Client Update: Personal property securities reform
26 June 2009
In brief: Among a blizzard of significant new legislation, the Federal Government has introduced into Parliament the Personal Property Securities Bill 2009. Implementation may be delayed until 2011 rather than the original 2010, but its effects are so extensive you will need to start considering it now. Partners Diccon Loxton (view CV) and Catherine Parr look at the new legislation.
The legislation is complex and there are extensive and significant changes from the last exposure draft. We are examining the changes and will release further more detailed analysis shortly. The key points include:
- If the Bill becomes law it will mean fundamental changes to the law relating to security interests and other transactions for all property except land.
- Among other things it profoundly affects priority and title. It can operate in ways which are not intuitive to someone brought up with the nemo dat principle (very broadly, the principle that a person who does not own something cannot transfer it).
- It will have a very significant impact on commercial and contract law, even when no security interest is involved. For example, it affects the ability of contracting parties to restrict assignment of the contract by their counterparties.
- Interests that are not currently treated as security interests will become subject to the new regime, including retention of title arrangements and even dealings which do not secure amounts, like leases and assignments of accounts receivable. You will need to review the ways in which you deal with customers, suppliers and financiers.
- Most new and existing 'security interests' (as widely defined) in personal property will need to be registered. A new single national register will do away with a plethora of state and federal registers. Registration will be a simple electronic process. Information on current registers may be migrated on to the new register.
- However it is better to perfect and protect security interests in some types of financial assets by taking 'control'. 'Control' can beat registration in the priority stakes.
- It adds yet another set of restrictions on enforcement, which are mandatory for consumer property. For other property, the restrictions can be 'contracted out' but this may be difficult when (as is often the case) other parties have an interest in the property.
- You will need to review standard documentation and procedures – not only security documentation, but also terms of trade and other contracts.
- The priority regime, and the rules under which the holder of a security interest can lose priority – or its rights in the property altogether – are complex. Credit and risk teams will need to understand the new regime and to review their policies. Staff will need training and guidance to understand the new procedures for taking security, registration and enforcement.
- Although implementation is likely to be delayed, it is not too early to start assessing the impact on your business, particularly in the case of financiers and others who take 'security interests' in the wider sense.
Allens is working closely with several clients to develop procedures to manage the introduction of the new PPS scheme. Please contact one of our PPS team partners listed below if you would like more information.
- Diccon LoxtonSenior Finance Counsel,
Ph: +61 2 9230 4791
- John GallimoreConsultant,
Ph: +61 7 3334 3135
- Andrew BoxallConsultant,
Ph: +61 2 9230 4534
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