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2. Personal Property Securities Act 2009 (Cth)
Patrick Spelman
19 February 2014

3. Introduction This presentation will cover: Brief overview of the PPSA.
Impact on broking business and questions financiers will want answers to
Steps required of secured parties to protect their rights.

4. General Overview
Personal Property Securities Act 2009 (PPSA) commenced on 30 January 2012.
An attempt to harmonise the relevant legislation and provide a streamlined and consistent approach for the protection of security interests in personal property.
Most profound impact will be in insolvency scenarios
Will affect most businesses and many individuals

5. General Overview
24 month ‘transitional period’, expired on 30 January 2014:
Any secured loans or long term leases pre PPSA need to be registered
Security interests registered on PPS Register:
Internet based
One stop shop
Does not paint the whole picture
Different to land registers

6. Key Differences Many differences between prior law and PPSA including:
A change in the definition of a security interest to take a substance over form approach, regardless of title
Nemo dat rule can be overridden by PPSA
Register has wider scope of property covered and grantors
Effect of insolvency on security interests, particularly unregistered security interests
Priority rules between competing security interests are streamlined and consistent
Security agreement can provide for future advances

7. Relevance to Brokers Questions financiers will ask:
Will I have a first-ranking charge or a second-ranking charge in the goods?
What other financiers have rights in the goods being financed?
Will I have a purchase money security interest?
Has the customer granted a security interest in their accounts receivable?
What is the priority situation in relation to proceeds from the hiring of the goods?

8. Relevance to Brokers Financiers also want to know:
What procedures does the customer have in place in relation to the PPSA?
Relevant for equipment hire companies
What purpose will the financed goods be put to? This is relevant for the purpose of extinguishment rules.
It is the borrower’s responsibility to ensure that interest incorrectly recorded against them are removed.
Could impact ability to obtain finance

9. Consumer finance
PPSA does not use the expression consumer finance or refer to consumer finance
Individual’s purpose in obtaining finance is not the focus, focus is on the nature and use of collateral
Individual may give a security interest in household items to secure business loan and vice versa
Unsecured personal guarantees are not covered by PPSA

10. Consumer finance
For consumer property, cannot contract out of enforcement provisions
National Credit Code (NCC) applies where credit provided for personal, domestic or household purposes
NCC regulates aspects of security agreements given to secure consumer credit and has detailed provisions relating to enforcement of security interests
Significant, but not complete, overlap between PPSA and NCC

11. Fundamental concept #1 Personal Property
means any property, whether tangible or intangible, excluding land, fixtures and buildings and certain licences or other excluded property
includes art, boats, caravans, cars, aircraft, business inventory, crops, livestock, plant and machinery, shares, accounts receivable, intellectual property, hire agreements etc.
Real property mortgages are excluded as in connection with land, but the PPSA can supplement rights granted under a mortgage

12. Fundamental concept #2 Security Interest
Two types of security interest, ‘in substance’ and ‘deemed’ security interests.
A security interest:
Is “an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property)" (s12 PPSA).
Includes a fixed charge, floating charge, chattel mortgage, conditional sale agreement (ROT), hire purchase, lease of goods, assignment, floor plan, margin lending

13. Fundamental concept #2 Security Interest
Security interest are deemed to include:
Interest of transferee of an account (debt) or chattel paper (contract containing a security interest)
The interest of consignor under commercial consignment
The interest of lessor or bailor under PPS Lease
Do not need to secure payment or performance of obligation and are deemed to be security interests

14. Fundamental concept #2 Security Interest
Most common deemed security interest is a PPS Lease
PPS Lease is a lease or bailment of goods for a term of more than one year or for a term of up to one year that is renewable for periods exceeding a year (90 days for motor vehicles).
NCC regulates consumer leases, value of payments exceeds price of goods
PPSA will apply to operating leases and other leases which are exempted from the NCC, such as novated leases or leases for an indefinite term

15. Some Terminology
Collateral – the personal property that is the subject of a security interest (e.g. motor vehicle).
Attaches – a security interest “attaches” to collateral when a person (e.g. credit provider) gives value for acquiring the security interest.
Grantor – the entity providing the security interest (previously the ‘chargor’ and commonly a customer).
Secured Party – the entity acquiring the benefit of a security interest (previously the chargee and commonly a lender).

16. Fundamental Concept #3 Perfection
Strive for perfection
Secured parties goal is to ‘perfect’ their security interest
Perfection is most commonly achieved by registration on the PPS Register
Can perfect by control for certain financial assets, including bank accounts and investment instruments (shares, debentures, derivatives etc.)

17. Fundamental Concept #3 Perfection
Perfection will generally:
define priority status that security interest has relative to other interests in same collateral
ensure that the security interest survives the insolvency of the grantor
protect security interest as against third parties who might purchase property from apparent owner (typically the grantor)
Once perfected, rights will be determined by priority rules (discussed later)

18. Steps to Perfection Step 1: Attachment
Security interest needs to ‘attach’
Can only attach when grantor has rights in collateral
Value must be given or grantor acts in a way to give rise to security interest (e.g. obtains goods under lease)
Once attached, can enforce security interest against grantor
Step 2: Enforceability against 3rd parties
Grantor signs the contract containing description of collateral
Also enforceable if secured party has possession of goods or perfected by control

19. Steps to Perfection Step 3: Perfection
Registration on the PPS Register
Possession of collateral (other than through seizure or repossession)
Control of financial instruments
Security interest can be perfected regardless of order in which steps 1 to 3 are achieved
perfection before attachment is common
Single registration can perfect one or more interests

20. Failure to Perfect?
‘Unperfected’ security interests vest in grantor on bankruptcy/ liquidation
Potential to lose title if collateral is leased and lose rights granted by security interest
Can leave secured party as unsecured creditor
Worst possible outcome in insolvency scenario

21. Failure to Perfect?
Purchaser takes collateral free of unperfected security interest
If unperfected and grantor sells collateral only claim will be against the grantor and not the collateral
rights in person v rights in property
Another secured party may take priority and appoint a receiver

22. What if collateral is transferred?
Grantor may sell collateral despite restrictions in security agreement
Security interest will continue unless gave consent to sale or extinguishment rules apply
Temporary perfection:
24 months or 5 business days once secured party knows identity of transferee
Act quickly

23. Priority Rules Priority generally does not depend on:
Nature of security interest
Order in which the security interest is granted
Knowledge of prior security interests
Security interest has same priority:
Includes future advances (tacking)
For performance of all obligations secured

24. Purchase Money Security Interest
Where secured party provides money to purchase collateral
Priority
Super-priority
Reason for the rule
Does not apply to sale and lease-back
Every PPS Lease (long term lease) is a PMSI
Cannot have PMSI in consumer property, except serial numbered goods

25. Purchase Money Security Interest
Registration requirements
Timeframe:
15 business days of possession if not inventory; or
registered prior to possession if inventory
Effect of not meeting requirements
Motor vehicle finance will almost always be a PMSI
If customer not using motor vehicle as part of business then must register by serial number

26. Priority Pyramid
Security Interest Perfected by Control (Highest Priority)
Purchase Money Security Interest (Super Priority)
Security Interest Perfected by Other Means (First in Time)
Unperfected Security Interest (First in Time)
There are several exceptions to this pyramid, however, for a large majority of the cases this will hold true.

27. PPS Register Most common way to perfect security interest
Notification not document registration – does not paint the whole picture
Get the details right!
Only register if have reasonable grounds that taking a security interest

28. Tips for Registration Accuracy of financing statement
Serial number for MV’s
Grantor’s details
Consumer v commercial property
Proceeds
Class of property
End date for registration

29. Individual Grantor Where to get the details?
Driver’s licence
Proof of identity card issued by a State or Territory Government
Current Australian passport
Current Australian visa
Passport issued by country where individual resides
Birth certificate.
Include the details exactly as they appear, including where middle initial is on licence and not full name
If no ID impossible to perfected security interest

30. Company Grantor Company search from ASIC
Free organisation search at
Use the ACN of the customer, not the ABN.
ABN different to ARBN

31. Trading Name or Trust?
Trading names and trusts are not a separate legal entity like a company
They will have their own ABN do not be fooled!
To find out who the legal entity is check
If customer uses trust, register over the trust

32. Issues for brokers Motor vehicles:
Expanded definition of motor vehicles:
Any vehicle built to be propelled by a motor capable of speed of 10km/h or power greater than 200W
Any vehicle capable for being towed at speed greater than 10km/h
If a motor vehicle is to be used as collateral, search by the serial number of the motor vehicle: VIN, chassis, manufacturer.

33. Issues for brokers Motor vehicles continued:
Consumers will take a motor vehicle free of a security interest if sold by a licensed motor dealer
Dealers cannot rely on sale in ordinary course of business rule to extinguish security interests further up the chain
Dealers should conduct a PPS Register search to ensure that trade-ins and other purchases are not subject to security

34. Amendment of documents
Contract out of enforcement provisions where applicable
Update terminology and specify rights to be exercised in event of default
Lenders may want to amend standard security agreements to include warranties by the grantor:
As to the correctness of the personal information which is provided for the purpose of registering the security interest;
Where applicable, the accuracy of a serial number;
To oblige the customer to notify of any later change of name (unless the goods are serial numbered)

35. Issues for brokers Miscellaneous issues
Mortgagees may be lending money based on the value of fixtures to land;
Rights in relation to fixtures before they are attached to the land(before installation or after removal) will be subject to the PPS Act.
Could affect right of entry waiver or mortgagee’s waiver
Need to provide financier with date of possession for the purpose of PMSI due to registration timeframes. This will be the date the grantor took possession of the collateral offered in an application.
Advise customers that they may need to update their systems to comply with obligations of financiers

36. Issues for brokers When acting in a broking capacity:
Ensure that details of the customer/grantor that are passed on to financiers are accurate
Sight copy of driver’s licence
Settlement should now occur after registration of the security interest against the collateral, not before.
Determine what the customer wants to use the equipment for consumer property v commercial property

37. Key Issues Fundamental change in securities law
Know the terminology so you can educate clients and provide relevant information to lenders
Ensure that the secured party can perfect their security interest
Ensure grantor’s details are accurate

38. Any questions?