A national approach to Personal Property Securities

It is common practice for the more powerful party to a transaction to try and obtain some form of security interest from the weaker party as a means of protecting its interests. This security may be in the form of a charge over a company, a mortgage over property or through the use of retention of title provisions in the relevant supply contract. The Federal Government is currently in the process substantially reforming the law relating to such securities. It is fundamentally important that your business understand the implications of these changes.

The Federal Attorney-General has released a draft Personal Property Security (PPS) Bill. If this Bill is enacted, it will create a unified national law and introduce an online PPS Register to replace over 70 Commonwealth, State and Government agencies. For example, the Register will replace the ASIC register of company charges and state based registers of interests in motor vehicles, goods, crops and other items. If introduced, the new system will be in place by 2010.

What are Personal Property Securities?

A PPS refers to the interest held in personal property as security for the repayment of a loan, or performance of an obligation under a contract, or by virtue of retention of title.

Features of the New System

Traditionally, suppliers of goods have relied on their title to the goods for priority over third party claims over those goods. Under the PPS system, title to the goods is not the determinant. A supplier who supplies goods or services on a retention of title basis, will be able to register the transaction as a security interest. If the supplier does not register the interest, the interest of a third party creditor who has registered its competing interest may prevail.

Issues to Consider

The proposed legislation will affect contract documentation designed to retain a security interest in goods sold to customers. Business practices, including giving of security in finance transactions, as well as in financial instruments and due diligence, are all clearly affected by this proposal.

What you Should do Now

Businesses should monitor progress of this proposed legislation, learn how the PPS system will affect business practices and start planning for the transition to the PPS System. MST can help you prepare for this important development. Please contact us if you would like more information on the PPS, or if you would like to discuss the implications of the legislation for your business.

Author: Laughlin Nicholls