| Focus: | Expiration of the PPSA two-year transitional period |
| Services: | Commercial, Dispute Resolution & Litigation, Financial Services, Property & Projects |
| Industry Focus: | Energy, Resources & Infrastructure, Financial Services, Medical & Pharmaceutical, Property, Insurance |
The PPSA's two-year transitional period that granted temporary protection to interests in personal property expires on 31 January 2014. After that date, many Australian businesses will lose the protection they enjoyed during 2012 and 2013.
Background
The Personal Property Securities Act 2009 (Cth) (PPSA) commenced on 30 January 2012. The PPSA replaced more than 70 different registers with a single, national online register. It also did away with the formal requirements previously necessary to create a 'security interest' and instead expanded the term to include retention of title arrangements, bailments and long-term leases or consignments of personal property.
The main purpose of expanding the scope of security interests was to ensure that third parties (such as banks and financiers) were not misled by the apparent ownership of assets in their customers' possession. The PPSA overcomes that risk by requiring all interests in personal property in another's possession (including where ownership is retained) to be perfected by registration on the Personal Property Securities Register (Register).
Who is affected?
The PPSA may impact businesses which:
- lease or bail goods
- supply goods on hire purchase terms
- supply goods on credit or retention of title terms
- fund or supply fit outs or other items to tenants
- consign goods
- are in a joint venture or partnership with charging rights over another party's assets.
What interests are protected by the transitional period?
Parties with interests caught by the new regime (known as secured parties) were granted a two-year transitional period to register interests that arose prior to 30 January 2012. During that period, such interests (known as Transitional Security Interests) are granted the same priority as they were afforded in the pre-PPSA environment.
That transitional period ends at midnight on 31 January 2014 (Canberra time).
What impact will this have on Australian businesses?
Many commercial or security arrangements formed before 30 January 2012 will lose their transitional protection if they are not registered on the Register by 31 January 2014, exposing businesses to risks including:
- Loss of priority in goods against other creditors (even if an agreement was entered into before those of other creditors and regardless of retained ownership of those goods).
- An unregistered security interest in the goods will be ineffective if the party in possession of the owner's goods becomes insolvent. The owner will be regarded as an unsecured creditor and title to the goods may transfer to the insolvent entity.
- A buyer may be able to buy those goods free of the owner's security interest.
What can be done?
Businesses should seek legal assistance to:
- review their terms and conditions/agreements to determine whether they constitute security interests
- register all security interests on the Register before 31 January 2014.
Prompt review of supply or sale terms and attending to registration of Transitional Security Interests on the Register should protect against third party claims.
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.