The Personal Property Securities Act
The Personal Property Securities Act
The Personal Property Securities Act 2009 (PPSA) which takes effect in May 2011, introduces a new process to establish and record security interests over personal property. The reforms replace some 70+ existing Commonwealth, State and Territory Laws and existing security interests that are registered on existing registers (for example, a charge against a business that is registered on the ASIC Register of Charges) will be migrated across to one centralised PPS Register. The legislation also introduces a new set of terminology.
As the PPSA provides a unified regime for the taking, registration and enforcement of security interests over most forms of property, all Australian businesses will find themselves affected in some way.
The new priority rules are particularly important where the issue of insolvency arises because 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.
What the PPSA will cover
The PPSA will cover security interests in all tangible property (inventory, livestock, motor vehicles, plant, equipment, machinery, currency) and intangible property (intellectual property, contractual rights, shares etc). The PPSA will not cover interests in land.
A security interest is defined as an interest in relation to personal property provided for by a transaction that 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.
What changes will occur
The PPSA establishes a new set of rules for determining priority between security interests. Under the new system, a security interest will be attached to the collateral (the thing over which the security interest is taken). Attachment requires that:
- the grantor has rights in the property or the power to transfer the rights in the property to the secured party
- the secured party provides value, or the grantor confers a security interest through their actions
The new priority rules require a security interest to be perfected via registration and therefore it will be necessary to register a security interest on the national PPS Register within a designated time period in order to ensure the interest obtains the “super priority” benefit that comes with registration. The electronic Register will be easy to access whether undertaking a registration or reviewing what security interests are held by a secured party.
The PPSA also introduces the concept of perfected purchase money security interest (PMSI’S). A PMSI is a security interest in collateral that secures the purchase price for goods provided or secures the finance enabling the acquisition of a particular asset.
What the PPSA will affect
The PPSA will affect most aspects of business arrangements where an interest in property secures a payment or performance, such as:
- charges and mortgages
- retention of title arrangements and terms and conditions of trade
- operating and finance leases of motor vehicles and equipment
- goods held on consignment
- hire purchase arrangements
- proceeds of items such as cash receipts, receivables and items that may be mixed with other items for further manufacture
- assignment of receivables
In next week’s newsletter, we will specifically review terms of supply / retention of title agreements and how they will be impacted by the new legislation.
Please contact our Corporate Advisory lawyers for further information.
Author: Susan Reece Jones