Personal Property Securities
The Personal Property Securities Act 2009 (Cth) (PPSA), which commenced on 30 January 2012, introduced a national regime which replaced many existing schemes (including over 195 Acts and Regulations and 70 registers) which dealt with the registration of security interests over personal property in Australia.
In addition to wholesale changes to commonly used terms in connection with security interests, the introduction of new concepts (such as attachment, perfection and purchase money securities interests (or PMSIs)) and the abolition of well-known parlance in connection with "fixed and floating charges", arguably the biggest impact on businesses and legal practices associated with the PPSA is attributable to the expansion of the concept of a "security interest". The PPSA adopts a functional "in substance" approach to determining whether a security interest exists, which captures many commercial transactions which have not ordinarily been treated as registrable security arrangements, such as retention of title, commercial consignments, PPS Leases and finance lease agreements. Such arrangements will now require perfection under the PPSA in order to protect and preserve ownership of the personal property to which they relate and the priority of those arrangements.
The PPSA register creates a single national online register, known as the personal properties securities register or PPSR, for the registration of all security interests in personal property - replacing over 70 registers throughout Australia, including the ASIC company charge register, REVS (to the extent it deals with security interests) and the Bills of Sale registers. The PPSR, maintained and administered by the Insolvency Trustee Service of Australia (ITSA), enables security interests to be registered "on-line" 24 hours a day, 7 days a week.
Given the importance of understanding the new terms and concepts introduced by the PPSA, the following snapshot is provided for practitioners by way of an initial overview:
Grantor - the entity providing the security interest (previously, most commonly referred to as the chargor).
Secured Party - the entity acquiring the benefit of a security interest (previously most commonly referred to as the chargee).
Collateral - the personal property which is the subject of a security interest. The collateral can be of one of two types - either consumer or commercial property - and can fall within one of four classes: tangible, intangible, financial and general personal property. Within each of these classes, there are various categories of collateral. For example, tangible property includes motor vehicles, watercraft, aircraft, agriculture (crops and livestock) and other goods.
Security Interest - an interest in personal property provided for by a transaction that in substance secures the payment or performance of an obligation. This can include traditional forms of security interests, such as charges, chattel mortgages and bills of sale, as well as "in substance" security interests, such as retention of title, conditional sale and hire purchase arrangements, and "deemed" security interests, such as PPS Leases and commercial consignment arrangements. For example, an entity can now be said to grant a "security interest" instead of granting a "charge".
Attachment - the concept whereby a security interest is enforceable against the grantor. Attachment in essence indicates the parties' intentions to be bound to the security arrangement. It occurs at the time in which the grantor's rights in the collateral become subject to a security interest. Most commonly, attachment will occur when the grantor and the secured party enter into a written security agreement (now commonly referred to under the new PPSA regime as a general security agreement).
Perfection - the concept whereby a security interest is enforceable against third parties and the grantor's liquidator or administrator. Whilst perfection can occur in a number of ways (including by taking possession or control of the collateral), it is expected that most security interests in personal property will be perfected by way of registration on the PPSR of a financing statement in respect of that security interest.
Purchase Money Security Interest or PMSI - a security interest which is taken in collateral to the extent that it secures all or part of the collateral's purchase price (for example, motor vehicle financing could give rise to a PMSI in that vehicle) or is otherwise intrinsically linked to a specific collateral class. PMSIs are eligible for "super priority" status under the new regime and can defeat most security interests in the same collateral other than those perfected by control.
The Personal Property Securities Register (PPSR) is the register where details of security interests in personal property can be registered and searched.
Fact sheets available on the PPS register including concepts and information relevant to specific industries.
The PPS Act contains provisions supporting the transition of current financing arrangements to the new regime without disadvantaging parties to those transactions. The PPS Act gives the status of ‘transitional security interests’ to security interests arising before the new regime commenced and ensures they do not lose priority because of the transition. There is also a two year transitional period in which these interests can be registered. For business, the main impact is that they have two years to register security interests where they supply under retention of title arrangement or are lessors. For more information, go to the transitional provisions information sheet.
Practitioners should be aware that the PPSR Transitional period ends January 2014.
Data migration issues
Security interests recorded on 23 Commonwealth, state and territory registers were transferred to the PPS Register in time for the PPS Register commencement on 30 January 2012.
The registers include the Australian Security and Investments Commission's Register of Company Charges, the Australian Register of Ships, the Fisheries Register, state and territory bills of sale registers, and the state and territory registers of encumbered vehicles. More than 4.7 million registrations were migrated to the PPS Register before its commencement. See the Migrated registrations webpage for more information.
There are a number of known issues with the migration of data. For more information please refer to the Migrated registrations - known issues resolved and the Migrated registrations - known issues being progressed pages.
For more updates, see also the Announcements page on the PPSR website.
Some suggested model clauses and definitions for certain core provisions of a general security agreement have been developed together by five international firms. They are:
- Herbert Smith Freehills
- King & Wood Mallesons
- Norton Rose
Two industry associations, the Australian Bankers' Association (ABA) and the Australian Finance Conference (AFC) have jointly developed model documents (including Priority Deed and Release and Undertaking to Amend Registration).
A case study addressing PPSA issues in the context of a typical mixed farming business and the interactions and transactions arising from this.
A Federal Court of Australia decision in the administration of the Hastie Group Limited (Carson, in the matter of Hastie Group Limited (No 3)  FCA 719) illustrates a number of important points for administrators, secured parties and purchasers under the new regime established under the PPSA. The implications of the case are discussed in an article in the Law Society Journal: Early registration of secured interests: A lesson from the Hastie Group litigation.
In the first mjaor Australin case providing valuable guidelines on PPSA - the NSW Supreme Court handed down its decision on 27 June 2013 in Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors  NSWSC 852.
Risk management and the PPS Register
November 2013, page 48
The Personal Property Securities Register presents lawyers with significant risks, even as it provides better protection for clients whose interests are registered.
Step-in rights in construction contracts can give rise to security interests
September 2013, page 42
A New Zealand High Court decision provides guidance to Australian practitioners over 'step-in' rights as security interests under the personal property securities regime.
Getting your priorities right
August 2013, page 47
A new decision by the Supreme Court has found that the PPS Register is the final word on security interests in personal property.
Model General Security Agreement Clauses
July 2013, page 36
Some suggested model clauses and definitions for certain core provisions of a general security agreement have been developed together by five international firms.
PPSA and the ordinary course of business
December 2012, page 40
Determining when goods are sold free of sceurity interests
Carbon emissions just got personal
November 2012, page 36
On 1 July 2012 the Personal Property Securities Act 2009 (Cth) was amended to include emissions units within the definition of personal property.
Early registration of secured interests: a lesson from Hastie Group litigation
October 2012, page 44
The Federal Court has recently given a pragmatic decision allowing administrators to sell certain equipment held by the Hastie Group over which personal property security registrations had been made.
Navigating the unchartered waters of the PPS Register
June 2012, page 57
The implementation of the Personal Property Securities Register is not without teething issues, including inaccuracies and incompleteness in data, so practitioners need o be mindful of the challenges involved while they are being ironed out.
The hidden implications of the PPSA on guarantees
April 2012, page 59
With the Personal Property Securities Act 2009 finally commencing on 31 January 2012, practitioners should ensure lenders and guarantors register their interests or risk losing priority.
- The importance of perfection
- Securing interests in new regime’s transitional phase: Personal Property Securities
- Forget everything your mother told you about property law
- Countdown has started for new personal property securities regime