How do the new Changes to the property securities act affect your business?December 14, 2011
The Personal Property Securities Act 2009 (Cth) (PPSA) will likely affect every business in Australia to varying degrees. It will have a huge impact on the taking, registration and enforcement of security over almost all kinds of property, except land, by creating a central database for registering security interests.
The PPSA overturns fundamental property law concepts. In particular, under the new laws, holding legal title may not protect an owner from loss of property to a third party. It is vital that businesses are aware of the implications of the PPSA before the proposed commencement date of 30 January 2012.
This memorandum briefly explains HOW the PPSA may affect your business and what you need to be doing NOW in order to protect your business.
How the PPSA may affect your business
- Retention of title – any supply contract that contains a retention of title clause will need to be reviewed and may require registration. Failure to register may result in a supplier or contractor being unable to recover its goods and equipment in the event of insolvency of a purchaser who has not paid.
- Fixed and floating charges – existing charges registered with ASIC will be “migrated” to the PPSA Register (PPSR) – a single national internet-based register available 24 hours a day and seven days a week. The concept of fixed and floating charges however will be replaced under the PPSA by “security interests over non-circulating assets” and “security interests over non-circulating assets”.
- Equipment hire – any equipment lease or hire of more than 12 months may require registration in order to protect the interest which the owner of the plant or equipment has in the equipment.
- Comingling of product – the PPSA could affect arrangements which involve the comingling of your product into another product.
- Joint venture agreements – interests arising under cross charges and some default clauses in joint venture agreements will fall within the PPSA and will need to be reviewed.
- Farm ins and farm outs – these arrangements will need to be considered where title is retained by one party or the other where the farm in work is yet to be completed.
- Other considerations – hire purchase agreements, conditional sale agreements, flawed asset arrangements, transfers of accounts receivables, amongst others, will also be affected.
What you should be doing NOW to protect your business
- Identify existing security interests and whether these will be the subject of automatic migration or whether new registrations should be made.
- Review the terms and conditions of your contracts including your standard terms of trade particularly given that retention of title interests, whilst currently not registrable, should be registered from October 2011.
- Amend your standard contracts to be PPSA compliant in taking into account new rules relating to attachment, perfection and priority of security interests as well as the PPSA rules affecting issues such as confidentiality, assignment and negative pledges.
- Educate staff on how to register security interests and search the PPSR.
- Assess the risk of not registering a security interest on the PPSR.
- Consider re-assessing the credit worthiness of your customers and suppliers.
- Put in place internal processes for review and approval of registrations and the on-going management of your existing security interests to be migrated and new security interests to be registered.