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Personal Property Securities Act

If you need help to understand what the PPSA means for you, then contact our PPSA lawyers at Wade Legal today.

The Personal Property Securities Act 2009 (Cth) (“PPSA”) is here and replaces the myriad of Commonwealth, State and Territory laws and registers dealing with personal property security.

With some exclusions the PPSA applies to all security interests in tangible and intangible personal property. Personal property excludes land and fixtures but does include plant and equipment, intellectual property, shares, and contract rights.

It will affect a number of businesses particularly if you are a financier or lender, you supply goods to clients prior to receiving full payment for the items i.e., on a retention of title basis or you lease out equipment.

What is a security interest?

A ‘security interest’ is an interest in personal property created or provided for by a transaction that in substance secures the payment or performance of an obligation. It will include fixed and floating charges, mortgages, retention of title arrangements, hire purchase agreements, equipment leases and consignments.

Register of security interests

A national register of security interests is managed by the Insolvency and Trustee Service Australia. State based registers like the Register of Encumbered Vehicles ‘REVS’ and ASIC’s register of company charges no longer exist. Security interests on these registers have migrated to the PPSA register.

The register will operate online 24/7. You can search the register by using either the grantor’s details or the serial number of the property, for example the VIN for motor vehicles.

Why registration is important

It is not mandatory to register a security interest however doing so can have benefits including ensuring your security interest survives the insolvency or bankruptcy of the grantor. By not doing so may mean a third party buyer could acquire the personal property free of the security interest or losing priority to other registered security interests or to the holder of an unregistered security interest that also has possession of the secured property.

Priority rules

The PPSA also provides for the determination of priority between multiple security interests in the same personal property and determination of priority between a security interest and another type of interest in the same personal property. There are also various exceptions the most important of which relates to purchase money security interests, such as retention of title supplies, which have a ‘super priority’ provided they are recorded as such on the PPSA register and within the timeframes stipulated in the PPSA.

Examples

Some examples of how the PPSA might affect you:

Example 1: You are in the business of leasing computers to small businesses. One of your lessee’s goes into external administration or bankruptcy. In theory your computer could be sold by the administrator or trustee in bankruptcy and its value realised for the benefit of the lessee’s creditors if you had not registered security over it.

Example 2: You have clients that you supply goods on a retention of title basis, that is despite the goods being in your client’s possession, the terms of sale state that ownership of the goods does not pass until full payment is made. Under the PPSA your previous rights as owner of the goods will change and this transaction will be a security interest for the purpose of the PPSA.

Example 3: You are planning on buying a painting for home from a private seller and its worth over $5,000. You will need to check the PPSA register to ensure there is no security interest registered over the painting otherwise you risk the painting being repossessed.

Where to from here?

  • Undertake an audit of all security interests you hold over personal property and determine what should be registered. Consider your exposure and the relative benefits and risks of whether to register on the PPSA register.

  • Arrange for those existing security interests you consider necessary to be recorded on the PPSA register to be registered from when it commences.

  • Consider reviewing your practices, if you previously supplied on a retention of title basis, review whether this is still a suitable way for you to do business.

  • Update your contracts to incorporate the new concepts arising out of the PPSA. For example, you will need to examine the carve-outs in confidentiality clauses. Provisions that allow disclosure to the extent required by law may need to be amended so that the confidentiality clause overrides the disclosure requirements in the PPSA

  • If you decide to take ‘security interests’ in property and register these interests, you will need to have in place records and systems to deal with enquiries and other requirements of the legislation.

  • Contact Wade Legal and get professional legal advice from one of our lawyers who understands the PPSA.

 

This article is intended for information purposes only and should not be regarded as legal advice. Specific legal advice should be obtained before taking action on any issue dealt with in this publication.