THE PERSONAL PROPERTIES SECURITIES ACT
By Derek Cronin
Partner
Cronin Litigation Lawyers
PH: 5592 6633
The implementation of Personal Properties Securities reform is due to take place on 30 January 2012. Many are still unaware of the far reaching consequences of the changes which will be made, and it is important that everyone consider carefully whether the reforms will affect them, especially those who:-
- Lease goods or chattels, whether on their own or as part of a lease of land;
- Manufacture and/or sell goods;
- Own personal property that could be held by someone else for a period of more than 90 days;
- Have security interests over motor vehicles, boats, aircraft, cattle;
- Consigned goods to other people to sell;
- Are involved in transactions under which debts are assigned;
- Have security agreements (including fixed and/or floating charges) registered on existing registers (such as ASIC or REVS);
- Have security over intellectual property;
- Have ‘retention of title’ clauses as part of your terms of trade;
Background
The reforms will impose a new regime for the registration of security interests in personal property, and will effectively over-ride existing common law principles relating to interests in personal property.
Over 70 State and Territorial Acts will be abolished and replaced by this one Federal Act of Parliament.
The regime will also create a new register (known as the “PPS Register”)(“PPSR”) which will be available for search by direct online access 24 hours a day, 7 days a week. At this stage (and still subject to change) fees to search the PPSR are expected be in the vicinity of $3.70 and the cost to register interests in personal property on the securities register will be $7.40.
Example of security interests which will be registered on the PPS include:-
- A fixed charge;
- A floating charge;
- A chattel mortgage;
- A hire purchase agreement;
- A pledge;
- A consignment;
- A conditional sale agreement (for example, an agreement to sell subject to a retention of title).
The legislation does not deal with land law but deals with almost every other type of property – company charges, motor cars, goods, shares, crops, livestock, office equipment, timber, artwork, stock in trade, interest in managed investment schemes, options, derivatives, book debts, trademarks, copyrights, designs, patents, circuit layout designs, etc. Essentially, any personal property which is not “fixed” could be considered “collateral” for the purposes of the Personal Properties Securities Act (“the Act”).
What is the New Regime All About?
Personal property is any form of property other than land or buildings and fixtures which form part of that land.
Existing registers that currently determine security interests (for example, “REVS” in relation to interests in motor vehicles) will be migrated to the new PPSR. The new reforms will determine how priority disputes are to be resolved where more than one competing security interest is given in respect of the same personal property.
Generally speaking:-
(a) a “perfected security interest” will have priority over an “unperfected security interest”. “Perfection” of a security interest can occur by essentially registering on the PPSR or alternatively by taking control (usually by way of possession) of the property.
(b) Those who have an earlier ‘perfected security interest’ (with some exceptions) will take priority over a later ‘perfected security interest’.
If a security interest is not “perfected” then other third parties dealing with the subject property (for example, a liquidator or receiver) may take that personal property free of any security interest in the property.
There are significant risks to those who ignore the new regime.
If a person owns personal property, but leaves that personal property in the possession of another person (and does not register their interest in that property) and that person is placed into some form of external administration (or bankruptcy), then that person may lose their interest in the property to anyone who has registered a security interest in the person holding the property.
For example:- ABC Soft Drinks Pty Ltd, a drinks supplier, leave fridges in the possession of a grocery store, “Quick-E-Mart”. Quick-E-Mart has an overdraft with ANZ, and the ANZ has a registered fixed and floating charge over all assets of Quick-E-Mart, which they register on the PPSR. Quick-E-Mart falls into liquidation. The liquidator undertakes a search on the PPSR to see if there are any security interests over the grocery store. As the ANZ has a registered security interest, namely a charge, then ABC Soft Drinks Pty Ltd loses its priority over the fridges to (in this case) the liquidator, notwithstanding that it is the owner of the fridges. This is because it has failed to take steps to register its interest in the property which it owned.
A similar regime has existed in New Zealand for some years. The New Zealand High Court in Graham v. Portacom New Zealand Limited [2004] 2 NZLR 528 considered the following:-
Portacom leased five portable buildings to NDG Pine (“NDG”). The buildings were delivered to NDG and NDG granted a debenture to its bank. The bank’s debenture was registered under the PPS but Portacom did not register its interest in the buildings. NDG became insolvent and its bank appointed receivers and managers to NDG’s assets. The receivers claimed they had the right to sell the buildings and they sought directions from the Court as to their powers and the respective priorities of the parties. The New Zealand High Court held that the security interest of the bank held priority over the rights of Portacom as lessor because Portacom had failed to register its security interest. It followed that the receivers had power to sell the buildings, notwithstanding that they were at all times owned by Portacom.
This case sends out a clear warning to owners that they cannot sit on their ownership rights and ignore the PPS legislation.
Retention of Title Clauses
Quite often suppliers enter upon terms of a Credit Agreement where they agree to supply product (for example, tiles for kitchens and bathrooms). The relevant clause in the supply agreement generally provides that title in the property (in this case the tiles) does not pass to the purchaser until such time as the purchase price of the tiles has been paid for in full. If for example, the builder went into liquidation, the tile supplier could then rely upon the terms of the retention of title clause to claim ownership of the tiles.
These interests are now required to be registered, such that if the tile supplier does not register its interest in the security, and the builder is placed into liquidation, then the liquidator can claim a priority over the tile supplier, provided those tiles are in the possession of the company that is in liquidation. Similarly if a bank were to register a charge over the assets of the building company, then the rights of the tile supplier would fall behind that of the receiver appointed by a bank.
On the other hand, if the tile supplier had registered its interest in the retention of title over the tiles, and the building company was then placed into liquidation, then the liquidator must have regard to the prior registered interest of the tile supplier. If a house built by the building company was then sold by the liquidator, the liquidator would need to account to the tile supplier who had registered its security interest in the tiles, even though the tiles been fixed to the particular property.
Exceptions
Some personal property will be free of security interests and they include:-
- A person who acquires an interest in personal property in the ordinary course of business of dealing with property of that kind (for example, if you purchase a photocopier from a person who is in the business of selling photocopiers).
- A person who buys or leases property that they intend to use predominantly for personal, domestic or household purposes, provided that the market value of the consideration provided by the purchaser or lessee at the time of the payment is not more than $5,000.00.
- Innocent purchases of a motor vehicles will, in some instances, be acquired free of a security interest if a search of the PPS register would not have disclosed a registered security interest (and provided the purchase price was paid for the motor vehicle).
Summary
The new regime will affect many business owners and particularly those in the motor vehicle, boating, farming, intellectual property, leasing, money lending, suppliers of goods, and financial industries. Similarly, landlords may be affected to the extent that there may be personal property which is not affixed to land.
There is a transitional period of 24 months from 30 January 2012 within which existing registered security interests may retain their security. However, any new interests from 30 January 2012 must be registered on the PPS.
It is therefore very important that businesses consider whether they should obtain advice about how the new regime will impact upon them, and they should seek this advice quickly!
In the meantime, I highly recommend the Australian Government website of the PPSR, which contains updated and useful information about the new regime (www.ppsr.gov.au).
Regards
Derek Cronin
Derek Cronin is a lawyer and partner of Cronin Litigation Lawyers, of Surfers Paradise. The firm specialises in commercial litigation and insolvency. The firm is also one of the largest specialist litigation teams on the Gold Coast. Derek has been practising in the area of commercial litigation for more than 17 years.