Personal Property Securities Act 2008 Background &Key Concepts Kingston CEO Roundtable Presenter: Tony Burke

Introduction New Personal Property Securities Act 2008 (Cth) Started January 2012 Affects most businesses It is important It is a game changer! PPSA Briefing

Real Property Freehold Leasehold Mortgage interest Buildings and fixtures attached to land PPSA Briefing

Personal Property Not land, buildings or fixtures which form part of land Motor vehicles - Contract rights Plant and equipment - Art Machinery and crops - Livestock Intellectual Property - Inventory PPSA Briefing

Security interest – old law Mortgage over motor vehicle Charge over company property Retention of title clause Financing leases Goods on consignment PPSA Briefing

Problems with old system Ad hoc patchwork of legislation and registers 70 separate Acts of Parliament 25 separate government departments 3 Ministerial Councils Law going back to England in the 1800s PPSA Briefing

Problems with old system - Continued Incomplete coverage Overlapping legislation Movement of property and security providers across jurisdictions Focus on form rather than substance Expensive and bureaucratic PPSA Briefing

Economic Benefits of Change Simple to create and register a security interest Low cost Clarity of security interests Low cost of enforcement Effective tool for lenders National consistency Reduced cost of borrowing (between 3% and 4%) PPSA Briefing

PPS Act – Key Attributes A single, national, electronic register of “Security Interests” in personal property Rule based system to determine priorities Run by ITSA Referral of State and Territory powers to Commonwealth Government PPSA Briefing

Collateral – Exclusions A lien arising by operation of law (mainly relevant for lawyers) State based “statutory rights” such as taxi licences, gambling licences, racing licences, fishing licences and some mining and expiration licences Water rights PPSA Briefing

Collateral Personal property with a security interest attached to it Not consumer property Distinction between inventory and non-inventory goods Special rules for some property described by serial number PPSA Briefing

Property to be described by serial number Motor vehicles Watercraft Aircraft Intellectual Property Rights such as registered designs, patents, plant breeder rights, trademarks PPSA Briefing

Established by Agreement; or Established by application of PPS Act Security Interest Established by Agreement; or Established by application of PPS Act PPSA Briefing

Agreements leading to security interests A charge A chattel mortgage A conditional sale agreement A hire-purchase agreement A consignment of goods A lease of goods Names are not important! Substance matters. PPSA Briefing

Deemed security interest Commercial consignment of goods A PPS lease PPSA Briefing

PPS Lease Covers leases and bailments Must be for more than 1 year (including options) For “serial numbered goods” need only be 90 days lease or bailment Leases and bailments for an indefinite term Lessor or Bailor must be engaged in the business or regularly leasing or bailing goods Bailee must provide value. Free loan of goods not caught PPSA Briefing

Secured Party and Grantor Consistent terminology to simplify arrangements For every “security interest” there will be a “grantor” and also a “secured party” Sometimes obvious, sometimes not Possession of goods more likely to indicate grantor, regardless of what document says PPSA Briefing

Attachment and Perfection Attachment first step. Perfection the second step. Security interest attaches to goods when the grantor acquires rights in collateral To achieve perfection, agreement in writing and registration of a financing statement on the PPS register PPSA Briefing

Financing Statement Summary statement lodged with the PPS register Source document not required Must contain information about parties, the type and class of collateral May require serial number PPSA Briefing

Priority Rules A perfected security interest has priority over an unperfected security interest Priority between perfected security interests is determined by the order of perfection Priority between unperfected security interests is determined by the order of attachment A perfected Purchase Money Security Interest or PMSI has priority over perfected security interests PPSA Briefing

Purchase Money Security Interest Creates a category of “super priority” For the protection of suppliers who finance the acquisition of specific assets Designed to protect goods being caught by general charging clauses PPSA Briefing

Proceeds and Accessions No registration then goods at risk Tracing rights available to registered security interest holders Helpful for suppliers of certain products – e.g. concrete or raw materials - Accession or attachment rights – e.g. Motor in a truck PPSA Briefing

Taking property free of security interest Generally an issue when the holder of goods becomes insolvent Still protection for bona fide purchaser at arm’s length, but only in relation to unperfected interests in property PPSA Briefing

Personal Property Security Register Single, national online register Replaces existing State and Territory Registers Migration of existing registers to new PPS Register Problems in data transition Search by name, ABN and ACN PPSA Briefing

Things to do Review standard documents Review Shareholders’ Agreements or Division 7A Loan Agreements Check exposure under guarantees Double check bank and loan documents from now on When purchasing goods or a business check the security register Check your own business on the register PPSA Briefing

Resources www.ppsr.gov.au PPSA Briefing

Disclaimer This presentation is intended to provide only a summary of the provisions of the PPS Act. The Act and associated legislative enactments provide for a complex new regime. Accordingly, this presentation should not be relied upon as a substitute for professional advice as the circumstances of each reader will vary and the implications of the PPS Act likewise. PPSA Briefing

Presenter – Tony Burke Accredited Business Law Specialist Principal of Burke & Associates Lawyers Pty Ltd Inaugural Chair of the SME Business Law Committee of the Law Council of Australia former President of the Law Institute of Victoria former Director of the Law Council of Australia member of the Australian Institute of Company Directors - Member of Kingston CEO Roundtable PPSA Briefing