Understanding the new securities law and what it means for your business
Private Matters, August 2012
Deloitte’s Restructuring Services Account Director Adrian Hunter provides a summary of the new Personal Property legislation and the serious risks it raises for many Australian businesses.
The Personal Property Securities Act (PPSA) came into force on 30 January 2012 – a reform of the securities law in Australia which had been in discussion for many years.
The PPSA triggers significant changes in the way security is taken over personal property and impacts upon both corporate entities and individuals alike. The Act establishes a single national regime governing security interests in personal property. This covers almost all forms of tangible and intangible assets, including intellectual property. However, the regime excludes interest in land, buildings, fixtures and most statutory licences.
Financiers, along with businesses operating across all industries – but particularly in the mining, manufacturing, wholesale and retail sectors – are affected.
The security interests are managed under one national PPSA Register that is accessible and managed online.
A security interest is granted by the borrower/debtor and secures a performance obligation or a payment to a secured party, and may arise from some of the following examples:
- Mortgages (excluding a mortgage over land or water rights)
- Conditional sale agreements, including retention of title arrangements
- Hire purchase agreements
- Trust receipts
- Leases of goods
- Joint Venture agreements.
A secured party may include a supplier, manufacturer, lender, creditor or lessor, even if it is a related party. They need to take steps to perfect their security interest in order for it to be effective in the event of the debtor’s insolvency and against any other holder of a competing security interest. This process of perfection is often achieved via the registration of the security interest on the PPS register.
What action to take
The PPSA raises serious risks for many Australian businesses. Business owners and directors should understand that usual “asset protection” and separation vehicles and structures such as trusts and separation of entities may not protect their assets from the reaches of the PPSA. A few points for business to consider:
- Seek expert advice on PPS Act and how it will impact on your processes, procedures and documentation
- Review your processes, procedures and documentation to ensure your security and ownership rights are protected under PPS Act, and implement appropriate changes
- Don’t overlook how PPSA will impact upon existing security arrangements
- Understand what collateral classes are relevant to your line of business
- What agreements will now be considered as security interests? Will you need to create securities under multiple collateral classes to ensure your interests are protected?
- Review the terms and conditions of your contracts. How will you incorporate notice of lodgement on PPS Register into your contracts? Do your rights of variation cover you for existing arrangements?
- Investigate whether any contractual restrictions on assignments will become ineffective after PPS Register commencement
- Assess your risk of conducting business without making PPS Register registrations, or transacting with companies who request not to have registrations made against them
- Appoint a key executive or team to take responsibility for consideration of how the PPS Act affects your business
- Investigate whether any securities exist on non-migrating registers, as these may need to be registered on the PPS Register
- Verify your collateral data to minimise the risk of defective registrations
- Perfect your interests.
How Deloitte can help
Deloitte has established a team of experts to assist you with understanding the PPSA and what it means for you and your business. We believe your main focus is likely to be the identification of your registration needs and an awareness of how to complete the registrations. You may also wish to understand what security interests will be registered against your business.
Deloitte has developed a methodology to undertake a diagnostic of your business’ PPSA requirements. We will deliver you a report which may include the following:
- A schedule of the identified asset and transaction categories as conferred by the PPSA
- Our recommendations on whether or not you may need to effect registrations under each category and our reasons for that view
- Extracts of the key aspects of the PPSA including explanations of the key terms.
For more information please contact;
Tel: +61 3 9671 7654