WHAT DOES THE PERSONAL PROPERTY SECURITIES ACT MEAN FOR YOU?
In 2009, the Personal Properties Securities Act (PPSA) was passed by the Federal Government and it came into operation on 30 January 2012.
The purpose of the PPSA is to streamline the security procedures over property. A national register has been created in which you can register an interest you have over certain types of property. The Act replaces a number of national and state registers such as ASIC Register of Charges, the NSW Register of Encumbered Vehicles (REVS) and Bills of Sale, amongst others.
The PPSA applies to most forms of personal property, or property other than land, and includes motor vehicles, equipment leases and hire purchase agreements, inventory and intellectual property just to name a few. It also applies to chattel mortgages, fixed and floating charges consignment of goods and conditional sales agreements.
The PPSA refers to “security interests” rather than the concept of “title”. A security interest is defined under the Act as “an interest in personal property provided for by a transaction that, in substance, secures payment of a performance or obligation”.
Most of us are familiar with the concept of “title”. For instance, if I lease a car from my employer, the employer still retains the title or ownership of the motor vehicle. I merely pay for the right to use the motor vehicle. This often caused confusion in insolvency situations. It was not always clear what goods were available to the liquidator to seize for creditors.
The PPSA assumes that goods are available to the liquidator regardless of “title” unless steps have been taken to “perfect” the ownership of the goods. A failure to register an interest in an asset on the PPS Register could result in the owner having no claim over the asset in a liquidation. For example, if your company leased a coffee machine to a café owner and the café owner goes into liquidation, theoretically the liquidator could sell the coffee machine for the benefit of creditors if you hadn’t already registered your interest in the coffee machine.
You should strongly consider the benefits of registering a security interest. Under the changes, the registered security interest of a retention of title supplier takes priority in insolvency over all the other security interests in the asset. The secured party can then seize the asset on the basis of ownership. This is an improvement to the old law for suppliers, where it could be difficult to prove to liquidators that the wording in retention of title clause was extensive enough to prove ownership.
The operation of the Act is a bit more complex than these examples but it helps to give you some idea of what could happen.
It is important to seek appropriate advice as to how the new legislation could affect you and what steps you or your business can take to ensure you don’t get caught out.
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