Universities who sell property on retention of title terms, who hire, rent or lease out property, who buy or sell valuable second-hand property, who raise finance using its assets as collateral, or who lend money and take security over assets in Australia, will be subject to the Personal Property Securities Act 2009 (cth) (PPSA).
What is it?
The Personal Property Securities Register (PPSR) is an electronic noticeboard of security interests in relation to all types of personal property, including intellectual property rights, contractual rights, physical goods such as motor vehicles, aircraft, equipment, machinery, artwork and agricultural produce such as crops, cattle and livestock. More importantly it sets out a regime which prioritises competing interests in that property.
'Security Interests' cover a wide range of transactions and documents. If an arrangement is in substance security for a debt or obligation, it will be treated as a security interest under the PPSA even if it does not take a traditional form of a mortgage or charge. In addition there are a range of transactions (for example certain equipment leases) which are deemed to be security interests for the purposes of the Act even though you wouldn't expect them to be.
Why was it introduced?
The PPSA was introduced to replace a range of existing Commonwealth, state and territory securities registers (for example, the historic ASIC Register of Company Charges), with the intention of having one consolidated point of reference for security interests in personal property (i.e. property that is not land, buildings, fixtures on land, water rights or government-issued licences).
When is it relevant to universities?
The PPSA can be used by the university as a risk management tool to protect the university in a number of different situations, for example when:
- it is the buyer of personal property: by conducting a search of the PPSR, the university can ensure that those goods are not subject to any existing security interests and will not be repossessed;
- it is the seller in a retention of title arrangement: if the customer does not pay, the university is entitled to get the relevant property back (rather than being an unsecured creditor at the end of the queue); and
- it is leasing, renting or hiring out equipment: if the customer becomes insolvent, the university's property cannot be sold to pay creditors (see case studies below).
It will also be relevant in a number of everyday situations which will affect the university's everyday operations, for example, if it leaves artwork for sale on consignment with a gallery or seller, if it leases out breeding cattle, horses or other animals, or if it hires out equipment.
A security interest under the PPSA must be 'perfected'. An unperfected security interest will generally lose priority to another perfected security interest in the same property, and may not hold up on the insolvency of the customer. The university can 'perfect' its security interests by registration on the PPSR or (in limited circumstances) by possession or control of the personal property.
Power turbines lost in Western Australia
A recent dramatic example of a party losing an asset because it was not registered on the PPSR comes from the case of Forge Group Power Pty Ltd (in Liquidation)(receivers and managers appointed) v General Electric International Inc  NSWSC 52.
In this case, GE leased turbines to Forge Group reportedly worth $60 million. The lease was a 'PPS Lease' because, among other things, it was a lease for more than one year. This meant that:
- GE had a security interest in the turbines (GE was a 'secured party'); and
- Forge Group was the 'grantor' of the security interest in favour of GE.
GE did not register its security interest on the PPSR.
Section 267 of the PPSA provides that if an administrator of a company is appointed, and a security interest granted by the company is unperfected (ie. in this case, unregistered) at the time of appointment, then the security interest held by the secured party vests in the grantor immediately before the appointment.
Not long after the turbines were installed, Forge Group appointed voluntary administrators and then went into liquidation. The operation of s.267 meant that immediately before Forge Group appointed voluntary administrators, the turbines vested in Forge Group and Forge's interest in the turbines overcame GE's interest. GE lost its turbines.
GE tried to argue that the lease of turbines was not a PPS Lease, and therefore did not give rise to a security interest, because:
- GE was not 'regularly engaged in the business of leasing goods' (which is an exemption to the definition of a PPS Lease); or
- the turbines were fixtures (and therefore not covered by the PPSA).
Both arguments were rejected, and therefore GE failed to recover the turbines that it had leased to Forge Group.
Construction vehicles lost in the Northern Territory
In an earlier case, Maiden Civil v Queensland Excavation Service  NSWSC 852, a dispute arose over caterpillar vehicles that had been leased to Maiden Civil by QES.
QES leased the caterpillars to Maiden Civil. As a lessor under a PPS Lease, QES had a security interest in the caterpillars.
After leasing the caterpillars from QES, Maiden Civil obtained general finance from a financier. The financing arrangements included a general security deed which attached schedules listing Maiden's property, including the caterpillars.
The general security deed gave the financier a security interest in the caterpillars. Even though Maiden Civil did not own the caterpillars, they had sufficient interest (as a lessee under a PPS Lease) to grant the financier a security interest in the caterpillars.
The Financier registered their security interest on the PPSR. QES failed to register its security interest on the PPSR.
The PPSA provides that a registered security interest takes priority over an unregistered security interest. Therefore the Financer's interest in the caterpillars prevailed over QES's interest. QES lost the caterpillars it had leased to Maiden Civil because Maiden's financier had a registered security interest.
The PPSA is very useful in assisting asset owners to protect their security interests. Universities should, for example:
- identify and register all security interests;
- maintain accurate records of all registrations;
- if buying valuable second-hand property, search the PPSR for other parties who have security interests;
- be cautious about signing contracts obliging the university to register another party's security interests; and
- make sure all legal, finance and procurement staff understand the PPSA.