This information sheet contains general information about personal property securities reform and does not constitute legal advice. NAB recommends that you seek your own advice about the application of the Personal Property Securities Act to your individual circumstances.

Introduction

The Personal Property Securities Act (PPSA) is changing the law and practice relating to secured lending involving personal property. The PPSA:

• establishes the Personal Property Securities Register (PPS Register), a national online register of security interests in personal property,
• applies to security interests in personal property if the property is in Australia or the grantor is an Australian entity, and
• applies to companies and individuals (including partnerships), trusts and entities established by legislation.

The PPS Register is scheduled to become operational in early 2012. The government will confirm the commencement date later this year.

What is personal property under the PPSA?

Under the PPSA, personal property generally includes all property (tangible and intangible) other than land, fixtures, water rights and some statutory licences. It includes goods, intellectual property, shares, debts and contractual rights.

Current practice

• The concept of a security interest under current law is often limited to interests like charges, mortgages and liens. Not all security interests are registrable.
• There are many current Commonwealth, state and territory personal property security registers, such as the ASIC register of company charges and registers for security interests in vehicles.
• The PPSA will also establish a single national law governing security interests in personal property, rationalising many Commonwealth, State and Territory laws.

What are the key changes?

The changes made by the PPSA are broad and include:

The PPS Register and a single national law

• The PPSA establishes the PPS Register, a national online register of security interests in personal property that will replace a range of existing registers of security interests.
• The PPSA will also establish a single national law governing security interests in personal property, rationalising many Commonwealth, State and Territory laws.
• Generally, anyone will be able to search the PPS Register to identify registered security interests.

A broader concept of 'security interest'

Under the PPSA the concept of 'security interest' is broadened to include:

• Traditional securities - e.g. charges and mortgages.
• Transactions that secure payment or performance of an obligation but may not currently be thought of as securities - e.g. leases, hire purchase agreements and retention of title arrangements.
• Certain interests that are deemed to be security interests whether or not they secure payment or performance of an obligation - e.g. the interest of a lessor or bailor under certain arrangements.

What does this mean?

As a result of this broad definition:

• Some transactions that are not registrable as security interests today will be registrable on the PPS Register.

  For example, if you sell goods on retention of title terms, you may need to review your terms of trade and register your interest. If you do not register, then you will not be able to get your goods back if your customer becomes insolvent.

• The concept of title or ownership becomes less relevant in some cases - possession or control of collateral or registration on the PPS Register will be more important.

  For example, if you lease a vehicle to a customer for 90 days or more, you should register to 'perfect' your rights. If you do not register, then you will not be able to get the vehicle back if your customer becomes insolvent. You may also lose your rights to another creditor of the customer which has registered security rights over the customer's property.

What do you need to consider?

The PPSA may affect you and your business in different ways. Some issues you should consider or be aware of are:

PPS Register

• Personal property security interests will be registered on the PPS Register (no longer register with ASIC or state based registers).
• Registering on the PPS register 'perfects' a security interest and, if it is perfected, a security interest survives insolvency of the 'grantor' and takes priority according to the law.
• The PPS Register will allow web based electronic searches and lodgements. There are fees associated with searching and registering.

More registration activity

There may be more security interests registered in relation to your business and assets due to the broader concept of security interest and the way collateral must be described on the PPS Register. In some cases you may grant security under one security agreement but more than one security interest may be registered.

Identify whether you will be a secured party under the PPSA and whether you should register those security interests

Do you supply goods to your customers on retention of title terms? Do you lease goods to your customers for more than 12 months (or more than 90 days for serial numbered goods)? If so, you are likely to have a security interest under the PPSA that may need to be registered on the PPS Register.

To protect your business, you should consider the steps you will need to take to register your own security interests on the PPS Register with the greatest possible priority. In some cases NAB (as your financier) will require you to do so.

Registering a security interest

• To register a security interest you must lodge a 'financing statement' on the PPS Register that summarises the key features of the security interest.
• You must have reasonable grounds for believing that you have, or will have, a security interest provided for by a 'security agreement'. Penalties apply if you don’t have reasonable grounds.
• Security agreement/s must be in writing.
• To create a registration you must provide the information required by the PPSA. This information includes details about the grantor of the security interest and collateral.

PPS and priority

The PPSA prescribes a default priority regime for competing security interests in the same property. 'First in time' registrations will generally take priority over 'later in time' registrations, although there are some exceptions, including:

• People with control of the asset (this only applies to 'controllable' assets as described in the PPSA).
• Purchase money security interests, also referred to as PMSIs.

Extinguishment of security interests

The PPSA sets out various circumstances in which security interests will lose priority or be 'extinguished'. For example, under the PPSA, if you supply goods on retention of title terms and you do not register your security interest, your right to the goods will be extinguished and you will not be able to recover under your retention of title terms.

Transitional arrangements

• A contract existing prior to the commencement of the PPP Register and continuing after commencement is a transitional security agreement.
• A transitional security interest is temporarily perfected for 24 months from the 'registration commencement time' (currently scheduled for 30 January 2012).
• You can register anytime within the 24 month period to preserve enforceability and priority of a transitional security interest according to current law.
• Security interests registered on some registers (e.g. ASIC) will be 'migrated' to the PPS Register.

Buying assets

When buying personal property you should consider searching the PPS Register to determine whether there are any existing security interests over that property that may prevent you from taking clear title to the asset.

Be ready to provide further information to your banker if requested

In some circumstances NAB may ask you to provide information about:

• VIN numbers or other identifiers for goods such as motor vehicles, watercraft and aircraft so that NAB can register its security interests in those goods using serial number information
• security interests you have registered on the PPS Register or your business processes for registering security interests
• security interests that have been registered against you on the PPS Register, or
• priority arrangements or other agreements in place with other parties.

Where to go for further information

• You should seek appropriate advice from your legal adviser or accountant about the steps you should take to protect your interests when the PPS Register commences.
• There is a range of information about PPS reform on the PPS website: www.ppsr.gov.au