Personal property securities update

Personal Property Securities Update
www.sklawyers.com.au
Ben Sewell
Principal of Sewell & Kettle Lawyers

Why is the PPSR a revolutionary change?
•  Security interest is a practical definition linking concepts of
securitisation
•  Title is no longer king: Priorities mainly determined by
registration
•  PMSI to protect the interests of SMEs in insolvency
scenarios
•  Public register will change business processes- false wealth
risk minimisation

Summary of the new Personal Property Securities Act (PPSA)
The PPSA governs the
1. Validity;
2. Enforceability; and
3. Priority
of security interests in personal property generally

Challenge: Mastering the new terminology
•  Registration commencement time- 30 January 2012
•  Personal Property- property but not land or section 8 exclusions
•  Security Interest- in substance test
•  Grantor- person who grants the security
•  Secured Party- a party who holds a security interest in collateral
•  Collateral- personal property to which security interest is attached
•  Attachment & Perfection
•  Purchase Money Security Interest (PMSI)
•  General Security Agreement (replacing the fixed and floating
charge)

Challenge: Working out what isn’t potentially a security interest
in personal property
Security interest is defined in section 12: “an interest in
personal property provided by a transaction, that in substance,
secures payment or performance of an obligation (without
regard to the form of the transaction or the identity of the
person who has title to the property).”

Case: THC Holdings v CMA Recycling
•  THC left scrap metal at CMA’s yard (high value) it had
purchased
•  Administrators appointed over CMA
•  Administrators claimed that scrap metal and sold it
•  Argument rejected by Court, found there was no in
substance security agreement just a bailment
•  Administrators ordered to pay damages to THC

Key Timeframes: Transitional interests
•  Transitional Interest: A security interest created before 30
January 2012 or out of an agreement dating to before 30
January 2012
•  Generally, transitional interests will be taken to be perfected
for a period of 24 Months from 30 January 2012 (temporary
perfection)
•  Current: Complete compliance with PPSR

Why is perfection important?
•  Perfection is principally registration on the PPSR
•  Any security interest that is unperfected at date of
administration or winding up vests in the company (i.e.
the administrator or liquidator)
•  The unperfected security holder will therefore lose their
security interest upon a formal insolvency appointment

Section 588FM of Corporations Act Application
•  S 588FL vesting rule for security interest outside 20 day
timeframe
•  Security holder may apply to Court to fix a later time for
registration
•  Failure to register a security interest accidental or not
prejudicial to other creditors or equitable
•  Set of cases develop criteria for successful application

Key timeframes: What constitutes a PPS lease?
•  The PPSA treats a lessor as a secured party and the
lessee as the grantor of the interest
•  Limitation to lessor regularly engaged in leasing goods
•  What is a PPS Lease? Term of greater than 1 year
(including indefinite and renewable terms)
•  Change for businesses leasing serial numbered goods
(i.e. motor vehicles) who previously had to register for
90 day leases

Key timeframes: Registering a PMSI
•  Inventory: Before the grantor obtains possession (tangible
property) or before attachment (intangible property)
•  Non-inventory: Within 15 days after grantor obtains
possession or attachment (tangible and intangible)

Personal Property and Land Law separate
•  Fixture excluded by section 8
•  Fixtures are the borderline between Personal Property and
Real Property law
•  Fixtures – when chattels become affixed to land
•  Courts will look to objective intention of parties and degree
of annexation

Matter of Cancer Care Institute of Australia Pty Ltd
(Administrator Appointed): The Facts
•  Company goes into administration and leased premises
have linear accelerators on site purchased for $8m
•  Landlord claims interest as fixture and financier claims a
PMSI
•  Steel base of equipment was concreted into ground but
Court found intention of parties was that equipment could
be removed/replaced

Matter of Cancer Care Institute of Australia Pty Ltd
(Administrator Appointed): The Result
•  Neither landlord’s nor tenant’s fixture
•  Property is subject to PPSA because of the degree of
annexation and intentions of the parties
•  Property ordered to be delivered up to the Administrators
•  If it was found to be a fixture it would have nevertheless
been a tenant’s fixture

Risk minimisation before disposing of abandoned goods
•  Landlords should conduct search on PPSR before disposing
of abandoned goods
•  Valid registered security interests have priority over landlord
claims
•  Hastie Group case dealt with scenarios where the registered
security holders didn’t respond to contacts

Opportunity: Pre-PPSA lease due diligence
•  Any leases pre-PPSA are now subject to the PPSA
•  Check for fit-out incentives, cash security deposits and
abandonment rights to keep chattels
•  Look to use standard form fit-out and incentive agreements
•  If acting for the tenant releases in relation to security
interests over leased goods may need to be sought

A PPSR search isn’t like a Google search
•  No wildcard search- precise spelling and reference details
are required
•  Search by grantor, serial number, unique financing
statement reference, point-in-time (through PPSR call
centre)
•  Person must have authorised purpose for search if the
search related to an individual grantor

Challenge: Extracting useful information from the PPSR
(noticeboard approach)
•  What is on the PPSR?
•  Details of grantor and secured party
•  Serial number if applicable (i.e. VIN of motor vehicle)
•  Collateral class and description
•  Term of security
•  But no copy of contract or details of net indebtedness is on
the PPSR

Specific interest area: Obtaining information about other
security interests
•  An “interested person” may request information from a
secured party
•  Information: Copy of security agreement and details of the
debt
•  This obligation can be waived by confidentiality agreement
(i.e. term) between grantor and secured party

Opportunity: A new avenue for due diligence
•  Financiers are taking an interest in searches and registering
PMSIs over inventory
•  Sale of business changes- PMSIs will need to be examined
by purchaser’s solicitor
•  Suppliers may use PPSR searches to evaluate asset
position and debt level of a customer with other suppliers

Stamp duty payable in NSW on GSAs
•  GSA may give rise to dutiable property in NSW
•  Requirement for payment of stamp duty for
enforceability of security interest
•  Cases go either way on retrospective
enforcement

Questions?
Ben Sewell contact details:
Phone: 02 8251 0075
Email: bsewell@sklawyers.com.au
Skype: sklawyers

Personal property securities update

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