PPSA & PPSR Overview – The Commonwealth PPSA effectively commenced on 30 January 2012 with the commencement date of the Personal Property Securities Register (the PPSR).
The PPSA & PPSR are quite simply – game changers.
Under the PPSA, “title is no longer king” but “priority of perfected security interest is king” or to put it another way, “perfection is more important than ownership”.
The outcome of failing to have a registered security interest when you need to have one is quite simply, draconian. Your personal property is liable to be “sold up” by the financier of your client or customer.
The risk arises where a party with your personal property grants a security interest in that property to their financier. In a dispute, priority to the property will generally be given to the party with a security interest that is perfected first in time. Registration is one way to ‘perfect’ your security interest.
Our rule of thumb is – if your personal property is with anyone else, you need to consider registering a security interest or risk losing your personal property.
Registering your security interest
When you register a security interest over your personal property, you are the secured party, your property is collateral and the party with your collateral is the grantor. A secured party must create a Secured Party Group (“SPG”) on the PPSR before they can make any PPSR registrations.
Registration on the PPSR involves completing a financing statement online. Extreme care needs to be taken in completing a financing statement, particularly in relation to how your collateral is described, because a defect in the registration can jeopardise your security interest. A security interest (subject to some limitations for consumer property) may be registered for 25 years, between 7 and 25 years, or have no stated end time. PPSR registration fees will depend on the type and duration of your security interest.
What property is covered by the PPSA?
The PPSA, as the name suggests, governs security interests in personal property. Land and fixtures to land (e.g. buildings) are excluded. But just about every other kind of property is included such as:
- Tangible property such as:
- motor vehicles
- chattels and furniture
- Intangible property such as:
- Intellectual property
Terms & Practice of Supply need review
Terms & Conditions of trade need to be reviewed and swift advice taken, especially in relation to new accounts. “Retention of Title” clauses will no longer be enough. Remember – “Title is no longer king”.
Buying & selling businesses
There are some significant pre-contractual due diligence matters that will need to be considered and covered off, in special conditions (and annexures) of the Contract of Sale, by both Sellers and Buyers. Additionally, there will be need for some significant additional searching of the Personal Property Securities Register for buyers.
Vendor Finance arrangements, which are not uncommon in the current climate, will need some extra attention as well.
Real Property Conveyancing
Although the PPSA does not cover land or fixtures, a conveyance may includes chattels that are not fixtures. Where such goods are subject to a security interest, this may affect the seller’s ability to settle. Whether buying or selling, consideration of the extinguishment rules in the PPSA is needed to determine if unencumbered title to these goods can pass, otherwise some form of release from the secured party may be necessary.
Hire, Licensing & Leasing
If you hire, license or lease any property that is not “land and fixtures”, a security interest should generally be registered. Failure to do so may enable a financier of your customer to sell up your property and keep the proceeds.
While Intellectual Property Licences get some carve out treatment in the Act, these provisions need to be carefully navigated and a change in licence terms is usually needed to protect IP owners.
The Transition period has expired
There was a transition period of 24 months for the registration of security interests that existed prior 30 January 2012. However this transition protection did NOT apply to new security interests created from 30 January 2012 and the protection expired on 30 January 2014
For more information regarding the PPSA & PPSR Overview
Please contact our Business Development Team or call us on (07) 3252 0011 to book an appointment with one of our specialist Commercial Lawyers today.
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Please Note: This is not legal advice but it may help you understand the law. Read more...