Personal Property Securities Act
The new Personal Property Securities Act 2009 (PPSA) will introduce a new set of terminology, new process for the registration of a security interest via a new electronic register, new documentation processes, new priority rules and new enforcement regulations. Our article last week provides an overall look at the new Act.
The new priority rules of the Personal Property Securities Act 2009 (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.
What you need to do
We recommend that businesses start to prepare for the pending changes and to understand future obligations. Each business will have differing circumstances, however we address below two main areas that will be impacted by the new legislation
Terms of supply / retention of title agreements
Under the new regime, terms of supply or retention of title agreements will need to be amended to reflect the new PPSA rules of priority.
Where payment is due after delivery of the goods and the title to the goods does not pass until full payment has been received, a supplier will, under the PPSA, be able to perfect an interest in the goods by registration.
Suppliers will be able to obtain a ‘super priority’ over the goods by registering the security interest and the good news is that the PPSA allows that to be completed at the beginning of a trading relationship ie. it will not have to be completed for each and every order or shipment. If the goods are not perfected by registration, the supplier stands to lose title to the goods where a customer enters voluntary administration, liquidation or bankruptcy.
Where a business is subject to retention of title agreements from suppliers, those agreements will need to be checked carefully to ensure the agreements do not provide for a security over all the assets of the buyer.
Suppliers will need to establish a system to manage registration of security interests and particular care will need to be given to registration renewals or expiration. Additionally, suppliers will be required to advise a grantor that a security interest has been registered and the grantor must be provided with documentation to that effect.
Leases and financing arrangements
Operating leases and finance leases of equipment that are perfected by registration will be security interests.
- what transactions and what assets may need to be registered
- what new policies, procedures and training will be required to ensure registration of security interests, valid documentation and the ongoing management of registration and
- what intellectual property such as valuable copyright, patents or license streams may need to be registered.
The PPSA regime allows intellectual property assets such as copyright material, patented products and equipment, royalty and license fee streams and software to be secured through the new registration process. 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.
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 Securties Act contact one of our Corporate Advisory lawyers.
Author: Susan Reece Jones