The new Personal Property Security regime is expected to commence in Papua New Guinea before the end of this year, possibly as soon as the end of October.
If your business is affected by the new Personal Property Security regime, it needs to amend its transaction documents, get a good understanding of new changes, and develop systems for searching and registration.
The Personal Property Security Act 2011 (PPSA) was passed by Parliament on 9 December 2011. It will apply to all forms of property other than real property (land and buildings), mining tenements and petroleum licences. It will completely replace existing registers for company charges, chattel mortgages, hire purchase agreements and other securities affecting tangible and intangible personal property. The PPSA will replace these existing registers with a single online register known as the Personal Property Security Registry (PPS Registry).
The PPSA will not commence operation until the PPS Registry is online. However, the Department of Treasury has indicated that the PPS Registry is due to go live before the end of this year.
What will happen to existing registered security interests?
Once the PPSA commences, affected businesses will have a 180 day transition period to re-register existing security interests on the PPS Registry, or risk losing priority.
Treasury has stated that there will be no automatic migration of security interests from existing registers (such as the Companies Register) to the PPS Registry. This will place an enormous burden on financial institutions and other affected businesses as they will need to manually re-register all of their existing security interests within the transition period.
Security interests requiring registration (no current register)
Security interests created under retention of title arrangements, consignments and leases of goods will now be captured by the PPSA. Although not recorded on any existing registers, affected businesses will need to consider registering a notification on the PPS Registry before the end of the transition period.
Unlike the Companies Register, the PPS Registry is not a document register. This means that no documents will be lodged at the PPS Registry. It will be comprised of online notifications of security interests, not of documents. It will be the responsibility of secured parties to lodge a notice of their security interest on the PPS Registry, not the PPS registrar!
Accuracy in registering an interest is important, as a seriously misleading notification may invalidate the registration. There are special rules for registering interests in relation to goods with serial numbers or relating to unpaid purchase money (e.g. PMSIs – see below).
Purchase Money Security Interest (PMSI)
A PMSI is an interest claimed in respect of unpaid goods.
A PMSI can be held by either the seller or a third party lender who finances the purchase of personal property. A seller’s PMSI will usually have priority over a third party lender’s PMSI.
Interests classified as PMSIs are given a ‘super-priority’ over most security interests that are not PMSIs provided that the PMSI is registered within prescribed time limits.
Affected businesses include:
- banks, lenders and other financial institutions who take security from companies and individuals over personal property;
- lessors of operating leases, finance leases, and hire purchase agreements;
- landlords who lease chattels (i.e. goods which are not fixtures) with real estate; and
- businesses which sell goods on a deferred payment basis.
What is required?
Affected businesses need to urgently take the following steps:
- identify all existing security interests to ensure manual re–registration takes place within the transition period;
- develop policies and procedures for registering new security interests from day one;
- establish a ‘client account’ (anyone who wishes to register a security interest or obtain certified searches must establish and pre-fund a client account with the PPS Registry);
- identify who will be an ‘authorized user’ of your client account;
- amend loan and security documents to conform to the PPSA; and
- develop processes for document preparation, searching, registering, amending, assigning and terminating security interests.
How important is this?
The degree of change is demonstrated by the following example PPSA transactions.
Bank provides construction finance to Building Company secured by a fixed and floating charge over all of Building Company’s assets and undertaking. Prior to the commencement of the PPSA, the Bank would register the fixed and floating charge with the Investment Promotion Authority on the Companies Register. Once the PPSA commences operation, the Companies Register will be replaced by the PPS Registry. To perfect its interest, Bank would record a notification against Building Company on the PPS Registry.
Retention of title arrangements
Supplier sells TVs to PNG Retailer on a retention of title basis. PNG Retailer is required to pay 25% on delivery of the TVs and the balance on regular instalments over six months. Supplier has a ‘purchase money security interest’ in the TVs that secures the 75% balance owing on the TVs. Currently, retention of title arrangements are not recorded on any registers in PNG because they do not create a security interest. Under the PPSA, deferred payment arrangements are treated as security interests and therefore Supplier can lodge a notice on the PPS Registry to protect its interest in the TVs.
Priority and transition period
Leasing Company leases portable buildings to Customer. The PPSA commences operation and Leasing Company has 180 days to register a notice on the PPS Registry in respect of the portable buildings, but elects not to do so. Customer then grants a security interest over all of its assets (including the portable buildings) to Bank. Bank registers a security interest on the PPS Registry. Two years later a receiver is appointed to Customer. Although Leasing Company holds legal title to the portable buildings, Bank’s registered security interest has priority over Leasing Company’s unregistered interest.