The transitional period under the Personal Property Securities Act 2009 (Cth) (PPSA) ends at midnight on 30 January 2014 Australian Eastern Standard Time.
If a transitional security interest is not perfected by this time, it may not only lose its priority but may also be extinguished altogether.
Contact us to ensure that your transitional security interest is perfected.
What is a transitional security interest?
The PPSA commenced at midnight on 30 January 2012. It applies to security interests in personal property.
A security interest is an interest in personal property that in substance secures payment or the performance of an obligation. This includes traditional securities such as mortgages, charges and liens. There are also certain non-traditional security interests that are deemed to be security interests by the PPSA, such as leases of equipment and hire purchases, retention of title supplies and providing goods on commercial consignment terms.
Under the PPSA, security interests are most commonly perfected by registration on the Personal Property Securities Register (PPS Register) but certain classes of interests may be perfected by possession or control.
A ‘transitional security interest’ is a security interest created under a security agreement made prior to 30 January 2012.
What is the transitional period?
Transitional security interests were afforded temporary protection for two years under the transitional provisions of the PPSA. During the two year transitional period, transitional security interests are deemed to be perfected. This was done to allow affected industries time to come to terms with the legislation and to allow secured parties time to take adequate steps to ensure their interests were perfected in the manner required by the PPSA.
For those secured parties who have taken steps to ensure their security interest is perfected by either registration, possession or control prior to 30 January 2014, the security interest will be a continuously perfected transitional security interest. However, if steps are not taken to ensure the security interest is perfected prior to expiry of the transitional period then, when the clock strikes midnight on 30 January 2014, the transitional security interests will no longer be treated as perfected. The result will be that priority may be lost to another secured party or the property may vest in the grantor if an insolvency event occurs.
This means that it is critical that holders of transitional security interests ensure their security interests are perfected prior to 30 January 2014 otherwise they will exposed to loss.
How do I perfect a transitional security interest?
In most cases, perfection of a security interest will involve registration of that interest on the PPS Register (although as mentioned above, in some instances perfection may require possession or control). For interests perfected by registration, a transitional security interest will either be a migrated transitional security interest or a non-migrated transitional security interest.
Migrated security interest
Security interests recorded on one of the 23 Commonwealth, State and Territory registers under previous legislation were automatically migrated to the PPS Register before 30 January 2012.
If you are the holder of a migrated transitional security interest, then you should ensure that it has been correctly migrated and registered prior to 30 January 2014.
One of the Commonwealth registers migrated to the PPS Register was the Australian Securities & Investments Commission register of company charges. It is worth noting that due to technical issues arising in the migration of this register, approximately 6,000 charges were not migrated to the PPS Register.A list of the company charges not migrated to the PPS Register can be found on the PPS Register website. If you are the holder of one of these 6,000 charges, you must take steps to manually register your security interest prior to 30 January 2014 to avoid losing priority.
Non-migrated security interest
A non-migrated security interest is one created prior to 30 January 2012 which was not (or could not be) registered on a migrating register, for example hire purchase and lease arrangements, ROT arrangements and commercial consignment arrangements.
A holder of a non-migrated transitional security interest must take steps to manually registered that interest on the PPS Register prior to 30 January 2014. Otherwise, after that date, the deemed perfection will cease and any priority held may be lost to another secured party or the property may vest in the grantor if an insolvency event occurs.
On 27 June 2013 the Supreme Court of NSW handed down its decision in the case of Maiden Civil (P&E) Pty Ltd & Others v Queensland Excavation Services Pty Ltd  NSWSC 852. The case dealt with failing to register a security interest. The decision has already been the subject of other e-Updates. Nevertheless, we will touch on this case again briefly as it reinforces the importance of perfecting a security interest even if a secured party is an owner of property. It also demonstrates that the PPSA will be stringently applied and confirms that attempts to reintroduce the old nemo dat rule will fail.
In 2010, Maiden leased three caterpillars from QES and used those for construction works in the Northern Territory. The interest of QES as owner was not registered on the Northern Territory Register of Interests in Motor Vehicles. In May 2012, Maiden borrowed money from Fast Financial Solutions Pty Ltd (Fast Financial) who took an ALLPAAP security interest over Maiden and registered this on the PPS Register. Shortly thereafter, Maiden defaulted under the arrangement with Fast Financial resulting in the appointment of receivers. Not longer after that, Maiden went into administration and then liquidation. A dispute arose between Fast Financial and QES over who was entitled to the vehicles.
The Court found that the lease arrangement was a “PPS Lease” within the meaning of the PPSA and thus was a deemed security interest of QES. The security interest of QES was found to be trumped by the subsequent perfected security interest of Fast Financial over the caterpillar vehicles.. This was because Fast Financial’s security interest was perfected by registration on the PPS Register. QES attempted to rely on the transitional provisions of the PPSA for protection but this argument failed. The Court found that because the security interest of QES was capable of being registered on the Northern Territory Register of Interests in Motor Vehicles prior to the PPSA commencing, but it was not registered, QES did not obtain the benefit of the 2-year temporary protection under the PPSA.
QES also raised other complex legal arguments in an attempt to beat Fast Financial’s claim, including one argument which sought to reintroduce the nemo dat principle.However, the Court confirmed that the nemo dat rule has been displaced by the PPSA. Accordingly, a secured party who attempts to rely on ownership (and not a perfected security interest) in any priority dispute over personal property falling within the ambit the PPSA will fail.