While it can be hard for businesses to keep afloat with the
barrage of constantly changing laws and regulations, some impending
legislative reforms are too important to ignore.
By Marcel Vaarzon-Morel
less than six months, a radical (yet long overdue) federal scheme will
come into force that will impact on the marine industry. Manufacturers,
retailers, lenders and borrowers will all be affected. Right now, all
across Australia, businesses are preparing for the introduction of the
Personal Property Securities Act (PPSA), a piece of legislation that
will dramatically alter the way in which the law recognises and deals
with securities over personal property. This article will provide a
brief introduction of the Act, and explain some of its far-reaching
ramifications, especially for the Australian marine industry.
1. What is a Personal Property Security Interest?
security interest is an interest in property, granted to a party in
order to secure the payment of money or performance of an obligation. By
way of illustration, we are all comfortable with the idea of a mortgage
over real-estate.Taking out a mortgage grants your bank or lender
security over your property, allowing them to seize and sell your home
if you are unable to discharge your debt. The same principles can be
applied to personal property. Personal property is any property that is
not real-estate, and includes physical property (such as cars, boats,
furniture and equipment) as well as intangible property (such as
trademarks and patents). When personal property is used as some form of
collateral, the grantor is said to have provided the secured party with a
personal property security interest, which will now be able to be
enforced under the PPSA.
2. Why reform?
pre-existing landscape regulating personal property securities is a
mess. Registration of an interest currently depends on the nature of the
personal property, the type of security, the legal personality of the
parties and the jurisdiction in which the security interest was created.
The new Act aims to simplify the process by removing all barriers to
registration, instead embracing a universal and centralised scheme
applicable for all types of personal property. As such, the PPSA
replaces over seventy Federal, State and Territory laws, abolishes over
twenty pre-existing registration schemes, and establishes an online,
real-time, publically accessible Personal Property Security register,
comparable to the Torrens Title for real-estate. By adopting this broad
functionalist approach, the PPSA greatly expands what types of property
can be registered as security – everything from paintings to rights
granted under contract.
It is hoped the reforms will provide
lenders with greater certainty to approve loans, allowing small to
medium businesses to more easily use their assets as collateral to raise
finance. This will, in turn, reduce the confusion, costs and risks
associated with all transactions involving personal property securities.
It will also be easier for purchasers to ensure the goods they buy are
free from any existing securities. For those looking to purchase a boat,
for example, the national PPSA register will replace all current states
schemes, such as the NSW Fair Trading REVS check. This will ensure
national consistency, and eliminate the need for multiple searches over
3. Importance of registration
the PPSA, the old mantra that possession is nine-tenths of the law
still rings true. If you are a business who does not have possession of
your personal property (such as trading stock), there may be issues
under the new scheme. The PPSA does away with the idea that owning legal
title guarantees a right over property. Instead, the rules established
under the Act introduce concepts of attachment and perfection to
determine whose interest in the property takes priority in the event of a
dispute. Registration is the key to perfect an interest, and priority
is granted based on the order in which interests are registered. Failure
to register your interest in property means that in some instances, you
could lose your right over the property.
These reforms will
especially impact on manufacturers or suppliers who currently rely on
contractual Retention of Title or Romalpa clauses when selling goods.
Traditionally these clauses ensured that a seller could deliver goods to
a prospective buyer, but still remain the legal owner until all debts
were paid. However under the new scheme, registered interests will trump
unregistered interests, regardless of ownership. Subsequently, all
conditional sales agreements are now viewed as security interests and
must be registered on the PPSA register in order to be enforceable (and
indeed registration will grant the owner a super-priority security
interest, provided they record their goods on the register before a
purchaser takes possession). Because of this somewhat confusing scheme,
if your business relies on title retention clauses, we would recommend
you seek legal advice before entering into new contracts of sale after
4. Impact on marine industry
particular relevance to the marine industry, the PPSA will abolish the
Australian Register of Ships, the Fisheries Register and the Australian
Securities and Investment Commission Register of Company Charges. The
good news for business is that any pre-existing securities recorded in
these registers will automatically be migrated across to the PPSA
register. However current registry listings may be inadequate. Under the
PPSA, if a watercraft is used in the course of a registered Australian
business, it may be registered by serial number (or alternatively the
craft’s identification number). If the watercraft is classed as consumer
property, however, it must be registered by serial number. It should
also be noted that the PPSA will not impact on any current State boating
registration processes, as these are not records of ownership or
property interests, but rather regulatory systems aimed at protecting
members of the public.
5. What you should do to prepare?
October the ambitious PPSA register will go live, and anyone will be
able to view or add security interest to the register. It doesn’t matter
if you’re a small sole trader or a large company, you should now be
beginning to make preparations. We recommend you: Familiarise yourself
with the new Act, especially the ideas of “attachment” and “perfection”.
any unregistered security interests, especially in relation to
conditional sale agreements in contracts (which previously could not be
registered), and intellectual property (which will not automatically be
transferred to the PPSA register). Train staff members in understanding
and searching the new PPSA register
Once the reforms come into
force, it would advisable that all businesses check the register to
ensure that all security interests have been successfully migrated.
Secured parties may wish to re-register to provide a more detailed
description as to ensure the highest possible security.