By Lawyers
Many practitioners have expressed concerns as to how the new legislation will affect them, and expressed fears they will overlook actions they should take.
This is written to assist in quelling those fears.
What must a practitioner look out for?
Generally a practitioner will need to either search the registry to establish that personal property is not encumbered, or to register a security interest that has been documented to ensure the priority of that interest.
Registration and search will be the everyday actions that practitioners take to protect their client’s interests. Both are simple processes and in time will become second nature.
Security interests covered by the Personal Property Securities Act (PPSA) include:
- charges;
- mortgages and pledges;
- conditional sale agreements;
- sale of goods subject to retention of title;
- hire purchase agreements;
- consignments; and
- leases of goods.
The central fact to remember is that the Act provides a method of establishing priority of competing interests in personal property. It does not affect the efficacy of agreements vis-a-vis the parties and it does not apply to real property.
Existing agreements and arrangements need not be recreated, however if required there are security agreement precedents provided in the Step-by-Step publication.
There is a two-year grace period to allow for the implementation of the new arrangements and registration of security interests.
However note security interests in goods supplied on retention of title basis will not necessarily have the benefit of the transitional grace period, so consideration should be given to registering them after commencement of the Act.
Existing charges registered with ASIC, and many other financial arrangements such as those recorded in registers of encumbered vehicles, will be automatically migrated to the PPS Register.
To assist practitioners to avoid any oversights we have included reminders or cues in the instructions checklists for sale of business, mortgage, lease, and sale and purchase of real estate.
The PPSA will not be of much relevance to conveyancers unless there is personal property included in the sale that sensibly might be subject to finance. A search of the registry to ensure it is unencumbered is easily made. This doesn’t mean searching for the usual fixtures or minor inclusions in residential sales, but rather something such as an expensive ride on mower.
On the other hand, when acting on the purchase of a business a search should be made to ensure that the goodwill, stock, plant and equipment are not encumbered.
Practitioners will clearly not be caught out when issues are specifically raised by clients – for instance, in relation to such matters as retention of title clauses in their terms of trade – as they will have time to research our commentary and other sources and to direct the client to the array of available information.
The main arrangements clients will need to reconsider are as follows:
- Supply contracts that contain a retention of title clause may require registration as purchase money security interests to protect the interests of the seller.
- Equipment leases or bailments of more than 12 months may require registration to protect the interests of the equipment owner.
- Leases of more than 90 days duration of serial numbered goods may require registration to protect the owner’s interests.
- Some charges in joint venture agreements may need to be reviewed.
The usual transactions that will trigger the need for action are when a client wishes to secure a debt on personal property or when a client is buying or lending on security of personal property.
Some examples
- Sale of business with money left in, secured on any part of the business such as stock, plant and equipment, goodwill and licences: a common situation.
- Sale of personalty with vendor finance: a common situation.
- Companies giving directors or shareholders charges over assets to secure loans: a common situation.
- Provision of goods subject to retention of title until paid: clients will need to review their terms of trade and decide whether they need to register and if so, whether they will register or simply take the risk with their regular customers.
- Lease of personalty: not often seen in small practices.
- Sale of real estate with fixtures or fittings that are subject to finance agreements that need to be discharged: unusual.
The Personal Property Securities Register has developed five interactive tutorials to assist practitioners:
- Getting started;
- Creating a registration;
- Creating an account;
- Searching the PPS Register; and
- Creating a secured party group.
For further information about how the register works:
Email: enquiries@ppsr.gov.au
Phone: 1300 007 777 (1300 00PPSR)
Tip Box
Whilst written for Federal practitioners this article has interest and relevance for practitioners in all states.