What is the PPSR?
From 30 January 2012, the Personal Property Securities Act, 2009 (Cth) (“PPS Act”) established a new system for the creation, priority and enforcement of security interests in personal property, which is generally all property other than land, fixtures and certain statutory interests
The PPS Act generally applies to security interests in goods located in Australia, or to the grantor of the security interest being an Australian entity.
The centrepiece of the PPS Act is the National Personal Property Securities Register (PPSR) on which security interests and personal property may be registered.
What is a Transitional Security Interest?
A Transitional Security Interest (TSI) is an interest in personal property that, in substance, secures payment or performance of an obligation which existed prior to 30 January 2012.
TSI’s also include security interest that did not exist at 30 January 2012 but was created under security agreement that existed prior to 30 January 2012 and continue to exist after that time.
An example of this could be goods supplied in 2013 under a Retention of Title (ROT) clause in an agreement that was created in 2011.
TSI’s can include “PPS Leases”, which are generally leases for a term of more than one year, or more than 90 days for certain serial numbered goods, such as a car.
What needs to be done to protect a Transitional Security Interest?
If you are not a secured party with respect to a TSI, that is not yet registered on the PPSR, you need to register it on the PPSR before midnight on 31 January 2014 (Canberra time) to take advantage of “temporary protection” and preserve the priority status of your TSI.
If you do not do this, temporary protection for the TSI will not apply from 1 February 2014. Registration of a TSI is free.
Examples of commercial agreements that may be TSI’s not registered on the PPSR are:
- Leases/Hiring Agreements;
- Retention of Title supplies;
- Commercial assignments.
Although there will still be a facility to register a TSI on the PPSR after 31 January 2014, choosing to hold off registering until after that date will result in you losing the benefit of the transitional provisions.
What this means is that the “perfected” status of the security interest will only begin from the time of registration on the PPSR, instead of the earlier date allowable under the transitional provisions if you register before the end of 31 January 2014.
If a security interest loses its “perfected” status in priority ranking, it will not be preserved. This means that another person with a security interest and the same collateral with a higher priority ranking (for example, a secured party who registered during the transitional period) will be paid out ahead of you in the event that the grantor (the person who hires or buys the goods, or borrow the money) defaults.
There is also the risk that if the grantor enters bankruptcy or insolvency and a security interest has not been perfected at relevant times, the security holder will lose their security interest altogether.
Contact us to find out more or to arrange a consultation with an experienced business lawyer in Sydney CBD.