Introduction to the Personal Property Securities Act 2009 (“PPSA”) Kyle Kimball Sajen Legal

Disclaimer All information contained in this presentation is general information and by way of commentary only. It should not to be relied upon or taken as legal advice generally or as applicable to any particular facts or circumstances. Any reader requiring advice about the law generally or as it applies to particular facts or circumstances or wishing to know more about the subject matter of this presentation should contact Sajen Legal for advice which takes into account the facts and circumstances of the specific situation.

What does the PPSA do? Fundamentally changes the rules - Governing how personal property is used as security for loans and granting of credit. Governing transfer of property on conditions as to payment and use, title and ownership Effectively makes redundant the ideas of “ownership” or “title” as the basis for determining competing economic claims against personal property.

Why? Economic Law Reform Agenda – To allow businesses greater flexibility to raise finance using personal property as collateral. To give greater certainty and transparency to lenders and financiers who lend or provide credit secured against personal property. To reduce the number and variety of different laws applicable to governing personal property transactions

How? “ Consolidation/Harmonisation” of laws But goes far beyond mere harmonisation or consolidation of existing laws. Creates a new, nationally applicable, legal code - for determining economic claims against personal property. Creates a single national register – for notification and disclosure of security interests which then regulates priority of claims against property secured or “collateral”.

Who does it affect?

Key Concepts s. 12(1) – “Security Interest” A security interest means 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).

New Concepts of Security Security Interests as created under the PPSA Purchase money security interest (PMSI) PPS Lease – generally leases and bailments Deemed Security interests – The interest of a transferee in an account or chattel paper The interest of a consignor who delivers goods to a consignee under a commercial consignment The interest of a lessor or bailor of goods under a PPS lease General Security Interest (GSA)

Categories of security interests : A Purchase Money Security Interest (PMSI) Where funds are provided by a financer or other lender to a grantor for the purchase of the personal property. Common example, point of sale financing Where the secured party has advanced personal property and all or part of the purchase price remains outstanding. Common example, conditional sale/retention of title clause. In a PPS lease transaction. Common example, rent/bailment In a sale by consignment transaction General Security Interest (GSA)

Relevance of distinction between PMSI and GSA : The PMSI may have a “super priority” over the GSA which defeats all other security interests in the collateral. However, certain registration requirements must be complied with in order for the PMSI to benefit from the “super priority”.

“Old” Classes of Security The “traditional” securities by form – Mortgage Charge Pledge Lien The “traditional” securities by function – Hire purchase Finance lease transaction Retention of title/conditional sale transactions

Fixed & floating charges? PPSA does not distinguish between fixed and floating security interests. All security interests are fixed but subject to extinguishment rules – these rules may enable third party transferee to take free of security interest The General Security Agreement or GSA - will replace the fixed and floating charge.

Key Messages The new rules establish a priority order for determining economic claims against personal property when a number of security interests are registered against the same personal property or “collateral”. To take advantage of the new rules and preserve a priority, security interests must be registered within the required timeframes. The new rules also have implications for competing economic claims over goods transferred and sold conditionally by reference to the passing of “title”, so it changes the way contracts will be written.

Key Component - the PPS Register Single, national, on-line PPS Register available to be searched anytime “Noticeboard” of security interests – but not details of security interest or contractual arrangement Details of Grantor/Secured Party Collateral class Term of Security Those with bona fide interest can request details from relevant parties Anybody able to register on behalf of secured party if reasonable grounds to believe secured party is/will be secured over collateral

PPSA - applies to personal property Goods Motor vehicles Aircraft Watercraft Commingled goods and accessions Crops Livestock Wool Financial property: Chattels paper Currency Documents of title Investment instruments Negotiable instruments Intangibles Intellectual Property Accounts (monetary obligations) ADI accounts Proceeds

Property Excluded from PPSA Common law lien Right of set-off Interests in land Water licences Mining tenements Fixtures Interests under bankruptcy and corporate insolvency laws.

Attachment GRANTOR Security Agreement COLLATERAL SECURED PARTY Security Interest Basic Schematic

PMSI’s v Conditional Sales/Retention of Title Before PPSAAfter PPSA Agreement must be in writing ? Must be Registered Will the goods be available to creditors if not registered? Can apply to commingled goods Can extend to proceeds from the sale of the goods X X X X

PPS Lease (Rent and Bailment) Rules as to what is a PPS Lease are complicated - lease or bailment of goods: – For a term generally greater than 12 months; or – For goods that may or must be described by serial number (generally for a term of 90 or more days Bailment involves delivery of property to another who holds it. There is no transfer of ownership. Covers items given to a business to use free of charge e.g. A coffee suppliers loaned machine, soft drinks suppliers machines Need to register as PMSI otherwise lose entitlement to property

Perfection of Security Interests Security interest is enforceable against third parties if attached and there is perfection by possession, control or registration: – Perfection by registration on PPS Register is most effective – Perfection by control/possession is only relevant for certain categories of collateral ( i.e. financial products

Attachment of Security Interests Attachment of security interest to collateral makes it enforceable against the Grantor: – Value must be given, or the Grantor must do an act that gives rise to a security interest – e.g. financier makes a loan, Grantor signs a security agreement – Mere attachment does not make the security interest enforceable against third parties – must be perfected.

Priority rules for competing security interests A perfected security interest has priority over unperfected security interest in the same collateral A perfected security interest (first in time) has priority over another perfected security interest (later in time) An unperfected security interest (attached first) has priority over another unperfected security interest (attached later) A registered PMSI will have priority over most earlier registered (and subsequently registered) non-PMSI security interests.

Priority rules for competing security interests (cont.) A PMSI gives lenders and credit terms suppliers priority over general financiers BUT check current contracts : To obtain the benefit of a PMSI most old/current contract terms and conditions (i.e. not drafted with PPSA in mind) will need to be amended to allow a PMSI to be created Clauses for on-going commercial financing relationships will need to allow for the registration of security interests for later acquired property

Commingled Goods A PMSI continues to have priority over comingled goods If a PMSI is taken over goods that become an unidentified part of a larger product of mass, then PMSI is protected Under Part 3.4 of the PPSA a commingled item is preserved but limited to the value of the component good) on the day on which it becomes part of the product. Priority rules for competing security interests (cont.)

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