Personal Property Securities Act 2009 (Cth)
Overview and Practical Implications
University of Adelaide
Philip Laity and Martin Lovell
31 October 2011
Personal Property Securities
Act 2009 (PPSA)
• What is the PPSA?
– Extensive overhaul of the existing regime for taking
security over personal property
– Establishes single national law and online register
for all „security interests‟ in personal property
(excluding land)
• What does the PPSA cover?
– creation of valid and enforceable security interests
– priority between competing security interests
– extinguishment of security interests (e.g. when a
party can take collateral free of a security interest)
– enforcement
Why was the PPSA needed?
• Existing system complex, confusing,
inconsistent and arguably outdated
• Over 195 Acts and Regulations
• Over 70 State, Territory and Commonwealth
security registers
• Reform consistent with legislation in NZ,
Canada and USA
When does the PPSA come into
force?
• PPS Act and Regulations passed
• Commencement delayed
• Personal Property Securities (Registration
Commencement) Bill 2011 introduced to
remove default commencement date of
1 February 2012
• www.ppsr.gov.au
Why is the PPSA relevant?
• Broader definition of „security interest‟
• Transactions which are not traditionally regarded as creating security now need to be registered. For example:– supplying goods on retention of title (ROT) terms
– leasing equipment to customers
– loaning goods (i.e. bailments)
• Failure to register has severe consequences if the customer/lessee becomes insolvent
• Consider impact on Adelaide University as a:– secured party
– security provider
– purchaser of assets which may be subject to a security interest
Scope of the PPSA
The PPSA applies to:
• all “Security Interests” in “Personal Property”
located in Australia; OR
• all Security Interests where grantor is an
Australian entity
What is Personal Property?
• All tangible and intangible property (except
land and buildings)
• Includes:
- plant and equipment
- inventory
- motor vehicles
- intellectual property (including
trademarks/patents)
- artwork
- stock/book debts/receivables/proceeds
- commingled goods
Exclusions
Excludes:
• Certain statutory licenses (if the statute under
which a right, licence or authority is granted
declares that the interest is not personal
property for the purpose of the PPSA)
• Tradeable water rights
• Set-off arrangements
• Non-consensual liens and charges
What is a Security Interest?
• Any interest in property securing the payment
of money or performance of an obligation.
• „Substance over form‟ approach
– Irrespective of form of transaction
– Irrespective of who is legal owner of property
• Defined in section 12(1) of the PPSA:
A security interest means an interest in
relation to personal property provided for by a
transaction that, in substance, secures
payment or performance of an obligation
(without regard to the form of the transaction
or the identity of the person who has title to
the property).
Security Interests - examples
• Traditional security (charge, mortgage,
pledge)
• Retention of title
• Consignment
• Hire purchase
• Assignment (by way of security)
• PPS Lease
- Lease or bailment > 1 year
- Serial numbered goods > 90 days
Perfecting a Security Interest
• A security interest can be perfected by:
– registration;
– possession; or
– control (certain financial property only)
• Registration is the recommended and most
common method by which perfection can be
achieved
Why is perfection important?
Perfection is important to:
• Preserve priority
• Allow the security interest to be enforceable
against an administrator/liquidator/trustee in
bankruptcy
• Avoid the vesting rule
Vesting on insolvency - PPSA
• If, at the critical time, a security interest is
unperfected and an insolvency event occurs,
the security interest vests in the grantor
immediately before the insolvency event
• This means that a secured party can lose its
interest in the collateral which is subject to an
unperfected security
When is the critical time?
Insolvency Event Critical Time
Company enters into
liquidation
The time the winding up
was taking to have
commenced (s 513A or
513B)
Appointment of an
administrator
The time the
administration began (or
the winding up was taken
to have commenced)
(s 513C)
Execution of a deed of
company arrangement(As above)
A sequestration order is
madeWhen the order is made
A person becomes a
bankrupt
When the person
becomes a bankrupt
Vesting – Corporations Act
• Section 588FL of Corporations Act
• Additional to vesting rules in the PPSA
• Applies to companies only
• Imposes time limits for registration of security
interest similar to existing Ch 2K regime
– 20 business days after the security interest is
created; or
– 6 months before the critical time
Priorities – default rules
• Perfected security interest has priority over an
unperfected security interest
• Priority between two or more perfected
security interests is determined by time of
perfection
• Priority between two or more unperfected
security interests is determined by the time
the security interest was created
Priorities – special rules
• Purchase Money Security Interest (PMSI) –
super priority (e.g. ROT supply)
• PMSI has super priority over general
security interest (i.e. the PMSI will „trump‟ or
rank ahead of a general security interest)
PPS Register
• Online register
• Searchable by security provider or serial
number
• Interested person may register a security
interest by lodging “financing statement”
• Financing statements can be completed
online and must contain specified information
• A copy of the security agreement does not
need to be filed on register (cf existing Ch 2K
regime)
• Costs of registration (see handout)
What must be included in a
financing statement?
• Section 153(1) of the PPSA contains a table
that specifies the data that must be included
in a financing statement
• Must specify if security interest is a „Purchase
Moneys Security Interest‟ (PMSI)
• The Office of the Commonwealth AG has
published screen shots of the web pages that
must be completed to register a financing
statement
Transitional Provision and
Migration
• PPSA provides some protections for existing
security interests arising prior to the
registration commencement time
• Certain existing security interests will be
“migrated” automatically to the new PPSR
• Other transitional security interests will be
taken to be perfected for 24 months following
the registration commencement time
• Transitional provisions provide more limited
protection that perfection
Managing PPSA risk
• Registration / perfection (recommended)
• Commercial alternatives to minimise risk:
– changing payment terms (e.g. COD)
– reducing credit lines
– reducing payment/invoice periods (e.g. 90 days to
30 days)
– credit monitoring
– reducing term of equipment leases or bailments
(e.g. less than 1 year / 90 days)
– others?
How will this affect your
business?
• Practical examples which are likely to be
relevant to Adelaide University:
– Taking security
– Equipment leasing
– Property located on third party premises
– Retention of title
– Guarantees
– Purchasing goods (taking good title)
– Finance leases / hire purchase
– Intellectual property (IP) and IP licences
– Financing arrangements
Taking security
• Adelaide University agrees to provide funding,
goods or services to a third party, subject to
the third party providing security over its
present and future assets to secure any
amounts owing to Adelaide University from
time to time.
• How does Adelaide University take a security
interest in this property?
Equipment leasing
• Adelaide University leases lab equipment to a
third party (the lessee) for a term of 2 years.
• The lessee fails to pay and a liquidator is
appointed. Adelaide University attempts to
recover its leased equipment from the
liquidator.
Property located on third party
premises
• Adelaide University has agreed to loan some
of its equipment to companies and individuals
free of charge for an indefinite term. The
agreements are not always documented
although records are usually kept. Some of
these third parties are refusing to return the
equipment and one of the companies has
recently gone into administration.
• What rights does Adelaide University have to
reclaim its goods?
Retention of title
• Adelaide University sells books/course materials
to a student bookstore on credit, subject to its
standard terms and conditions. The standard
terms and conditions include a retention of title
clause which provides that legal title in the
products does not pass to the purchaser until
Adelaide University has received payment. The
terms and conditions provide that the proceeds
of sale of any such goods are held on trust for
the University.
• The purchaser fails to pay and a liquidator is
subsequently appointed. Adelaide University
tries to recover its goods and obtain payment.
Guarantees
• Adelaide University agrees to enter into a joint
venture with a private company, subject to its
joint venture partner providing a personal
guarantee from a director or parent company.
• What steps need to be taken under the
PPSA?
Purchasing goods (taking good
title)
• Adelaide University purchases the assets of a
business including plant, equipment and
motor vehicles. The vendor has warranted
that it has good and unencumbered title to the
assets.
• However, Adelaide University is concerned to
ensure that it will obtain title free of any other
security interest.
Finance leases / hire purchase
• Computers Inc leases IT equipment to
Adelaide University on a hire purchase basis.
• At the end of the lease term, Adelaide
University has the right to purchase the
equipment by paying a pre-determined
amount.
• What security interest would arise as a result
of this transaction?
Intellectual Property
• Adelaide University enters into an
arrangement with a small company to jointly
commercialise a new technology for which a
patent has just been granted. To secure its
obligations under the joint venture agreement
the company gives Adelaide University
security over its patent.
• What actions does Adelaide University have
to take to perfect its security? What additional
steps are required because the collateral is
IP?
Intellectual Property Licence
• Adelaide University grants a commercial
licence to a third party to use its
technology/IP.
• Does this arrangement need to be registered
under the PPSA?
Financing Arrangements
• Adelaide University has entered into a facility
agreement with its bank to provide working
capital and other day to day banking facilities.
As part of this facility Adelaide University has
agreed to a „negative pledge‟ which prevents
it from granting security interests to any other
parties.
• What steps does Adelaide University need to
take?
For discussion
• Identify other potential PPSA “security
interests” relevant to University of Adelaide‟s
operations
• Consider further scenarios where the PPSA
may apply
• Consider what further actions or reviews may
need to be taken
Next steps
Consider:
• Risks to business if security interests not
perfected vs compliance/registration costs
• Policy for registration in respect of :– individuals vs companies
– ROT arrangements
– leases
– bailments / consignments
– serial numbered goods
– other
• Might monetary thresholds be appropriate?
• Internal registration and information systems
Contact details
Philip Laity
Partner
+61 8 8239 7125 [email protected]
Martin Lovell
Senior Associate
+61 8 8239 7152 [email protected]
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