Key provisions that currently protect some unregistered security interests will come to an end on 30 January 2014. This affects security interests such as:
- retention of title arrangements
- equipment and finance leases
- mortgages over property (other than land)
- charges given by individuals.
Businesses that have been relying on the transitional provisions for these security interests need to take action or risk automatically losing their rights as a secured creditor from 30 January 2014.
What do you need to do?
Identify all the security interests held by your business (if you haven’t already).
Document each security interest, including those that are subject to the transitional provisions.
Implement steps to perfect your security interests, including those subject to the transitional provisions:
- before 30 January 2014 for security interests subject to the transitional provisions; and
- as soon as possible for all other security interests.
How do the transitional provisions work?
Although the PPSA started on 30 January 2012, security interests that existed before this date are covered by the legislation.
Some pre-existing security interests migrated to the new PPS register (such as fixed and floating charges registered with ASIC), and therefore became perfected from commencement of the PPSA.
However, many interests that were not previously registrable (such as retention of title arrangements and some leases) were deemed to be perfected for two years after the start date.
This measure was a trade-off from the government, designed to allow businesses time to adjust to the new procedures for taking security over personal property, and perfect their interests in accordance with the legislation.
There is some conjecture about whether existing agreements before 30 January 2012 are protected if new supplies have been made after the commencement of the PPSA. There is no guidance by the courts on this issue, so the safest option is to register these arrangements sooner rather than later.
What happens if you do nothing?
Under the transitional rules, a security interest that existed prior to 30 January 2012 is deemed to be perfected until 30 January 2014.
On and from 30 January 2014, the deemed perfection ceases.
Unless you have perfected these security interests by taking the appropriate steps under the legislation, you will become an unsecured creditor from 30 January 2014.
This means you could lose goods that you own, if the other party (the grantor) becomes insolvent.