of Inter­est… PPSA — The Ups and Downs of Transition

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Pre- and post-PPSA inter­ests. Out with the old? Not quite.

It’s now just over four months since the com­mence­ment of the Per­son­al Prop­er­ty Secu­ri­ties Act (PPSA) and we are start­ing to see some inter­est­ing out­comes that high­light the impor­tance of con­sid­er­ing whether you should be reg­is­ter­ing cer­tain secu­ri­ty inter­ests, and the dra­mat­ic impact of the tran­si­tion­al pro­vi­sions of the PPSA as the 2 year tran­si­tion peri­od ticks away.

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Reten­tion of title and con­sign­ment: You may recall our pre­vi­ous arti­cle about pur­chase mon­ey secu­ri­ty inter­ests or ​‘PMSIs’. We talked about how reg­is­ter­ing a PMSI for a reten­tion of title (ROT) arrange­ment and sim­i­lar arrange­ments such as com­mer­cial con­sign­ments can give them ​‘super-pri­or­i­ty’ over oth­er secu­ri­ty interests.

We also looked at how a prop­er­ly draft­ed and imple­ment­ed ROT or com­mer­cial con­sign­ment that was on foot before 30 Jan­u­ary would enjoy tran­si­tion­al pro­tec­tion for up to 2 years after com­mence­ment of the PPSA. A post-PPSA ROT that was not duly reg­is­tered could still the­o­ret­i­cal­ly be enforce­able, but it would not enjoy pri­or­i­ty over oth­er secu­ri­ty inter­ests that had been duly reg­is­tered.

Cus­tomers and con­signees in the red: Recent insol­ven­cy sit­u­a­tions involv­ing ROTs and con­sign­ments have borne this out. When weigh­ing up the com­pet­ing pri­or­i­ties of inter­ests of sup­pli­ers on ROT or com­mer­cial con­sign­ment arrange­ments against oth­er secu­ri­ty inter­ests, the fol­low­ing basic prin­ci­ples apply:

• An unreg­is­tered but prop­er­ly draft­ed and imple­ment­ed pre-PPSA ROT or com­mer­cial con­sign­ment can still trump oth­er ear­li­er, migrat­ed secu­ri­ty inter­ests as well as lat­er, reg­is­tered secu­ri­ty inter­ests, as it did under the ​‘old law’.
• How­ev­er, a post-PPSA ROT will only have pri­or­i­ty over oth­er inter­ests if duly reg­is­tered mean­ing that it must be reg­is­tered with­in the rel­a­tive­ly tight time­frames spec­i­fied in the PPSA (which vary accord­ing to the nature of the goods in ques­tion). Even then, like all ROT arrange­ments, it will also need to have the sup­port­ing machin­ery (sep­a­rate stor­age, sep­a­rate account­ing for pro­ceeds etc) to be effective.

What ROT and con­sign­ment sup­pli­ers should be doing: This puts ROT and com­mer­cial con­sign­ment sup­pli­ers in an inter­est­ing spot, espe­cial­ly in these eco­nom­i­cal­ly uncer­tain times.

• Those sup­pli­ers with pre-PPSA ROT and con­sign­ment arrange­ments should revis­it how their arrange­ments are doc­u­ment­ed and imple­ment­ed to gauge their effec­tive­ness and dura­tion hav­ing regard to the 2 year tran­si­tion period.
• Those sup­pli­ers who have put in place, or intend to put in place, ROT or con­sign­ment arrange­ments after 30 Jan­u­ary 2012 must get them reg­is­tered with­in the manda­to­ry time lim­its if they are to enjoy super-pri­or­i­ty – if not duly reg­is­tered they get no pri­or­i­ty and the ROT sup­pli­er will in effect rank with oth­er unse­cured creditors.

That is not to say that sup­pli­ers should nec­es­sar­i­ly reg­is­ter each and every ROT or con­sign­ment arrange­ment. ROT sup­pli­ers will need to weigh up the ben­e­fits of reg­is­tra­tion against the admin­is­tra­tive and cost bur­dens (espe­cial­ly those sup­pli­ers with very numer­ous ROT cus­tomers) and con­sid­er the oth­er ways of man­ag­ing the risks that ROT arrange­ments are designed to address.

ROT and con­sign­ment sup­pli­ers have a lot to think about.

Teething prob­lems with the reg­is­ter – same, same, but a clarification…

Whilst reme­di­a­tion works on the anom­alies with data migrat­ed to the PPSR from pre-exist­ing data­bas­es con­tin­ue, the dif­fi­cul­ties that we had expe­ri­enced as to time lag between on-line reg­is­tra­tion or amend­ment and the reg­is­tra­tion or amend­ment being search­able have not recurred and there is no evi­dence that they will. Accord­ing­ly, search­es for secu­ri­ty inter­ests reg­is­tered after 30 Jan­u­ary 2012 should be reli­able, and we have been in com­mu­ni­ca­tion with the office of the Reg­is­trar about this.

For fur­ther infor­ma­tion, please contact: