Personal Property Security Registration
How will changes in the law on registration of security interests affect you?
The Personal Property Securities Act 2009 (Cth) (PPSA) is Australia’s new federal law that governs taking, registering and enforcing security over personal property except land or buildings. It covers all moveable, tangible assets including cars, plants, machinery and crops and certain intangible assets such as shares, intellectual property and contractual rights.
The PPSA will create a single, national register for personal property securities interests. It is intended to create greater transparency, consistency and clarity when it comes to identifying interests in personal property. It will also include interests not currently subject to formal registrations, such as leases and retention of title clauses (Romalpa Clauses) under a line of credit arrangement.
The new security system registration system commenced on 1 February 2012.
PPS Register and its Operation
Secured parties and other interested parties will be able to search the PPS register to find out whether a security interest is registered over personal property.
The PPSA affects the way the rights of ownership and priority between security interests will be determined and enforced. It is important to understand these priority rights to ensure that security rights are properly registered
The security interest must be attached to the property for the secured party to have enforceable rights even if limitations exist. The criteria for attachment are that:
- the grantor has rights in property and power to transfer rights in the property to a secured party; and
- the secured party provides the value and the grantor confers a security interest through their actions.
Security Interests and Priority
A company which has a security interest in the asset of another will only be protected against competing claims of third parties or creditors if the security interest is perfected. A security interest will only be perfected when:
- Attachment has occurred (value has been given for the security)
- The interest is enforceable against the grantor, and
- The holder of the security interest has registered the interest on the PPSA Register, or has possession or control of the collateral (the subject or property of the interest)
The importance of perfecting a security interest is that a perfected security interest overrides and unperfected security interest, and, where there are competing perfections by registration, generally the first to be registered has priority.
While the registration does not create a legal interest in the collateral (personal subject to a security interest), it does reflect a priority claim to the collateral. Possession or control of collateral is another method of perfection.
The typical order of priority of security interests is as follows:
- Perfected security interests perfected by control (where the property is controllable property);
- Perfected security interest perfected by means other than control; and
- Unperfected security interests.
One notable exception to these priority rules is the Purchase Money Security Interest (PMSI) which can, in effect, give a party a super priority to specific collateral above all other interests.
Upon default of a security agreement by a grantor, and amongst other available remedies, a secured party will be entitled to seize and dispose of collateral, subject to some requirements under the PPSA. The enforcement provisions do not disturb the remedies available to secured parties under their security agreement, but provide effective and efficient mechanisms for enforcement.
Risk of non-compliance
If an interest is not appropriately registered in the PPSA Register, the interest and security over the property may be lost through a subsequent transaction. Companies that supply goods to customers on the basis that title in goods is maintained until payment is made, may find their retention of title is no longer enforceable under the PPSA. Also there is a risk of becoming an unsecured creditor if the customer becomes insolvent.
If you are a company that supplies goods and services you will almost certainly want to register its interests on the PPSA register. Registration of a business’s supply contracts containing a security interest will be necessary to ensure it can claim its goods back if it doesn’t get paid. Conversely, businesses which supply your company or business under contracts containing title and payment will probably register their interests against you.
We recommend you take appropriate steps to protect your interests by registering them under the PPSA . For further advice and assistance on how the Act affects you please contact David Blunt on telephone – (03) 9375 4226.