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As foreshadowed in the last edition of this newsletter, the PPSA is soon to come into effect in May 2011. It will replace 70 current pieces of legislation Australia-wide.
You may recall that security interests caught by the new Act will include mortgages over goods and chattels, company fixed and floating charges, pledges, hire purchases, trust receipts, and conditional agreements for sale or agreements including a Romalpa [retention of title] clause. The internet-based PPS Register will allow for up-to-date searching of existing or prospective security interests.
Perfection of a security interest may be achieved by the secured party:
It may be noted that liens, rights of set-off and similar rights, as well as various “interests” created under the Bankruptcy Act such as those created by a personal insolvency agreement under Part X, will not be security interests for the purposes of the PPS Act.
To be “perfected” under the PPSA, security interests will need to be registered on the PPS Register. This will be a wholly online, real time database.
Significantly, a party having a valid security interest under the PPSA will have an interest akin to that of a secured creditor in the event of the bankruptcy or liquidation of the grantor individual or company of the security interest. This will have far-reaching practical and commercial ramifications. For example, a person having a security interest that has been perfected by registration will be recognised as a chargee for the purposes of the Corporations Act. Such creditor will also be exempted from the unfair preference provisions of the Corporations Act.
Disputes arising as between secured parties seeking to seize the collateral or realise their security will be determined on the basis of ‘priorities' as established by the Act.
The following priorities rules will apply:
A perfected ‘Purchase Monies Security Interest' (e.g. a sale under a Romalpa clause) is the highest form of security interest recognised by the PPSA scheme.
What Type of Security Interest is captured by the new PPSA?
Examples of the types of interests captured by the new PPSA include charges, chattel mortgages, retention of title (“Romalpa”) clauses, hire purchase agreements, bills of sale and pledges or pawns.
What Type of Security Property is captured by the new PPSA?
Any form of consumer property or commercial property except real property [land]
Existing Security Interest (as at commencement of PPSA)?
Interests recorded on the following registers prior to commencement of the PPSA will be automatically transferred to the new PPSA Register:
Australian Register of Ships (mortgages only)
ASIC - Register of Company Charges (including provisional charges)
New South Wales Registers:
Register of Encumbered Vehicles (REVS NSW)
Security Interest of Goods Register:
Register of Co-operative Charges
Security interests registered under a regime not included in this list will need to be re-registered on the PPSA Register.
New Security Interests:
Is registration of the interest necessary? Registration gives a security interest priority over other, competing security interests that are not registered. Registration may also allow a security interest to survive the insolvency or bankruptcy of the grantor, and may, in some situations, allow the interest to survive the sale of the collateral.
Ultimately, the scheme of the Act requires perfection of security interests if they are to assume priority over other security interests, for instance in the event of the grantor's insolvency.
Perfection may be achieved by simple “attachment” in certain security arrangements; or by registration; or by possession of the secured goods by the secured party or grantee.
Charge over circulating assets [circulating security interest]:
Forum Law will issue more information to clients as developments occur in early 2011 in the fine tuning of this new regime, We shall also advise clients with handy checklists to assist with the registration of suitable Interests.