Personal property security (PPS) law is facing a major overhaul with the Personal Property Securities Bill 2008 set to replace over 70 pieces of Commonwealth, State and Territory Legislation. The new PPS regime will standardise the law and practice of personal property securities through a single national Act, supported by a single national online register. With a likely commencement date scheduled for the first half of 2010, companies and business need to consider the impact these changes will have on their activities.
What is PPS?
Personal property is any form of property other than land. Security interests in all types of property other than real estate are personal property securities.
A security interest is any interest in personal property which is created or evidenced by an agreement that secures payment or performance of an obligation. The security interest can relate to dealings such as hire purchase and lease arrangements, conditional sale agreements, commercial consignments, the factoring of book debts and retention of title arrangements.
Why is the law changing?
Current PPS law is inconsistent in dealing with different types of property and security interests. Additionally, each State has its own system for dealing with personal property and it can be difficult to know where to search for registered interests. The new PPS system will create a national PPS register and a completely new system of creation, documentation, registration and enforcement of securities over assets of both companies and individuals.
A comprehensive national PPS scheme will allow more certain and consistent outcomes, reduce financing costs and encourage more diverse financing options. A new system operating under uniform laws across Australia on one electronic register should also reduce legal disputes and make secured finance more cost effective and attractive to lenders.
The new system
The PPS register will keep track of the creation and extinguishment of security interests in personal property. The new rules determine priority between competing interests in personal property (including where property or security interests are transferred) and would facilitate the resolution of priority disputes. Prospective purchasers and lenders will be able to search the register to determine whether personal property is subject to a pre-existing security interest.
The new PPS scheme will apply to all security interests in personal property such as fixed and floating charges, chattel mortgages, conditional sale agreements, hire purchase agreements, pledges and security trust deeds, regardless of the form of the transaction, the legal personality of the grantor, or the jurisdiction in which the property or parties are located or in which the transaction occurred.
Attachment and perfection
The PPS Bill introduces the concepts of attachment and perfection.
Attachment is the process by which a security interest comes into existence. Without attachment, there can be no security interest in personal property. A security interest attaches when a written agreement which includes valid legal consideration and properly describes the secured property, is signed by both parties.
A security agreement which has not attached may create personal rights or contractual rights between the parties, but might not be enforceable against third parties.
Perfection is the process which gives the holder of the security interest priority over other parties claiming a security interest over the same personal property. A security interest is perfected when the secured party has either taken possession and/or control of the secured property or registered it on the PPS register. Priority is based on the date of registration.
Impact
The new PPS scheme will change the way in which security from companies is provided and enforced.
The scheme will affect contract and security documentation, and business processes. New debtor and lending policies, credit risk assessment models, procedural manuals and forms complying with the legislation will be required.
Although the new PPS scheme is still some time away from coming into force, it is important to consider the impact these changes will mean for your business. We will be providing updates on the PPS scheme as the legislation develops.
Swaab was recently named winner 'Best Law Firm in Australia (Revenue < $20m)' and 'Attribute Award for Exceptional Service (Australia Wide)' and at the 2008 BRW- Client Choice Awards.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
