The Personal Property Securities Act 2009 (PPSA), which came into force on 30 January 2012, has seen a wide range of companies affected by the sweeping change to Australia's commercial law.
Under the PPSA there is now one national PPS law and one national PPSA register for recording security over assets.
Companies need to be aware of the PPSA, understand it, allocate resources to complete registrations and have a system to manage those registrations.
If a company owns an asset and believes they have a security interest in that asset, and they do not perfect a security interest over it, they can lose the asset on the insolvency of the counterparty.
Companies should act immediately on the PPSA regime to protect their interests and minimise disruption to business now the PPSA has taken effect.
Deloitte Restructuring Services can assist by performing an assessment of your client's business to help them with identifying the necessary registrations to preserve their ownership interest in the business's assets.
Who will it affect?
What is 'personal property'?
What is a 'security interest'?
The PPSA Register
Migration of existing registrations
Perfection of security interests and priority
Risk to ownership of your assets
How companies can address the reforms
Annexure A outlines some specific scenarios.
Personal property is all property other than land, buildings, fit outs and certain statutory licences. It includes rights under contracts, motor vehicles, shares, equipment, stock, receivables, intellectual property and intellectual property licences. Water rights and most Commonwealth, State and Territory mining and exploration licences/permits are not considered personal property, and therefore are not regulated by the PPSA.
A 'security interest' is defined generally under the PPSA as an interest in personal property arising from a transaction that, in substance, secures the payment of money or performance of an obligation.
Examples of security interests include:
In certain cases, the PPSA adopts a 'form over substance' approach and deems some transactions to be security interests, even though they do not secure anything. They include:
A PPS lease is a lease or bailment of goods that can operate for more than one year, an indefinite term, or goods that may or must be described by serial numbers. However, a PPS lease does not include arrangements where the lessor or bailor is not in the business of leasing or bailing goods.
A PPS lease covers operating leases as well as finance leases. This will be particularly relevant to the communications, media and technology industries, where equipment is often provided as part of a service.
The PPSA establishes an electronic register. The register is a 'red flag' register: that is, it draws attention to the security interest without providing much detail (for example the Register will not contain security agreements, rather, it will simply list the key details (grantor, secured party, generic description of property covered by the security interest, etc.) of the security interest claimed in the registration. While registration is generally simple, there are some traps in deciding how to describe the collateral, and also in deciding under which category to allocate the interest.
The registration process is intended to be simple, quick and cheap, and parties are able to register their security interests online or (in some cases) by SMS. Interested parties are able to search the Register to determine whether a security interest is registered over a specific piece of personal property.
Security interests registered in some registers such as the charges register maintained by ASIC under the Corporations Act 2001 (Cth) were automatically migrated across. However, there was no automatic migration of the IP registers for trademarks, designs and patents.
A security interest will only be perfected when:
The importance of perfecting a security interest is that:
The PPSA also introduces the concept of Purchase Money Security Interests (PMSI). The PMSI provisions of the Act expand the scope of security interests and, when correctly registered and used by a secured party, afford that party a 'super priority'. The super priority means that a PMSI has priority over a perfected security interest (i.e. one that isn't a PMSI) registered before the PMSI. Examples of where a PMSI could be registered include retention of title arrangements, hire purchase and lease finance arrangements, bailment agreements and transfers of account receivables (such as factoring arrangements).
Perfection is particularly important in the event of insolvency because, subject to only a few exceptions, upon appointment of a Liquidator, Voluntary Administrator or Receiver (for companies), or a Bankruptcy Trustee (for individuals), unperfected security interests 'vest' in the company/individual. The secured creditor generally will lose its security and become unsecured.
Companies that have not already done so should begin adopting their policies and procedures immediately for the new PPSA regime so as to protect their interests and minimise disruption to business. Key issues should include:
|Annexure A: Asset scenarios|