Level 10
300 Adelaide Street
Brisbane QLD 4000
PO Box 10727
Brisbane Adelaide Street, QLD
4000
t: (+61) 7 3009 9300
f: (+61) 7 3009 9399
e: [email protected]
© RBG Services Pty Ltd
Personal Property Securities
Act 2009 (Cth)
Patrick Spelman
19 February 2014
Introduction
This presentation will cover:
• Brief overview of the PPSA.
• Impact on broking business and questions financiers will
want answers to
• Steps required of secured parties to protect their rights.
General Overview
• Personal Property Securities Act 2009 (PPSA)
commenced on 30 January 2012.
• An attempt to harmonise the relevant legislation and
provide a streamlined and consistent approach for the
protection of security interests in personal property.
• Most profound impact will be in insolvency scenarios
• Will affect most businesses and many individuals
General Overview
• 24 month ‘transitional period’, expired on 30 January
2014:
– Any secured loans or long term leases pre PPSA need to be
registered
• Security interests registered on PPS Register:
–
–
–
–
Internet based
One stop shop
Does not paint the whole picture
Different to land registers
Key Differences
• Many differences between prior law and PPSA including:
– A change in the definition of a security interest to take a
substance over form approach, regardless of title
– Nemo dat rule can be overridden by PPSA
– Register has wider scope of property covered and grantors
– Effect of insolvency on security interests, particularly unregistered
security interests
– Priority rules between competing security interests are
streamlined and consistent
– Security agreement can provide for future advances
Relevance to Brokers
• Questions financiers will ask:
– Will I have a first-ranking charge or a second-ranking
charge in the goods?
– What other financiers have rights in the goods being
financed?
– Will I have a purchase money security interest?
– Has the customer granted a security interest in their
accounts receivable?
– What is the priority situation in relation to proceeds
from the hiring of the goods?
Relevance to Brokers
• Financiers also want to know:
– What procedures does the customer have in place in
relation to the PPSA?
• Relevant for equipment hire companies
– What purpose will the financed goods be put to? This
is relevant for the purpose of extinguishment rules.
• It is the borrower’s responsibility to ensure that
interest incorrectly recorded against them are
removed.
– Could impact ability to obtain finance
Consumer finance
• PPSA does not use the expression consumer
finance or refer to consumer finance
• Individual’s purpose in obtaining finance is not
the focus, focus is on the nature and use of
collateral
• Individual may give a security interest in
household items to secure business loan and
vice versa
• Unsecured personal guarantees are not covered
by PPSA
Consumer finance
• For consumer property, cannot contract out of
enforcement provisions
• National Credit Code (NCC) applies where credit
provided for personal, domestic or household purposes
• NCC regulates aspects of security agreements given to
secure consumer credit and has detailed provisions
relating to enforcement of security interests
• Significant, but not complete, overlap between PPSA and
NCC
Fundamental concept #1
Personal Property
• Personal property:
– means any property, whether tangible or intangible, excluding
land, fixtures and buildings and certain licences or other
excluded property
– includes art, boats, caravans, cars, aircraft, business inventory,
crops, livestock, plant and machinery, shares, accounts
receivable, intellectual property, hire agreements etc.
• Real property mortgages are excluded as in connection
with land, but the PPSA can supplement rights granted
under a mortgage
Fundamental concept #2
Security Interest
• Two types of security interest, ‘in substance’ and
‘deemed’ security interests.
• A security interest:
– Is “an interest in personal property provided for 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)" (s12
PPSA).
– Includes a fixed charge, floating charge, chattel mortgage,
conditional sale agreement (ROT), hire purchase, lease of
goods, assignment, floor plan, margin lending
Fundamental concept #2
Security Interest
• Security interest are deemed to include:
– Interest of transferee of an account (debt) or chattel paper
(contract containing a security interest)
– The interest of consignor under commercial consignment
– The interest of lessor or bailor under PPS Lease
• Do not need to secure payment or performance of
obligation and are deemed to be security interests
Fundamental concept #2
Security Interest
• Most common deemed security interest is a PPS Lease
• PPS Lease is a lease or bailment of goods for a term of
more than one year or for a term of up to one year that is
renewable for periods exceeding a year (90 days for
motor vehicles).
• NCC regulates consumer leases, value of payments
exceeds price of goods
• PPSA will apply to operating leases and other leases
which are exempted from the NCC, such as novated
leases or leases for an indefinite term
Some Terminology
• Collateral – the personal property that is the subject of a
security interest (e.g. motor vehicle).
• Attaches – a security interest “attaches” to collateral
when a person (e.g. credit provider) gives value for
acquiring the security interest.
• Grantor – the entity providing the security interest
(previously the ‘chargor’ and commonly a customer).
• Secured Party – the entity acquiring the benefit of a
security interest (previously the chargee and commonly
a lender).
Fundamental Concept #3
Perfection
• Strive for perfection
• Secured parties goal is to ‘perfect’ their security interest
• Perfection is most commonly achieved by registration on
the PPS Register
• Can perfect by control for certain financial assets,
including bank accounts and investment instruments
(shares, debentures, derivatives etc.)
Fundamental Concept #3
Perfection
• Perfection will generally:
– define priority status that security interest has relative to other
interests in same collateral
– ensure that the security interest survives the insolvency of the
grantor
– protect security interest as against third parties who might
purchase property from apparent owner (typically the grantor)
• Once perfected, rights will be determined by priority
rules (discussed later)
Steps to Perfection
Step 1: Attachment
• Security interest needs to ‘attach’
• Can only attach when grantor has rights in collateral
• Value must be given or grantor acts in a way to give rise
to security interest (e.g. obtains goods under lease)
• Once attached, can enforce security interest against
grantor
Step 2: Enforceability against 3rd parties
• Grantor signs the contract containing description of
collateral
• Also enforceable if secured party has possession of
goods or perfected by control
Steps to Perfection
Step 3: Perfection
• Registration on the PPS Register
• Possession of collateral (other than through seizure or
repossession)
• Control of financial instruments
• Security interest can be perfected regardless of
order in which steps 1 to 3 are achieved
– perfection before attachment is common
• Single registration can perfect one or more
interests
Failure to Perfect?
• ‘Unperfected’ security interests vest in grantor
on bankruptcy/ liquidation
• Potential to lose title if collateral is leased and
lose rights granted by security interest
• Can leave secured party as unsecured creditor
• Worst possible outcome in insolvency scenario
Failure to Perfect?
• Purchaser takes collateral free of unperfected
security interest
• If unperfected and grantor sells collateral only
claim will be against the grantor and not the
collateral
– rights in person v rights in property
• Another secured party may take priority and
appoint a receiver
What if collateral is transferred?
• Grantor may sell collateral despite restrictions in
security agreement
• Security interest will continue unless gave
consent to sale or extinguishment rules apply
• Temporary perfection:
– 24 months or 5 business days once secured party
knows identity of transferee
– Act quickly
Priority Rules
• Priority generally does not depend on:
– Nature of security interest
– Order in which the security interest is granted
– Knowledge of prior security interests
• Security interest has same priority:
– Includes future advances (tacking)
– For performance of all obligations secured
Purchase Money Security Interest
• Where secured party provides money to purchase
collateral
• Priority
– Super-priority
– Reason for the rule
– Does not apply to sale and lease-back
• Every PPS Lease (long term lease) is a PMSI
• Cannot have PMSI in consumer property, except
serial numbered goods
Purchase Money Security Interest
• Registration requirements
– Timeframe:
• 15 business days of possession if not inventory; or
• registered prior to possession if inventory
– Effect of not meeting requirements
• Motor vehicle finance will almost always be a
PMSI
• If customer not using motor vehicle as part of
business then must register by serial number
Priority Pyramid
Security Interest Perfected by
Control (Highest Priority)
Purchase Money Security
Interest (Super Priority)
Security Interest Perfected by
Other Means (First in Time)
Unperfected Security Interest
(First in Time)
PPS Register
• Most common way to perfect security
interest
• Notification not document registration –
does not paint the whole picture
• Get the details right!
• Only register if have reasonable grounds
that taking a security interest
Tips for Registration
• Accuracy of financing statement
– Serial number for MV’s
– Grantor’s details
– Consumer v commercial property
– Proceeds
– Class of property
– End date for registration
Individual Grantor
• Where to get the details?
–
–
–
–
–
–
Driver’s licence
Proof of identity card issued by a State or Territory Government
Current Australian passport
Current Australian visa
Passport issued by country where individual resides
Birth certificate.
• Include the details exactly as they appear, including
where middle initial is on licence and not full name
• If no ID impossible to perfected security interest
Company Grantor
• Company search from ASIC
• Free organisation search at
www.asic.gov.au
• Use the ACN of the customer, not the
ABN.
• ABN different to ARBN
Trading Name or Trust?
• Trading names and trusts are not a separate
legal entity like a company
• They will have their own ABN do not be fooled!
• To find out who the legal entity is check
http://abr.business.gov.au/
• If customer uses trust, register over the trust
Issues for brokers
• Motor vehicles:
– Expanded definition of motor vehicles:
• Any vehicle built to be propelled by a motor capable of speed of
10km/h or power greater than 200W
• Any vehicle capable for being towed at speed greater than 10km/h
– If a motor vehicle is to be used as collateral, search
by the serial number of the motor vehicle: VIN,
chassis, manufacturer.
Issues for brokers
• Motor vehicles continued:
– Consumers will take a motor vehicle free of a security
interest if sold by a licensed motor dealer
– Dealers cannot rely on sale in ordinary course of
business rule to extinguish security interests further
up the chain
– Dealers should conduct a PPS Register search to
ensure that trade-ins and other purchases are not
subject to security
Amendment of documents
• Contract out of enforcement provisions where applicable
• Update terminology and specify rights to be exercised in
event of default
• Lenders may want to amend standard security
agreements to include warranties by the grantor:
– As to the correctness of the personal information which is
provided for the purpose of registering the security interest;
– Where applicable, the accuracy of a serial number;
– To oblige the customer to notify of any later change of name
(unless the goods are serial numbered)
Issues for brokers
• Miscellaneous issues
– Mortgagees may be lending money based on the value of
fixtures to land;
– Rights in relation to fixtures before they are attached to the
land(before installation or after removal) will be subject to the
PPS Act.
• Could affect right of entry waiver or mortgagee’s waiver
– Need to provide financier with date of possession for the
purpose of PMSI due to registration timeframes. This will be the
date the grantor took possession of the collateral offered in an
application.
– Advise customers that they may need to update their systems to
comply with obligations of financiers
Issues for brokers
• When acting in a broking capacity:
– Ensure that details of the customer/grantor that are passed on to
financiers are accurate
– Sight copy of driver’s licence
– Settlement should now occur after registration of the security
interest against the collateral, not before.
– Determine what the customer wants to use the equipment for
consumer property v commercial property
Key Issues
• Fundamental change in securities law
• Know the terminology so you can educate
clients and provide relevant information to
lenders
• Ensure that the secured party can perfect their
security interest
– Ensure grantor’s details are accurate
Any questions?