Businesses urged to be ready for new PPSA laws

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by Phaedra Pym; Background - Geoffrey Corah, Peninsula Law

The Personal Property Securities Act (PPSA) commenced on Monday 30 January 2012. The Act changes the way secured finance operates in Australia. If you own, lease, buy or sell personal property (other than land and fixtures such as buildings) in your business, then you need to be aware that the rules have changed.

What is the PPSA?

The PPSA is a new national system for registering security interests. It requires businesses to register their security interest in customers’ assets in a national Personal Property Securities Register (PPSR). Registration is critical to ensure businesses have valid and enforceable claims over assets, in the event that their customer becomes insolvent or enters into administration.

What type of personal property is affected by the PPSA?

The PPSA does not apply to real property (land and fixtures such as buildings) but essentially most other kinds of tangible and intangible property, including motor vehicles, household, commercial and industrial goods and equipment, business inventory, intellectual property rights and company shares.

How may the new laws affect you?

Business owners may be affected by the changes to personal property securities laws as:

• Borrowers

• Providers of credit, such as businesses that lease goods, financiers and trade creditors that supply goods on credit subject to retention of title provisions

• Buyers of personal property that may be subject to a security interest

• Investors who are thinking about buying into a new business

• Anyone who has taken or intends taking security by way of Bill of Sale or Company Fixed and Floating Charge

In the case of leases, all assets leased for an indefinite period or longer than one year now need to be registered by the lessor to mitigate loss of rights in the face of insolvency or administration of the lessee. Businesses supplying goods such as books, clothes, or computing equipment on consignment to retailers also need to register their interest in assets held by the retailer. Retention of title clauses will no longer be enough to protect a supplier’s ownership of unpaid goods.

Why have the rules changed?

The PPS Register replaces a number of registers of security interests and provides a single national notice board of security interests in personal property. Available online 24/7, the Register can be searched to find out if a security interest has been registered over personal property.

How can the new rules benefit you as a business owner?

If you are a business owner, the PPS Register can help you:

• Manage credit risk,

• Check whether property you plan to buy has a security interest in it, and

• Register assets used to secure a loan you have made, or where goods are supplied on credit terms.

What do you need to do?

Although the PPSA commenced on Monday, January 30, a two-year transitional period does apply. During that period, existing security interests are covered by migration to the new register however the lender or secured party must register their existing interest to retain it.

Recommendations

• Ensure your trading terms are PSSA compliant

• Register your customers on the PPSR before goods are supplied.

For more information head to the Australian Government’s PPSR information site for businesses or contact Geoffrey Corah at Peninsula Law on (02) 4343 3000.