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Personal property security (PPS) reform is coming

1 September 2011

In early 2012 new Personal Property Securities (PPS) laws will come into effect. PPS reform has been on the agenda since April 2007 when the Council of Australian Governments (COAG) agreed to establish a national system for the registration of personal property securities. Currently in Australia there are significant limitations on the use of personal property as security due to difficulties and gaps in registering security interests. More than 70 Commonwealth, State and Territory Acts regulate personal property securities. 

PPS reform is taking place to create a national system for using personal property as security in business transactions. The reform will replace existing laws in order to reduce the cost and complexity for small and medium-sized businesses. 

Included in the reform is the creation of a national register for security interests in personal property. The national register will help businesses manage credit risk, check for debt owing on goods planned for purchase and search and register security interests in personal property. 

The reforms are expected to commence in early 2012. Your business will be affected by the reforms if you: 

- Borrow or lend money on the basis of security in certain goods 
- Purchase or sell goods on agreement, consignment or credit with security 
- Grow crops or raise livestock and obtain loans on the basis of security over them 
- Lease machinery or vehicles - Sell goods on credit with a retention of title right in those goods 

Personal Property as Security 

Personal property is any property other than land and other specifically excluded property such as water rights and certain liens etc. It includes tangibles such as goods, crops and livestock; as well as intangibles such as licenses, investment instruments, negotiable instruments and accounts.
 
Personal property becomes ‘security’ when a secured party takes an interest in personal property as security for a loan or other obligation, or enters into a transaction that involves the supply of secured finance. 

PPS reform will affect all established forms of secured finance including fixed and floating charges, chattel mortgages, margin loans, finance leases and debt finance. As well, other transactions usually not thought of as security arrangements, such as the lease of goods for a period of greater than 12 months (or 90 days or more for serial numbered goods such as motor vehicles and watercraft) will be affected. 

PPS Register and Priorities 

The PPS Register is a single, national, on-line register available in real time 24 hours per day, seven days per week which lenders and businesses will be able to access to register their security interests. 

Registration on the PPS Register is a form of perfection under the Act. Perfection by registration grants protection for the secured party that is stronger than the mere attachment of their security interest, with two main benefits: 

- It defines the priority status the security interest has relative to other interests in the collateral, and 
- It ensures their security interest survives the bankruptcy or insolvency of the grantor (the person that received assistance to acquire the collateral). 

Transitional Security Arrangements 

As a result of PPS reform a number of existing Commonwealth, State and Territory personal property registers will close and interests registered on those will be migrated to the national PPS Register. Lenders who have their security registered on certain existing registers will be migrated to the new national PPS register. Existing registers which will be closed include the ASIC Register of Company Charges (including provisional charges) and the Register of Encumbered Vehicles (REVS NSW & REVS QLD). 

Transitional security interests that cannot be migrated to the PPS Register will receive temporary perfection for 24 months after the PPS Register comes into effect. Temporary perfection means that an existing security interest may keep the priority it had before the PPS Act commenced for that period. 

A fee will not apply when registering a transitional security interest during the transitional period. 

Using the PPS Register 

The PPS Register will contain very little personal information. A person will be able to search the PPS Register to determine whether personal property is subject to an actual or prospective security interest. Searching for any other reason will be unlawful. 

Any person or business will be able to register personal property on the PPS Register. Generally, the person who makes a ‘registration’ will be the secured party or its agent. 

On receiving an application in the approved form, the PPS Registrar may enter a security interest onto the PPS Register. The application must consist of a financing statement that contains the particulars of parties to the transaction, the collateral and the security interest. For certain collateral, the grantor’s details will not be entered for privacy reasons. Details must be entered correctly otherwise the Registrar may not give the correct priority to the registration. 

On registration of the financing statement the PPS Registrar will issue a verification statement to the secured party which can be relied upon to prove the secured party’s registration. The secured party must give a notice of the verification statement to the grantor. There will be a process in place to amend or remove registration that is in dispute. The Government will charge a fee to search or register personal property on the PPS Register. 

What You Should Do 

Clients are encouraged to prepare for the transition by seeking legal and professional advice. There are many issues to be considered by business such as a review of protection measures, impact of the reform on trading activities, review of trading terms and current security arrangements. 

For more information about PPS Reform visit the website at www.ppsr.gov.au or contact your local Boyce Accountant. 

Sources: Personal Properties Security Reform website at ; Damien Scroope, Sydney Business Lawyers.

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