Protecting your security interests before the PPSA’s transitional provisions end
by Paul Cullen and Llon Riley
With less than 12 months before the Personal Property Securities Act’s transitional provisions end, you should ensure that any security interests you have been granted that were created before 30 January 2012 are properly protected on the PPSR.
Partner Paul Cullen and associate Llon Riley outline the transitional provisions in place and explain the consequences of failing to properly protect your transitional security interests.
What does this mean for you and your business?
- The Personal Property Securities Act 2009 (Cth) (PPSA) introduces substantive changes to the laws that govern security interests in personal property and the methods used to protect them. Merely taking a security interest over another person’s property or retaining title to your own property will no longer be adequate to protect your interests. In many instances, you will need to take the additional step of registering that interest on the Personal Property Securities Register (PPSR).
- The PPSA’s transitional period will end in less than a year. The consequences of not protecting your interests before the end of the transitional period can be significant.
- If you have been granted a transitional security interest, you will need to ensure your interests will continue to be protected beyond the end of the transitional period.
The PPSA’s transitional provisions
The PPSA creates a two-year transitional period to provide temporary protection for security interests created before 30 January 2012. However, this period of protection will end on 30 January 2014.
The transitional period allows you to adjust to the new PPSA environment and gives you time to properly protect your transitional security interests. In many instances, this means registering those interests on the PPSR.
While some transitional security interests have already been registered on the PPSR through the PPSA’s migration process (for example, charges registered on the ASIC Register of Company Charges), many others have not. These interests will need to be registered to ensure they are properly protected from 30 January 2014. Examples of these types of transitional security interests include:
- leases and hiring arrangements;
- share and unit mortgages (particularly those granted by individuals);
- retention of title supplies;
- equipment or chattel mortgages;
- charges or mortgages granted by individuals (including all asset charges); and
- security interests granted by foreign entities where the secured property is located in Australia.
When the transitional period ends, all of the provisions of the PPSA (including the priority, extinguishment, enforcement and insolvency rules) will apply to your transitional security interests. If those interests are not registered (or perfected by another means), you risk:
- your security interests ranking behind another creditor even though your interest was created first. This will be the case even though you retain ownership of the secured property; and
- your security interest vesting in (transferring to) the person or entity who granted you the interest if they become insolvent. If this happens, you will only have rights as an unsecured creditor. Where you lease or retain title to property, the vesting rules will result in your title to the property transferring to the insolvent entity.