Personal Property Security reform what you need to know

Transcription

1 Personal Property Security reform what you need to know Karla Fraser, Paul Brittain & Sarah Kuman Port Moresby, April 2015 Allens is an independent partnership operating in alliance with Linklaters LLP. 1

2 Overview Objectives of the reform and Current Status Key concepts under the PPSA PPSA in practice The proposed register What do you need to do to be PPS ready? Questions 2

3 Objectives (a recap) Explanatory memorandum: to promote commerce Codify and simplify law Single straightforward registration of security instruments Consistent in substance approach regardless of form Consistency with US, Canada, Australia, NZ and others 3

4 Current Status April 2015 Legislation Personal Property Security Act 2011 enacted but not yet commenced Registry Registry provider selected Investment Promotion Authority Registrar of Companies to be Registrar of PPS Register Some testing in progress Regulations Draft to be released for public comment shortly (May 2015) Commencement Treasury has flagged intent to commence in September/October 2015 Transition Existing security interests six month transition period to register New security interests registration to commence straight away 4

5 Introduction to the PPSA Supplier supplies widgets on retention of title terms Bank (1) All assets fixed and floating charge Bank (2) All assets fixed and floating charge Manufacturer Retailer incorporates widgets into product and sells on retention of title terms leases product to customer Customer widgets: who has priority? product: who has priority? old law owner has the best title (supplier on retention of title terms) new law (PPSA) retention of title, leases and charges are all security interests PPSA priority rules apply to determine who has priority to product and proceeds of sale 5

6 Functional definition it includes: retention of title arrangements hire purchase commercial consignments finance leases and more every transaction that in substance creates a security interest What is a PPS security interest? (without regard to its form and without regard to the person who has title to the property). a security interest means a legal interest in personal property that secures payment or performance of an obligation Definition: goods, chattel paper, investment property, a document of title, an instrument, money or an intangible (almost everything - except land and certain statutory interests) It includes: tangible goods, vehicles, hard cash, inventory intangible things: intellectual property, contractual rights, bank accounts, trade debts, investment property (shares, units) 6

7 deemed security interests the Act applies to certain transactions, even if they do not secure anything a book debt 1. transfer of an account or chattel paper 2. a lease for a term of more than 1 year 3. a commercial consignment document which acknowledges a debt + lease/security interest in goods delivery of goods for sale to a person (consignee) who deals in goods of that kind (but not auctioneers) includes leases with: indefinite term or options, renewable terms, in aggregate > 1 year possession >1 year (even if term < 1 yr) 7

8 What is a PPS security interest? traditional security interests e.g.: - fixed charge - floating charge - chattel mortgages - pledges/liens in substance security interests e.g. retention of title hire purchase finance leases deemed security interests - transfer of account or chattel paper - commercial consignment - leases >1 year exclusions negotiable bills of lading - set-off - interests in land or payments in connection with land - transfer of unperformed contracts - transfers of remuneration for services - transfers of accounts for collection - sale of account or chattel paper as part of sale of business transfers of superannuation interests - excluded statutory licences (Mining Act; Oil & Gas Act) 8

9 Key concepts new terminology Debtor security interest (in a security agreement ) over personal property (the collateral ) Secured Party attachment 1. value is given, and 2. Debtor has rights in collateral, and 3. one of possession, control, or signed security agreement perfection 1. attachment, and 2. one of possession, control, or registration 9

10 Key concepts Security Agreements security agreement is needed, unless you have possession or control PPSA requirements: must be signed physical signature, or other process with intent to adopt or accept must provide description of collateral o o o described in manner that enables collateral to be identified, or all present and after-acquired property, or all present and after-acquired property, except limited ability to contract out of obligations no lodgement of agreement when registering notice only 10

11 Key concepts Perfection Three ways to perfect: possession control (only deposit accounts / investment property) registration Three important consequences if you don t: taking free transferee for value without knowledge takes free of unperfected security interest priority unperfected security interest ranks after perfected security interests liquidation unperfected security interest subordinated to interest of liquidator or trustee in bankruptcy 11

12 Key concepts Priorities under the PPSA perfected by control purchase money security interest (PMSI) registered first in time registered later in time unperfected security interest 12

13 Key concepts Purchase Money Security Interests (PMSIs) PMSI purchase-money security interest security interest to secure purchase price (eg retention of title) security interest given to person who provides value to enable collateral to be acquired (eg acquisition financier) lessor lease for term of one year or more consignor commercial consignment generally, super priority but (other than for inventory) only if perfected when debtor receives possession, or within 7 days thereafter for inventory, in relation to the proceeds of sale of inventory, only if certain notices are given in accordance with the PPSA 13

14 Key concepts Transition Commencement of PPSA expected to now be late 2015 Security interests: arising under transaction concluded prior to date of commencement of PPSA (a prior transaction ) transitional notice registered within 180 days from commencement of PPSA takes priority over security interests arising after commencement of PPSA After 6 months, lose priority to other perfected interests 14

15 PPSA in practice broad application Secured lending Leasing Manufacturing and supply chain Construction Mining, oil & gas 15

16 Some scenarios Guarantees No: no interest in personal property contractual only Retention amounts Probably not, unless there is identifiable collateral (ie money held in a segregated account) Equipment leased by contractors Yes: NZ portaloo case lease for a term of more than one year Step-in rights: principal taking over equipment Yes: NZ Mainzeal case 16

17 Some more scenarios Joint venture agreements or joint operating agreements Probably: dilution rights and purchase options secure performance Cross-charge needs to be registered in any event Performance bonds, letters of credit No: no interest in personal property contractual only Master Supply Agreements or Master Lease Agreements Yes: retention of title terms and leases for a term of more than one year Make sure registration also covers future purchase orders/invoices/leases Operating leases of office equipment Yes, if lease is for a term of more than one year (or indefinite term) 17

18 The register Register of notices, not security agreements Details required by the PPSA Debtor identity physical address Secured Party identity physical address Description of collateral described in manner that enables collateral to be identified, or all present and after-acquired property, or all present and after-acquired property except for specified items Additional optional details Vehicle serial number Real property identification number One notice can relate to one or more security interests 18

19 The register Debtor authorisation: Registration must be authorised by debtor (before or after registration) Signing security agreement is taken to constitute authorisation Timing: best before signing, or at least before debtor draws down or takes possession of financed equipment Term of registration: Initial term designated by person registering Subsequent extensions are 5 years 19

20 What the registry might look like brief Debtor details five year registration term brief Secured Party details Collateral Description (note: shouldn t be necessary to identify or lodge the document) 20

21 What do you need to do? Allens is an independent partnership operating in alliance with Linklaters LLP. 21

22 Where to start Scoping Understand the PPSA Know your timeframes Develop a PPS plan Determine impact on business Implement plan 22

23 Know your enemy Understand the PPSA (or find a lawyer who does!) Critical to assess risk to business Internal legal key role as educator and spotter of risk Know your timeframes December 2011 June 2014 April / May 2015 September / October 2015 March / April originally anticipated to be commencement time Transition period Full operation Act passed << Register developed >> Proposed publication of Regulations Proposed start date Transition period ends PPSA becomes law Intended commencement date. The PPSA applies to all new security interests entered into after this date. Existing security interests must be registered within 6 months Transition provisions cover the 180 day transition period Transition period ends. All security interests must be registered or risk losing priority. 23

24 Develop a PPS Plan the building blocks Educate (understand issues; stakeholder interest) Resource (project team / budget) Assess potential impact Risk / Reward Analysis (what to do, in what order and when) Implement: o Policies o Processes o Documentation Compliance; audit 24

25 Your PPS plan December 2011 April / May 2015 September / October 2015 March / April 2016 Act is passed Regulations to be released Proposed start date Transition period ends Educate Resource Risk Assess Analyse Risk Implement Compliance 25

26 Risk Assessment Identify potential hits (risk) and quantify it in real terms Start broad; focus in Don t half bake it potential for large commercial losses Remember: it goes both ways (you may be secured party or debtor ) applies to all current and future transactions How? do it yourself (go it alone; or get someone to facilitate with questionnaires and checklists) get someone in (secondees / contractor) send it out (focused audits and advice; arrangement specific) 26

27 Risk Assessment What are you looking for? Understand your position (perfection, priority) Currently During transitional period After transitional period Will it (or should it) change; can you improve it? Should you worry about your customers exposure too? 27

28 Risk Assessment Existing security interests identify existing security interests obtain/compile the details to complete registrations Complete registrations within 6 month transition period New security interests identify transactions in your business that will give rise to security interests implement policies and procedures for registrations be ready to go from commencement of Act 28

29 Risk / Reward Analysis Technical risk (i.e. what might happen if you don t perfect) Analyse real, practical risk: low value goods (administrative costs burden) high risk counterparties? threshold values (K5,000? K50,000? K1,000,000?) Prioritise Risk under Act Risk quantum Risk of delinquency 29

30 Implementation and documentation Documentation Identify: standard security agreements in your business, and update for PPSA Charges: cover assets in which debtor has rights Include: authority to register, contracting out of certain PPSA obligations (eg notices), perhaps some terms Policies Perfection (Registration and Renewals) Releases Enforcement Role of internal counsel/external counsel 30

31 Compliance / Audit Remember that you may also grant security interests contractual restrictions (negative pledges?) procurement activities new policies and process registration monitoring monitor and challenge (if necessary) registrations; demand releases of expired interests 31

32 Questions? Allens is an independent partnership operating in alliance with Linklaters LLP. 32

33 PPS help! Karla Fraser - Banking & Finance Partner Karla.Fraser@allens.com.au Paul Brittain - Banking & Finance Managing Associate, Brisbane Paul.Brittain@allens.com.au Sarah Kuman Senior Associate, Port Moresby Sarah.Kuman@allens.com.au 33

34 Allens is an independent partnership operating in alliance with Linklaters LLP. 34