Encompass PPSR Masterclass: Session 2 - Practical PPSR
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Did you know that you can only search the PPSR if there is a “genuine purpose”? Would you recognise when further investigation is required? Join Karen to learn how to identify the signals that you need to dig deeper, look at lessons learnt from recent war stories and gather tips to avoid pitfalls when navigating the PPSR, so you can ensure you always protect your security interest and security position For all Encompass webinars, see www.encompasscorporation.com/encompass-webinars
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Encompass PPSR Masterclass: Session 2 - Practical PPSR
- 1. All attendees will be set to mute to All attendees will be set to mute to avoid background interference. avoid background interference. PPSR Masterclass Practical PPSR Starting at 12pm AEST IfIfyou are having audio issues, try you are having audio issues, try changing your settings or type aa changing your settings or type message in the chat window for us to message in the chat window for us to assist you. assist you. Please ask questions by typing into Please ask questions by typing into the chat window shown. the chat window shown. All questions and answers will be All questions and answers will be covered in the webinar for the entire covered in the webinar for the entire audience audience
- 2. PPSR Masterclass Practical PPSR with Karen Lee 12.00 - 12.45pm
- 3. Your Hosts Your hosts: Encompass | SAI Global Polls: During the webinar I will be asking you to take some polls so we can understand your interests. Questions: Please type your questions in the chat box and we will try to address as many of them as we can during this webinar. Alex Ford Encompass Corporation
- 4. Warm up question - PPSR Pains Use red arrow to display or hide chat window What is your biggest PPSR challenge? Please type your answer here
- 5. Your Presenter Karen Lee specialises in banking and financial services law and legal knowledge management. -Head of Legal for a leading Australasian nonbank lender, -Top-tier private practice, including as Counsel at Allen & Overy and Clayton Utz. -Karen is currently the Principal of Legal KnowHow.
- 6. PPS Regime Commenced on 30th January 2012 The 2 year transition period will end on 30th January 2014
- 7. What will we cover today 3 2 1 3 situations where you should consider conducting more than 1 search or repeating a search 2 situations where searching alone is not enough and other forms of due diligence are needed 1 easy thing you can do to better your PPS knowledge Practical PPSR: Useful tips to better protect you and your security interest
- 8. Quick Recap • What is a transitional security interest? • What is the transition period? n • What does it mean whe it ends on 30 January 2014?
- 9. You can only search the PPSR if there is a ‘genuine purpose’ There are penalties for unauthorised searches or improper use of the PPSR
- 10. 3 Situations where you should consider conducting more than 1 search or a repeating search
- 11. Scenario 1: Serial Numbered Goods • Most secured parties will be incentivised to register by serial number whenever possible. • But some serial numbered goods do not need to be registered by serial number. • So, you may need more than 1 search when the collateral is serial numbered goods
- 12. Scenario 2: PMSI PMSIs may be ‘silent’ for 15 days so you may need to repeat a search 15 days after you conducted your initial search or conduct some other form of due diligence
- 13. Scenario 3: Trust Property Where the collateral is a trust property, search against: – The current trustee, and – The trustee appointed as at 30th January 2012
- 14. 2 situations where searching alone is not enough and other forms of due diligence are needed
- 15. 4 Ways to Perfect a Security • Registration • Possession • Control • By force of the PPS Act
- 16. Scenario 1: Controllable Property • Most common - perfection by registration • Preferred - perfection by control (because this trumps everything else) • Perfection by control is available in limited circumstances only • For controllable property, your due diligence process should go beyond searching the PPSR
- 17. Collateral class Collateral subclass Perfection by control Agriculture Crops, livestock No Aircraft Aircraft engines, air frames, helicopters, small aircraft No Financial property Chattel paper, currency, documents of title, investment instruments, negotiable instruments Yes only for investment instruments, uncertificated negotiable instruments, letters of credit Intermediated security NA Yes Intangibles General intangibles, accounts, IP rights (copy right, designs, patents, PBR, trade marks, circuit layout) Yes only for ADI accounts Motor vehicles NA Other goods NA Watercraft NA Yes only for space objects
- 18. Scenario 2: Temporary Perfection • Some security interests are deemed to be temporarily perfected for relatively short time periods and in limited circumstances pending perfection by the usual means. • E.g. goods from another country • Instead of a PPS search, you will need to find another way to discover these security interest
- 19. Best Practice Tips Exercise care Patience is gold Dig a bit further Know when to seek expert advice
- 20. One easy thing you can do to better your PPS Knowledge
- 21. More on this PPSR Masterclass Series Session 1: Transitional or Migrated Securities - use it or lose it! – Presented by Rhonda Arnott – Next Tues 29/10, 8.30am - 9.15am Session 2: I will be presenting this webinar again for a breakfast audient next Wed 30/10, 8.30am - 9.15am Session 3: Deriving customer value from PSSR with lean data practices – Presented by Steve Karro – Tomorrow 24/10 Thurs, 12.00 - 12.45pm – Next Tues 29/10, 8.30am - 9.15am
- 22. Thank You Questions? Please complete the short feedback form when you exit. Disclaimer: The purpose of this presentation is to provide general information. The material on this PowerPoint is not legal advice and should not be relied upon as such. We do not accept or assume responsibility, or has any liability, to any person in respect of this presentation.
Editor's Notes
- Alex to introduce the session and introduce me: On 30 January 2014, the PPS regime will celebrate its second birthday. On the same day, users of the PPS Register will farewell the 2-year transition period. The end of the honeymoon is fast approaching, and in this webinar, Karen Lee will take a look at some lessons learnt from recent war stories and share some tips to avoid pitfalls when navigating the PPS Register. Karen specialises in banking and financial services law and legal knowledge management. She has worked extensively in-house, including as Head of Legal for a leading Australasian non-bank lender, as well as in top-tier private practice, including as Counsel at Allen & Overy and Clayton Utz. Karen is the Principal of Legal Know-How and she provides expert advice to firms and businesses on risk management, legal and business process improvement, legal documentation, regulatory compliance and knowledge management.
- Explain what we will cover today.
- “Transitional security interests” are security interests created under security agreements entered into before the commencement of the new regime. “Transitional security interests” are sometimes referred to as TSIs. The PPS Act provides protection for “transitional security interests” in existence at the time of commencement of the new regime. This is achieved in part by deeming most transitional security interests to be temporarily perfected on commencement of the new regime, notwithstanding that the perfection requirements under the PPS Act have not in fact been complied with. This temporary perfection protection will continue for a maximum period of 24 months but will cease earlier if, for example, voluntary registration on the PPS Register occurs, or if the security interest is migrated to the PPS Register. During this time, the priority of these “transitional security interests” are preserved when in competition with a new security interest. Unless a financing statement is properly registered before 30 January 2014, any temporary perfection will be lost. In addition, by not being registered on the PPS Register, in the event that the grantor goes into administration, liquidation or executes a deed of company arrangement, the security interest will vest in the administrator or liquidator.
- You have probably come across this when you use the PPS Register - those wishing to undertake searches on an individual will be required to make a declaration that they are undertaking the search for an authorised purpose. Or some people call this the “genuine purpose” test. So, how does this work? A person may search the PPS Register for details of a registration or security interests registered against a particular grantor. If the grantor being searched against is an individual rather than a company, the search must be for a purpose authorised by the PPS Act. An authorised person under s172 will be considered to have the requisite purpose of searching the PPS Register. Someone conducting due diligence for a lender on a borrower before the lender advances any money satisfies the genuine purpose test. Another example is when someone wants to buy a car or a boat, and wants to find out if someone else already has an interest registered against the car or the boat. These purposes have been drafted to ensure privacy requirements are complied with. Breach of these authorised search purposes is a civil and criminal offence.
- PPS Register users will be able to search by serial number for certain types of property (examples include consumer motor vehicles, watercraft) or by Grantor details. Lets focus on a serial number search for now. "Serial numbered goods" means any goods which may or must be registered on the PPS Register by reference to a serial number. Must – Serial number registration is compulsory for certain collateral, acceptable serial numbers include VIN, Chassis or Manufacturer number for motor vehicles and Hull ID or Official number for watercraft. May – It is possible to register a security interest against intellectual property without specifying a serial number for commercial property. Non-mandatory serial number registration applies to designs, patents, trademarks and can be searched by the number issued by IP Australia. Serial number search is very useful and powerful. Most secured parties will be incentivised to register by serial number whenever possible. This is because it will give a secured party the best protection due to the way the PPS Act works. Because some serial numbered goods do not need to be registered by serial number, you may need more than 1 search when the collateral is serial numbered goods.
- PPS Register users will be able to search by serial number for certain types of property (examples include consumer motor vehicles, watercraft) or by Grantor details. Lets focus on a serial number search for now. "Serial numbered goods" means any goods which may or must be registered on the PPS Register by reference to a serial number. Must – Serial number registration is compulsory for certain collateral, acceptable serial numbers include VIN, Chassis or Manufacturer number for motor vehicles and Hull ID or Official number for watercraft. May – It is possible to register a security interest against intellectual property without specifying a serial number for commercial property. Non-mandatory serial number registration applies to designs, patents, trademarks and can be searched by the number issued by IP Australia. Serial number search is very useful and powerful. Most secured parties will be incentivised to register by serial number whenever possible. This is because it will give a secured party the best protection due to the way the PPS Act works. Because some serial numbered goods do not need to be registered by serial number, you may need more than 1 search when the collateral is serial numbered goods.
- PMSI stands for purchase money security interest. PMSIs refer to particular types of arrangements where the security interest is held either by the person who, at general law, would be considered to be the owner of the personal property, or by the person who funds the purchase the asset or rights. A PMSI is typically given a "super priority" over other types of security interest. However, it is not possible to take a PMSI in most financial instruments such as shares or chattel paper or personal property used for consumer purposes (unless, in the case of consumer property, that property has a serial number). Only a properly registered PMSI will have super priority. This includes being registered within the required timeframes. Where the PMSI is not over inventory or its proceeds, a secured party has 15 business day period for registration. What does this mean? It means that a security interest is susceptible to being defeated by a ‘silent’ PMSI for a period of up to 15 business days. A security interest may be defeated by such PMSIs that do not show on the PPS Register at the time of the search, but then emerge on the PPS Register within 15 business days. So, how should you handle this? You may need to repeat a search 15 days after you conducted your initial search, and this may not always be practical, so another form of due diligence may be required.
- In the case where the grantor is a trustee: If a trustee has an ABN, the security interest should be registered against the trustee’s ABN If the trustee has no ABN, then it should be registered against the trustee’s ACN in the case of a corporate trustee Understanding how registrations are done helps you understand how you should conduct your search, so, for example, if you want to learn more about a corporate trustee, you should use their ABN, or if not, their ACN. Where the relevant collateral is trust property, you should conduct 2 searches, 1 against the current trustee and 1 against the trustee appointed as at 30 January 2012.
- Registration is just one of four ways to perfect a security interest. A security interest can also be perfected by possession, control or force of the PPS Act (i.e. temporary perfection), but perfection by these means is likely to be less common because it applies in very limited circumstances only. Since some security interests could be perfected without registration, the PPS Register will not necessarily be a complete record of all security interests over personal property. Lets look at the example of intermediated securities. Intermediated securities are the rights of a person in whose name an intermediary maintains a securities account. The most common example is ASX listed shares. While most security interests will be perfected by registration, it is possible to perfect a security interest over intermediated securities by control, which is the preferred method of perfection. It is the preferred method of perfection as it affords priority over a security interest over the same collateral perfected by any other means whenever created and protects the secured party from unauthorised transfers. For “controllable” property, your due diligence process should go beyond searching the PPSR.
- In some situations, it is unreasonable to expect a secured party to perfect a security interest as soon as the security interest arises. In these situations, the legislation provides a period of temporary perfection to give the secured party time to perfect its security interest. The period of temporary perfection is generally 5 business days after the relevant event but it can be as long as 56 days after the collateral is relocated from another jurisdiction to Australia, or 24 months after the registration commencement time for transitional security interests. If the secured party does not perfect its security interest within the period of temporary perfection, the security interest becomes unperfected at the end of the temporary perfection period. A security interest which is temporarily perfected won’t show up when you search the PPS Register, and another way of discovering them may be necessary. For example, the PPS Act provides that if any document contains provisions which constitute a "security interest" for the purposes of the PPS Act, the party having the benefit of the security interest may need to disclose that document or information in that document to parties who are entitled under the legislation to ask for that information.
- In some situations, it is unreasonable to expect a secured party to perfect a security interest as soon as the security interest arises. In these situations, the legislation provides a period of temporary perfection to give the secured party time to perfect its security interest. The period of temporary perfection is generally 5 business days after the relevant event but it can be as long as 56 days after the collateral is relocated from another jurisdiction to Australia, or 24 months after the registration commencement time for transitional security interests. If the secured party does not perfect its security interest within the period of temporary perfection, the security interest becomes unperfected at the end of the temporary perfection period. A security interest which is temporarily perfected won’t show up when you search the PPS Register, and another way of discovering them may be necessary. For example, the PPS Act provides that if any document contains provisions which constitute a "security interest" for the purposes of the PPS Act, the party having the benefit of the security interest may need to disclose that document or information in that document to parties who are entitled under the legislation to ask for that information.
- Exercise care: The PPS Register is an 'exact match' register, so enter search criteria accurately; and search against the right entity or criteria. If you need to, search again, but make sure you have a “genuine purpose”. Patience is gold: Especially for searching serial numbered goods; eg. a VIN is 17 digits – check and check again to avoid typos. Dig a bit further: It will not always be possible to understand the scope of a security interest from reviewing the registered financing statements alone. This means you may have to engage with the grantor and the secured party to complete proper due diligence. [Mention only if time permits] The process of migrating charges from the ASIC register was flawed (some charges have not migrated at all, some satisfied charges migrated, and fixed or specific asset charges have migrated as ALLPAP's with no exceptions). It is necessary to review the migrated attachments to properly understand the scope of the interest and check the list of non-migrated charges on the ASIC web-site. Know when to seek expert advice.
- If you have not already done so, sign up for the other webinars in this PPS Masterclass Series. That is a fast, easy and simple way to learn some new tips and tricks and get ready for 2014, which is just around the corner.
- Session 1: Transitional or Migrated Securities – use it or lose it! Presented by Rhonda Arnott Now is the time to ensure that your clients’ migrated and transitional security interests are fully protected. A failure to act will result in securities being lost. Join this session with Rhonda to understand the ‘find and claim’ process and the change in priority rules that apply from 31 January 2014 when the transitional period expires. Session 3: Deriving customer value from PSSR with lean data practices Presented by Steve Karro The PPS Register replaced over 70 Commonwealth and State registers. The information on this single register has exploded and is only going to rise. Given this magnitude of available data, it is critical for professionals to have lean data management practices. Steve will explain how to effectively use commercial information in order to gain the most value from it for you and your clients. It is not too late to register for these sessions.