National regime simplifies personal property securities
There have been considerable changes in the law relating to securities over personal property with the commencement of the main provisions of the Personal Property Securities Act 2009 (Cth) (PPS Act) earlier this year.
The Act establishes a national law on security interests in personal property and addresses complexity arising from numerous Federal, State and Territory Acts and the general law governing personal property securities.
A national register of security interests in personal property has been in operation since 30 January 2012, replacing several State and Federal Registers, including State Registers for Motor Vehicle Securities and the Federal Register of Company Charges.
The national register allows people to register security interests over personal property and conduct searches to determine if personal property is covered by a registered security interest. The register is available online at www.ppsr.gov.au.
What is personal property?
For the purposes of the PPS Act, personal property includes many different kinds of tangible and intangible property. It does not include land and certain statutory rights.
Examples of personal property are motor vehicles, household goods, livestock, business inventory, intellectual property and company shares. Personal property that is subject to a security interest is called ‘collateral’.
What is a security interest?
A security interest is an interest in personal property that, in substance, secures payment of a debt or other obligation, regardless of the form of the transaction. This definition takes a ‘form over substance’ approach. It covers transactions that we already recognise as securities, such as chattel mortgages and company charges.
It also covers transactions that we previously would not have called securities, such as retention of title arrangements under a contract for the sale of goods – that is, where a buyer takes delivery of goods but does not acquire title from the seller until they have paid the seller.
In addition to this general definition, certain transactions are deemed to be security interests under the PPS Act, whether or not they secure anything. These deemed security interests include interests under transfers of accounts and consignment arrangements. They also include the interest of a lessor under leases of personal property for a term of more than 12 months or, for property to be described by serial number under the PPS Act, 90 days or more. Property to be described by serial number includes motor vehicles, boats and aircraft.
Registration of security interests
Where you have a security interest in personal property, in most cases you must register that interest for it to be protected.
Registration is not mandatory. If you do not register your security interest it may still be enforceable against the other party to the transaction. However, it is unlikely to be enforceable against third parties or if the other party becomes insolvent.
You need to register within certain timeframes to ensure the best protection possible.
You can register if you believe on reasonable grounds that you will become a secured party, so you do not have to wait until the documents for the security interest have been signed.
The priority of the security interest often depends on the time of registration so you should register as soon as possible. Priority is important because the secured party with higher priority is entitled to take over any enforcement action and has first priority for payment if the security interest is enforced.
Purchase money security interests are given ‘super priority’ over other types of security interests. Purchase money security interests include security interests taken to secure the purchase price of the collateral and the interest of a lessor under a PPS lease.
For purchase money security interests to have super priority, they must be registered within certain timeframes.
For example, a seller who sells goods under a retention of title arrangement to a buyer who holds the goods as inventory would need to register the purchase money security interest before delivering the goods.
For security interests granted by companies you also need to keep in mind that if you do not register the interest within 20 business days after the security agreement came into force, the interest would vest in the company if it is wound up or put into administration.
Security agreements in force prior to 31 January 2012 are deemed to be protected for up to two years. However, it is preferable to register those interests so they appear on the register.
The information in this publication is provided for general purposes only. It is not to be relied on as a substitute for legal advice. Crown Law and the Department of Justice and Attorney-General accept no liability for losses caused by reliance on the material in this publication. Formal legal advice should be obtained for particular matters.
Published: 3 October 2012
Author: Chris Maxwell