Australia: A brave new world for businesses that lease or hire personal property

Personal Property Securities Alert: 26 June 2013
Last Updated: 28 June 2013
Article by Paul Cullen and Llon Riley

The Personal Property Securities Act 2009 (Cth) (PPSA) came into effect on 30 January 2012 and has introduced major changes for businesses that lease or hire personal property. If you lease or hire personal property it is vital that you understand how the PPSA affects your business, including what additional steps you need to take to protect your property and the consequences for not doing so, especially as the PPSA's transitional provisions will end shortly.

What does the PPSA mean for your business?

  • If you lease or hire personal property for more than one year (or lease or hire a motor vehicle, boat, aircraft or other PPSA "serial numbered property" for 90 days or more) that arrangement will be deemed to be a security interest for the purposes of the PPSA and most of the PPSA's provisions will apply.
  • The PPSA's transitional provisions will end on 30 January 2014. You need to ensure any current lease or hire arrangement entered into before 30 January 2012 is properly registered on the Personal Property Securities Register (PPSR).
  • For leases and hiring arrangements entered into from 30 January 2012, you need to ensure that your interests are properly protected by registration on the PPSR. The consequences of not protecting your interests can be significant, including losing ownership of your property.
  • It is important that you keep and maintain proper records of your lease or hiring arrangements and the registrations you make on the PPSR.

Will the PPSA apply to my lease or hire arrangement?

The PPSA will apply to the following types of leases or hire arrangements:

  • A lease or hire of personal property that is for more than one year, a combination of terms that equal more than one year or an indefinite or undefined term.
  • A lease or hire of serial numbered personal property (eg a motor vehicle, watercraft or aircraft) that is for 90 days or more, a combination of terms that equal 90 days or more or an indefinite or undefined term.\
  • Any lease or hire arrangement for any length of time if it secures the payment or performance of an obligation.

The PPSA's transitional provisions are drawing to a close

To help businesses adjust to the new PPSA environment, and to give them adequate time to register leases or hiring arrangement created before 30 January 2012, the PPSA establishes a two year transitional period. The transitional period will end on 30 January 2014. With just over six months to go before this period ends, you need to ensure that any lease or hiring arrangements created before 30 January 2012 which is still current is properly registered on the PPSR. Please refer to our previous alert for further information on the application and effect of the PPSA's transitional provisions.

You need to register your interests on the PPSR

For any lease or hiring arrangement to which the PPSA applies created from 30 January 2012 you need to register your interests on the PPSR to ensure that they are adequately protected. There are two reasons for this.

The first reason is because in the PPSA environment merely retaining title to or ownership of personal property under a lease or hiring arrangement no longer guarantees that you will retain ownership of the personal property if the lessee or person hiring becomes bankrupt or insolvent. This is due to the vesting rules in the PPSA and Corporations Act 2001 (Cth). These vesting rules provide that your title in or ownership of property you lease or hire will automatically transfer to the lessee or hiree if:

  • the lessee or hiree becomes insolvent or bankrupt; and
  • you do not have an effective registration of your interest on the PPSR.

If the lessee or hiree is a corporation, you must also register your interest within 20 business days of entering into the lease or hiring arrangement. Otherwise, your ownership may transfer to the lessee or hiree if it becomes insolvent within six months of your registration.

These vesting rules are vastly different to pre-PPSA laws and introduce significant consequences for not registering your interests on the PPSR. It is important to remember that vesting rules will apply irrespective of the fact that you own the personal property.

The second reason for registering your interests on the PPSR is because of the PPSA's priority rules. The PPSA gives special priority to a lease and hire arrangement that is properly registered on the PPSR against any other security interest in that property (including any prior registered security interest such as a bank's all assets security). There are particular timing requirements that you need comply with in order to obtain the special priority status. Failure to register within the required timeframes may result in your interests ranking behind another creditor allowing that creditor to have recourse to the property you lease or hire to satisfy the obligations owed to them. Understanding these registrations and timing requirements are important to ensure your interests are properly protected.

The importance of maintaining proper records

It is imperative that businesses that lease or hire personal property also keep and maintain proper records. This includes ensuring that the information recorded in the lease or hire agreement is accurate and maintaining an adequate database of the registrations made on the PPSR. Depending on the type of registrations made businesses will need to keep track of registration expiry dates and changes in their own and customer information. It is recommended that businesses undertake periodic audits in this regard to ensure the accuracy of their records.

Other matters for consideration

There are additional changes introduced by the PPSA in relation to the creation, enforcement, extinguishment, protection and priority of security interests of which you should be aware. If you lease or hire personal property you should ensure that you have received specific PPSA advice on these matters. Before you enter into any lease or hiring arrangement, you should also ensure that the relevant agreement contains appropriate PPSA provisions.

© HopgoodGanim Lawyers

Award-winning law firm HopgoodGanim offers commercially-focused advice, coupled with reliable and responsive service, to clients throughout Australia and across international borders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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