Home > News > A new system for Personal Property Securities

A new system for Personal Property Securities

Spread the love

A personal property security (“PPS”) is a secured interest over property other than land. Forms of personal property include tangible property such as cars, boats, machinery and crops, and intangible property such as shares, intellectual property, book debts and contract rights. PPS protects creditor interests and charges over personal property, e.g. car loans.

Over the last forty years there has been a continuous movement towards a single national PPS system. The current Federal government is undertaking a major overhaul of the PPS regime with the first pieces of legislation being passed in December of last year. These reforms will have far reaching effects for many sectors of the Australian economy.

How does it work?

The PPS Act represents a fundamental change to the law covering security interests. Indeed, in some circumstances, who has title to the property in question will be irrelevant. In many cases in order to gain priority and ensure enforceability against third parties you will need to register your security interest on the new national register. Possession or (for some financial assets) control are the other 2 methods of perfecting a security interest.

The new PPS system will put in place a single federal structure for the registration of security interests in personal property (the PPS Register). One of the aims of the register is to amalgamate many of the current federal and state based registries of security interests. The register will encompass all information from the old ASIC register of company charges and the state registers of interests in goods, crops and other items. The register will be searchable 24 hours a day, 7 days a week online. In the specific case of motor vehicle encumbrances, users will be able to perform a search via SMS.

Furthermore, a number of arrangements that were previously not considered registrable securities will fall under the new system, notably retention of title clauses. This will include some interests such as certain leases and commercial consignments even when they do not secure money.

What should you do?

Businesses will need to ensure they understand the implications that the new regime will have on their operations. This may require changes to documentation and operating procedures. Though the new PPS Register is only expected to come into effect in May 2011, the experience of similar PPS reforms in New Zealand has shown that early preparation is crucial. Though the details of the new system are still being finalised, you should be scoping out the task ahead and identifying the issues relevant to your business. Examples of security interests that will need to be registered to preserve priority and other questions you should consider include the following:

  • Manufacturers, suppliers and retail and trading companies will need to examine their terms of trade, particularly with regard to retention of title clauses (conditional sales agreements). In many cases these will now be characterised as security interests and subject to the new registration regime.
  • Leases for goods for terms longer than a year and other similar arrangements will be considered security interests.
  • Assignments of debts (including accounts receivables) and commercial consignments, in some cases, will also be deemed as security interests.
  • Borrowers should consider the impact with regard to negative pledge clauses as certain arrangements will now be considered security interests and may be caught by these clauses.
  • The government is planning to have the data on many existing registered securities seamlessly transferred to the new PPS register, ensuring that their priority is maintained under the new system. You should carefully check the arrangements surrounding all such securities.

With such a significant overhaul of the PPS regime, there a number of potential problems that could arise for those who do not adequately prepare. If you need advice on how the new PPS system will affect you, contact one of our Corporate Advisory lawyers who would be pleased to answer your questions.

Authors: Fotini Kypraios & Richard Lim