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PPSR - A Brief Summary

What is the PPSR?

The national Personal Property Securities Register (PPSR) came into operation on 30 January 2012. It was established under the Commonwealth Personal Property Securities Act (Cth) (the Act) and aims to bring the law and practice relating to personal property securities together into one national system.

The PPSR replaced numerous State, Territory and Commonwealth electronic and paper registers which existed under more than 70 Commonwealth, State and Territory Acts regulating personal property securities. The information on these registers relating to personal property securities has migrated across to the PPSR.

Under the Act, the definition of “personal property” and the types of “security interests” which must be registered have significantly broadened and the register will determine priority for secured creditors in the case of debtor default or liquidation.

“Personal property” generally does not include interests in land (fixtures) but does includes tangible and intangible goods such as:

• Inventory

• Office Equipment

• Crops and Livestock

• Items with a physical presence (goods)

• Motor Vehicles

• Machinery

• Aircraft

• Intellectual Property

• Contract Rights and Licences

Broadly, a security interest is an interest in personal property arising from a transaction that secures payment of money or the performance of an obligation.

Who is affected by the PPSA?

All businesses will be affected by the PPSA in one way or another. Those businesses which will be most impacted upon are:

1. Suppliers providing goods on credit with a Retention of   Title (ROT) interest in those goods.

2. Equipment lessors.

3. Asset financiers.

4. Consignors.

5. Secured and unsecured creditors.

The Act allows lenders and businesses to register their security interests. Secured parties, buyers and other interested parties can now search the PPSR to find out if a security interest is registered over the personal property.

Consequences of ignoring the PPSR

 Some of the concepts of property law have now changed. Importantly:

1. Retention of Title (“RoT”) clauses must be registered to “perfect” the security interest; and

2. “Legal title” may not be relevant if security interest has not been registered. If you don’t register your interests within required timeframes you are at risk of losing “ownership”.

If you are supplying or leasing goods it is an essential that you perfect your security interest by registering it on the PPSR. If you are the holder of an unperfected security interest you could lose it in the event of insolvency or voluntary administration.

In the situation of corporate insolvency, under the Act businesses that do not register their security interests will lose priority to parties who are registered. Under common law, the right to assets held by an insolvent company were determined by whichever party had superior title. The Act overrides this principle and has created a system based on registration of interests rather than establishing title.

A transitional security interest (TSI) is an interest in personal property that, in substance, secures payment or performance of an obligation which existed prior to 30 January 2012. TSIs also include security interests that didn’t exist at 30 January 2012, but were created under a security agreement that existed prior to 30 January 2012 and continued to exist after that time. An example of this could be goods supplied in 2013 under a retention of title (ROT) agreement that was created in 2011.

TSIs can include ‘PPS leases’, which are generally leases for a term of more than a year, or more than 90 days for certain serial numbered goods, such as a car.

If you are a secured party with respect to a transitional security interest (TSI) that is not yet registered on the Personal Property Securities Register (PPSR), you need to register it on the PPSR before midnight on 31 January 2014 to take advantage of “temporary perfection” and preserve the priority status of your TSI. If you don’t do this, temporary perfection for the TSI will not apply from 1 February 2014. Registration of a TSI is free.

Examples of commercial arrangements that may be TSIs not yet registered on the PPSR are:

• leases/hiring agreements (see PPS leases above)

• retention of title supplies

• commercial consignments.

Although there will still be the facility to register a transitional security interest (TSI) on the PPSR after 31 January 2014, choosing to hold off registering until after that date will result in you losing the benefit of the transitional provisions.

What this means is that the ‘perfected’ status of the security interest will only begin from the time of registration on the PPSR, instead of the earlier date allowable under the transitional provisions if you register before the end of 31 January 2014.

If a security interest loses its ‘perfected’ status its priority ranking will not be preserved. This means that another person with a security interest in the same collateral with a higher priority ranking (for example, a secured party who registered during the transitional period) will be paid out ahead of you in the event that grantor (the person who hires or buys the goods, or borrows money) defaults.

There is also the risk that if the grantor enters bankruptcy or insolvency and a security interest has not been perfected at relevant times, the security holder will lose their security interest altogether.

What to do?

Have you considered the following?:

• Do you have security interests currently not registered that could be registered under the new system?

• Do you require changes to your terms and conditions to encompass the registering of security interests?

• Do you have processes in place to manage registration of security interests onto the new system?

• Does the new system affect your credit systems?

 Spagnol Legal can provide free information sessions to you on these important changes. Contact us on (03) 9614 3880 or to arrange a convenient time.


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