The Personal Properties Securities Act 2009 (Cth) (PPSA) introduced substantive changes to the laws that govern interests in personal property and the methods used to protect those interests.
The PPSA apply where there is a transaction involving personal property (property other than land, fixtures and water rights) that in substance, secures payment or performance of an obligation. In the agribusiness industry, security interests typically exist in:
- retention of title arrangements for the sale of crops and livestock;
- lease and hiring arrangements for agricultural equipment and certain agistment agreements; and
- share farm arrangements.
The transitional period for registering a security interest under the PPSA ended on 31 January 2014. The two year PPSA transitional period provided temporary protection for security interests created before 30 January 2012. A transitional security interest is one that is required to be registered under the PPSA but was not otherwise required to be registered under previous laws. The transitional period essentially gave a two year ‘grace period’ to register such interests.
Although the transitional period has ended, a secured party can still perfect a transitional security interest by registering it on the Personal Property Securities Register (PPSR). The consequences of registering now (as opposed to before 31 January 2014) are that:
- The time for determining the priority of the security interest against other security interests will start as at the time of the new registration, instead of the time the PPSA commenced; and
- Importantly, until the interest is registered, the secured party is now at significant risk as an unperfected secured party - the grace period is over and unregistered parties have now lost any temporary protection previously afforded to them.
Why is this important?
A security interest will arise if, for example, a farmer sells cattle (the personal property) to an abattoir for a purchase price with the title to the cattle and its proceeds remaining vested with the farmer until the purchase price is paid. This is what is commonly known as a ‘retention of title’ arrangement.
Under the PPSA, a farmer is no longer able to rely on their legal title to protect their interest in the cattle until the purchase price is paid. In the absence of registration, they will not have priority over the cattle over other secured parties, notwithstanding they still ‘own’ the cattle. If the abattoir was to become insolvent, its bank or a liquidator is likely to treat the cattle and any proceeds of sale of the meat products as its own, leaving the farmer to stand in line with other unsecured creditors who may receive very little.
If your have not already, you should seek legal advice on any interests that you may have over personal property. Businesses who have not yet registered their security interests should do so to ‘perfect’ their rights, and ensure they gain priority over any interests in personal property.
Failure to register your interest means that you risk:
- Ranking behind another creditor who has registered or ‘perfected’ their security interest over the property, even though your interest (including your ownership interest) was created first; and
- Your security interest (eg. your cattle) vesting in the entity who granted you the interest (eg. the abattoir) if they become insolvent.