By Grant Parker
After several false starts, the Personal Property Security Act 2009 (Cth) (PPSA) and Personal Property Security Register (PPSR) came into effect on 30 January 2012. They regulate the creation, registration and enforcement of security interests over personal property. Almost one year on, it is worth examining the impact these laws have had.
Background
The national reforms replaced more than 70 different Commonwealth, state and territory Acts. Importantly for agencies, the PPSA is binding on the Crown in each of its capacities.
The PPSA is radically different to the previous common law and legislation applicable to obtaining security over personal property. It fundamentally alters the law of security interests, adopting a substance over form approach to defining a security interest. It is based on similar legislation enacted in Canada and New Zealand. As a result of those similarities there is a body of case law, commentary, precedents and lessons learnt that Australia can draw from.
In some cases it will be irrelevant who actually has title to the relevant personal property. For example, in an insolvency scenario, failure to have a "perfected security interest" (generally requiring registration on the PPSR) may result in the owner of the personal property not being able to recover the item from the liquidator. In such circumstances, title itself does not equate to rights over one's own property. In contrast, a security interest recorded on the PPSR will generally be enforceable against a third party.
The PPSA extends the concept of security interest to common transactions that were never previously affected.
The PPSA transitional provisions are in effect for 24 months from 30 January 2012. They provide that any security interests that existed before the PPSR came into effect will maintain the priority they would have previously had, including traditional retention of title arrangements. If that interest is not registered by 29 January 2014, it will be deemed an "unperfected security interest" from 30 January 2014. The transitional provisions don't protect arrangements, including retention of title arrangements, entered into after 30 January 2012.
Federal Court endorses Hastie Group administrators' PPSA approach
The administration of various companies in the Hastie Group in May 2012 provided the first opportunity for the PPSA to be considered by the Federal Court, in Carson, in the matter of Hastie Group Limited (No 3).
The administrators determined that there were 995 registrations on the PPSR by creditors for construction plant and equipment that had been under the control of companies in the Hastie Group. The administrators sought further details of the creditors' interests from the creditors but, by the Federal Court hearing on 5 July 2012, there were still 3,684 unclaimed items of plant and equipment. The Federal Court granted the administrators' request for an order that the unclaimed plant and equipment be auctioned and the proceeds distributed in the ordinary course of the administration, if unclaimed within three months of sale.
The effect of the Federal Court judgment is to prefer the secured major financiers of the Hastie Group companies over the creditors whose interests were registered on the PPSR. This result arose because of the generality of the PPSR registrations and the difficulties this caused the administrators in determining which plant and equipment was the subject of the PPSR registrations. Justice Yates stated that, given the generality of the registrations and the existence of many transitional security interests, it had proved extremely difficult for the administrators to rely upon the PPSR to identify property subject to security interests.
Leases and bailments
In addition to effectively requiring retention of title arrangements to be registered as security interests, most leases and bailments for value of goods will result in security interests of the lessor or bailor in those goods if the lease or bailment is for more than 12 months. The implications of this treatment by the PPSA will mean that most lessors are regarded as holding a security interest in equipment under finance and operating leases.
Implications for agencies
The PPSA extends the concept of security interest to common transactions never previously affected by any security law. Agencies should:
- identify assets affected
- determine security interests that need to be registered to protect the agency, and
- review that approach to the timing ofownership changing hands for personal property.
By now agencies should have implemented new policies, procedures and templates to cover the new requirements for registering transactions and associated documentation, as well as training for staff dealing with security interests. Agencies will now need to focus on how the PPSA is implemented by the courts and the implications for their policies and procedures.
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.