Introduction to the Personal Property Securities Register

Transcription

1 PPSA Introduction to the Personal Property Securities Register Sydney Perth Commercial in confidence 2014 Allion Legal

2 Introduction to the Personal Property Securities Register What is the PPS Register? The Personal Property Securities Register (PPS Register) is an electronic notice board allowing Australian businesses, consumers and financiers to: record specific information relating to actual or prospective security arrangements affecting all forms of property (other than those excluded from the operation of the PPS Act - see Table 2 below); and search the information in the PPS Register. The PPS Register commenced operation pursuant to the terms of the Personal Property Securities Act 2009 (PPS Act) on 30 January What is covered by the PPS Act? As the following table shows the PPS Act has a very wide operation. It applies to all forms of property subject to some specific exclusions (including interests in land, moveable items attached to land, water rights and nominated statutory licences and rights). Common examples of Personal Property subject to the PPS Act Items excluded from PPS Act Table 1 Tangible consumer and household items Tangible business items Moveable property Commodities Financial Property Intangible property Computers, electronic goods, furniture, clothes, toys Machinery, plants and equipment, inventory, construction materials, spare parts, manufactured items Motor vehicles, vessels and aircraft Construction materials, extracted minerals, food, crops, livestock Bank accounts, shares and investments Contractual rights, intellectual property Interests in land and fixtures (moveable items attached to land) Nominated statutory licences or approvals to conduct a specific activity or business (such as mining and petroleum exploration and production, commercial fishing activities and operation of licensed premises) Rights in relation to the control, use or flow of water Liens, charges or interests arising by operation of statute law (other than the PPS Act) or the general law Table 2 What is a Security Interest? There are two categories of security interests covered by the PPS Act. The first category covers security interests that in substance secure payments or the performance of obligations. The second category includes certain types of transactions (see items 2-5 of the table below for examples) which are security interests whether or not the transactions in substance secures the payment or performance of an obligation. This category reflects the statutory intention of the PPS Act to classify security interests functionally rather than legally. There are 5 aspects to recognising a security interest: a Grantor - the person granting the security interest; a Secured Party - the person benefiting from the security interest; Security Agreement the agreement between the Grantor and the Secured Party granting the Security Interest; collateral - the personal property subject to the security interest; and a security interest in the relevant collateral meeting the criteria nominated in the PPS Act.

3 Examples of security interests: 1 Transaction Mortgage, pledge or charge Grantor Person with interest in personal property Secured Party Financier Collateral Any personal property Must secure obligations? Yes 2 Bailment or lease meeting criteria in PPS Act Person leasing or using goods Owner Bailed/leased goods No 3 Commercial consignment Person selling goods Owner Sold goods No 4 Transfer of amount due from third party Transfer of interests 5 under a contract meeting criteria in PPS Act Table 3 Person receiving right to payment Person taking rights under the contract Person assigning right to payment Person assigning rights under the contract Amount due from third party Document or agreement No No As highlighted in the above table, for certain transactions the PPS Act operates so that the legal owner of personal property is deemed to have a security interest in the relevant property. A failure to register that security interest leaves the owner exposed to a subsequent security interest registered in the same collateral taking priority over its ownership interest. Why is the PPS Act and the PPS Register important? The PPS Act is important because it introduces fundamental change to the rights and interests that may be held in personal property. Every transaction in which a person provides personal property to another without receiving immediate payment is potentially affected by the PPS Act. Allowing another business or person to use property you own may have very different ramifications as a result of the operation of the PPS Act from those existing prior to the PPS Act. The PPS Register is important because its proper use will be critical in determining the extent to which a person may enforce a security interest in personal property (including their own property). There is no obligation to use the PPS Register to record security interests, however unless another outcome is specified under the PPS Act, a security interest that is properly registered in the PPS Register will take priority over an unregistered security interest. Between two registered security interests, the usual priority rule is that the interest that was registered first will take priority over a later registered interest in the same collateral. As part of the introduction of the PPS Act, the Corporations Act was amended so that upon a company going into administration or being wound-up an unregistered security interest in property held by the company will automatically vest in the company. The secured party will not be able to exercise any rights other than to make a claim as an unsecured creditor. Further details on the key priority rules introduced by the PPS Act are set out below under the heading: Who under the PPS Act? What is a perfected security interest? Unless the PPS Act provides another way of determining priority between security interests in the same collateral, a security interest that has been perfected over an unperfected security interest. A security interest may be temporarily perfected or perfected by a specific provision in the PPS Act. Otherwise, a security will not be perfected unless: the security interest has attached to the collateral; the security interest is enforceable against a third party; and a registration is effective with respect to the collateral or the secured party has possession or control of the collateral. What does attached mean? A security interest is not enforceable against a grantor in relation to specific collateral unless it has attached to the collateral. A security interest attaches to collateral when:

4 the grantor has rights in the collateral or the power to transfer rights in the collateral to the secured party; and value is given for the security interest or the grantor does an act by which the security interest arises. In relation to the examples in items 2 and 3 of Table 3 above a grantor is deemed to have rights in collateral when they obtain possession of the relevant goods. When is a security interest enforceable? To be enforceable there must be a written agreement or document which sets out or otherwise evidences the terms of the of the security agreement between the grantor and the secured party. The grantor must have signed the security agreement or otherwise adopted its terms. The security agreement must also incorporate a written description of the collateral. Meaning of possession and control Possession of personal property may be relevant to whether or not a security interest has been perfected. A secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor or another person on behalf of the grantor or the debtor. Conversely, a grantor or debtor cannot have possession of personal property if the property is in the actual or apparent possession of the secured party or a person on behalf of the secured party. Specific rules regarding whether or not a person has possession of personal property apply in relation to goods transported by common carrier, possession of negotiable instruments, possession of chattel paper that is evidenced electronically, possession of investment instruments (intangibles, satellites, etc.). Control (rather than possession) is a means of perfecting a security interest in certain types of collateral that due to its nature cannot be in the physical possession of a specific person. Achieving effective registration Registration may be made before (if the secured party has reasonable belief that security interests will be granted) or after a security agreement is made or a security interest attaches to property. Registration must be in relation to a specific collateral class. Depending upon the collateral type and whether or not the property is classified as commercial or consumer property will affect the registration requirements. For some collateral classes, the only method to register an interest in the PPS Register is to register using a specific type of serial number nominated under the legislation. In other categories it is necessary to register against a specific person, company or partnership again using the details nominated under the legislation. The registration process will involve completing an online form and paying the applicable fees. Registration starts when the relevant description is available for search. An entry in the PPS Register will not be effective if: there is a seriously misleading defect in the data in the registration; the data in the registration cannot be searched by (depending on the type of property) a serial number or the grantor s details; incorrectly describing an interest as a purchase money security interest (see below); or the end time for the registration has passed. What is a purchase money security interest? The PPS Act provides that if a purchase money security interest (PMSI) exists in collateral it may take priority over other security interests in the same collateral (including the interest of secured financier that would otherwise have status as a first ranking secured creditor). A PMSI may arise in any of the following circumstances: a person selling personal property (such as a wholesaler selling goods to a retailer) and taking a security interest in the personal property to secure payment of the purchase price; a person (such as a finance company) advances funds for the purpose of enabling another person to acquire rights in personal property; where goods are leased or otherwise used by another person; or where an owner of goods delivers them to another person to sell the goods.

5 The presence of a PMSI and the right to recover proceeds from the relevant collateral affords a secured party greater potential to secure payment obligations associated with the supply of goods and other merchandise to their customers. Where the goods being supplied may be classified as inventory, the secured party must ensure that their security interest is registered prior to or on delivering the goods to the client for non inventory registration must occur within 15 days of delivery. Proceeds A person with a security interest in specific personal property will usually also have a similar entitlement in any proceeds or other property that is directly derived from or otherwise closely connected with the collateral. Proceeds of collateral includes identifiable or traceable personal property: derived directly or indirectly from a dealing with the collateral (or proceeds of the collateral); proceeds of an insurance policy being compensation for damage to the collateral; a payment received in connection with certain investments or instruments (such as money paid into a bank account after depositing a cheque); payments under a licence agreement in relation to intellectual property; and dividends, distributions or other payments or rights arising from owning shares or other investment products. Subject to the relevant produce being identifiable or traceable if the collateral is crops or livestock, proceeds also includes the produce of a crop and products of the livestock (such as meat or wool). Rules relating to comingling and combining of personal property The PPS Act determines the extent to which a security interest in personal property continues after personal property is mixed together (co-mingled) or two items of property are added together (accessions) or processed to produce a single product. Description Main Rule Table 4 Accessions Co-mingled Processed Goods that are installed in or affixed to other goods A security interest in an accession continues in the accession after it is installed or affixed Mixed together Goods that lose their identity after being manufactured, processed or assembled into a product or mass A security interest in goods that are processed or co-mingled continues in the product or mass. Who under the PPS Act in respect of PMSIs? The following table summarises the key priority rules that may apply under the PPS Act: Purchaser for Value PMSI Other Registered Unregistered Table 5 Taking Free Perfected Purchase Money Security Interest (PMSI) Purchaser over collateral. Person with PMSI may have priority interest in proceeds Specific rules determine priority between two PMSIs PMSI over other unregistered or incorrectly registered and registered rights PMSI Other Registered Purchaser Registered PMSI generally over other registered interests Priority between two registered interests generally based on registration Registered interest has higher priority Unregistered Purchaser Registered PMSI Registered interest has priority over an unregistered or incorrectly registered interest (even a PMSI) Priority based on common law Under the PPS Act, a range of circumstances are specified where a person may obtain an interest in personal property free of a security interest. These provisions amount to a statutory determination of how the risks associated with specific transactions will be allocated.

6 Examples include: purchase or lease of certain personal, domestic or household property; purchase of shares on ASX in the ordinary course of trading; purchase or lease of property with an unperfected security interest; and purchase or lease of a motor vehicle from a licensed motor dealer. Various exclusions to these rules may apply. The most common exclusion is where a person has actual or constructive knowledge of a security interest or that a transaction breached the terms of a security agreement. Planning for the PPS Act and the PPS Register All Australian businesses and overseas businesses doing business in Australia will be affected by the commencement of the PPS Register. Key planning activities include: identifying any existing client transactions that may require or benefit from registration under the PPS Act; ensuring you have complete and accurate customer details; design and documentation of suitable procedures relating to registering new security interests as part of your business operations; design and documentation of procedures relating to search of the PPS Register as part of normal business operations; inclusion of provisions dealing with the PPS Act; identifying specific challenges faced by your own business or industry; and revisiting standard agreements used in your business to deal with new issues and requirements. This Update has been prepared to provide general information only and must not be relied upon as legal advice CONTACT Richard Winter Principal rwinter@allionlegal.com