The introduction of the Personal Property Securities Act and the associated regulations will dramatically change the way security interests in personal property are dealt with. Corporate Partner, Craig Wappett, and Corporate Lawyer, Paul Henry, discuss some of the implications for reservation of title suppliers and consignors. The Personal Property Securities Act 2009 (Cth) (PPSA) was assented to on 14 December 2009 with the new legislative package governing personal property securities to come into operation May 2011.
Overview of the PPSA
The PPSA and the complementary regulations seek to address the current complexity of statutory and case law governing personal property securities. The PPSA seeks to create a system that is simpler, more consistent and cheaper for all parties to the transaction.
The PPSA applies to a transaction that, in substance, secures the payment or performance of an obligation. Under the new regime parties will generally be free to negotiate the terms of the security agreement without the need to satisfy prescriptive form requirements.
The PPSA will, with limited exclusions, apply to all security interests in tangible and intangible personal property. Personal property means any kind of property (including a licence) other than land, fixtures, water rights and certain rights, entitlements or authorities excluded by statute. The current priority regime under the Corporations Act 2001 (Cth), other relevant statutes and common law will be replaced with a new set of priority rules. A new, online, 24/7 register will be established to record personal property security interests.
Implications for ROT suppliers
Reservation of title (ROT) suppliers need to be aware of the changes to practice required under the PPSA. Of particular relevance is the power to register a security interest over personal property which operates through an ROT provision. A security interest under an ROT provision will generally constitute a purchase money security interest (PMSI) under the PPSA and upon registration (within the prescribed time frame) will enable the supplier to obtain super priority. Failure to register ROT security interests will jeopardise the enforceability of the security interest on insolvency and may mean that another secured party has priority even though the ROT supplier has title to particular property.
The PPSA will clarify the effect of securities taken over processed and commingled goods that are the subject of ROT provisions. Under the current law there is uncertainty as to enforceability of an ROT provision where the goods become an unidentifiable part of a larger product or mass as the result of being processed or commingled. Under the PPSA a security interest in the original goods continues in the product or mass.
Implications for consignors
A consignor under a commercial consignment may register the security interest as a PMSI (within the prescribed time frame) and therefore obtain super priority. Failure to register such a security interest will jeopardise the enforceability of the security interest on insolvency.
What do you need to do
There is some time until the new personal property securities regime comes into effect but now is the time to start considering the ways in which the new regime will significantly change how businesses operate. In particular, a full review of standard documents is required to ensure compatibility with the new regime. Businesses who are prepared for the incoming changes will be able to maximise business efficiency while minimising cost and risk.