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After a number of initial delays, the Attorney General has now issued a determination that the PPSA will 'go live' on 30 January 2012. This means that the final countdown has started for you to ensure that your staff, systems and procedures are PPSA ready.
After a number of initial delays, the Attorney General has now issued a determination that the PPSA will 'go live' on 30 January 2012.1 This means that the final countdown has started for you to ensure that your staff, systems and procedures are PPSA ready.
The PPSA is a fundamental overhaul of the existing regime for taking and granting security over personal property (excluding land). The changes will affect nearly all businesses, including those that may lease or loan goods to third parties.
The PPSA establishes a single national law and a single online register for all 'security interests' in personal property. This replaces over 70 State, Territory and Commonwealth security registers and replaces a system which has been criticised as complex, confusing, inconsistent and outdated.
However, the PPSA does more than simply harmonise and consolidate existing security registers - it fundamentally rewrites established legal principles so that both the form of a transaction and the identity of the person who has legal title to an asset become largely irrelevant. Accordingly, once the PPSA commences title to an asset will no longer afford the protection one might expect.
The types of 'security interests' covered by the PPSA are far broader than under the current regime. This means that certain transactions which are not traditionally regarded as creating security may now give rise to a security interest which needs to be registered. For example:
Failure to register has severe consequences for the secured party if the customer or lessee becomes insolvent. Title or ownership of the goods no longer offers sufficient protection. Your business needs to reassess and manage the risk of these transactions in light of the PPSA as well as considering the impact of any new 'security interests' that may be registered against you by a third party.
The PPSA introduces new concepts and terminology that your business will need to become familiar with. The PPSA applies to all '"security interests" in "personal property" located in Australia or where the person granting the security interest is an Australian entity.
Personal property includes all tangible and intangible property including plant and equipment, inventory, motor vehicles, intellectual property (e.g. trademarks/patents), book debts, receivables and other contractual rights.
Personal property excludes land and fixtures. Additionally, the PPSA does not apply to certain statutory licenses,2 tradeable water rights, set-off arrangements and non-consensual liens.
A security interest is broadly defined as any interest in property securing the payment of money or performance of an obligation. The PPSA takes a 'substance over form' approach which disregards the form of the transaction and the identity of the person who has legal title to the property. This means that a person may be able to grant a security interest over property even if they do not own it!
A "PPS Lease" is a lease or bailment of goods that may have a term of more that one year (or for certain serial numbered goods such as motor vehicles or registered IP), a term of more than 90 days. It is important to recognise that if you lease an item of equipment to a customer under a PPS lease then you (as lessor) will be the secured party and the customer (as lessee) will be the grantor of the security.
PPS Leases are a deemed security interest under the PPSA.3 This means that although, in substance, they may not secure the performance of an obligation, the lessor's interest in the leased property still needs to be protected by registration. Again, ownership will not provide sufficient protection.
A security interest may be perfected by way of:
In practice, a secured party will generally not have possession or control of the secured property, therefore registration is the only available (and recommended) method of perfection.
Perfection is essential to preserve priority and ensure that the security interest is enforceable on the insolvency of the grantor.
The consequences of failing to perfect a security interest are severe. If your security interest is unperfected and a liquidator, voluntary administrator or trustee in bankruptcy is appointed to a customer then your security interest may 'vest' in that customer. This means that even if you have legal title to an asset over which you have an unperfected security interest (such as goods provided on ROT or equipment leased to a customer) you will lose all your rights to that asset on the insolvency of the customer.
The PPSA will create a single national register which can be searched quickly and cheaply online. Unlike the current ASIC register for company charges, there will be no requirement to file a copy of the security agreement at the time of registration.
It is anticipated that the registration commencement time of 30 January will be finally confirmed by the Attorney General's Department in mid December 2011. There are currently no indications that the existing target 'go live' date will be further delayed, however, the Personal Property Securities Amendment (Registration Commencement) Act 20114 does give the Attorney General the flexibility to determine a later date if there are any unforseen issues arising in the weeks leading up to 30 January 2012.
To ensure that you are 'PPSA ready' you will need to:
a) PPSA registrations (including deciding whether you will apply for a credit account or 'pay as you go');
b) maintaining records of any PPSA related notices; and
c) responding to any PPSA related information requests; and
Our team would be pleased to help you address any of these issues or answer other queries as to how the PPSA will affect you.
1 Personal Property Securities (Migration Time and Registration Commencement Time) Determination (21 November 2011).
2 If the statute under which a right, licence or authority is granted declares that the interest is not personal property for the purpose of the PPSA.
3 There are some exceptions for lessors or bailors who are not regularly engaged in the business of bailing goods.
4 Which received Royal Assent on 29 November 2011.
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