Devil in detail of new property securities law

New Personal Property Securities Act has potential to significantly impact most businesses and many individuals, according to legal expert

April 9, 2012

The new Personal Property Securities Act (PPSA) has the potential to significantly impact most businesses and many individuals, according to a legal expert.

Robert Nicholls, legal director and principal consultant at Prestige Legal & Corporate Services, says if you have a security interest in personal property and fail to take appropriate steps to register it then you may end up losing it, under new legislation introduced on January 30, 2012.

"The fundamental intent of the new legislation is to streamline procedures involved in formal insolvency appointments, however, the practical implications of the PPSA have far wider implications than insolvent companies, particularly for individuals or businesses leasing equipment or supplying goods to other businesses on delayed settlement terms," he says.

‘Personal property’ is essentially anything other than real estate and includes such items as machinery, equipment, stock, motor vehicles, shares, book debts, receivables, crops, trademarks and patents.

A ‘security interest’ will cover traditional forms of security arrangements such as chattel mortgages, vendor finance, charges and bills of sale, however, as Nicholls explains: "These interests are extended under the new laws to include other non-traditional security interests such as leases on personal property, hire purchase agreements, commercial consignment agreements and retention of title such as those routinely found in standard terms and conditions of trade.

Financiers, along with businesses operating across all industries, but particularly manufacturing, wholesale and retail sectors, will be affected, he says.

The PPSA applies to almost all forms of tangible and intangible property owned by any type of legal entity including money, goods, motor vehicles, hire purchase agreements, accounts receivable, long term leases, investment securities and documents of title.

Exclusions include land, water rights and certain rights or entitlements created by statute.

The consequences of failing to register your security interest on the new Personal Property Security (PPS) Register can be serious for business owners and individuals.

"The PPSA will present a myriad of issues and risks for a significant proportion of businesses," says Nicholls.

"Business owners, directors and officers will need to understand that traditional forms of asset protection, separation vehicles and structures like trusts and separation of legal entities may no longer provide protection of key assets from the application of the PPSA."

The Act also provides for the determination of priority between multiple security interests in the same personal property; determination of priority between a security interest and another type of interest in the same personal property; and various exceptions. There are also complex rules on how security interests apply when supplied goods are affixed to other goods or mixed with, or blended into, other goods.

Nicholls says that businesses should ensure at a minimum that:

  • A documented group structure exists detailing all arrangements and/or agreements between entities
  • Internal processes are established, operating and maintained to ensure that security interests in inventory and retention of title are properly registered
  • Existing terms and conditions of trade are reviewed and necessary changes made to ensure appropriate protection particularly if a business supplies inventory to another organisation or entity
  • Records and systems are established that allow the business to take ‘security interests’ in property, to register these interests in a timely way and to respond to enquiries and other legislative requirements
  • Staff are educated regarding the new legislation and its requirements and appoint, where appropriate, a person responsible for this task.

For customers or recipients of goods or services, suppliers are likely to seek to register security interests against the customer’s or recipients business; these will need to be checked carefully and regularly to ensure that they do not exceed the permitted exceptions in negative pledge agreements – in particular, some retention of title clauses purport to offer security over all of the assets of the buyer, he adds.

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