The new PPS regime
The Personal Property Securities Act 2009 has introduced some fundamental changes to the laws of securities and property (other than real estate). Pursuant to the Act, the Personal Property Securities Register (‘PPSR’) commenced operation at the end of January 2012. The PPSR is an online register of security interests in personal property.
The concept of a ‘security interest’ is central to the Act. Security interests may arise where:
- Personal property is used to secure payment or performance of an obligation (e.g. retention of title, hire purchase, finance lease etc); or
- Personal property is leased or bailed.
Transactions that give rise to security interests may be affected by the Act and such security interests may need to be registered on the PPSR within strict timeframes. Failure to register may result in the security interest losing priority to a subsequent security interest, including loss of property.
If a security interest is validly registered on the PPSR, then a secured party (i.e. the person holding the security interest) may be able to enforce the security interest by the following methods:
- The secured party may be able to trace into the proceeds of sale of the personal property. For example, if your business supplies goods to customers on a retention of title basis and the customer sells the goods to third parties, then you may have a security interest in the customer’s book debt in relation to that sale to the third party or the proceeds of sale; or
- The secured party may be able to enforce its security interest notwithstanding that the property securing an obligation has been installed in or affixed to other goods. For example, if your business supplies components on retention of title basis and those components are built into a machine, then you may continue to have a security interest in the components. Depending on the circumstances, you may have priority against someone that has a secured interest in the machine.
In addition to the above, a secured party may be able to exercise a power of sale or may be able to retain the personal property that was the subject of the security interest.
The Act provides for a two year transitional period within which secured parties can adapt to the Act and the operation of the PPSR. During this period, security interests created prior to 30 January 2012 can be registered on the PPSR to ensure that they maintain their appropriate priority as against other security interests. Therefore, if you or your business was granted security interests prior to 30 January 2012, then you should ensure that those security interests are registered on the PPSR as soon as possible. All charges registered on the ASIC Register of Company Charges were automatically migrated across to the PPSR upon commencement of the PPSR, however the PPSR should be searched to ensure that migration occurred properly as some problems with the migration process have been reported.