Personal Property Securities
The Personal Property Securities Act 2009 (Cth) (PPSA), which commenced on 30 January 2012, introduced a national regime which replaced many existing schemes (including over 195 Acts and Regulations and 70 registers) which dealt with the registration of security interests over personal property in Australia.
In addition to wholesale changes to commonly used terms in connection with security interests, the introduction of new concepts (such as attachment, perfection and purchase money securities interests (or PMSIs)) and the abolition of well-known parlance in connection with "fixed and floating charges", arguably the biggest impact on businesses and legal practices associated with the PPSA is attributable to the expansion of the concept of a "security interest". The PPSA adopts a functional "in substance" approach to determining whether a security interest exists, which captures many commercial transactions which have not ordinarily been treated as registrable security arrangements, such as retention of title, commercial consignments, PPS Leases and finance lease agreements. Such arrangements will now require perfection under the PPSA in order to protect and preserve ownership of the personal property to which they relate and the priority of those arrangements.
The PPSA register creates a single national online register, known as the personal properties securities register or PPSR, for the registration of all security interests in personal property - replacing over 70 registers throughout Australia, including the ASIC company charge register, REVS (to the extent it deals with security interests) and the Bills of Sale registers. The PPSR, maintained and administered by the Insolvency Trustee Service of Australia (ITSA), enables security interests to be registered "on-line" 24 hours a day, 7 days a week.
Given the importance of understanding the new terms and concepts introduced by the PPSA, the following snapshot is provided for practitioners by way of an initial overview:
Grantor - the entity providing the security interest (previously, most commonly referred to as the chargor).
Secured Party - the entity acquiring the benefit of a security interest (previously most commonly referred to as the chargee).
Collateral - the personal property which is the subject of a security interest. The collateral can be of one of two types - either consumer or commercial property - and can fall within one of four classes: tangible, intangible, financial and general personal property. Within each of these classes, there are various categories of collateral. For example, tangible property includes motor vehicles, watercraft, aircraft, agriculture (crops and livestock) and other goods.
Security Interest - an interest in personal property provided for by a transaction that in substance secures the payment or performance of an obligation. This can include traditional forms of security interests, such as charges, chattel mortgages and bills of sale, as well as "in substance" security interests, such as retention of title, conditional sale and hire purchase arrangements, and "deemed" security interests, such as PPS Leases and commercial consignment arrangements. For example, an entity can now be said to grant a "security interest" instead of granting a "charge".
Attachment - the concept whereby a security interest is enforceable against the grantor. Attachment in essence indicates the parties' intentions to be bound to the security arrangement. It occurs at the time in which the grantor's rights in the collateral become subject to a security interest. Most commonly, attachment will occur when the grantor and the secured party enter into a written security agreement (now commonly referred to under the new PPSA regime as a general security agreement).
Perfection - the concept whereby a security interest is enforceable against third parties and the grantor's liquidator or administrator. Whilst perfection can occur in a number of ways (including by taking possession or control of the collateral), it is expected that most security interests in personal property will be perfected by way of registration on the PPSR of a financing statement in respect of that security interest.
Purchase Money Security Interest or PMSI - a security interest which is taken in collateral to the extent that it secures all or part of the collateral's purchase price (for example, motor vehicle financing could give rise to a PMSI in that vehicle) or is otherwise intrinsically linked to a specific collateral class. PMSIs are eligible for "super priority" status under the new regime and can defeat most security interests in the same collateral other than those perfected by control.
The Personal Property Securities Register (PPSR) is the register where details of security interests in personal property can be registered and searched.
Fact sheets available on the PPS register including concepts and information relevant to specific industries.
The PPS Act contains provisions supporting the transition of current financing arrangements to the new regime without disadvantaging parties to those transactions. The PPS Act gives the status of ‘transitional security interests’ to security interests arising before the new regime commenced and ensures they do not lose priority because of the transition. There is also a two year transitional period in which these interests can be registered. For business, the main impact is that they have two years to register security interests where they supply under retention of title arrangement or are lessors. For more information, go to the transitional provisions information sheet.
Data migration issues
During the Data Migration process ASIC charges have been migrated with ABNs rather than ACNs in the majority of cases. Users have been advised to undertake searches on ABNs, ACNs and organisation name. There is a PDF list of all migrated ABNs and their corresponding ACNs to assist users who do not have the ABN to more easily locate the ABN to search the PPS Register.
In addition ASIC has advised that approximately 6,000 charges were not migrated to the PPS Register.
List of migrated ASIC satisfied charges:
Approximately 38 000 satisfied charges (now called 'security interests') appear on the PPS Register as current, when in fact they were satisfied before 30 January 2012, and should not appear as current security interests. A charge appearing in this list is satisfied and is not a current security interest, even if the PPS Register says it is current.
A software solution to the change the status of these satisfied charges in the PPS Register, so they do not show as current security interests, has been developed, and is expected to be processed in the PPS Register during the week starting May 14th 2012. This process will discharge all registrations so they appear satisfied in the PPS Register, which includes sending a Verification Statement to all claimed registrations.
A list of the 38 000 satisfied charges is contained in the document ASIC Satisfied Charges Data.
For more information, see the Announcements page on the PPSR website. See also a discussion of these problems In an article in the Law Society Journal: Navigating the unchartered waters of the PPS Register.
Two industry associations, the Australian Bankers' Association (ABA) and the Australian Finance Conference (AFC) have jointly developed model documents (including Priority Deed and Release and Undertaking to Amend Registration).
A case study addressing PPSA issues in the context of a typical mixed farming business and the interactions and transactions arising from this.
A Federal Court of Australia decision in the administration of the Hastie Group Limited (Carson, in the matter of Hastie Group Limited (No 3)  FCA 719) illustrates a number of important points for administrators, secured parties and purchasers under the new regime established under the PPSA. The implications of the case are discussed in an article in the Law Society Journal: Early registration of secured interests: A lesson from the Hastie Group litigation .
Early registration of secured interests: a lesson from Hastie Group litigation
Law Society Journal, October 2012, Volume 50, page 44
The Federal Court has recently given a pragmatic decision allowing administrators to sell certain equipment held by the Hastie Group over which personal property security registrations had been made.
Navigating the unchartered waters of the PPS Register
Law Society Journal, June 2012, page 57
The implementation of the Personal Property Securities Register is not without teething issues, including inaccuracies and incompleteness in data, so practitioners need o be mindful of the challenges involved while they are being ironed out.
The hidden implications of the PPSA on guarantees
Law Society Journal, April 2012, Volume 50, page 59
With the Personal Property Securities Act 2009 finally commencing on 31 January 2012, practitioners should ensure lenders and guarantors register their interests or risk losing priority.
The importance of perfection
Law Society Journal, September 2011, Volume 49, page 60
Lawyers should start turning their minds to the new regime of registering security interests in personal property which is only a few months away from starting.
Securing interests in new regime’s transitional phase: Personal Property Securities
Law Society Journal, August 2011, Volume 49, page 67
The personal property securities regime expected to start in October this year will need a big mind-shift for professional advisors, and has complicated transitional provisions.
Forget everything your mother told you about property law
Law Society Journal, February 2011, Volume 49, page 56
The new property security regime will in many cases override the paramount position that has till now been given to the legal title of a chattel. Unlearning axioms of the law may be required for commercial lawyers to confidently advise clients.
Countdown has started for new personal property securities regime
Law Society Journal, October 2010, Volume 48, page 40
The Personal Property Securities Act 2009 is set to produce wide-ranging changes to corporate insolvency law and practice when it abolishes and replaces over 70 state and territory Acts on commencement next year.