The Personal Property Securities Act 2009 (Cth) (PPS Act) establishes a new national system for the registration of security interests in personal property. PPS reform introduces fundamental changes to the law of personal property and is also designed to establish one central register (PPS Register) administered by the Commonwealth of Australia.
The aim of the PPS reform is stated to be to improve the ability of individuals and businesses, particularly small-to-medium size businesses, to use all their property in raising capital.
The PPS Act and the Regulations are proposed to commence in October this year together with the new PPS Register which is also scheduled to "Go Live" in October 2011. The exact date in October has yet to be determined by the Attorney General but an early October date is anticipated. The PPS Register will replace a number of existing Commonwealth and State registers including the Australian Securities and Investments Commission register of charges.
The PPS Act will apply to security interests given by corporations, partnerships, registered managed investment schemes, other registrable and non-registrable legal entities and individuals. A security interest is an interest in relation to personal property provided for by a transaction that secures a payment or performance of an obligation, regardless of the form of the transaction.
A security interest is said to 'attach' to personal property when the grantor has rights in the personal property and either:
- value is given for the security interest; or
- the grantor does an act by which the security interest arises.
The Act gives examples of arrangements that are security interests if they are interests in property and they secure payment or performance. These include:
- charges, mortgages and pledges;
- conditional sale agreements (including an agreement to sell, subject to a retention of title);
- hire purchase agreements;
- leases of goods; and
- flawed asset arrangements.
Personal property is any property both tangible and intangible, other than land. It includes tangibles goods such as motor vehicles, goods, crops and livestock and intangibles such as negotiable instruments, intellectual property, licenses and accounts.
A security interest may be perfected by registration on the PPS Register, by possession of tangible personal property, by control of certain property or by force of the PPS Act.
The priority of a security interest is determined by the perfection of the security interest. If your security interest is one which must be perfected by registration, failure to register may affect the priority your security interest has over competing security interests in the same personal property or be unenforceable in an insolvency situation.
It is intended that existing security interests already recorded on an appropriate register will be automatically migrated to the new PPS Register.
Importantly, transitional security interests that cannot be migrated to the PPS Register (such as interests which previously did not require registration) will receive temporary perfection for a period of 24 months after October 2011. Temporary perfection means that an existing security interest may establish or keep the priority it had before the PPS Act commenced.
Failure to register transitional security interests on the PPS Register during the transitional period may mean that the secured party will lose out to another secured party that registers its security interest.
Get Ready to Go Live
In preparation for the commencement of the PPS Act and PPS Register businesses should review their contracts to determine what security interests should be registered and consider the implications if you chose not to register.
You may then need to:
- Update your business documents such as your terms of service or sale granting a right to register on the PPS Register;
- Prepare to register interests you have determined to be PPS interests on the PPSR; and
- Update your policies and procedures to reflect any changes as to when to register, when to agree to register or due diligence registration checks.
In readiness for the PPS Register going live, BlandsLaw has access to the PPSR migration data and is able to find and search variations of secured party names that currently exist in all registers that are being migrated over.
BlandsLaw is also able to help you prepare your data for any securities on registers that are not being migrated over or not previously recognised under the PPS Act to the PPS Register. Instead of having to manually create individual registrations, we can arrange to have your data ready for automatic loading when the PPS Register goes live.
For more information or to discuss this article further, please contact us.
Authored by Jo-Anne Chong, Senior Associate.