On 30 January 2012 new legislation called the Personal Property Securities Act (PPSA) came into effect in Australia. This new legislation has significantly changed the legal requirements for taking security in assets and/or for protecting your rights in assets which are in the possession of another person or entity. It follows similar legislation in Canada, America, France and New Zealand.
The Australian PPSA includes a two year temporary protection mechanism. This will protect many arrangements entered before 30 January 2012. (Arrangements entered on or after 30 January 2012 do not receive temporary protection.) However, any temporary protection available will cease at the close of 31 January 2014. The expiry of this timeframe is imminent.
If the PPSA applies to you and you do not comply with its requirements:
- you may lose your rights in assets which are in another party’s possession, regardless of whether or not you own those assets; and
- security which you take over another entity’s assets may ultimately be unenforceable.
If the PPSA applies to you, it is important that you ensure that you protect your rights. If you are unsure whether or not it applies to you, or whether you are protected, we suggest that you seek expert advice.
What is the PPSA and does it apply to me?
The PPSA provides a new regime for protecting an entity’s rights in ‘personal property’. ‘Personal property’ includes most non-land assets, such as money, motor vehicles, shares, inventory, plant and equipment, debts and intellectual property. It does not matter whether the asset is used for business or consumer use.
Generally, the PPSA may apply to you if:
you supply goods under retention of title arrangements (ie on credit but you retain rights in the goods until payment is received) or on consignment;
you provide asset finance (for example, fixed asset lending, hire purchase agreements or chattel mortgages);
you have taken a fixed and floating charge (now called general security agreements) as security for a debt owed to you;
you lease goods to others as part of your business; and/or
you are involved in financing arrangements (such as inventory financing or debtor financing).
Importantly, the PPSA applies equally to intercompany arrangements as it does to dealings between unrelated businesses. If a holding company leases assets to a related trading company, the PPSA will apply as if the two parties were not related.
Compliance with the PPSA generally requires:
an update to your documentation (eg. trading terms and conditions, invoices, purchase orders, leases, consignment notes, security documentation, etc); and
registration of your rights on the PPS Register.
What if I don’t comply with the PPSA?
While the PPSA does not compel people to comply with its provisions, failure to do so can result in losing your rights to assets if:
the entity in possession of your assets / over which you have taken security becomes insolvent; or
if another creditor claims rights in the relevant assets.
Your rights can be lost even if you own the asset. The key point is whether you are PPSA compliant, not whether you own the asset.
The transitional period: What will happen after 31 January 2014?
Under the PPSA, temporary protection is afforded to rights which came into existence before 30 January 2012 (eg the lease of plant and equipment before 30 January 2012). This temporary protection expires at the close of 31 January 2014.
As a result, any rights which have not been protected under the PPSA (for example by registration on the PPS Register) will cease to be protected as of 1 February 2014. It is important that you ensure that you are PPSA-compliant before this date.
We strongly recommend that you consider whether or not the PPSA applies to you and if it does, what you need to do to protect your rights.