Pub­li­ca­tions

Will your busi­ness be affect­ed by the PPSA?


In Brief

The Per­son­al Prop­er­ty Secu­ri­ties Act 2009 (Cth) (PPSA) estab­lish­es a new, nation­wide regime reg­u­lat­ing inter­ests in per­son­al prop­er­ty. The PPSA is sched­uled to com­mence on 30 Jan­u­ary 2012.


HOW DOES THE PPSA CHANGE THE LAW?

The PPSA changes the order of pri­or­i­ty of some secu­ri­ty inter­ests, changes the way in which those inter­ests (espe­cial­ly own­er­ship) can be enforced and cre­ates a new reg­is­tra­tion sys­tem for inter­ests in per­son­al prop­er­ty. For fur­ther infor­ma­tion on the new PPSA ter­mi­nol­o­gy click here.

For exam­ple, pre­vi­ous­ly a reten­tion of title clause (com­mon­ly found in terms and con­di­tions of sale) was not capa­ble of any kind of reg­is­tra­tion and yet was poten­tial­ly enforce­able against an admin­is­tra­tor with pri­or­i­ty over even reg­is­tered charges against a company’s assets. Under the PPSA, a reten­tion of title arrange­ment will need to be reg­is­tered if it is to take pri­or­i­ty over and be enforce­able against those oth­er interests.

WHAT PROP­ER­TY IS COV­ERED BY THE PPSA?

The act cov­ers assets (such as motor vehi­cles, equip­ment, stock, crops and live­stock, intel­lec­tu­al prop­er­ty and finan­cial instru­ments) which secure pay­ments or the per­for­mance of oblig­a­tions. Secu­ri­ty inter­ests cov­ered by the PPSA include charges, mort­gages and pledges, con­di­tion­al sale agree­ments (includ­ing sales of goods sub­ject to reten­tion of title), hire pur­chase agree­ments, con­sign­ments and leas­es of goods.

WHAT IS NOT COV­ERED BY THE PPSA?

The PPSA does not extend to real prop­er­ty (includ­ing rights relat­ing to water, land and fixtures).

HOW DO YOU OBTAIN PIOR­I­TY FOR YOUR SECU­RI­TY INTEREST?

In order to enjoy pri­or­i­ty of your inter­est in per­son­al prop­er­ty under the PPSA, you will need to reg­is­ter your secu­ri­ty inter­est on an online reg­is­ter called the Per­son­al Prop­er­ty Secu­ri­ties Reg­is­ter (PPSR). This will involve reg­is­tra­tion of financ­ing state­ments with respect to secu­ri­ty inter­ests, which must spec­i­fy (amongst oth­er things):

  • iden­ti­ty of the secured par­ty and the per­son grant­i­ng the secured par­ty the secu­ri­ty inter­est (the grantor)
  • descrip­tion of the collateral/​pro­ceeds secured
  • the end date of the reg­is­tered interest
  • subordination
  • descrip­tion of the secu­ri­ty inter­est (eg secu­ri­ty inter­est over cir­cu­lat­ing assets’, pur­chase mon­ey secu­ri­ty inter­est’ etc)
  • any oth­er mat­ter pre­scribed by the regulations

The three crit­i­cal aspects to ensure pri­or­i­ty of your secu­ri­ty inter­est are:

  • attach­ment of the secu­ri­ty inter­est to the col­lat­er­al (where the grantor accepts con­sid­er­a­tion giv­ing rise to the secu­ri­ty inter­est in the collateral);
  • enforce­ment where, fol­low­ing attach­ment, the col­lat­er­al is either con­trolled by the secured par­ty or the par­ties enter a writ­ten agree­ment with respect to the col­lat­er­al; and
  • per­fec­tion, being either reg­is­tra­tion of the inter­est on the PPSR or the col­lat­er­al being in the secured party’s pos­ses­sion or control.
GIV­EN COM­MENCE­MENT ON 30 JAN­U­ARY, WHAT ARE THE IMME­DI­ATE REG­IS­TRA­TION AND TRAN­SI­TION­AL ARRANGEMENTS?

Some secu­ri­ty inter­ests such as those cur­rent­ly reg­is­tered on ASIC data­bas­es will be auto­mat­i­cal­ly trans­ferred to the PPSR. How­ev­er, oth­er forms of reg­is­tered inter­est (such as intel­lec­tu­al prop­er­ty inter­ests reg­is­tered on IP Australia’s trade mark, design and patent data­bas­es) will not be auto­mat­i­cal­ly transferred.

Par­ties with exist­ing reg­is­tra­tions which are not sub­ject to auto­mat­ic trans­fer have two years in which to re-reg­is­ter on the PPSR, as do those with exist­ing inter­ests that did not pre­vi­ous­ly require reg­is­ter­ing (such as an exist­ing reten­tion of title inter­est, which after com­mence­ment can be reg­is­tered as a pur­chase mon­ey secu­ri­ty inter­est or PMSI).

There is also a two-year grace peri­od from com­mence­ment of the PPSA to allow for imple­men­ta­tion of new arrange­ments and reg­is­tra­tion of secu­ri­ty inter­ests under those arrange­ments cor­rect­ly. How­ev­er, note that the longer the peri­od tak­en to reg­is­ter such inter­ests, the greater the poten­tial effect on your pri­or­i­ty posi­tion. In addi­tion, secu­ri­ty inter­ests in goods sup­plied on a reten­tion of title basis after com­mence­ment will not nec­es­sar­i­ly have the ben­e­fit of the tran­si­tion­al grace peri­od so that in many cas­es financ­ing state­ments may need to be reg­is­tered prompt­ly after commencement.

WHAT PRI­OR­I­TIES APPLY TO SECU­RI­TY INTER­ESTS UNDER THE PPSA?

The PPSA fun­da­men­tal­ly alters exist­ing law relat­ing to pri­or­i­ties. In broad terms, the order of pri­or­i­ty under the PPSA regime will be as follows:

  • a per­fect­ed secu­ri­ty inter­est will gen­er­al­ly have pri­or­i­ty over an unper­fect­ed secu­ri­ty interest;
  • secu­ri­ty inter­ests per­fect­ed by con­trol are of first priority;
  • secu­ri­ty inter­ests per­fect­ed by means oth­er than con­trol are of sec­ond pri­or­i­ty; and
  • final­ly, unper­fect­ed secu­ri­ty inter­ests are of last priority.

There are excep­tions to these basic pri­or­i­ty rules. Impor­tant­ly, PMSIs will gen­er­al­ly be giv­en super pri­or­i­ty over oth­er, pri­or reg­is­tered secu­ri­ty interests.

WHAT ARE THE KEY IMPLICATIONS?

The PPSA will affect not only financ­ing trans­ac­tions, but also many basic trans­ac­tions for the sup­ply of goods and ser­vices (includ­ing the trans­fer and licens­ing of intel­lec­tu­al prop­er­ty). Whilst exist­ing charges reg­is­tered with ASIC will be auto­mat­i­cal­ly migrat­ed to the PPSR as secu­ri­ty inter­ests over non cir­cu­lat­ing assets’ and secu­ri­ty inter­ests over cir­cu­lat­ing assets’, there are a num­ber of spe­cif­ic arrange­ments which will need to be re-con­sid­ered or the terms of which will need re-vis­it­ing with the com­mence­ment of the PPSA, includ­ing the following:

  • Reten­tion of title: sup­ply con­tracts that con­tain a reten­tion of title clause will need to be reviewed and may require reg­is­tra­tion as pur­chase mon­ey secu­ri­ty inter­ests in order to pro­tect the inter­ests of the seller.
  • Equip­ment hire: equip­ment leas­es or bail­ments of more than 12 months may require reg­is­tra­tion in order to pro­tect the inter­ests of the equip­ment owner.
  • Ser­i­al num­bered goods: leas­es (of more than 90 days) of ser­i­al num­bered goods may require reg­is­tra­tion in order to pro­tect the owner’s interests.
  • Joint ven­ture agree­ments: inter­ests aris­ing under cross charges and some default charges in joint ven­ture agree­ments will need to be reviewed.
WHAT SHOULD YOU BE DOING NOW AND GOING FORWARD?
  • Iden­ti­fy all exist­ing secu­ri­ty inter­ests and whether these will be sub­ject to auto­mat­ic migra­tion, or whether new reg­is­tra­tions should be made.
  • Review terms and con­di­tions of con­tracts includ­ing stan­dard terms of trade and financ­ing arrange­ments, in par­tic­u­lar reten­tion of title inter­ests and con­sign­ment arrangements.
  • Amend con­tracts to be PPSA com­pli­ant, tak­ing into account new ter­mi­nol­o­gy and con­cepts relat­ing to attach­ment, per­fec­tion and priority.

Please let us know if you have any ques­tions or if you need any assis­tance in con­nec­tion with the com­mence­ment of the new PPSA regime.