Even though certain aspects of the PPSR seem very unfair to the legitimate owner of goods, the two-year transition period ends on the 31st January 2014. Unfortunately, media reports would indicate that many SME operators have not familiarised themselves with the implications of the legislation.
The Personal Property Securities Act (PPSA) introduced some very significant changes in commercial law, which will affect most people operating a business. The legislation applies to a wide range of business transactions, including:
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The Romalpa Clause, which has been a very common Retention of Title clause, is no longer, in itself, effective against a third party claim, unless the Romalpa Clause has been re-drafted by a solicitor in the last two years. If you don’t have a current Romalpa Clause, you supply goods on a Retention of Title basis, but do not receive a signed ‘terms of trade’, you lodge a ‘financing statement’ with the PPSR, and your customer gets into financial difficulties and a receiver or liquidator is appointed, then you will most likely lose out. Before any sale of goods on credit are made to a customer, it is recommended you take the following steps:
- Ensure you have up-to-date ‘terms of trade’, which includes the Retention of Title Clause, and clauses dealing with the PPSA. These documents should be drafted by your Solicitor.
- Ensure these terms are signed by the Customer.
- Register a ‘financing statement’ under PPSR.
The key is to ensure each of these steps is completed before you supply the goods.
A new term has been introduced – ‘Personal Property Securities Lease (PPS Lease)’. A PPS Lease covers the situation, where goods, plant and equipment, form work, scaffolding, etc, are left on someone else’s property. There are certain procedures that need to be undertaken if you’re going to protect yourself, in the event that a customer (eg a builder) gets into financial difficulties and a liquidator or receiver is appointed.
The PPSA is based on New Zealand legislation, which was introduced in 2002. There have been a few court decisions on the PPSA. When judgements were handed down by the courts, there has been a strong emphasis on the necessity for owners of assets to ensure they are appropriately registered under the PPSR. One case involved ‘leased portable buildings’, which were not registered under the PPSR by the owner. As a result, the court held that the mortgagor had the right to sell the portable buildings to recoup their losses, even though the mortgagor was not the legal owner of the portable buildings.
The transitional period for the PPSA ends on 31st January 2014. If you have agreements which existed prior to 30th January 2012, or were created after 30th January 2012 under security agreement which existed prior to 30th January 2012, and continue to exist after that date, you would probably have a ‘Transitional Security Interest’.
A ‘Transitional Security Interest’ (TSI) is an interest in personal property that, in substance, secures payment or performance of an obligation, which existed prior to the 31st January 2012. If you are a secured party, with respect to a TSI, which is not yet registered on the PPSR, you need to register it on the PPSR before the midnight on the 31st January 2014 (Canberra time), to take advantage of ‘temporary perfection’ and preserve the priority status of your transitional security interest. If you don’t do this, ‘temporary perfection’ for the TSI will not apply from 1st January 2014. Registration of a TSI is free.
If you have not yet had a discussion with your solicitor on the potential impact the PPSR can have on your business, we suggest that you do so urgently. If you would like to discuss the operation of this legislation with us, please do not hesitate to contact us.
