Personal Property Securities reform in Australia

Personal Property Securities reform in Australia

Personal property securities law in Australia has undergone significant scrutiny in recent months, resulting in a complex and rigorous overhaul of the current regime to facilitate the establishment of a single national system for secured lending over personal property.

On 14 December 2009, the Personal Property Securities Bill 2009 (PPS Act 2009) and the Personal Property Securities (Consequential Amendments) Bill 2009 (Consequential PPS Act) received Royal Assent.

The PPS Act 2009 and Consequential PPS Act will apply after the registration commencement time, expected to be in May 2011. 

What will the regime do?

The PPS Act 2009 seeks to establish:

• rules for the creation of valid security interests in personal property;
• rules governing the priority of competing security interests;
• an enforcement regime to supplement any contractual arrangements between parties; and
• a register that will provide notice of any security interests in personal property.

As such, the regime will be relevant to and will impact upon all Australian businesses.

What does the reform entail?

The legislative reform is to apply to all personal property security interests.  It looks to remove uncertainty arising from the current range of Commonwealth, State and Territory legislation, as well as common law and equitable legal principles that apply to personal property security interests.

A key aim of the Act is to introduce a new regime that provides greater certainty in respect of the rights of parties to enforce their interests in personal property. The essential concern is the issue of priority where there are competing interests.

Amongst other changes, a new PPS Register will replace the existing register of company charges maintained by the Australian Securities and Investments Commission (ASIC), and repeal or amend Chapter 2K of the Corporations Act, which sets out the procedure for registering charges over the property of a company with ASIC, as well as the rules for determining the priority of charges.  The core functions of the PPS Register are expected to be established by May 2010.

What is personal property?

The Act contemplates that personal property will be defined as any form of property that is not land or buildings, and as such includes tangible property such as motor vehicles, machinery, office furniture and stock-in-trade and intangibles such as intellectual property rights. 

How is a personal property security created?

The Act provides that a security in personal property is created when a financier takes a legal interest in personal property as security, or alternatively, enters into a transaction that involves the provision of secured finance. 

Personal Property Securities (Corporations Amendment Bill) 2009

The draft Personal Property Securities Bill (Corporations and other Amendments Bill) 2009 – Amendments to the Corporations Act 2001 (PPSB Corporations Amendment Bill) seeks to make appropriate amendments to the Corporations Act to reflect the new personal property securities regime.  As such it proposes the following key changes:

• the repeal of Chapter 2K (registered charges) of the Corporations Act;
• the introduction of ”Retention of Title Property” within the definition of property in the Corporations Act; and
• the preservation of existing rights to ensure amendments do not interfere with the current Corporations Act.

The PPSB Corporations Amendment Bill is currently before the Standing Committee of Attorney-Generals for consultation. 

Implications to consider

The provisions of the new legislation will radically change the law in relation to personal property securities.  Although the registration time is not expected until May 2011, companies are expected to start preparing now. 

Companies should examine the standard terms under which property is acquired and disposed.  In most cases, these will be defined as security interests and your rights and priorities may be affected. 

Any existing security interests and charges must be registered with the new PPS Register within 24 months of the commencement date.  Transitional provisions will cover a 24 month transition period until May 2013.  Any outstanding security interests and charges must be registered by then or risk losing priority.