In February 2012, the Personal Properties Security Act (PPSA) is expected to commence thereby creating a single registry for security interests over personal property.
The definitions of security interest and personal property are extremely broad. Suffice to say, if the security in question is not a mortgage over land than this is most probably captured by this new legislation.
The following are some examples of common commercial transactions which will now require that the interest created be registered under the PPSA:
a. The company that leases a photocopier to another company for a period;
b. A company grants a charge over a business vehicle in favour of a second company which has provided finance with the purchase of the vehicle; and
c. Any transaction where payment for goods delivered was traditionally secured by a retention of title clause.
The theory behind this new legislation is that by creating greater certainty and transparency in the registration of security interests, borrowing costs will reduce and lenders will be more enticed to extend credit – we will wait and see!
The application of this new legislation is probably best described by the following example:
Business A, a news agency distributor, delivers to business B, a newsagent, 100 boxes of pens. The contract relationship between business A and business B is governed by business A’s standard trading terms. The terms provide for 30-day credit terms including a properly drafted retention of title clause – this basically means that the ownership of goods supplied does not pass to the purchaser until the supplier has received payment for the goods.
Prior to business A receiving payment for the pens, business B is deemed insolvent and placed into the hands of a liquidator. Business B had previously granted a general security interest over all property to the bank as security for a loan. The bank had registered its general security interest over business B’s personal property whereas business A had not registered a security interest in the pens it delivered to business B.
In the past, business A would have been able to rely on the retention of title clause in their trading terms. However, under the PPSA the bank will have a priority over the pens as the holder of a registered security interest.
There is some good news. There will be a two-year transitional period from the commencement date, during which time a security interest previously established will continue to be enforceable by the courts. However, from the commencement date all newly created security interests will need to be registered on the PPS registry.
We are happy to work with your legal advisor when discussing the application of the new PPSA legislation to your situation.