Personal Property Securities Act (PPSA)

The Personal Property Securities Act (PPSA) commenced 2 years ago, but many businesses are still not sure about how to use it correctly, if at all.
How does this important area of the law impact you and your business?.

  1. Examples of the sorts of scenarios where the PPSA should be considered are:
  2. Fixed and Floating Charges

Where the PPSA should be considered

Examples of the business applications where the PPSA should be considered are:

  • loan agreements
  •  retention of title arrangements, such as: if you sell goods and needs to retain title to those goods until payment is received
  • leasing/hire purchase arrangements
  • structures where assets are owned by a different entity to the trading entity, and
  • consignment of goods

An example of a casualty of the PPSA

This year, an independent meat retailer was placed into administration with debts in the order of $8 million owing to creditors, mostly meat wholesalers. Although the retailer was able to be saved from insolvency by being bought out, the position of unsecured creditors is still unclear. It has been reported that around $5 million was owed to unsecured creditors, who had not registered their security interests on the PPSR, and therefore their fate now lays in the hands of liquidators.
The fallout from the financial collapse of this meat retailer is a good example to suppliers of the benefit of getting registered on the PPSR. Many suppliers conduct business of title arrangements or on consignment, and these arrangements are now considered to be security interests under the PPSA and must be registered on the PPSR to be secured. You won’t be able to just rely on your agreements anymore, and in this radical way the PPSR affects old practices irreversibly.
A useful action plan (if not already completed) is to review terms and conditions documents, and security interests should be properly registered on the PPSR. Reports from the register are that many suppliers have failed to register their security interests as a purchase money security interest (now known as a PMSI), resulting in the loss of the special priority that is provided by the PPSR to retention of title arrangements. The outcome may be that another creditor could have priority over your claim (in specific circumstances).
And although there are transitional provisions in place, ie a 24 month protection for security interests created prior to 30 January 2012, care needs to be taken, as supply of goods after that date may constitute a new security interest not protected by the transitional provisions. So it would be best to get the protection of the PPSR as soon as possible by getting registered!

 

Fixed and Floating Charges

Are you familiar with the concept of a fixed and floating charge? This terminology has been phased out with the start of the Personal Property Securities Act (PPSA).
Under the PPSA there doesn’t exist the concept of a fixed versus floating charge. Rather, there’s just a security interest that attaches to the grantor’s property (or collateral). So what used to be called an “all assets” fixed and floating charge is now called a security interest over a company’s all present and after-acquired property.
Traditionally, a “fixed” charge (one relating to particular and identifiable asset) covers what is now known as non-circulating assets under the PPSA, usually assets such as land or equipment.
A “floating” charge (one relating to any and all assets of the grantor at the time the charge crystallises) covers circulating assets under the PPSA (such as book debts and trading stock).
The practical difference is that the debtor can deal with floating/circulating assets in the normal course of business, while they cannot dispose of fixed/non-circulating assets without the consent of the lender, and this needs to be reflected in the drafting of the security agreement.
Businesses and individuals involved in giving or receiving loans are just some of the many areas that are impacted by this legislation. Any business using retention of title clauses, or that hires out equipment to others, are caught by the legislation and must have proper practices in place or risk serious losses. The PPSA also impacts many other areas that are not always obvious, for example business sales and acquisitions.
Disclaimer: The material contained in this article is provided for general information purposes only and does not constitute professional advice. You should not depend upon any information appearing herein without seeking independent advice as to your specific circumstances

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