Regulation and Compliance Update: Personal Property Securities Law update

What is personal property?

Personal property is everything except land, fixtures, and water rights. For example, it includes all types of goods (such as cars, ships, planes, mining equipment, farm machinery etc.), shares, units, contractual rights and intellectual property, including trademarks and designs.

In short, the way to take security over practically everything except real estate will change.

When are the changes happening?

• May 2010 – PPS System set up
• May 2011 – Commencement

The PPS Register

The PPS Register is not like the Torrens Title system. It is not a register of ownership and doesn't provide a guarantee of security.

Nor is the PPS Register a document register, as it is currently contemplated that documents cannot be registered. Rather, the PPS Register is a place for notification of security interests.

New words

We need to learn some new words.

• Collateral – the property over which security is taken (like the American use of the word collateral)
• Attachment – the time when the property is charged because a loan is made and security is taken, usually occurs due to the execution of a document or by taking possession of the collateral
• Perfection – an activity to enhance your security over the collateral created by your attachment. The usual way to perfect a security will be to register an interest in the PPS Register or to take possession or control over the collateral
• Extinguishment – when a third party obtains ownership and your security interest is extinguished.

Standard securities

Many types of securities we're used to seeing will be subject to the PPS rules, such as:

• Fixed and floating charges
• Bills of sale, hire purchase agreements, leases, bailments
• Charges over contracts (e.g. construction contracts)
• Charges over shares and units
• Charges over deposits

There may be little change to security documents, and it appears the documents will not be placed on public record. Instead, mortgagees will register their interest electronically online at the PPS Register.

The banker's right of set off will continue unaffected by the PPS legislation without the need to register anything.

Registering gives no guarantee of security. A mortgagee's interest can be extinguished (one of those new words) pursuant to a set of rules, which are pretty complex. For example, if a lender has a charge over all the assets of a company, purchasers in the ordinary course of business may take priority.

There is some devil in the detail about fixed and floating charges – see the action plan below.

Action plan

• Identify affected transactions. Many existing registered charges will be automatically transferred into the PPS Register. For example, it is expected that ASIC will electronically record charges in the PPS Register. There may be some registries where electronic transfer is not achieved, or there may be types of securities which are not currently registered which should be registered. These items should be registered during the two year transitional period and some special rules apply
• Amend procedures and documents.

Gadens Lawyers will provide cost effective solutions to document and procedure changes when the time comes.

This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.

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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.