02 9683 5999On 30 January a new piece of legislation known as the Personal Property Security Act (PPSA) commenced operation across Australia. This legislation was introduced with an aim to create a unified system for the registration of security interests in personal property.
The more common registers that the PPSA will be replacing include the ASIC register of charges (i.e. fixed and floating charges) as well as the Register of Encumbered Vehicles (REVs). Personal Property includes nearly all forms of property owned by any type of legal entity (i.e. company, trust, partnership, individuals) such as goods, plant & equipment, motor vehicles, shares, units, artwork and intellectual property.
It is important that all businesses are aware of this new regime as it will have wide ranging effects, particularly if your business:
1. SUPPLIES GOODS ON CREDIT
Traditionally, businesses have relied on terms and conditions in their order forms, invoices or sale agreements to outline their retention of title clauses (commonly known as Romalpa clauses). Under the new rules, these clauses in isolation will no longer protect you. You should seek advice in relation to the wording of these clauses, as well as wording of documentation such credit applications etc.
You must ensure that the customer has signed off on such a clause, as well as registering your security interest in the goods by registering on the Personal Property Security Register (PPSR). To ensure maximum protection, it is advised that the supplier registers the security interest before the customer takes possession of the goods.
2. OBTAINS FINANCE
Companies who have borrowed money in the past will be aware of charges that lenders may have taken over the company shares or assets. However businesses run by individuals or partnerships, or individuals who have provided personal guarantees in relation to finance arrangements will find that they now need to be aware that security interests that they have granted over assets may now be included in the PPSR.
3. SUPPLIES OR OBTAINS GOODS UNDER LEASE AGREEMENTS
If you own goods and supply them under a lease agreement, ownership of the goods will not be sufficient to protect your interest in these goods. The lessor must ensure that they register their interest on the PPSR.
4. OPERATES IN THE BUILDING INDUSTRY
In the building industry, temporary works such as scaffolding or formwork have traditionally not formed part of the completed works, therefore legal title to these assets were not considered to be under threat. Under the new rules, these assets may be at risk and therefore may need to be registered on the PPSA to ensure maximum protection.
There are also special rules in relation to the supply of goods that ultimately form part of the fixtures of a building and anyone dealing in these goods should seek further advice.
WHAT STEPS SHOULD I TAKE?
From 30 January 2012, all companies and individuals that have borrowed and granted securities over assets should:
- Conduct a search of the PPSR to ensure it correctly reflects the securities granted
- Review the terms of any new agreements
- Ensure securities are removed from the register once financiers are repaid
If you are a supplier of goods on credit or under lease or licence agreements, you should:
- Register your supply agreements as security interests on the PPSR before any goods are supplied
- Review the terms of all your supply arrangements, invoices, sale agreements and credit applications.
- Ensure that current and future supply arrangements are under a written contract or evidenced in writing
WHY SHOULD I SEARCH THE PSSR?
The Personal Property Securities Register is an online real time national register, and is accessible 24 hours a day, 7 days a week. You can access the register at www.ppsr.gov.au.
Any security interests that existed prior to 30 January 2012 will be transferred onto the PPSR automatically. We do however recommend that you search the register to ensure that all existing registrations are correctly transferred.
If you are interested in acquiring an asset, you should search the register to ensure that the asset does not have a registered security interest against it.
Property subject to serial numbers (i.e. motor vehicles), need to be searched by entering the serial number.
Other property can be searched by the name of the individual, or by the name, ABN or ACN of the entity.
Please note that government fees do apply to searches, as well as registering financial interests on the PPSR.
WHAT CAN HAPPEN IF I DON’T REGISTER?
If you have supplied goods on credit, under a lease or license agreement, and you fail to register the financial interest on the PPSR, you do not have maximum protection and you put your ability to recover payment or goods at significant risk. If the security interest is not registered and your customer faces bankruptcy or liquidation, the goods may be retained by the trustee in bankruptcy or liquidator and therefore could be lost to other secured creditors.
There are also priority rules which act to determine the priority of competing security interests. Timing of registration of these security interests can have an impact on the priority, hence why it is important to register your interest in advance.
If you have any queries about the PPSA, feel free to contact one of our friendly staff for further information or assistance.
