The Personal Property Securities Act 2009 (PPSA) commenced operation on 30 January 2012.
Since the introduction of the PPSA, there have been some issues with the migration of information from state and commonwealth registers to the PPS Register and general issues associated with the practical application of the PPSA.
In this update we offer some practical tips on the operation of the PPSA and how it is likely to impact on agribusiness.
What is the effect of PPSA on previously registered charges?
Prior to the introduction of the PPSA fixed and floating charges and fixed charges were registered by lenders over borrower companies with ASIC to secure funding to borrowers. These pre existing charges should have automatically migrated across to the PPS Register. Similarly, other interests (such as motor vehicle interests on REVS) should have automatically migrated across to the new PPS Register.
Unfortunately, such migration has had some initial problems. We therefore recommend that prior to your next transaction opportunity your finance or legal advisors should search the Register to ensure that it accurately reflects the interests held by lenders in your agribusiness entity.
Such a search would also be prudent to determine if new interests such as lenders under vehicle finance agreements and retention of title under existing agreements have now been registered against your agribusiness entity as for the first time the Register allows for such interests to be recorded.
New terminology for securities.
As previously advised, such terms as fixed and floating charges and fixed charges have ceased to have legal relevance and are now replaced by security documents known as “General Security Agreements” (GSA) and “Specific Security Agreements” (SSA).
For future finances, agribusiness borrowers can expect to be provided with either or both agreements. The GSA will secure all present and after acquired property of the borrower (ie the previous fixed and floating charge). The SSA will be limited to a specific asset or assets of a borrower (eg formerly a fixed charge, bill of sale, crop lien, stock mortgage or mortgage of shares).
The Register now permits registration of such interests not only over company borrowers or guarantors but also over individuals and business entities.
Lenders can now pre register their securities prior to funding.
Be aware that a lender is now able to register its interest as soon as a signed agreement creating or evidencing the security interest has been received (eg a signed Letter of Offer). Previously, registration occurred after signing of security documents and funding. If your business is refinancing existing debts and does not wish the existing lenders to be aware of the fact during negotiations, you may wish to request any incoming new lenders to delay such registration until you have disclosed the refinance to your existing lender.
Trade marks, serial numbered goods and water licences
The Register now allows for a lender to register interests over a number of assets or property which were not previously registrable or registrable on certain state registers only. These include:
- serial numbered goods such as aircraft and watercraft
- livestock including race horses and agricultural livestock
- farm equipment
- plant breeder’s rights
- patents and trade marks
- water licences
- term deposits.
It is worth noting that a lender may continue for the present to register its interest over trade marks and water licences in both state based registers as well as the PPS Register.
Removal of registration interests
When a lender registers its interest it is required to elect how long it is to remain registered. Whilst this may be dependent upon the type of property over which the interest is registered, borrowers should be aware that it may remain registered with no stated end time. It is important that you ensure that when you repay or refinance your facilities the lender removes its interest from the Register immediately upon repayment or refinance.
Registering to protect your own interests - advice for suppliers
There are opportunities also for you, as a supplier of crops or other agricultural products, to protect your interests by registering your interest against the grain handler or other recipient. This could have significant benefits if the recipient goes into receivership in terms of proving entitlement to proceeds – particularly in co mingled goods such as grain. We recommend that you retain accurate records of invoices and values of goods handed over in case valuation is required in due course to prove your debt.