New Personal Property Securities Register- What Businesses Must Know

Posted: 15/09/2011 From early 2012, the Personal Properties Securities Reform (“PPS Reform”) will commence and a single national online register of security interests in personal property (“PPS Register”) will become operational. The PPS Reform will have a significant impact on the business community from early 2012. The main piece of legislation is the Personal Property Securities Act 2009 (Cth) (“Act”) What is the PPS Reform? In summary, the PPS Reform consists of: (a) a single, national electronic register of ‘security interests’ in personal property managed by Insolvency and Trustee Services Australia . (b) a new rule-based system to determine priorities between competing security interests that are attached to the same item of personal property (including intellectual property, contractual rights, book debts, business inventory and company shares etc). Retention of Title and Leasing Arrangements The PPS Reform will affect various transactions not currently considered “traditional” security interests, such as: (a) retention of title clauses (“ROT”) in contracts where a purchaser has possession of property, but fails to acquire title from the vendor until full payment is made; and (b) financing or operational leases of personal property for a term exceeding 12 months (or 90 days for motor vehicles, boats or aircraft). Pursuant to the Act: (a) ROT suppliers and lessors of personal property become “secured parties” whereby they have a “security interest” in the collateral; and (b) Buyers of goods are treated for PPS purposes as if they are the owner, and the supplier’s or lessor’s rights are reduced to those of a secured lender. Manufacturer or suppliers who sell on ROT terms and lessors of personal property risk losing their ownership interest in the goods, if the manufacturer, supplier or lessor fail to register their ROT arrangement as a security interest on the PPS Register. What are the benefits of registration? By registering a ROT arrangement on the PPS Register, a ROT supplier or lessor: (a) takes priority over all other, including earlier, security interests in the collateral where the requirements of the Act have been complied with; and (b) are afforded protection against a trustee in bankruptcy or liquidator. Before the PPS Reform, ROT clauses have often been ineffective when disputed by a liquidator with focus placed on the form of words that are used in the clause of a contract. Pursuant to the Act, a registered security interest in the property supplied or leased means that the property will not be available to a trustee in bankruptcy or a liquidator. The Corporations Act 2001 (Cth) has been amended to include the concept of ‘PPS Act retention of title property’. This is property which is owned by the secured party but is in possession of the receiver/ lessee of the goods. If such a security interest is not registered on the PPS Register, it will vest in the company. The effect of this would be that the secured party could not seize the collateral on the liquidation and their only recourse would be to prove the debt against the liquidator and be paid out as an unsecured creditor. How many times do you need to register your ROT or leasing arrangement? The Act does not require a registration to be made in respect of all supplies or leases to the same buyer or lessee. A single registration may cover subsequent security interests in property that is supplied under later agreements. How much does it cost to register? Registration Fees have not yet been published, but it is expected that a single registration fee will cost approximately $130.00. When will the PPS Reform commence? The PPS Register “go live” date has been deferred from its proposed commencement date of 31/10/2011. The Attorney General, Robert McClelland, will make an announcement later this year confirming the commencement date for early 2012. In order to give businesses an opportunity to adjust to PPS Reform and the need for registration on the PPS Register , a 24 month transitional period exists from registration commencement time (RCT). The effect of this transitional period is that ROT suppliers or lessors who have entered into agreements that create security interests in the property supplied or leased before RCT will have two (2) years to register those interests. It is important to note that it is the agreements that must pre-date RCT, the security interests (for example, by way of supply the goods) may arise after this time. Agreements entered into after RCT are not subject to the transitional arrangements. The PPS Reform will have a profound bearing on businesses. Businesses need to be aware of the benefits and risks of the PPS Reform. RLR can assist businesses on all aspects of the PPS Reform including attending to the registration of ROT or leasing arrangements on the PPS Register.