Australia: Attention Small to Medium Business: the Personal Property Securities Act - does it affect you?

Does your business supply goods? Do you lease or hire out equipment, goods or other property? Do you take security deposits or bond payments in your line of business? Are you thinking of buying a business?

If you answered yes to any of these questions then it is likely that the new Personal Property Securities Act 2009 affects your business and you could run the risk of losing out if you do not adequately protect your interests under the new laws.

The new laws

On 30 January 2012 the new Personal Property Securities Act 2009 (the new PPS laws) came into force, reforming the laws and registers dealing with securities over personal property. Each state and territory previously had its own laws which have now been brought together under one national system and online register called the Personal Property Securities Register (PPS Register). This register will also include company charges which were previously registered at ASIC.

Personal property is any form of property other than land, buildings or fixtures. It can include tangibles such as cars, art, machinery and livestock as well as intangibles such as intellectual property and contract rights. Security interests in any personal property may now be noted on the online PPS Register.

Supply of goods – retention of title and commercial consignments

The new PPS laws offer protection of 'security interests' in personal property and it appears that these security interests will include:

• Retention of title arrangements: that is, the supply goods with a 'retention of title' or 'Romalpa' clause. These clauses allow you retain ownership of any goods you supply or deliver to a buyer until you receive payment for those goods.
• Consignments: that is, a supply of goods to a retailer for sale where you retain an interest in the goods until they are sold.

If you are involved in any of these types of arrangements, where goods that you own are no longer in your possession, then you should seriously consider making a registration to protect the ownership of your property.

If you fail to register, then you may run the risk of someone else gaining a superior interest in your property. For example, if the purchaser or consignee of your goods becomes insolvent or goes bankrupt, then any of your property in their possession could vest in the (for example) liquidator and you would lose title to the property even though you own the property.

These are real risks that you may not have previously had to consider before the introduction of the PPS laws. The new PPS system often gives more weight to possession of the goods, rather than ownership. Therefore, as owners of property you may now have to consider registering your ownership interest in any circumstance where you part with possession of your property (which also includes leasing as outlined below).

In addition to the protection offered by registration, the PPS laws also offer some other advantages to people with a registered security interest which were often difficult to achieve before these new PPS laws were introduced. They include:

• Accessions: if you have a security interest in goods that are later installed in, or affixed to other goods, then your security interest may continue in goods as a whole.
• Commingled or processed goods: if you have a security interest in goods that are later processed, or mingled with other goods such that you can no longer identify them, then your security interest may continue in the now processed or mass of goods.
• Proceeds: a security interest in goods will usually now extend to the proceeds of the sale of these goods.

Kott Gunning is available to offer you further advice regarding the registration process or in structuring or amending your contracts to take advantage of the protection under the new PPS laws.

Leasing or hire of goods, equipment or other property

If you own personal property which you lease or hire out, then, as the owner of these leased items of personal property, you are able to register your interest on the new PPS Register. Personal property is any form of property other than land, buildings or fixtures. It includes leases of all sorts of personal property, including office or factory equipment, machinery and vehicles.

As mentioned above, if you fail to register on the PPS Register, then you may run the risk of someone else gaining a superior interest in your property, if it is in their possession. Not only will this include situations where the lessee becomes insolvent, but also a third party could 'purchase' the leased equipment from the lessee and you may have no recourse against the purchaser to regain your property (although you may still have a claim against the lessee). Again, the new PPS laws place an emphasis on possession of property and therefore a third party could gain better rights than you in property even though you are technically the owner.

If you are entering into any new leases or hire agreements of personal property, then Kott Gunning is able to provide advice and help with protecting your interests on the PPS Register.

Deposits, bonds and rights upon default of contracts

Other rights that you may be granted under sale or supply contracts could include:

• security deposits or bonds held as security for payments due to you; and
• any rights which you may have to deal with another person's property if they default or breach a contract with you.

These rights may also be capable of registration on the PPS Register and can be commonly found in standard terms and conditions of a contract. However, depending on the particular contract there may be other interests that are capable of being protected under the PPS laws.

You should consider registering interests such as these to prevent other parties gaining a superior right in, say, bond payments or a defaulting party's property. We suggest you seek advice with regards to your specific contract document, or drafting new provisions to create such rights, before entering into new contracts.

Current interests temporarily protected – review your contracts

Many contracts existing as at 30 January 2012 will include provisions we have mentioned above. The PPS laws provide temporary protection of such interests for a two year transitional period only. While there may be temporary protection, you are still able to formalise these transitional interests on the PPS Register and, in any event, may wish to conduct a review of any existing contracts before the transitional period expires on 29 January 2014.

Buying a business

Purchasers of businesses should consider whether the purchase includes any personal property. Common types of personal property included in a business purchase might be:

• inventory or stock;
• vehicles;
• equipment;
• trade marks or other intellectual property;
• rights under contracts.

Prudent purchasers should now be conducting searches on the PPS Register of all such personal property before purchasing a business to check that no other person has a prior registered interest in it.

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.

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