The looming Personal Property Securities (PPS) regime will bring together various Commonwealth, state and territory laws and registers regarding security interests in personal property under one national system.  

Time frame for implementation

The commencement date for the PPS reform is expected to be Monday 31 October 2011.  

Transitional matters

Current registers will be migrated into the new system and relevant Commonwealth, state and territory laws will be amended to take account of the PPS regime.  

The holders of migrated interests will not need to reregister their existing interests but will need to take steps regarding “perfection” of these security interests in the PPS register.  

Registers which do not currently provide priority by registration will not be migrated into the PPS register as this would disadvantage secured parties who had elected not to register.  

What does the PPS regime cover?

The PPS regime applies to “security interests” in goods or financial property if:

  • the goods are, or the property is, located in Australia; or  
  • the grantor is an Australian entity.  

In short a "security interest" is an interest in personal property provided for by a transaction that secures payment or performance of an obligation. The most common security interests include company charges, hire purchase agreements and retention of title arrangements.  

What do you need to do?

In order to ensure that your security has priority to other security interests, you must “perfect” your security interest.  

“Perfection” can be by:

  • registration of the security interest on the Personal Property Security register;  
  • control of the goods in which the security interest is granted; or  
  • possession of the goods in which the security interest is granted.  

The most common form of perfection will be registration.  

In order to register a security interest on the Personal Property Security register, there must be:  

  • a belief on reasonable grounds that you are, or will be, a secured party in relation to the collateral (if you do not have reasonable grounds, you may be liable for a penalty); and  
  • sufficient information to complete the data online. Registration is effective from the moment when the registration becomes available for search in the register.  

How long does a registration last?

A registration does not “expire” but rather it becomes “unperfected” on the expiration of certain timeframes. This means that, upon expiration of a timeframe, the security interest loses its priority to interests that have been registered later in time.

The “end dates” for registrations to remain effective are:

  • 7 years for personal property held by an individual that is not to be used in business or for goods that are described by a serial number (the serial number must be included in the registration); and
  • 25 years for personal property that is used in business or for goods not described by a serial number.  

The end date for the registration can be extended by amending the registration.

What can be covered in a registration?

A registration can cover supplies under an arrangement.  

If the arrangement covers multiple supplies, these further supplies will be afforded the same priority as the original supply.

If there is a priority arrangement between secured parties (e.g. CBA and GE Finance) then the secured parties can have an agreement regarding the priority of their security interests. This agreement can be noted in the registrations of the security interests.

How can I buy personal property free of security interests?

The general rules are that:  

  • a buyer or lessee of personal property who is paying market value for the property, takes that personal property free of unperfected security interests; and  
  • if the personal property is sold or leased in the ordinary course of the seller's or lessor's business, the buyer or lessee of that personal property takes it free of a security interest.  

Recommendations for a PPSA review of current business practices

  • Review any terms of trade and update them to reflect the Personal Property Securities Act provisions.
  • Implement processes to ensure that:
    • steps are taken to register security interests that have been granted by third parties;  
    • obtain adequate information from a grantor when security interests are created or proposed to be created (this will assist with registration and reduce the risk of defects);  
    • end dates do not pass without a review being undertaken to determine whether the end date needs to be amended.  
  • Train staff on the requirements of the PPSA – to ensure, for example, that correct information is being entered when registering security interests.  
  • Review any current financing, retention of title, consignment, etc arrangements to determine whether a security interest has arisen or is deemed to have arisen. If so, consider whether these interests can be registered now or whether preparatory steps need to be taken to register the interests when the PPSA commences or a transitional period ends.  
  • Review group structures to determine internal arrangements between related entities and whether these arrangements need to be documented and any security interests registered.  
  • If granting a security interest, review current arrangements to ensure, for example, that disposals can be made in the ordinary course of business free of security interests.