2. Disclaimer
This document and presentation has been prepared only as an
industry guide and is based on policies of redchip lawyers Pty
Ltd which may or may not be relevant to you or to your
transaction. It can be used as a starting point for discussions
or negotiations. No warranties or assurances can be given
about the suitability of this document or any of its provisions
for any specific transaction. You should seek legal advice on
the form and content of documents, negotiations and
decisions which are ultimately selected or made by you.
redchip lawyers Pty Ltd and its officers, employees, agents
and professional advisors exclude all liability (including
liability for negligence) in relation to your use of this
document and any advice given during this presentation. You
should rely on your own independent professional advice.
3. New Regime
The 6 elements of the new regime:
1. Security Interest
2. Collateral
3. Attachment
4. Enforceability
5. Perfection
6. Enforcement
4. Security Interest
A “Security Interest” is:
an interest
in relation to personal property
provided for by a transaction
that secures the payment or
performance of an obligation
5. Deemed Security Interests
The interest of a transferee in an
account or chattel paper
The interest of a consignor who
delivers goods to a consignee under a
consignment
The interests of a lessor or bailor of
goods under a PPS lease
6. Lessons to be learned from
New Zealand
Graham v Portacom New Zealand Limited (2004) 10
TCLR 983
7. Lessons to be learned
from New Zealand
Waller v New Zealand Bloodstock Limited [2006] 2
NZLR 629
8. Collateral
The personal property to which the “security interest”
applies, for the purpose of securing the payment or
performance of an obligation, is called the “collateral”
Secured Party Grantor
$$
Collateral
9. Attachment
A security interest attaches to collateral when:
the grantor has rights in the collateral, or the power
to transfer rights in the collateral to the secured party;
and
either:
-the secured party gives some value for the security
interest; or
-the grantor does an act by which the security
interest arises
10. Enforceability
A security interest is enforceable against a third party
in respect of collateral if:
the security interest is attached to the collateral;
and:
the secured party possesses the collateral;
the secured party has control of collateral; or
the parties have entered into a security
agreement.
11. Priority
Priority, the general position is:
a “perfected” security interest has priority over
an unperfected security interest
Priority between perfected interests in
determined on a first-in-time basis
priority between unperfected interests is
determined on a first-in-time basis
12. Exception to Priority: PMSIs
Purchase Money Security Interest – the Super Priority
Include:
- a security interest in collateral where securing all or
part of the purchase price
- an interest under a PPS Lease
- an interest under a commercial consignment
14. PPSA & Real Estate
Abandoned goods under leases -
Security over Tenant’s fitout
Landlord contributions
Lease of fitted out premises
Security Deposits
15. The Register
ITSA estimated volumes of register activity per
year
Registrations 1.1 million
Amendments 0.25 million
Cancellations 1 million
Searches 6 million
The Personal Property Securities (Corporations and Other Amendments) Bill 2011 was introduced into Parliament on 23rd February, 2011. This Act was originally to be rolled out in May, 2011 and then October, 2011. It has now been pushed out again until approximately January, 2012.We have been invited here today to: - inform you of the changes that will be brought about by the introduction of the PPSA; - to familiarise you with the terms and definitions that are used by the new legislation; and - to demonstrate the impact the Act will have on you and your clients
So while you all carefully read our disclaimer I’ll give you a quick introduction to us.For those of you who don’t know us, redchip lawyers specialised in both commercial and litigation practice with a view to always obtaining the best commercial outcome for our clients in both spheres. I am the head of our litigation and insolvency team and Ian works in the area of estate planning and succession planning within the commercial team.
So now we get into the real stuff.How many of you here are already familiar with the PPSA – having looked into it yourselves or going to other seminars like these?Essentially, this Act is a new law relating to security interests in personal property. Prior to now there were more than 70 pieces of legislation in Australia dealing with securities. This Act establishes a single national law governing security interests in personal property. There were also several different registries in each state of Australia for some securities to be registered – and a number of securities that did not need to be registered. Now there will be one register which will be overseen by ITSA.So what we will get is: - an electronic register of all the personal property securities in Australia which will be available for search; - a method of enforcing security interests on default by a debtor; - provisions on how personal property may be acquired without a security interest - and a set of rules for determining priority between competing security interests and other interestsWe will focus today on the new terminology and definitions used by the legislation and how the interests created by the new Act will be enforced.The PPSA will apply to security interests over tangible and intangible personal property, so we turn our attention first to the definition of security interest.
An interest is a right to possess, sell, use or otherwise deal with property.Personal property is any property other than land, certain statutory licences (Eg mining licences) and other specific exceptions contained in s8 of the Act.Examples of transactions will include (what we currently know as) fixed and floating charges, chattel mortgages, conditional sale agreements (ie retention of title agreements), hire purchase agreements, consignments, assignments or transfers of title, bills of sale and certain financial instruments.This is not an exhaustive list, so you can there are a large number of potential transactions to be included on the register – including some not currently recorded on any register.A security interest does not include liens, rights of set-off, remuneration and a number of other exceptions which will be listed in the Regulations.
Deemed security interests will not be immediately familiar but the consequences of failing to perfect these will be the same as the earlier mentioned security interests.Account is defined to encompass book debts and any monetary obligation. The security interest does not arise in the account itself but if the account is transferred. Eg a business selling its accounts receivable to a financier will give rise to a security interest in the accounts.A chattel paper is the paper Eg the contract, that evidences a monetary obligation and a security interest in or lease of specific goods or specific IPCommercial consignments are those where the consignor and consignee are dealing in the ordering course of business (except if the consignee is an auctioneer or is generally known to its creditors to be selling or leasing the goods of others)A PPS lease is a lease or bailment of goods generally for a term exceeding one year (although other exceptions and terms to apply).These interests will not have previously given rise to a registrable interest and those engaging in these activities may not realise the significance of the new Act to them.
Portacom owned a number of portable buildings which is leased for an indefinite period to NDG Pine.NDG had granted a charge over all its assets to its bank by way of a General Security Agreement which it registered on the PPS Register.Portacom did not register its interest as lessor of the buildings on the Register.NDG defaulted and the bank appointed a receiver who took possession of all NDG’s property, including the portable buildings, asserting rights to take possession and sell them under the NZ PPSA.The Court held that the “all assets” provision in the GSA applied to the leased goods and the bank was entitled to priority over Portacom notwithstanding that Portacom was the legal owner of the leased goods.The failure of Portacom to register its good resulted in it losing its proprietary rights in the leased goods. If Portacom had registered its interest it would have had a PMSI – so it would have had priority over the bank even though the bank had registered its interest first in time.
New Zealand Bloodstock leased a racehorse, Generous the stallion, to Glenmorgan Farm. NZB intended to retain legal ownership of Generous. This created a PPS Lease.SH Lock had a debenture over all of Glenmorgan Farm’s assets which it had registered on the PPS Register. NZB did not register its interest.Glenmorgan Farm defaulted under the lease to NZB and NZB terminated the lease and repossessed the horse. Glenmorgan also defaulted under its arrangements with SH Lock which in turn appointed a receiver.The receiver asserted its rights under the NZ PPSA to take possession of and sell the racehorse.The Court applied the Portacom case and held that the lease horse was included in the collateral interest to SH Lock and that Glenmorgan Farm could pass title to the horse notwithstanding that it did not have title.The Court also found that the termination of the Lease and repossession of Generous by NZB didn't not change the legal position under the PPSA.Failure to register meant that NZB lost its interest in Generous to SH Lock and the receiver was able to sell him.
The grantor is the person who owns or has an interest in the personal property.The secured party is the company or individual that has an interest in the grantor’s collateral – eg taking fixed and floating charges or retention of title arrangementsCollateral is the personal property to which the security interest attaches.A security interest must ‘attach’ to collateral
For example, the grantor owns the collateralFor example, advances a loanFor example, executes a deed of guarantee for the benefit of a third partyIn order for a secured party to enforce a security interest against a grantor, the security interest must ‘attach’. However, if a secured party wants to enforce the security interest against a third party, the further step of ‘perfection’ is required – which we will get to shortly.It is possible that the collateral may give rise to ‘proceeds’ Eg, the purchase price, insurance payments, certain financial instruments and payments received under a licence agreement for IPIn most cases the proceeds of any collateral will also be caught by the security interest but it may be necessary to check the security agreement.So how does a security interest become enforceable?
In order to enforce a security interest, a secured party must satisfy the following:One, have a secured interest;Two, which refers to collateral;Three, which attaches to that collateral (which as we just discussed may come about via an act or transfer of value once the grantor owns the collateral)Four, possess the collateral, control the collateral or enter into a security agreement.possession means “actual or apparent possession” - a secured party does not have possession of collateral because it has seized itcontrol applies only to certain types of financial collateral such as: Bank accounts; Securities; Investment Instruments; Letters of Credits; and Negotiable Instrumentssecurity agreement” must be: in writing; signed or adopted by the grantor; and describe:the collateral; or the interest as being in all of the grantor’s present and after- acquired property; or the interest as being in all of the grantor’s present and after- acquired property, except for specified items of classes of personal property
Priority between unperfected security interests in the same collateral depends on the timing of the attachment of each security interest to the collateral. Ie the date each priority interest ‘attached’ to the collateral.Note that, in order for there to be a priority time, the security interest must remain perfected once it becomes perfected. So, in circumstances where the Act temporarily perfects the security interest, the secured party must take the appropriate steps to ensure the security interest remains perfected, in order to have the earliest possible priority time.The priority times of each security interest is the earliest of: - the time the security agreement was registered - the time the secured party takes possession or control of the collateral or - the time the security interest is perfected by operation of the ActA security interest in proceeds is perfected if the security interest in the original collateral is perfected by the appropriate registration. The security interest in the proceeds has the same default priority as the security interest in the original collateral. Section 32(5)If a security interest in original collateral is perfected, but the registration is not appropriate to include the proceeds, the security interest in the proceeds is temporarily perfected for 5 business days. If the security interest in the proceeds is temporarily perfected, the secured party may then take appropriate steps to otherwise perfect its security interest in the proceeds.
The PPSA brings into existence the concept of a Purchase Money Security Interest or a PMSI.A MPMSI gives rise to a super priority which displaces the usual priority rule.Security Interests which are recognised as PMSIs include: - a security interest in collateral to the extent that it secures all or part of the purchase price - interest of a lessor or bailor under a PPS Lease; and - interest of a consignor who delivers goods to a consignee under a commercial arrangementTo give rise to the super priority and gain priority over other perfected securities in the same collateral, the PMSI must be registered: - for inventory goods, before the lessee or consignee takes possession of the goods; and - for non-inventory, within fifteen business days of the lessee or consignee taking possession of the goodsIt will also be necessary to identify in the Financing Statement that the interest is a PMSI.
The maxim Nemo dat qui non habet (no one gives property who possesses not) has always applied to mercantile law and the general law relating to property – you can’t pass title if you don’t have title.Previously, financiers in hire purchase and equipment lease arrangements were protected by its ownership rights as the user of the collateral never received title from the owner and therefore could not transfer the title. A financier would always be able to repossess the collateral upon a breach.This principle is now displaced in the context of the PPSA as we can see from the previous two cases. An owner of property must register its interest to prevent that interest vesting in the grantor upon insolvency. Constructive Trusts arrangements or unjust enrichment claims will not save the owner of the property against an insolvency practitioner.Registration is essential to protect your rights.
Abandoned goods under leases -- to the extent that the clause provides the landlord with security for outstanding rent, the interest under that clause is a security interest which must be registered on the PPSR.Security over Tenant’s fitout - to the extent that the fitout becomes a fixture (attached to the land) the PPSA will apply. In relation to everything else, if the fit out is used as security for the performance of an obligation by the tenant a security interest will arise and must be registered. Landlord contributions -- if a landlord contributes to the cost of a fit out and retains ownership of that property but allows the tenant to use property during the term of the lease, that arrangement will constitute a PPS lease and must be registered.Lease of fitted out premises -- the lease of the land is not caught but the lease of plant and equipment (for example a fitted out office) would be covered and the arrangement should be registered.Security deposits -- as these are held to secure performance of obligations, they may give rise to a security interest which must be registered.
As earlier mentioned the Register will be overseen by ITSA and will be available for search 24 hours a day, seven days a week.Lenders and businesses will be able to register security interests by the e-filing of financing statements. It will be possible to register before the transaction takes place as long as the secured party has a reasonable expectation of the transaction taking place.A number of existing registers will be migrated to the PPSR including ASIC, Register of Ships, REVS and Bills of Sale registers. Some are currently being migrated but others will take more time and those registers will be shut when practicable to do so.There will be some transitional security interests that will be temporarily perfected from the commencement of the Register for 24 months – these will be interests that are not currently registered on any register or on registers that are not being migrated.The Register will contain multiple categories and subcategories of collateral and it may be necessary for multiple registrations depending on the type of collateral.Some Registrations will be against the serial number of the collateral and others will be based on the name of the grantor.Incorrect details –even one incorrect number in a serial number – will result in the registration being defective and may also lead to charges if the defect is ‘seriously misleading’.It will be necessary to claim PMSI status at the time of registration if you are entitled to – but don’t incorrectly claim it.
How redchip can helpWe can assist with:review of your current business processes and documentation to identify relevant PPSA risks and recommend changes to your processes or documentationreview existing security documentation and provide advice on what steps should be taken to protect security interests under the PPSAreview and recommend changes to your standard terms of trade, including retention of title provisions, and the steps necessary to protect your security interest under the PPSA.For a limited time we will provide these reviews for a fixed price of $495 (including GST) each. Each review will provide a recommended course of action and a quote for any remedial work that is required.
