The transitional period under the Personal Property Securities Act 2009 (Cth) (PPSA) is coming to an end. There are seven basic steps you should take by 31 January 2014 to ensure you have the full benefit of any transitional security interests you hold.
What are transitional security interests under the PPSA?
The PPSA, which started to apply on 30 January 2012, regulates all security interests over personal property granted by companies or individuals. The concept of "security interests" is broad. It includes not only traditional security interests over personal property (such as mortgages and charges) but also other arrangements (such as certain leases, bailments and retention of title arrangements).
The PPSA also establishes a register known as the Personal Property Securities Register (the PPS Register).
The PPS Register replaced a number of registers (known as the "transitional registers") which existed before 30 January 2012.
Under the PPSA, security interests which were provided for in an agreement before 30 January 2012 are known as "transitional security interests".
Some transitional security interests were able to be registered on the transitional registers. If those interests were registered before 30 January 2012 they were automatically migrated to the PPS Register (migrated transitional security interest). Other transitional security interests which could not be registered on any transitional register (non-migrated transitional security interest) are temporarily perfected under the PPSA until the end of the transitional period at midnight on 31 January 2014. This means that they are temporarily taken to be perfected by operation of the PPSA until that time on that date.
Any person who has the benefit of a non-migrated transitional security interest must make sure that they perfect their interest (by registration, control or possession) on or before 31 January 2014. If those security interests are not perfected before then, they could (after that date):
- be defeated by other security interests;
- be extinguished; or
- vest in the grantor of that security interest if that grantor is wound up or placed into administration.
To prepare for the end of the transitional period, companies and individuals should start by taking the following seven steps:
Step one: Identify any security interest granted in your favour
Companies and individuals should review all arrangements which they have entered into and assess if those arrangements create any security interests in their favour which are intended to be relied on after 31 January 2014. Companies should not forget to also consider their intra-group company arrangements.
Step two: Assess if those security interests are transitional
Companies and individuals who have the benefit of a security interest should assess if those security interests are "transitional". As mentioned, a transitional security interest is any security interest which was provided for under a security agreement in force immediately before 30 January 2012.
Step three: Assess if those security interests have been perfected by registration, possession or control
Under the PPSA a security interest can be perfected by registration, possession or (for some types of personal property) control. Companies and individuals should consider which forms of perfection are required or advisable for their transitional security interests and should make sure that they are in place before 31 January 2014.
Step four: If a transitional security interest was registered on a transitional register, has it been migrated?
Companies and individuals who have the benefit of a transitional security interest that was registered on a transitional register should search the PPS Register to confirm that it has been migrated.
If it has, they should also "find and claim" that interest through the PPS Register.
A search should also be made of the list of 6,000 security interests which were registered at the Australian Securities and Investments Commission but not migrated to the PPS Register. If a person finds a charge granted by a company in its favour on that list, it will need to register that security interest on the PPS Register before midnight on 31 January 2014.
Step five: Consider if registrations relating to migrated transitional security interests are against the correct person
Companies and individuals should check if their migrated transitional security interests are registered against the correct persons. For example, if their security interest was granted by a trustee, and that trustee has acted in its personal capacity and as trustee of a trust, then a registration should exist against that trustee in both of those capacities.
Step six: Consider if any migrated transitional security interest requires any further registration
The migration process involved certain risks, especially for parties who had the benefit of fixed and floating charges which were registered at ASIC. In light of those risks, many secured parties have decided to re-register those interests on the PPS Register. We recommend that approach. All re-registrations will need to occur before midnight on 31 January 2014.
Companies and individuals should also check if they should make additional registrations in relation to their migrated security interests. For example, if a security interest is over personal property which must or may be registered with reference to its serial number, then an additional registration should be made against that serial number.
Step seven: Perfect any non-migrated transitional security interests
If a company or individual has the benefit of a non-migrated transitional security interest, and that interest was not registrable on a transitional register, then they have a reprieve until midnight on 31 January 2014 to register that interest on the PPS Register. They must register (or otherwise perfect) that interest before that date.
On the other hand, if a company or individual has the benefit of a non-migrated transitional security interest, and that interest was registrable on a transitional register but was not registered, then there is no reprieve. Unless that interest has been perfected by control or possession, it will be unperfected and should be registered on the PPS Register as a matter of urgency.
Other steps might be needed
While the steps which we have summarised above are crucial and an important starting point, there may be other issues which individuals and companies need to consider.
Companies and individuals should act now to ensure they have identified all transitional security interests and take appropriate action to protect their positions well before 31 January 2014.
Please let us know if we can assist you with preparing for the end of the transitional period.