There is now less than a month left before the transitional period granted by the Personal Property Securities Act 2009 (Cth) (PPSA) comes to an end. Starting on 31 January 2014, all security interests over personal property which arose before 30 January 2012 and which have not been either registered on the Personal Property Securities Register (PPSR) or otherwise perfected under the PPSA will become unperfected security interests. Amongst other things, the PPSR replaced numerous State and Federal registers of security interests, including the register of company charges that was maintained by the Australian Securities and Investments Commission (ASIC).
The PPSA creates a relatively new regime in Australia which governs the way in which obligations can be secured. In most cases, the PPSA applies to transactions in which the performance of an obligation or the payment of a sum of money is secured by rights over an item of personal property (a security interest). Commercial and financing arrangements to which the PPSA applies include, by way of example:
|•||conditional sales by retention of title;|
|•||operating and financing leases of equipment;|
|•||share and unit mortgages;|
|•||charges granted over any property other than land; and|
|•||asset hiring arrangements.|
In PPSA jargon, perfection is synonymous with being recognised as a secured creditor. Until 30 January 2014, all pre-PPSA security interests benefit from temporary perfection but, as the name suggests, this type of perfection is only temporary and will no longer apply after that date. There are three other methods of perfection; however, the most effective way of obtaining continuous perfection is to make a registration on the PPSR.
Having an unperfected security interest means losing priority against third parties who perfected their interest; even if the perfected security interest arose after the unperfected security interest. Most importantly, title is irrelevant for the purposes of the PPSA and may be defeated by a perfected security interest.
Before 30 January 2014, being the end of the transitional period, you should:
|•||make searches of the PPSR to ensure that all previous security interests which were recorded on a pre-PPSA register, such as the ASIC register of company charges and the state-based registers of encumbered vehicles, have been migrated to, and correctly recorded on, the PPSR; and|
|•||identify security interests which now fall within the scope of the PPSA, but which were not previously registrable, to ensure that they are properly registered, where appropriate.|
Perfecting a security interest remains a purely commercial decision which must be made after conducting a risk assessment of each transaction. Relevant considerations would include:
|•||the risk of default;|
|•||the value of the item of personal property;|
|•||the nature of the supply; and|
|•||the history of the commercial relationship.|
That said, making a registration on the PPSR remains the most simple and cost effective way of perfecting a security interest against the interests of other persons.
Please let us know if we can assist you with a review of your current and registered security interests, with a view to ensuring that your interests are adequately protected on and from 31 January 2014.
For more information please contact: