Personal Property Securities Register May 20
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Personal Property Securities Register
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Personal Property Securities Register May 20
- 1. Show MeThe Money: There’s no prize for 2nd place Zac Pagliano, Associate Director Lauren Cutuli, Lawyer
- 2. PresentingWednesdays with Redchip Webinar Zac Pagliano Associate Director zacharyp@redchip.com.au Zac’s workload comprises a broad range of commercial, IP and property matters. In addition to being a lawyer, Zachary is also a registered trade mark attorney. LaurenCutuli Lawyer laurenc@redchip.com.au Lauren spends her days supporting clients through their business and property transactions including sales, acquisitions and leasing.
- 3. What is the current PPS System? PPSA PPS RegAFSA PPSR
- 4. • PPSA system originated in the USA in 1950’s • Introduced to provinces in CAN in the 1970’s • NZ implemented system in 2002 • PPSA based on NZ, CAN and USA laws Tell me a little about yourself… Where did you come from, and how did you get here?
- 5. What were things like before that fateful day? • Underlying legal concepts effectively the same (tracing back to old UK common law) ROT, consignment, bailment, hire etc. • No ability to register interests other than under Ch 2K Corps Act • No requirement to register interests in personal property to have effective claim (Monday 30 January 2012)
- 6. A security interest under the PPS is? Slide 6 An interest in personal property provided for by a transaction that secures payment or performance of an obligation
- 7. First, you give me some collateral… Collateral class Personal property Tangible property Motor vehicles, watercraft, aircraft, agriculture or other goods (a catch all for all other types of tangible personal property) General property All property the grantor has an interest in at the time of registration and anything that they acquire in the future (a floating charge) Intangible property Personal property that is not any of the following: financial property, goods, intermediated security (i.e. intellectual property rights) Financial property Chattel paper, currency, a document of title, an investment instrument, a negotiable instrument *Multiple security interests can exist in respect of the same transaction
- 8. When is it most relevant? Transaction Specific considerations Leasing Lending Hiring Bailee does not provide value In the business of >2 year duration Pooling arrangements Consignment Consignor keeps an interest after delivery Goods delivered to consignee for disposal (i.e. sale / lease) Not auctioneer Lending money General and / or specific security for the repayment of money Conditional sale Possession passes before title
- 9. So, what doesn’t the PPS cover? Basically, things that aren’t personal property. But, what else? A range of excluded property (state by state) Mostly government grants, think along the lines of mining rights, gaming licences and rights relating to electricity generation/distribution
- 10. Attaining perfection PerfectionSecurity Agreement Relevant Transaction • Attachment • Binding • Possession/control • Statutory amendments • Requisite information obtained • Registration on PPSR • Original collateral and proceeds • Security interest/s • Collateral type • PMSI • Australian connection
- 11. The early bird gets the worm… • Priority given in order of registration • Security interest must be perfected • PPSR search is critical • An exemption to the first in time, first in line rule is a PMSI
- 12. The early bird gets the worm… PMSI (a secret weapon giving you super priority) Only available in limited (typically commercial) circumstances: • Loan or credit to purchase specific personal property (non-commercial if asset is serial numbered) • Personal property advanced with an outstanding debt • PPS lease • Commercial consignment Strict registration timing requirements based on collateral type and whether collateral is inventory
- 13. The early bird gets the worm… There are other ways to perfect beyond registration. If you don’t get the timing right, a security interest can be perfected by: More than just a contractual right to possess Only available for certain types of property POSSESSION CONTROL
- 14. You may think… 1. There is no huge benefit of registration 2. Registration is just to secure a right to be paid 3. There is no point in registration if the parties are related But… there are a number of ways to use the PPSR to assist clients……. Slide 14
- 15. Clawback of preferential payments 1. Preferential payments – what’s the harm? 2. How can you avoid clawback? 3. Registration can protect your right to be paid above others But… who wants a security interest over their head? NO ONE!
- 16. Registrations within a Corporate Group 1. Unintended consequences of asset protection and structuring a corporate group: Creation of an entity in the business of leasing 2. Usual rule of priority without registration may not apply to related parties 3. Registration can protect your assets and keep them where you want them! Is it really worth the effort for related parties?
- 17. We are here to help you with….. • Strategy and advice • Documentation review and preparation • Security interest searches • Security interest registration • Security interest management • PPSR training • Enforcement of rights (litigation team) We’re also friendly, so don’t be shy!
Editor's Notes
- PPSA The legislation that dictates the rules PPS Regulation Sets out the rules to administer the Act AFSA Australian Financial Security Authority The administrating body that governs the Act PPSR The PPS Register is an online register that records security interests held in personal property. The register allows secured parties such as banks and lenders to register their interest over personal property on the register. A person can search the register for details on security interests registered against a given grantor, or borrower as is often the case.
- Before the PPSA, parties had to rely on common law and the Sale of Goods Act to protect title to personal property. Where title in goods is typically transferred when the parties enter into a contract or the goods are delivered, contracts could contain a clause specifying that title to goods did not pass until one party had satisfied certain conditions, such as the payment of the purchase price. The other party is then able to take possession of the goods if those conditions are not satisfied. This system was tried and tested in the US in the 1950’s and then moved to Canada and New Zealand before being adopted in Australia. The Australian system is a mix of all three of these systems.
- The main problem that this legislation seeks to overcome is what is called “apparent ownership” where someone is seen to be the owner of property because it has possession or control over that property. The risk here is that creditors may treat someone as the owner of property when they have in fact granted a security interest to another. This creates risk in granting a loan or extending credit to an individual over property that Is already encumbered. Without this system, there is no real way of knowing who has a security interest over an asset. Chapter 2K of the Corporations Act tried to address the problem, however, this chapter only related to mortgages and charges granted by companies over various forms of personal property. The Corporations Act system did not cover transactions such as leases, retention of title sales, consignments, flawed asset arrangements and trusts that secure obligations. This system also did not cover security interest granted by individuals. The PPSA attempted to create a single national register for secured transactions which can protect creditors against the risk of apparent ownership misleading creditors and cover all transactions and both companies and individuals.
- Types of transactions that are considered a “security interest” under the Act include: Lease of goods; Consignment; Chattel mortgages; Conditional sale/retention of title.
- There are a number of collateral classes to register a security interest against. These are: Tangible property, such as motor vehicles, watercraft, aircraft, agriculture of other goods which covers all other tangible items of property. General Property – which covers all property that the grantor has an interest in at the time of the registration as well as property that may be acquired by the grantor after registration. Intangible property, such as account, intellectual property and general intangible; Financial Property, such as chattel paper, currency, a document of title, intermediated security, investment instrument (like shares) and negotiable instrument.
- Security interest is an interest that secures payment of a debt or other obligation
- Perfection Perfection means giving a security interest the best priority and effectiveness, which protects a security interest from vesting in the person who has granted the security interest I that person goes into administration or bankruptcy. It is a form of protection for a secured party that is stronger than the mere attachment of their security interest. A perfected security interest will take priority over an unperfected security interest. In order for a security interest to be perfected it must have attached, be enforceable against third parties and is either registered on the PPSR or the collateral is in the possession or control of the secured party. The perfection of a security interest will affect the priority it has relative to other security interests in the collateral and its status in the event of the insolvency or bankruptcy of the grantor. Essentially, perfection protects a security interest from "vesting" in the person who has granted the security interest if that person goes into administration, is wound up or, in the case of an individual, goes into bankruptcy.
- The main form of perfection is by registration. It is crucial to conduct a PPSR search to determine whether there are any other security interests registered that will take priority. Generally, the rule of priority is first in time, first in line. However, the exception to this is a Purchase money security interest, also known as a PMSI. These interests will receive higher priority.
- PMSI It must make its registration within 20 business days after the security agreement that created the security interest came into force or, if earlier, the time that the company goes into administration or is wound up; or within the six months before the company goes into administration or is wound up. If the registration is not made within those timeframes, the security interest will vest in the company immediately before it goes into administration or is wound up (unless the secured party had perfected its security interest by possession or control).
- As mentioned earlier, there are two other ways to perfect a security interest other than by registration. For a secured party’s interest to be enforceable against other people it must either: 1. be in possession of the property over which it has a security interest (other than as a result of seizing or re-possessing that property) ‒ must be exclusive of possession by others. 2. have "control" of the property over which it has a security interest ‒ which is known as "perfection by control" and is only available for certain types of property (i.e. financial property such as bank accounts, intermediated securities and investment securities as well as satellites and space objects). Control is only available to collateral that is owned by one party but administered by another party in only a limited number of classes.
- It is illegal for certain creditors to be given preferential treatment over other creditors when a company goes into liquidation. A liquidator can seek recovery of those payments. You will be first in line if you have a security interest registered. If you don’t then you will be at the bottom of the line and any payments made to you while the company was insolvent is at risk of being recovered later. Commercially, this can be an issue as requesting registration of a security interest as it can create friction between the parties in an otherwise ‘friendly’ deal.
- The Act only applies to an entity that is in the business of hiring or renting goods. Often a corporate group will structure their entities to put all assets in one entity while another entity operates the business. There is typically a licencing arrangement between the two entities allowing the operating entity to use the assets in the operation of the business. This inadvertently means that the entity that owns the assets is in the business of hiring and so Section 46 provide that the lessee or purchaser takes the property free of a security interest. However, this does not apply where the buyer or lessee is aware that the lease or purchase of the property is a breach of a security agreement. Given the parties are related in this instance, this exception applies and the lessee does not benefit from the rule under section 46.