The temporary protection for transitional security interests in the Personal Property Securities Act 2009 (Cth) (PPSA) is about to come to an end. The PPSA, which came into effect on 30 January 2012 (the registration commencement time) provided temporary protection to security interests that came into force immediately before the registration commencement time. Under the PPSA, transitional security interests will lose their perfection on 31 January 2014.
PPSA – A brief overview on personal property and perfection of interest
The PPSA was introduced in Australia to amalgamate a large number of State, Territory and Federal registers into a single nationwide register of security interests, known as the PPS Register. Some of the registers that are now harmonised into the PPS Register include ASIC’s Register of Company Charges and the NSW Register of Encumbered Vehicles (REVS).
Personal property includes all forms of tangible property and intangible property (trade marks and licences), other than real property (land) and certain prescribed statutory rights and licences (gambling licences).
A security interest is an interest in personal property, that is provided for by a transaction that secures payment or performance of an obligation. The PPSA lists a number of example transactions which may give rise to a security interest, including:
- a floating or fixed charge
- a conditional sale agreement;
- a hire purchase agreement; and
- a pledge.
A security interest attaches to personal property, becoming collateral, when the grantor has rights in the collateral and value is given for the security interest. When that security interest attaches to collateral, the secured party can enforce its interest against the grantor. To be enforceable against third parties, the secured party must possess the collateral, perfected the interest by control or be covered by a written security agreement as prescribed in the PPSA.
A secured party may perfect its security interest if;
- it is attached to collateral;
- it is enforceable against third parties; and
- extra steps have been taken to protect the interest, including, possession or control of the collateral or registration on the PPS Register.
Once a security interest has been perfected, it has priority over an unprotected security interest. This means that where two parties seek to exercise their rights in the collateral, the party with a perfected security interest will prevail, even if the party holding an unprotected security interest has held it longer.
Transitional security interest and what should you do if you have a non-migrated security interest?
In order to protect parties who held interests registered on transitional registers (pre-PPS Registers), the PPSA prescribed a 24 month protection over transitional security interests. Under the PPSA, transitional security interests were perfected for up to 24 months from the registration commencement time. Following the 24 month period, if a security interest is not perfected by any of the methods above (control, possession and/or registration), it becomes unperfected.
Some transitional security interests have already been migrated onto the PPS Register, known as migrated transitional security interests however, other transitional security interests were not automatically transferred onto the PPS Register, known as non-migrated transitional security interests.
Non-migrated transitional security interests should be registered on the PPS Register before the 30 January 2014, as they will no longer be perfected at the end of the 24 month period.
If your transitional security interest is not perfected by the end of the 24 month period, your interest may be defeated by:
- a third party with a perfected interest in the same collateral; and
- the grantor of the security interest.
In the circumstances that the grantor of a security interest is made bankrupt or is wound up, the security interest immediately vests with the grantor. If the grantor is made bankrupt or is wound up, your interest in the collateral will be lost and you will become an unsecured creditor. If your security interest is perfected, the collateral will not vest in the available asset pool of the grantor until your payment or performance of an obligation has been satisfied.
The New South Wales Supreme Court has recently confirmed that security interests that have not been registered on a pre-PPSA transitional register in certain circumstances will not be perfected as ‘transitional security interests’. In those circumstances, if you did not register your security interest on a transitional register before 30 January 2012, then you should immediately take steps to perfect your interest in the collateral.
William Roberts Lawyers is available to assist you on any PPS matter.
The content of this article is intended to provide a general guide to the subject matter. Specific advice should be sought about your specific circumstances.
