The End of PPSR Transitional Period is Near
On 31 January 2014, the period of temporary protection provided under the Personal Property Securities Act 1999 (PPSA) for security interests created before 30 January 2012 will end. This will affect many security holders who currently rely on the transitional arrangements provided under the PPSA to protect their interests.
During the transitional period of the Personal Property Securities Register (PPSR) commencing 30 January 2012 and expiring 31 January 2014, the PPSA deems the transitional security interest to be ‘perfected’.
On the expiration of the transitional period, if the pre PPSA security interest is not registered, the security interest becomes an ‘unperfected’ security.
Some of the commercial arrangements entered into before 30 January 2012 which may be caught as transitional arrangements and which will need to be registered on the PPSR before 31 January 2014 may include:
- Leases/hiring agreements;
- Retention title agreements;
- Commercial consignments.
Security interests created after 30 January 2012 will not have the benefit of the transitional provisions and must be registered on the PPSR in order to be ‘perfected’ by registration.
What is PPSA all about?
The PPSA has done away with old ideas of ownership and title in goods and have introduced a new way to secure interests in personal property.
With the exception of land and fixtures, the PPSA applies to security interests in all forms of personal property.
For the construction industry, this includes goods supplied under retention of title clauses or goods and equipment which are on a building site and in the possession of the builder but which are owned by a subcontractor.
Examples of such goods include electrical cable, temporary power boards, generators, air-conditioning plant, sheds and other equipment.
In some cases unpaid goods will be on site to be incorporated into and form part of building works but are the subject of a retention of title clause.
In other cases goods and equipment may be onsite as part of the subcontractor’s temporary works and will not form part of the works but belong to the subcontractor.
The PPSA provides that unless these goods have been registered under the PPSA, any interest in these goods may be lost if a liquidator is appointed to the debtor.
This means that title or ownership of the goods is not enough to protect the interests of a subcontractor or supplier in unpaid goods from third parties.
What is the key message of the PPSA?
The key message of the PPSA however, is that suppliers and subcontractors must now protect their ‘security interests’ in personal property by registration on the PPSR.
Under the PPSA, a retention of title clause on its own is no longer enough!
A claim of ownership in the unpaid goods is also no longer enough!
Unless security interests are ‘perfected’ by registration under the PPSA, those security interests and rights in unpaid goods may be lost by the true owners in favour of a liquidator or a third party.
Under the PPSA, a transitional interest:
- Is an interest in personal property that secures payment or performance of an obligation which existed before 30 January 2012.
- Includes security interests that were created under a security agreement that existed before 30 January 2012 and continued after that time. For example these interests could include goods supplied in 2013 under a retention of title agreement created in 2011.
If you are a secured party to a transitional security interest, you need to register that interest on the PPSR before midnight on 31 January 2014 (Canberra time) to preserve priority status of your transitional security interest.
Choosing to register after that date will result in a loss of the benefit of the transitional provisions. This will mean that the ‘perfected’ status of the security interest will commence from the time of registration on the PPSR, instead of the earlier date allowable under the transitional provisions had you registered before the end of 31 January 2014.
If a security interest loses its ‘perfected’ status, its priority ranking will not be preserved.
As a result, another security holder with a security interest in the same collateral with a higher priority ranking will be paid out ahead of you in the event that there is default by the person who hires or buys the goods, or borrows money (the grantor).
There is also the risk that the security holder will lose their interest altogether if the grantor enters bankruptcy or insolvency and a security interest has not been ‘perfected’.
The message is that security holders who are relying on the transitional arrangements will need to register their security on the PPSR prior to the 2014 deadline or they will automatically lose the protection of the PPSA and their security.
Security holders relying on migrated security interests also need to ensure that the migrated security interest is recorded correctly, before the deadline, to make sure it is effective.
As a result of the PPSA, businesses should:
- Review existing contracts to determine whether they create a security interest and what steps your business needs to take to ‘perfect’ those security interests;
- Identify what interests in goods and services can and should be registered;
- Understand the transitional arrangements;
- Review existing transactions to make sure that you register security interests before 31 January 2014;
- Consider what systems and processes you need to establish to effectively manage registration and your security interests;
- Use PPSA language in your documents;
- Make sure you know who you are contracting with and obtain all relevant information to enable a valid PPSA registration;
- Make sure that there is a person in the business who understands how PPSA works and who can answer questions from other staff; and
- Educate staff on how to register security interests and search the PPSR.
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