After a few false starts, the Personal Property Securities Register (PPS Register) established under the Personal Property Securities Act 2009 (Cth) (PPSA) commenced operation yesterday.
The reforms implemented by the PPSA require a fundamental shift in the way businesses think about concepts of ownership and security. The PPSA radically expands the scope of interests that businesses must now register on the PPS Register to avoid the risk of loss of priority or invalidity if the entity granting the interest becomes insolvent.
The PPS Register replaces the ASIC Register of Charges and more than 70 Acts and registers around Australia with a single national law and central online register that is available to the public 24/7.
The PPSA does not apply to real property and certain statutory licences. However, the term "personal property" now stretches to most other kinds of tangible and intangible property, including motor vehicles; household, commercial and industrial goods and equipment; business inventory, intellectual property rights and company shares.
Until now, forms of registrable "security interest" were limited mainly to charges on mortgages, pledges and liens. Under the new system, in addition to these traditional forms of security, security interests can now include:
- Any other commercial arrangement that, in substance, secures payment or performance of an obligation by one entity (called the "grantor") to another entity (called the "security holder"). Such arrangements include leases, supply on retention of title terms, hire purchase agreements and flawed asset arrangements.
- Three categories of commercial arrangements that may not necessarily secure anything at all (called "deemed security interests"). These are transfers of accounts or chattel papers (for example, factoring and securitisation arrangements), commercial consignments and "PPS Leases", which include leases or bailments of goods for more than one year, or more than 90 days for serial numbered goods.
Suppliers, manufacturers, lenders, creditors and lessors will need to ensure that new security interests in personal property are registered on the PPS Register as soon as they are created.
Existing security interests will benefit from a two-year grace period for registration under the new regime. All charges currently registered on the ASIC register and similar data on a number of other relevant, but now redundant, registers should have been automatically migrated over to the new PPS Register. However, it is still crucial for businesses with PPSA exposure to take steps towards PPSA compliance now. Following are some of the reasons why:
- The onus is on a security holder to check that an existing registered security interest has been accurately migrated across to the PPS Register. If any existing security interest is not accurately registered on the PPS Register within the two-year period, the priority of that security interest may be lost. Issues have already been identified in relation to the inaccurate migration of an estimated 27,000 ASIC charges granted to more than one secured creditor, leaving some existing chargees without a registered security interest. As warned by TressCox Lawyers Partner Alex Moriarty in The Courier-Mail on 30 January, it is dangerous for businesses to assume that they can rely solely on the transitional provisions of the PPSA (click here to read article).
- Temporary perfection of existing security interests during the two-year transitional period will provide protection against insolvency of a grantor, but may not provide protection against sale to a third party within that period.
- All major lenders have now incorporated PPSA-specific terms into their finance documentation. Under those covenants, lenders are likely to require their corporate clients to take immediate steps towards implementing PPSA compliance measures in respect of all newly created and existing security interests. Failure to do so could put you in default under your financing arrangements.
Fortunately, the PPSA registration system is much simpler than the registration systems it replaces. It requires only a short financing statement that is lodged online and registered within a matter of minutes. However, identifying the extent of your PPSA risk, implementing the relevant procedures and systems within your operations and building a PPSA-compliant corporate culture takes time.
TressCox has many clients who are affected by these changes, and we can help ease the burden of the PPSA on your operations. Contact us immediately to discuss how the PPSA will affect your business.
For further information, contact:
Phone: 61 2 9228 9223
Phone: 61 7 3004 3500
Phone: 61 3 9602 9709
and Nigel Watson
Click here to read more about the transitional provisions of the PPSA.
Click here to go to the Australian Government’s PPS Register website.
Click here to go to the TressCox PPSA blog.
To see the contact details of the entire TressCox Corporate, Commercial and M&A Team please click here.