David Brown, University of Adelaide A NEW WORLD: PPSA IN AUSTRALIA

 Federal, State and common law  inconsistency and overlap within/ between jurisdictions  Form-based  Identity of grantor/debtor  Location  Type of collateral BACKGROUND/CONTEXT

 Liens On Crops Of Sugar Cane Act 1931 (Qld)  Major Sports Facilities Act 2001 (Qld)  Circuit Layouts Act 1989 (Cth)  Manufactured Homes (Residential Parks) Act 2003 (Qld)  Motor Vehicles and Boats Securities Act 1986  Partnership Act 1891 (Qld)  Police Powers and Responsibilities Act 2000 (Qld)  Property Agents and Motor Dealers Act 2000 (Qld)  Property Law Act 1974 (Qld)  Sale Of Goods Act 1896 (Qld)  Second-Hand Dealers and Pawnbrokers Act 2003 (Qld)  Storage Liens Act 1973 (Qld)  Transport Operations (Road Use Management) Act 1995 (Qld)  Bills Of Sale Act 1886 (SA)  Consumer Credit (South Australia) Act 1995 (SA)  Co-operatives Act 1997 (SA)  Criminal Law (Clamping, Impounding and Forteiture of Vehicles) Act 2002 (Vic)  Natural Resources Management (Water Management and Other Matters) Amendment Act 2007 (SA)  Partnership Act 1891 (SA)  Second-Hand Vehicle Dealers Act 1995 (SA)  South Australian Meat Corporation Act 1936 (SA)  Stock Mortgages And Wool Liens Act 1924 (SA)  Unclaimed Goods Act 1987 (SA)  Plant Breeders’ Rights Act 1994 (Cth)  Workers’ Liens Act 1893 (SA)  Commercial Arbitration Act 1984 (Vic)  Consumer Credit (Victoria) Act 1995 (Vic)  Warehouse Liens Act 1990 (SA)  Bills Of Sale Act 1899 (WA)  Bulk Handling Act 1967 (WA)  Consumer Affairs Act 1971 (WA)  Consumer Credit (Western Australia) Act 1996  Cooperative and Provident Societies Act 1903 (WA)  Chattel Securities Act 1987 (WA)  Disposal of Uncollected Goods Act 1970 (WA)  Hire Purchase Act 1959 (WA)  Motor Vehicles Dealers Act 1973 (WA)  Partnership Act 1895 (WA)  Pawnbrokers and Secod- Hand Dealers Act 1994 (WA)  Property Law Act 1969 (WA)  Road Traffic Act 1974 (WA)  Goods Act 1958 (Vic)  Goods Securities Act 1986 (SA)  Sale Of Goods Act 1895 (WA)  Settlement Agents Act 1981 (WA)  Trustees Act 1962 (WA)  Warehousemans’ Liens Act 1952 (WA)  Bills Of Sale Act 1900 (Tas)  Stock Mortgages And Wool Liens Act 1924 (SA)  Unclaimed Goods Act 1987 (SA)  Plant Breeders’ Rights Act 1994 (Cth)  Workers’ Liens Act 1893 (SA)  Commercial Arbitration Act 1984 (Vic)  Consumer Credit (Victoria) Act 1995 (Vic)  Warehouse Liens Act 1990 (SA)  Bills Of Sale Act 1899 (WA)  Bulk Handling Act 1967 (WA)  Consumer Affairs Act 1971 (WA)  Consumer Credit (Western Australia) Act 1996  Cooperative and Provident Societies Act 1903 (WA)  Chattel Securities Act 1987 (WA)  Disposal of Uncollected Goods Act 1970 (WA)  Hire Purchase Act 1959 (WA)  Motor Vehicles Dealers Act 1973 (WA)  Partnership Act 1895 (WA)  Pawnbrokers and Secod- Hand Dealers Act 1994 (WA)  Property Law Act 1969 (WA)  Road Traffic Act 1974 (WA)  Goods Act 1958 (Vic)  Goods Securities Act 1986 (SA)  Sale Of Goods Act 1895 (WA)  Settlement Agents Act 1981 (WA)  Trustees Act 1962 (WA)  Warehousemans’ Liens Act 1952 (WA)  Bills Of Sale Act 1900 (Tas)  Payments Act 2002 (Vic)  Chattel Securities Act 1987 (Vic)  Pawnbrokers And Second- Hand Dealers Act 1996 (NSW)  Petroleum (Onshore) Act (NSW)  Building And Construction Industry Security Of Credit Act 1984 (Vic)  Sale Of Goods Act 1895 (SA)  Second-Hand Dealers and Pawnbrokers Act 1996 (SA)  Co-operatives Act 1996 (Vic)  Fines Act 1996 (NSW)  Impounding Act 1993 (NSW)  Confiscation Act 1997 (Vic)  Disposal Of Uncollected Goods Act 1961 (Vic)  Domestic (Refal and Nuisance) Animals Act 1994 (Vic)  Co-operatives Act 1992 (NSW)  Co-operatives Housing and Starr-Bowkett Societies Act 1998 (NSW)  Forestry Rights Act 1996 (Vic)  Legal Practitioners Act 1968 (SA)  Finance Brokers Control Act 1975 (WA)  Fines, Penalties and Infringement Notices  Partnership Act 1891 (Tas)  Penalty Unites and Other Penalties Act 1987  Motor Car Traders Act 1986 (Vic)  Partnership Act 1958 (Vic)  Property Law Act 1958 (Vic)  Road Safety Act 1986 (Vic)  Sale of Goods (Vienna Convention) Act 1987 (Vic)  Second-Hand Dealers and Pawnbrokers Act 1989 (Vic)  Transport Act 1983 (Vic)  Trustee Act 1958 (Vic)  Designs Act 2003 (Cth)  Victorian Civil and Administration  Control Act 1966 (Qld)  Bills of Sale and Other Instruments Act 1955 (Qld)  Legal Aid Commission Act 1979 (NSW)  Mining Act 1992 (NSW)  Offshore Minerals Act 1999 (NSW)  Warehousemans’ Liens Act 1935 (NSW)  Water Management Act 2000 (NSW)  Cooperatives Act 1997 (QLD)  Credit (Rural Finance) Act 1996 (Qld)  Pharmacy Practice Act 2006 (NSW)  Sale Of Goods Act 1896 (Tas)  Second-Hand Dealers and Pawnbrokers Act 1994 (Tas)  Corporations Act 2001 (Cth)  Consumer Credit Act 1995 (ACT)  Cooperatives Act 2002 (ACT)  Credit Act 1985 (ACT)  Instruments Act 1933 (ACT)  Hemp Fibre Industry Facilitation Act 2004 (ACT)  Pawnbrokers Act 1902 (ACT)  Conversion Act 1921 (Cth)  Loans Securities Act 1919 (Cth)  Public Trustee Act 1985 (ACT)  Road Traffic Act (NT)  Uncollected Goods Act 2004 (NT)  Offshore Petroleum Act 2006 (Cth)  Shipping Registration Act 1981 (Cth)  Warehouseman's Liens Regulations 2007  Chattel Securities Regulations 1997  Copyrights Act 1968 (Cth)  Co-operatives Regulations 1997  Instruments (Fees) Regulations  Bills of Sale (Fees) Regulations 1995  Bills of Sale (Requirements as to Instruments) Regulations 1995  Co-operatives Regulations 1997  Public Trustee Act 1941 (WA)  Rights in Water and Irrigation act 1914(WA)  Goods Securities Regulations 1997  Registration Of Interests In Motor Vehicles And Other Goods Act 1983 (NT)  Sale Of Goods Act 1972 (NT)  Cooperatives Regulationsa 2003  Co-operatives Regulations and Admiralty Act 1988 (Cth)  Trade Marks Act 2995 (Cth)  Air Navigation Act 1920 (Cth)  Australian Industry Development Corporation Act 1970 (Cth)  Commonwealth Inscribed Stock Act 1911 (Cth)  Mercantile Law Act 1962 (ACT)  Partnership Act 1963 (ACT)  Fisheries Management Act 1991 (Cth)  Loans Securities Redemption and  Offshore Minerals Act 1994 (Cth)  Warehousemen's Liens Act (NT)  Motor Dealers Regulations  Taxation Administration Act 1953 (Cth)  Treasury Bills Act 1914 (Cth)  Wool International Act 1993 (Cth)  Traffic Act (NT)  Bills of Sale (Fees) Regulations 1983

 Economic benefits of rationalisation incl.cheaper access to credit, greater pool of credit  International initiatives  Trans-Tasman Memorandum of Understanding for Harmonisation and Cooperation in Commercial Law, 2000, 2010  NZ PPSA 1999 in force 2002  Molomby 1971  Law reform  Federal/state  Political adoption at Commonwealth level, 2005  Draft Bill 2008 JUSTIFICATION AND HISTORY

 Personal Property Securities Act 2009 (Cth)(“PPSA”)  PPS (Consequential Amendments)Act 2009  PPS Regulations 2010  PPS (Corporations and other Amendments) Acts 2010 & 2011  After several delayed starts, all above came into force or operative effect on 30 Jan 2012, including the PPS Register  30 Jan end of ‘transitional period’  30 Jan completion date for review of PPSA LEGISLATION AND TIMELINE

There were 281,010 registrations of transitional security interests created on the PPSR in January 2014, a 552% increase from 43,074 in December The number of searches on the PPSR reached for the quarter to December of There were registrations on the PPSR as at 31 December STATISTICS

 Federal/State jurisdictional difficulties  Requires State Acts to refer power to Commonwealth  Advantage one national system  Disadvantages - political trade-offs, some jurisdictional consequences (eg forum for disputes)  Registration system  Chose ‘exact’, not similar/close match search system  Only concession -search tool case insensitive  Approach to transition  2 year ‘grace period’ for existing agreements as at 30/1/12  Migration of existing registries by government, prior to 30/1/12  Alignment with Corporate insolvency legislation  How to deal with other registers, eg ships, patents DESIGN ISSUES

 Security Interest  Secured Party  Grantor (debtor)  Practice terms emerging- General Security Agreement (GSA)  All present and after-acquired property (ALLPAAP)  Australian Financial Security Authority (AFSA) administers Register, answers to Commonwealth Attorney-General TERMINOLOGY

 Personal Property  Not land or interests in land  Not fixtures- common law test should apply  Also the case in NZ  Licences  Private commercial ones if transferable, incl. IP licences  But most govt.ones carved out, eg fishing, minerals, taxi etc.  Water Rights  3 yr review – currently under way, to report by January 2015  Reviewer, Bruce Whittaker, Partner, Ashursts (Melbourne)  Other exclusions, eg pawnbrokers SCOPE-COLLATERAL

 Overriding substance test- irrespective of ID of debtor, form, or who has title  Security agreement takes effect according to terms  Contract interpretation/incorporation principles apply  Examples given -fixed, floating charges, pledge, mortgage, but also HP, conditional sale (ROT), leases, consignments, flawed assets, trusts  Can take security over own obligation ie ADI can take security over customer’s credit balance with that ADI  Exclusions for avoidance of doubt  Set-off  Quistclose trusts  Sale of accounts on business sale  Interests arising by operation of general law, eg customary liens, statutory charges SCOPE-SECURITY INTERESTS

 ‘PPS Leases’- where over one year, or could last over one year- leases or bailments  Must also be regularly engaged in business of bailing/leasing those type of goods  Bailments must be for value given by bailed  Serial numbered goods over 90 days – but Deregulatory Measures Bill 2014 to remove this  Commercial consignments  Where both regularly engaged  Outright transfer of accounts  Remedies provisions do not apply  Not debtor/creditor  Insolvency effect of non-perfection not applied to deemed SI ‘DEEMED’ SECURITY INTERESTS

 Attachment is pre-req of enforceability against Grantor  When grantor has rights in collateral, and SI gives value for SI  After-acquired property- when G takes possession in case of title- based (now) SI  Mere used of floating charge language will not imply postponed attachment  Would need express words to postpone attachment  Enforceability against third parties require written evidence and signed by G, unless possession/control  Maiden Civil (2013) dicta, no writing there  But alternative where G conduct assents to terms by act or omission  Description of collateral required, item or class ATTACHMENT AND ENFORCEABILITY

 Perfection requires attachment and enforceability, AND one of  Registration  Possession  Actual physical possession, not apparent or constructive possession  But cannot be re-possession ie for enforcement  Control, only for ADI and other accounts, financial property, and space/satellite objects  Contrast NZ, only has possession  Control of ADI accounts, v powerful as have priority over other perfected SI with no control  Definitions of control for different types, e.g shares, letters of credit  Order irrelevant, as long as continuously perfected by any combination of means, at relevant time of priority conflict  Temporary perfection e,g when G changes name, when new proceeds, but not as good as other perfection  Third parties take free of temporarily perfected interests PERFECTION GENERALLY

 File financing statement notifying a claimed SI over collateral  Don’t’ lodge security agreement, e.g previous Register of company charges  Misunderstanding/nostalgia  Migrated company charges do have the instruments attached  Interested persons can apply to SP to provide copy and information,  10 business days to respond.  If no response, then to AFSA, then judicial process  Could be confidentiality agreements between SP and G  PPS Register run by AFSA 24/7 online registration and searching.  No shopfront, call centre staff and managers in Adelaide NOTICE FILING AND THE PPS REGISTER

 Exact match searching  Grantor details- Regulations lay down hierarchy  Serial numbered goods  Defects-errors in above two render financing statement ineffective, ie as if no perfection  Other types of errors may be seriously misleading and therefore FS ineffective  Whether search would be capable of disclosing the information  A ‘reasonable searcher’?  Objective, no actual search needed here  Knowledge or motive irrelevant for priorities  Collateral classes REGISTRATION- DESIGN ISSUES

 Privacy issues for individuals  Apply to serial numbered goods, cannot register against grantor details  Registration periods. Commercial property, indefinite or max 25 yrs  7 for consumer property and serial numbered goods  Collateral descriptors in Regs  Currently can only register against one single collateral class, or ‘all PAAP’  Civil liability for SP or agent who registers when no reasonable belief that SI over collateral or that it secures any obligation REGISTRATION- OTHER DETAIL

 Perfected  Earlier perfected  Where both unperfected:first to attach  Perfection by control  Crucial date- when SIs come into conflict, eg on receivership  Beat unperfected  Beat later perfected  Beat later to attach  Beat perfection by any other method  Subordination agreements as per contract DEFAULT RULES FOR PRIORITY

 Seller or lender finance of acquisition, eg ROT, HP, lease, including PPS Leases, consignments  Later PMSI will have priority over earlier perfected SI (unless control), IF:  Claim PMSI on registration  Register before delivery of inventory or,  Within 15 business days for non-inventory  Not approach in NZ, Canada  Only works for collateral where secured purchase money obligations, not allmonies now  Contrast Armour v Thyssen, HL  Allocation of payments default provisions PURCHASE MONEY SECURITY INTERESTS- DEFINITION

 Exceptions-sale and leaseback,financial property, accounts  Not possible for consumer property unless serial numbered goods  Treatment of accounts financiers- take priority over PMSI on proceeds, provided notice given to PMSI SP before registration or attachment of account financiers SI  Crop and livestock ‘superpriority’ for inputs-priority over non PMSIs in collateral or its proceeds PURCHASE MONEY SECURITY INTERESTS- EXCEPTIONS ETC.

 Direct or indirect result of dealing with collateral  If authorised dealing, then SP claim proceeds  If unauthorised, SP can claim collateral and proceeds, subject to value of original collateral at time of dealing  Grantor interest in proceeds  SI attaches automatically  No fiduciary requirement  But tracing rules apply  Perfection almost automatic  Proceeds expressly includes insurance payments, redemption or discharge of financial property, license and other IP payments, dividends etc on investment instruments or intermediated security PROCEEDS

 Goods installed or fixed to other goods  Presupposes separate identity, distinguish commingled  Removable- seizure implicit but compensation to owner of whole if damage  Owner or other SP may discharge debt and retain whole  Notice to higher ranking SP and grantor ACCESSIONS

Mixed, processed,manufactured or commingled goods where ID lost in product or mass and where not commercially practical to restore Replaces need for disputes re aggregation clauses and charges eg Clough Mill v Martin, Borden etc.  Automatic perfection of SI in mass if SI in input was perfected  Claims of competing perfected input SIs proportionate to obligations secured  Priority limit of value at time of input, to avoid windfall  Preserves input PMSI status over non PMSIs in product if non PMSI given by grantor COMMINGLING

 Where SP would otherwise have SI in collateral, third parties can ‘take free’ of SI in certain cases  Not where third party takes a SI  Serial numbered where omitted (eg commercial) or wrong, search only by serial no. would not have disclosed reg.  Not inventory  Former State laws- Motor vehicles, non inventory buyers/lessees from licensed dealers  Separate provision for serial number searches of motor vehicles  Low value domestic ‘garage sales’ $5000-value difficulties  Knowledge carveouts, actual or constructive, of what?  Other priority rules have similar effect- Debtor payments to creditors, payments of currency, cheque, shares THIRD PARTIES AND ‘TAKING FREE’ RULES

 Ordinary course of seller/lessor’s business of selling etc kind of goods  SI given by seller  Sale, buyer  Not inventory purchases of serial no goods, eg vehicles  Lessee ‘takes free’ of SI, so takes lessee’s interest only  Case law from Canada and New Zealand –tensions between SP and buyer protection policy ORDINARY COURSE OF BUSINESS

 Chapter 4 PPSA- Scope- commercial collateral-contract out of nearly all, including right of redemption  Except duties on sale/good faith; distribution rules, buyer from SP taking free  Consumer collateral- aligned with National Credit Code eg notices, if any inconsistency, NCC prevails  Some provisions not for consumer cases, eg right to retain/foreclose  Does not apply to company receivers’ powers and duties- governed by Part 5.2 Corporations Act  Does apply to receivers of individual’s property  But does apply to other ‘controllers’ of corporate property, eg SP direct enforcement, amended in 2011  Does not apply to deemed SI, eg operating leases REMEDIES-SCOPE

 General duty to act in good faith and commercially reasonable manner  But only re Chapter 4  Duty to take reasonable care to obtain market value or best price reasonably obtainable in circumstances at time of sale  Taken from receivership duty, post Downsview, contrast Medforth v Blake, Silven in UK  PPSA gives reasonable time to store, value and consider options  Seizure (on default), dispose or retain-latter rare because foreclosure and party can object, without any adjudication. On objection, disposal becomes only option  Provisions as to disposal of intangibles  Buyer from enforcing SP takes free of SI and G’s interest, and any junior SI REMEDIES-CONTENT

 Unperfected SI ‘vest in grantor’(ie ineffective) on liquidation, administration, bankruptcy  (NB also against execution creditors if unperfected at time of seizure or court order)  This reflects philosophy in pre PPSA registers eg company charges  But contrast NZ  parallel requirement that corporate PPSA SIs must be registered within 20 business days of agreement, or more than six months before insolvency event, otherwise ineffective on insolvency  Vesting does not apply to commercial consignments, transfers of accounts or chattel paper,  but applies to leases, whether or not actual security interests INSOLVENCY AND NON-PERFECTION

 Terminology, eg reference to charges, pledges, liens, fixed, floating in corporation legislation  Policy -Attempt to be insolvency-neutral  But how to preserve priority claimants (eg employees) over former floating charge realisations – type of assets circulating  concept of control used differently from in perfection sense-PPSA  Attempt to exclude ROT etc refers to grantor not having title  How to align with broader ‘SI’ concept to include title-based security eg ROT- concept of PPSAROT property  Other provisions, particularly voluntary administration, whether ‘property of the corporation’ includes title based SI such as ROT  Eg whether security over all or substantially all of company’s property  Generally on liquidation, the definition of property of corporation only covers secured property that has vested in grantor due to non-perfection PPSA - ALIGNMENT WITH INSOLVENCY LAW

 Territorial scope of PPSA- if Australian grantor entity, OR goods, financial property, ADI account or account payable in Australia, or IP under Australian law  But then Part 7.2 conflict rules govern disputes in Australia re validity, perfection and its effect  Law (other than conflicts rules) of place where goods located  Law where debtor located if intangible  ADI accounts- law of place that governs the account  Other specific rules, including for mobile goods, and where destined for another jurisdiction  Special priority rule for accounts, financial property-where other jurisdiction has no register, then SP that registers in Australia prior to attachment of other interests will have priority  Can contract for Australian law to apply but only if grantor is Australian entity  Overrides statutory rules in Part 7.2  Not apply to intangible and transfers of accounts, in practice, applies to goods  Enforcement - Chapter 4 on remedies does not apply to goods outside Australia  Where PPSA applies due to Aus entity, probably the remedies law of the location of goods applies CONFLICT OF LAWS

 Education  Impact on SMEs and particular sectors  Transition/migration issues  Case law to date- Maiden Civil case, 2013  Review timeline- completion and report Jan 2015  Streamlining and simplification  particularly register issues  Relationship with insolvency legislation  Application of overseas jurisprudence  Political risk and regulatory capture  Overseas developments  NZ, Asia, EU?  International cooperation  In 2013, Australia passed legislation to enable it to ratify and incorporate the Cape Town Convention, Aircraft Protocol in domestic law- it will prevail over any inconsistent laws, including PPSA REVIEW AND PROGNOSIS