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