On 31 January 2014 the transitional period under the Personal Property Securities Act 2009 (Cth) came to an end.
Most would be aware the Personal Property Securities Act 2009 (Cth) (PPSA) came into effect in 2012 and radically altered the way security interests were taken, registered and dealt with. Obviously, in a typical joint venture agreement participants grant each other security over the other’s:
- participating interests
- share of the resource recovered from the licence area
- interest in any present or future sales contracts and joint venture documents
- the proceeds of sales.
They do this of course, to secure their obligations to make payments/cash calls etc under the joint venture agreement.
As part of the 2012 changes the new legislation gave a grace period or ‘transitional period’ to allow those affected to come to terms with the changes. During this transition period the pre PPSA status of security interests such as the old ‘cross charges’ which may have been created prior to the commencement of the PPSA were preserved.
This meant participants did not have to register their interests on the PPS Register in order to gain protection of their interests. Now, however, with the ending of the grace period on 31 January 2014 those interests may no longer be protected.
If a security interest was not registered on the PPS Register by 31 January 2014 it may not be ‘perfected’ for the purposes of the PPSA. The consequences of this are that:
- the security interest may lose priority to other competing security interests over the same personal property
- the security interest will only be enforceable against the person who granted the security interest to the extent it was enforceable under the law before the PPSA
- should the person who granted the security interest become insolvent, the security interest will not be enforceable against an administrator or liquidator. The person benefiting from the grant of the security interest would only have the status of an unsecured creditor.
The importance of perfecting security interests was reinforced in Maiden Civil (P&E) Pty Ltd Re: Albarran v Queensland Excavation Services Pty Ltd & ors 2013, where the legal owner of goods (three Caterpillar excavators and loaders) failed to register its security interest and subsequently lost ownership to another party that had registered a security interest over the same goods. This was because the registered security interest was held to have priority over the unregistered security interest.
Security interests over personal property created after 30 January 2012 already fall under the PPSA. In such a situation it is important to ensure that the security interest is registered on the PPS Register so that its priority is protected.