Personal Property Securities Act now likely to begin on 31 October 2011
As the commencement date of the new Personal Property Securities Act 2009 (PPSA) is fast approaching, we recommend you ensure your business is preparing for this considerable legislative change.
Most Australian business will be impacted and every business will have differing circumstances. It is very important that each business understands the pending changes and its future obligations under the new regime.
The PPSA introduces a new set of terminology, new process for the registration of a security interest via a new 24/7/365 electronic register, new documentation processes, new priority rules and new enforcement regulations.
Why is the PPSA so important?
The new priority rules of the PPSA are particularly important where the issue of insolvency arises.
Under the PPSA, where a creditor fails to perfect a security interest and the grantor becomes insolvent, the administrator will be able to seize the security interest and take the goods as part of the asset pool for distribution to all creditors. If you have a security interest but have not registered it, you stand to lose it if you do not have a perfected, registered security interest.
Remember the PPSA is a voluntary, opt-in system. Every business should conduct a risk assessment in relation to what security interests require registration. Under the PPSA it’s simple: register the security interest on the PPSR or risk losing your asset.
What is a security interest?
The PPSA defines a security interest as:
“…. an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).
For example, a security interest includes an interest in personal property provided by any of the following transactions:
- a fixed charge and/or floating charge,
- a chattel mortgage
- a conditional sale agreement (including an agreement to sell subject to retention of title)
- a hire purchase agreement
- a pledge
- a trust receipt
- a consignment
- a lease of goods
- an assignment
- a transfer of title
- a flawed asset arrangement (an agreement with conditions such as a bank taking security over a bank account until an obligation is satisfied)
What is personal property under the PPSA?
Put simply, everything except land and water rights.
Under the PPSA, the definition of property is very wide and includes tangible property such as goods, leases, asset sale agreements, hire purchase agreements, and consignments, chattel paper, and fixed and floating charges.
The PPSA regime also recognises intangible property such as intellectual property assets such as copyright material, patented products and equipment, royalty and license fee streams and software. Where a company secures finance with intellectual property assets or has intellectual property assets that may be acquired or licensed, then a security interest may be attached to the intellectual property. We also note that in a recent landmark decision (Tucows.Com Co. v. Lojas Renner), the Ontario Court of Appeal held that internet domain names constitute personal property.
What do you need to do?
We recommend you consider carefully what transactions and assets may need to be registered under the PPSA.
You should also review carefully all documentation that must be amended in compliance with the new regime and arrange for it to be amended as soon as possible.
Please note: the PPSA commences on 31 October 2011- only 8 weeks from now.
As there are many different aspects to the new regime and each business will have its own unique issues to address, MST can provide guidance on understanding the new system and advice about how to ensure your security interests are best protected.
For further information on the Personal Property Securities Act contact one of our Corporate Advisory lawyers.
Author: Susan Reece Jones
Susan is a Member of the Commonwealth Government’s Attorney General PPSA Legal Special Interest Group
