PPS Register Starts Today

Just a reminder that the Personal Property Securities (PPS) Register goes live today 30 January 2012.  The Register amalgamates approximately 40 existing registers for security interests including company charges previously registered with ASIC and vehicle registers in various States and Territories which will significantly streamline security searches. 

Some new developments we note are: 

• a retention of title clause in a contract will rank as a 'super priority' over other security interests, if you register that right on the PPS Register, and
• security interests can be registered against intellectual property. 

With the retail industry in a state of flux, major retailers recording disturbing profit returns and liquidation sales being on the rise, there are many new PPS related considerations for SME's. 

The PPS Act and the PPS Register will change the way all non-land based security interests are treated in Australia.  The legislation will involve all sorts of clients and has implications in particular for operators such as: 

•          Finance, credit, leasing and hire purchase providers/users;

•          Brand-centric businesses (e.g. franchisors);

•          Agricultural businesses trading in crops, wool, livestock or other products;

•          Providers of goods on consignment/using a retention of title clause; and

•          Retail, wholesale, manufacturing and distribution.

 In a nutshell

Company A supplies whitegoods to a retailer (Company B) on consignment under a retention of title clause in its standard terms of trade. Company B goes into administration and Company A sends a letter demanding the return of all stock on consignment. However, the administrator appointed responds to the letter pointing out that under section 440C of the Corporations Act, even the stock owner (Company A) cannot enforce its ownership rights during the administration of Company B. Company B continues to trade through the administration process and at the end it is still in financial trouble and goes into liquidation. Company A is offered 4 cents in the dollar for its outstanding debt as an unsecured creditor. Company A never receives its stock back, as it is sold at below cost. 

Under the new PPS regime, Company A can register a "Purchase Money Security Interest" (PMSI) for the stock provided on consignment. This need only be registeredonce. A PMSI is given priority over other kinds of security interests. If the same scenario were to arise, Company A would not be able to enforce security during the administration phase.  However, Company Awouldbe able to recover the goods from Company B or equivalent cash value as a secured creditor withpriorityover even other secured creditors once Company B went into liquidation. It is more likely that Company A will be able to recover the full value if Company B were to become insolvent than if Company A were an unsecured creditor. 

Whom will it affect? 

Whilst many financiers and large businesses have long been prepared for this change in legislation, SME's are also affected by this change. SME's need to now know that their role in the supply chain - whether as receivers of finance, lenders, suppliers or providers of credit -now means they should consider developing a PPS policy and registering security interests to which they are entitled.  Doing so means they will be in a better position to enforce such rights if and when the time arises. 

Not only should the PPS Act be considered in relation to enforcement against others - it may also affect SMEs as receivers of finance.  SMEs should ensure that they do not breach their financial obligations to lenders by incurring other security interests which may be prohibited by their financiers.  We would be delighted to assist if you require legal advice in these matters.  

In Summary 

The basic elements of granting a security interest under the PPS Act are as follows: 

• A person (the grantor)owns/has a proprietary interest in personal property or will have a proprietary interest in the personal property;
• To secure an obligation (e.g. money or other benefit), the grantor grants a security interest in favour of the secured party over the personal property it has or will have;
• The security interest attaches to the personal property at the time that the grantor obtains such rights (if he doesn't already have them);
• As possession or control of an asset is not always possible, registration of an interest will be a vital step in enforcing a security interest later.  

For more information:  Contact mdp McDonald Partners on (03) 9620 9660.

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