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Personal Property Securities Register is now in full force

As foreshadowed in our earlier newsletter (link below) and after significant delays, the Personal Property Securities Register ('PPSR') regime became fully operational on 31 January 2014, after a two year transitional period.

Link to our earlier newsletter

The transitional rules allowed two years to register the property interests in existence prior to 31 January 2012 on PPSR. However, from 1 February 2014, registration on PPSR is required in order to secure your interests and there are no further phase-in concessions.

Described by some as ‘the biggest commercial law change in 200 years’, the PPSR regime has huge implications for asset protection in business.

Under the PPSR legislation, ‘possession is 9/10th of the law’ and unless correctly registered, you may lose your assets in the event of a liquidator, bankruptcy trustee or receiver being appointed to a business you are dealing with. This is particularly relevant to those who hire out their stock and equipment and/or store it on someone else’s premises.

Up until the PPSR legislation introduction, the nemo dat rule (that one cannot give what is not theirs) ensured that the entity holding the title to an asset was the legal owner of said asset. Recent court cases have confirmed that the PPSR regime effectively removed the nemo dat rule, meaning that now legal ownership is determined in accordance with PPSR rules, irrespective of who has title to the assets, as would have been the case previously.

Here is a summary of three recent Australian court cases which demonstrate the power of the PPSR legislation and the potential implications if assets are not registered on PPSR:

  • In the WOW Sight and Sound case the suppliers of stock to a number of WOW stores in Queensland on credit sought to rely on their retention of title terms and did not register their interest in the stocks supplied on the PPSR. The liquidator of WOW was able to register that stock and claimed a priority for it, which the courts have approved.
  • In another case, an organisation called QES stored its three Caterpillar excavators on another business’ property. That business went into liquidation. The liquidator registered that plant and equipment on the PPSR, and was able to claim a priority for the excavators.
  • In yet another case, a business supplied a water tank worth $300,000 on credit to Kentor Minerals, which went into liquidation. The business lost out because they sought to rely on retention of title terms and had not registered their interest on the PPSR.

WARNING! If you let someone else have possession of any item of property, you must consider registering your rights to that property on PPSR. Otherwise, you run the risk of losing your property rights to a creditor, banker or liquidator of your customer.

In most instances, you must register your interest in the goods before the goods are delivered into the possession of your customer.

What assets are vulnerable?

It is important to remember that PPSR covers such tangible assets as goods, crops and livestock, trading stock, motor vehicles, paintings, machinery and debtors; as well as intangibles such as licences, intellectual property, trademarks and investment instruments.

What types of transactions are affected?

A wide range of business transactions could require registration on the PPSR in order to provide effective protection of the underlying assets, including:

  • sale of goods on consignment;
  • sale of goods with serial numbers, including motor vehicles;
  • supply of goods utilising hire purchase agreements;
  • supply of goods utilising lease agreements;
  • supply of goods under ‘Retention of Title Agreements’ (Romalpa Clauses, now ineffective unless goods are registered on PPSR);
  • goods stored in someone else’s possession;
  • goods sold on your behalf by a retailer;
  • goods attached to other goods (if goods become attached to other goods, they become an accession – this means they become absorbed into those other goods, e.g. a new motor installed into a customer’s boat);
  • mixed goods (if you have a security interest in goods, which are mixed in with other goods and have become indistinguishable from the whole mass, your security interest continues in the whole – e.g. grain supplied to a grain silo, where it was mixed with other farmers’ grain);
  • equipment renters;
  • receivables (debtors);
  • cattle on agistment;
  • storing of equipment on someone else’s property;
  • share farmers for security over a crop;
  • assignment of book debts to a factoring organisation, bank, etc;
  • temporary work on a construction site (e.g. form work, scaffolding and other plant and equipment);
  • tradesman’s plant and equipment, tools, etc, temporarily stored on a construction site;
  • stock inventory;
  • boats and other type of watercraft;
  • intangible properties such as licences, shares, intellectual property;
  • cranes, scaffolding, machinery, plant and equipment (e.g. excavators);
  • goods to be used for growing crops (e.g. seed, fertilizer and pest control);
  • supplies of feed for livestock;
  • aircraft;
  • artists’ artworks, sculptures, etc, that are on commercial consignment with an art gallery, dealer, etc;
  • supply of goods on consignment (e.g. furnishings, designs, pharmacy products, etc)
  • automotive spare parts dealer;
  • fishing industry – ‘statutory fishing rights’;
  • provide credit facilities in any form, including loans (including related parties such as family businesses);
  • bank loans or advances of funds to anyone (including related parties);
  • grant licences to other parties for use of any of your products, trademarks or intellectual properties;
  • assets or funds held on trust by other parties;
  • tenant’s plant, equipment or stock held on premises owned by a landlord
  • service entity arrangements, where plant and equipment, intellectual property, etc, owned by one entity, are leased or hired to another associated entity;
  • operating a business as a pawn broker; and
  • operating a business as a second hand dealer.

What do I need to do?

We encourage you to review your business operations to determine your exposure to the PPSR regime and potential risks to your assets. It would be prudent to review your terms of trade with your commercial solicitor regarding the adequacy of your current documents and procedures in the PPSR context.

It is also possible that previous carefully implemented asset protection strategies could come unstuck if interests between related parties or members of a business group are not registered.

It is crucial that you acquaint yourself and train your staff on the use of the PPSR and filing registrations effectively. Please contact your Ruddicks adviser if you have any questions or require assistance with the PPSR.

DISCLAIMER: The contents of this publication are general in nature and we accept no responsibility for persons acting on information contained herein. The content of this newsletter does not constitute specific advice and readers are encouraged to consult their Ruddicks adviser on any matters of interest. © Ruddicks 2014

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