- The new Personal Property Securities Act 2009 (PPSA): Are you ready?
In 2009 new legislation called the Personal Property Securities Act (PPSA) was passed. The Act will come into force in May 2011. It is based on similar legislation previously enacted in both Canada and New Zealand.
The new legislation known as the Personal Property Securities Act 2009 (PPSA) came into force on 30 January 2012, replacing over 70 existing national, state and territory laws. It brings dramatic changes to the way security is taken over personal property and will impact almost all individuals and businesses that are:
- Selling goods on credit (i.e. Retention of Title)
- Leasing plant and equipment, motor vehicles or other assets
- Providing goods on consignment
- Trying to refinance, raise capital or is in the market (trade sale)
It establishes rules for creating valid and enforceable security interests, priorities between competing interests, when a security is enforceable in insolvency and when Personal Property is acquired free of a security interest.
Those who do not understand the new system or who fail to follow the provisions of the new Act, may risk losing their claim to assets they otherwise consider they own. Title is not relevant under the Act. Individuals, financiers and businesses must set the wheels in motion now and be seek advice to mitigate risk and to ensure the interests of their business are protected. To help work out what PPSA means for your business, Grant Thornton has developed a comprehensive and cost effective, fixed-price PPSA evaluation review and report to assist our clients understand how PPSA might affect them specifically, and what their priorities need to be in addressing it.
To ensure they are PPSA ready, businesses need to:
- Review their business group structure and arrangements between group entities
- Review their terms of supply, as well as financing arrangements and other affected contracts
- Identify assets affected and transactions that need to be registered
- Redraft standard terms
- Recommend new policies and processes concerning the requirements for registering transactions and associated documentation; and
- Check that any security interest registered against them or their business does not exceed expectations
Over 20 registers will automatically migrate to the new Personal Property Security Register (PPSR), including ASIC Register of Charges and the Register of Encumbered Vehicles (REVS). There are over 60 registers which will not automatically migrate to the PPSR, as well as personal property that is not currently registered. There will be a transition period of two years from commencement to migrate/register security interests to the PPSR and all new security interest will need to be registered immediately.
You (Supplier A) sells shoes to a company – Trendy Shoes P/L (customer). Under the new legislation, in order to have a valid priority security interest (or PMSI) in the stock sold (i.e. a ROT claim under the old legislation system), Supplier A must:
- Have an agreement with Trendy Shoes P/L which grants rights of Retention of Title until the goods are paid for
- Ensure the agreement is in writing and is signed by a person with appropriate authority
- Register its interest in the stock on the PPSR via a financing statement; and
- Ensure that the written agreement is entered into and registration occurs prior to supply of the stock to Trendy Shoes P/L
If these steps are not taken and a liquidator/administrator/receiver is appointed to Trendy Shoes P/L, you risk losing any claim to the stock or the proceeds from the sale of the stock.
Importantly, the ‘course of dealing’ argument (where there is no written agreement but the parties have operated under implied terms of trade for an extended period of time) will not be sufficient to ensure a valid priority security interest against third parties under the PPSA.
Now that the PPSR is live, the onus is on the secured party to review and inspect their security interest and remedy any defects as soon as they are identified.
To help you understand what PPSA means for your business Grant Thornton can also provide advice and training including practical/commercial issues to consider for your business.