The Personal Property Securities Act 2009 (PPSA) has been in force for over a year, but it’s been a bit of a sleeper.
Here’s a rundown on some PPSA rules you should know if you are a service provider to the oil and gas or mining industry.
Just because you own it, doesn’t make it yours
Prior to the PPSA, owners of equipment who bail or lease it were protected in the event of insolvency or in a priority dispute simply by the fact that they owned the property. The PPSA has now changed the terms of taking and giving security, so that reserving title is no longer sufficient to protect an interest. Instead, disputes between parties trying to enforce competing interests are resolved by a priority system. Interests with the highest priority are those that have been ‘perfected’ under the PPSA.
When ‘perfecting’ your property became a thing
Perfecting an interest is just a fancy way of saying that it has been entered on the Personal Property Securities Register (PPSR). Failing to do so means you could lose out to a competing claim, whether or not you are the owner of the property. In case you think we are joking, we should also mention that in a recent New South Wales case, the Supreme Court found that the creditor of a lessee who registered their interest had priority in goods above the legal owner.
The hand that trumps
The PPSR priority system is basically “first in, best dressed”. The exception to this rule is the Purchase Money Security Interest (PMSI). This will arise where you are engaged in a lease, bailment, financing or retention of title arrangement, and any money owed under the arrangement has not yet been paid. If this interest is registered, it automatically trumps any other security interest already listed against property. When there are competing PMSIs, the first PMSI registered takes priority.
Why accession isn’t just for politicians
Both operators and services providers will enter into agreements that involve hiring or purchasing equipment that will then be affixed or installed to other goods. So what happens to your interest in a good, for example a drill bit, which becomes part of something else, like a drill string? The default rule is that any security interest in goods that are registered at the time the goods are attached to something else (this is called accession) take priority over any claim for the whole of the good. But it you fail to perfect your interest in goods at the time of the accession, then someone with an interest in the whole of the goods could gain priority over yours.