Personal Property Securities Act commences 30 January 2012
On 4 September 2011, I wrote that the Personal Property Securities Act (PPSA) was due to commence shortly. After being deferred, the start date for the PPSA is finally upon us.
As I have previously blogged, the PPSA establishes a new, single, searchable online register to record security interests in personal property in Australia. Any business that supplies goods on credit will need to check its credit terms, as those terms may need changes to be made due to the requirement of the PPSA.
The Personal Property Securities Register ("the Register") will open for registrations of security interests over personal property, including intellectual property, on 30 January 2012.
By now, all businesses should have taken steps to ensure that they are ready to comply with the requirements of the PPSA. However, it is never too late to ensure that your business complies with the PPSA.
I recommend that all credit managers take at least the following steps immediately, if they have not already done so:
1. Check all existing credit agreements and charges given by clients in favour of the company which are recorded on any of the old government registers (such as ASIC) to see whether they need to be registered under the PPSA and, if necessary, prepare to register them; the Federal Government started automatically migrating the contents of various existing registers of security interests to the PPS Register on 21 September 2011. However, some security interests will not be automatically migrated. It will therefore be necessary to re-register those security interests on the PPS Register, or in time they will risk losing priority.
2. Check all existing credit agreements to see whether they involve a security interest and determine whether that interest can or should be registered on the Register;
3. In relation to new credit agreements , considering whether the creation of another security interest in the goods obtained on credit by the debtor should be an event of default; and
4. In relation to all agreements which give rise to security interests, determining whether the enforcement provisions under the PPSA should be varied, as permitted by the Act.
Many credit agreements include retention of title clauses, which did not have to be registered as charges under the previous legislative regimes. However, under the PPSA, a retention fo title clause is classified as a 'purchase money security interest' (PMSI). A PMSI does have priority over other security interests, but it must be perfected by registration on the PPS Register to be effective.
For inventory, a PMSI must be registered on the PPS Register before the buyer takes possession. For other property, a PMSI must be registered on the PPS Register within 15 business days, or the supplier risks losing the priority status that a retention of title clause would normally provide.