New Personal Property Securities Regime

The Personal Property Securities Act (2009) (PPSA) commenced operation in January 2012 and the deadline for transition expires on 30 January 2014.

Don’t be caught out!!  If the PPSA affects you or your business, there are serious ramifications in not taking steps before that date.

The PPSA introduces a new regime in Australia for dealing with security interests in personal property, and the process for determining priority disputes between security interests.

The PPSA regime  introduces a range of  new concepts and replaces a number of old, well known legal doctrines and notions, such as the ‘fixed and floating charges’.

What does the PPSA replace?

The PPSA is a Commonwealth law which will replace upwards of 70 State and Commonwealth statutes (and the government agencies that govern them) that govern various aspects of security over ‘personal property’ (excluding land), including company charges at ASIC (fixed and floating) and other forms of personal property such as bills of sale, various forms of motor vehicle security, ships mortgages, stock mortgages, crop liens.

The major changes

The PPSA will result in a number of significant changes as follows:

• the introduction of a definition of ‘security interest’, defined as an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation;
• the new definition of ‘security interest’ will therefore mean that the PPSA will now govern the traditional forms of security including those by ‘form’ (being the charge, pledge and lien) and those by ‘function’ (being financing structures, such as hire purchase, finance lease transaction and retention of tile arrangements);

the PPSA changes the rules for creating an enforceable, first ranking security interest in personal property. To be enforceable, the security must:

• be enforceable against the grantor by means of ‘attachment’.  This requires the security to be attached to the collateral by way of rights in the collateral or for value in the security interest.  This will normally be in the form of a security agreement;
• the security interest must be enforceable against third parties.  This requirement will be met if the security interest is ‘attached’ and the secured party either has possession of the security, has ‘perfected’ the security interest by control, or the collateral is ‘covered’ by the security agreement;
• the security interest must be ‘perfected’.  This is essential, and perfection will ensure that a security interest will have its best possible propriety ranking and will be least likely to be lost on a disposal of the collateral in the instance, for example, of insolvency.  The most common method of perfection will be to register the security on the PPS register.

The priority rules relating to priority disputes between competing interests in personal property will change significantly.  It will be critical for all secured parties to ensure that a security interest is ‘continuously perfected’.

What should you do?

If your business deals with personal property, such as equipment hire or equipment leasing, or you retain title to personal property in any of your terms and conditions as part of your business, your business is at risk of losing priority to any equipment or personal property if your agreements and practices do not conform with the PPSA prior to the conclusion of the transition period.  It will be essential that all such interests be registered from the commencement of the PPSA next year.

If you require advice with respect to any aspect of the PPSA or your business, please contact a member of our Commercial Team.