The Personal Property Securities Act 2009 (PPSA) replaced commonwealth, state- and territory- based legislation with respect to parties’ rights over personal property. The PPSA also established the PPSR
What is it?
The Personal Property Securities Act 2009 (PPSA) replaced commonwealth, state and territory based legislation with respect to parties’ rights over personal property. The PPSA also established the Personal Property Securities Register (PPSR), again replacing existing registers, to be a single notice board of all registered interests in personal property. The PPSA commenced on 30 January 2012. The Australian Financial Security Authority (AFSA) administers the PPSR.
What is personal property?
The term ‘personal property’ covers most examples of property dealt with in the normal course of a person’s or company’s business. Examples include: motor vehicles, boats, caravans and trailers, artwork, crops, inventory (stock), livestock, plant and machinery, shares, investment instruments, and intellectual property.
What assets are not covered by the PPSA?
Real property (including water rights and fixtures to real property) are not covered by the PPSA, and remain subject to existing state and territory based registrations.
How do I obtain security?
The most important element is there must be a signed security agreement between the parties. This must happen before the supply of any finance, or goods. Once a security agreement is signed, a registration should be made on the PPSR.
What are the types of registrations?
The two common types of registrations are identified as All Present and After-Acquired Property (ALLPAAP) and Purchase Money Security Interests (PMSI).
An ALLPAAP is a registration over all present and future property. Financiers for company finance, generally make an ALLPAAP registration when there is no specific purpose, e.g. an overdraft, loan, etc.
A PMSI is a specific registration for an interest in a specific item for all or part of its purchase price. A PMSI holder has a super priority, even over and above a security registered as an ALLPAP. A PMSI is commonly registered by suppliers or financiers of; stock, motor vehicles, and items of plant and equipment.
When does a security interest have to be registered?
A security interest must be registered within six months of execution, and 20 business days after the security interest came into force. If these periods are not met, there is a risk the security interest will not be enforceable against an external administrator or bankruptcy trustee.
A PMSI must be registered before the supply of the goods, if they are inventory (stock). For goods other than inventory (stock), the PMSI must be registered within 15 days after delivery of the item.
What happens if you don’t register your security interest?
When an external administrator (liquidator or voluntary administrator) or a bankruptcy trustee is appointed, and where the security interest has not been properly registered or in time, the property will not be available to the creditor, but instead will be an asset of the entity who granted the security interest.
Therefore it is critical that suppliers and financiers properly register their security interests, and in time, to ensure they retain their rights to the assets in the event of default, or the appointment of an external administrator or bankruptcy trustee.
PPSA & voluntary administrations
Section 440B of the Corporations Act 2001 imposes restrictions when a voluntary administrator is appointed to the company under Part 5.3A:
- An owner of property used by the company from taking possession of, or recovering, the property.
- A lessor from levying distress rent, taking possession, or otherwise recovering the property.
- A secured party with possessory security from selling the property or otherwise enforcing the security interest.
The voluntary administrator may still sell or dispose of assets:
- with the consent of the secured party
- with the consent of the court
- in the ordinary course of business.
Any asset disposal requires the voluntary administrator to distribute the sale proceeds from the secured property to those holding relevant security interests.
PPSA & Deeds of Company Arrangement
A Deed of Company Arrangement (DOCA) cannot bind a secured party from enforcing or otherwise dealing with their security unless the DOCA makes specific provision for their debt and they vote in favour of the DOCA.
PPSA & liquidation
The stay of claims by creditors against the company and its property contained under sections 471B and 500 of the Corporations Act do not affect creditors with an enforceable security interest over assets of the company.
The property of any unperfected security interest vests with the company in liquidation. A security interest will also vest in the company if the security interest is not registered by the secured party:
- Six months before the commencement of the relevant external administration or insolvency (the critical time); or
- 20 business days after the security agreement came into force, or the critical time, whichever time is earlier.
New terminology
The PPSA introduced a range of new terms. These include:
Grantor—the party providing the security.
Secured Party—the party receiving the security.
Collateral—the secured asset.
Attachment—the creation of security over the collateral for value.
Perfection—is a technical term particular to the PPSA. the security interest being enforceable against third parties and ‘is stronger than the mere attachment of their security interest’.
Circulating Asset—previously described as floating assets, being assets used or transferred in the ordinary course of business.
Non Circulating Asset—previously described as a fixed asset, and prohibited from dealing with without the consent of the secured party.
Purchase Money Security Interest (PMSI)—a security interest taken in collateral to the extent that it secures all or part of the purchase price. A PMSI provides a ‘super priority’ over other forms of security and is typically used in the supply of stock or other non circulating assets.
How do I find out more or register an interest?
To find out more, or to register a security interest, go to www.ppsr.gov.au
Disclaimer
The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this fact sheet.
Last Updated: 3.11.2017