The Personal Property Securities Act (PPSA) will significantly change the way in which entities grant and take security interests in personal property including certain types of licences, rights and authorities.
The Personal Property Securities Act 2009 (Cth) (PPSA) is scheduled to apply from May 2011. With this drawing closer it is important for financiers and those entities that take security interests in energy and resource licences to understand how their interests may be effected by the PPSA.
This article only deals with energy and resource licences and does not contemplate other types of licences, authorities, rights or entitlements (eg. contractual rights under an intellectual property licence or statutory rights and entitlements under fishing, gaming and liquor laws) which may be subject to the provisions of the PPSA.
What will the PPSA govern?
The PPSA establishes one national regime for security interests over personal property. It rationalises the numerous Commonwealth, State and Territory laws and registers which currently deal with security interests in personal property. The national regime will consist of the PPSA, the Personal Property Securities Regulations (PPS Regulations) and the Personal Property Securities Register (PPS Register).
The PPSA governs security interests in tangible and intangible personal property which is any kind of property (including a licence) other than land, fixtures, water rights and certain licences and authorities granted under Commonwealth, State or Territory laws which are declared not to be personal property.
In the PPSA environment a security interest will be any interest in personal property that is provided for by a transaction that in substance secures payment or performance of an obligation without regard to the form of the transaction or the identity of the person who has title to the property. The PPSA concept of security interest is significantly different from the formal or traditional concepts of security interests currently used (eg. a mortgage or a charge).
Certain licences may be personal property
Under the PPSA certain types of licences are considered to be personal property. A licence will be personal property if it is transferable (irrespective of whether the rights under the licence are exclusive or there are restrictions on transfer) and the licence is:
- a right, entitlement or authority to explore for, exploit or use a resource (eg. a mining, petroleum or gas tenement)
- a right, entitlement or authority to provide a service
- a right, entitlement or authority to manufacture, produce, sell, transport or deal with personal property, or
- an intellectual property licence.
While energy and resource licences can be personal property, the PPSA enables the Commonwealth, States and Territories to declare by legislative amendment certain energy and resource licences not to be personal property. If an energy and resource licence is declared not to be personal property, the provisions of the PPSA (including those provisions relating to the attachment, perfection, registration and enforcement of security interests) will not apply to these licences.
The PPSA will not apply to certain energy and resource entitlements
At the time of writing it is likely that all onshore and some offshore energy and resource licences will be declared not to be personal property. It will be vital for financiers and those who take security interests in energy and resource licences to determine whether the energy and resource licence they have security over has been declared not to be personal property for the purposes of the PPSA. Some energy and resource licences that are, or are likely, to be excluded from the PPSA include:
- in New South Wales, an exploration licence, assessment lease, mineral claim, mining lease and opal prospecting licence granted under the Mining Act 1992 (NSW)
- in Queensland, a mining tenement (ie. an exploration permit, mineral develop licence and mining lease) under the Mineral Resources Act 1989 (Qld)
- in Victoria, certain permits and licences under the Mineral Resources (Sustainable Development) Act 1990, authorities under the Petroleum Act 1998 (Vic).
Continuation of Commonwealth, State and Territory energy and resource regimes
Irrespective of whether an energy and resource licence is declared not to be personal property, the relevant Commonwealth, State or Territory laws which govern those licences will continue in effect. Consent and approval requirements for the taking of security over energy and resource licences are likely to continue to apply even if these are subject to the PPSA.
Despite certain exclusions, the PPSA applies to energy and resource licences
Whether or not an energy or resource licence is excluded from the application of the PPSA, financiers and those who take security interests in these types of licences will still need to be aware how the provisions of the PPSA may affect them.
Registration of security interests
To the extent that an energy or resource licence is personal property, a security interest registration will need to made on the PPS Register. If a financier, or other entity, has a security interest in an energy or resource licence that is personal property and does not properly register its interest on the PPS Register, its security interest will be subordinate to any other registered interest in the property. This means that another entity that claims a security interest in the property of the licensee and who has registered that interest (eg. a bank that has an all assets charge over the licensee’s property) will have priority over the financier or other entity.
It should be noted that the PPS Register is not a document register but rather a notice based register of interests. A physical or electronic copy of the security agreement will not be lodged with the PPS Register.
Offshore energy and resource licences
As it is likely that most offshore energy and resource licences will be personal property for the purposes of the PPSA, security interests granted in these licences will be subject to the provisions of the PPSA. Security interests will need to be properly registered on the PPS Register to benefit from the rules relating to perfection and priority of security interests. Further, security agreements which include offshore energy and resource licences should be drafted to:
- adequately describe the collateral in accordance with the requirements under the PPSA and PPS Regulations
- to the extent possible, address the contracting out of the enforcement provisions in chapter 4 of the PPSA
- define terms that reflect the concepts and language used in the PPSA, and
- have consideration for the priority, perfection and registration issues relating to security interests.
Security interests in offshore energy and resources licences will also need to comply with the form, registration, consent and approval requirements specified by the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth).
Joint venture cross charges
Joint venture participants in the energy and resource industry usually enter into joint venture agreements which include a cross charge given by each participant in favour of each of the other participants. Joint venture cross charges usually take the form of a fixed charged over land, the resource tenements, fixtures and certain plant and equipment, and a floating charge over all other assets. In the PPSA environment, joint venture cross charges will need to be reviewed to comply with the provisions of the PPSA.
To the extent that the cross charge relates to personal property, the cross charge should be drafted to take into consideration the provisions of the PPSA. Joint venture cross charges will need to reflect the new security principles (eg. the attachment, perfection, registration, priority and enforcement principles) in the PPSA and the traditional concepts of security (eg. a mortgage or a charge) for all other forms of property. This duality of security interest principles will be vital to ensuring joint venture participants have effective security.
Once the PPSA applies and to the extent that the joint venture cross security relates to personal property, the concepts of a fixed and floating charge should be replaced with the concepts and terminology in the PPSA.
Minerals and resources produced from energy and resource licences
While it is likely that most energy and resource licences will be declared not to be personal property, the products extracted or derived from the exploitation of those licences (eg. minerals and hydrocarbons in any form) will be personal property. In addition, any income received from the sale or disposition of those minerals or hydrocarbons will be ‘accounts’ for the purposes of the PPSA. Security interests granted in the products extracted or derived from exploiting, or the income received or accounts relating to the use of the energy and resource licences will be subject to the provisions of the PPSA. Agreements dealing with these security interests will need to have regard to the provisions of the PPSA.
The PPSA will require some very significant changes to the way businesses operate. Businesses need to be aware of theses changes and understand how they may affect them.