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Wednesday, 28 November 2012

PPSA & Real Estate

There seems to have been a flurry of activity over the last month with a number of our clients being pestered to discharge PPSR registrations on the basis that they are impeding the sale of real estate property.

While this is an obvious nonsense it is, unfortunately, being propagated by a number of legal professionals and is becoming such a nuisance that I was asked to draft up a letter on behalf of a client which they could then send to their customers.  

Our client sells building materials which go to form an integral part of the structure of a building and their immediate customers are usually builders who will then be selling the resulting building.

The draft went as follows:

The Personal Property Securities Act 2009 (PPSA) was passed by Government in an attempt to simplify and clarify how security interests are treated across the whole of Australia. 
One of its key elements has been the creation of a national register (the PPSR) where the holders of security interests are encouraged to register the existence of those interests.  As a matter of company policy, we have decided that we will register all our security interests on the PPSR.
Our registration is strictly in relation to a security interest we maintain over the goods we supply in the form of a Retention of Title clause enshrined in our standard Terms & Conditions of Sale.
Our registration on the PPSR is purely a means to safeguard our position against any competing claims from other creditors and should not, as a matter of practicality, change our normal trading relationship with you nor indicate any concerns regarding your value to us as a trading partner.
However, the PPSA is still relatively new to everyone and misunderstandings abound – particularly with organisations which you might think would know better such as banks and solicitors. 
One such misunderstanding may arise when you are attempting to sell real estate property. 
During the sale process, someone (usually a conveyancer) will discover that [Client Name] holds a PPSA security interest against your business and will decide that the real estate sale cannot be concluded until [Client Name] has released and/or discharged its security interest.
If this occurs you should point out to whoever draws this to your attention that the PPSA does not apply to the sale of real estate or to any fixtures attached to such property.
For further confirmation you may direct interested parties to the PPSR’s web site at www.ppsr.gov.au where it clearly states that:
Under the Personal Property Securities Act 2009 (Cth), personal property is defined as any form of property other than land, buildings or fixtures that form part of it or a right (such as water rights), entitlement or authority.
You may also make reference to Section 8(1)(j) of the PPSA which specifically identifies fixtures as an item of property to which the Act does not apply and Section 10 of the same Act which defines the Act’s use of the term fixtures.
Our registered security interest applies to rights we hold to recover unpaid goods that we have supplied up until the point those goods are incorporated into a building and become fixtures
After that point our security interest transfers to a portion of any proceeds that may arise from the sale of that property but no longer applies to the property itself.
Please feel free to send a copy of this letter to anyone requiring the release of our PPSA registered security interests as a pre-condition to allowing the sale of real estate to go ahead.  When presented with a request based upon a misunderstanding our inclination is to dispel the misunderstanding rather than perpetuate it by humouring the request.

I have a particular fondness for the last line although I don't doubt that this would be one of the more likely elements to be edited out by anyone choosing to base their own letter on this draft.

Feel free to use the draft as you see fit (although if you want to publish a version on your own website I'd appreciate the credit).

P

Tuesday, 27 November 2012

PPSR Facts n Figures


The PPSR’s Registrar, David Bergman provided the following statistics for the PPSR’s first 9 months of operation:

Security Interests currently registered on the PPSR = 7.5 million
Migrated or pre-loaded security interests = 6.3 million
Registrations lodged since 30th January 2012 = 1.2 million

As far as Collateral Class is concerned, the vast majority of registrations are in respect of Motor Vehicles accounting for a massive 4.1 million registrations.  Next up are AllPAP (All Present and After Acquired Property) registrations at 2.3 million with ROT and Leasing registrations combining in third place at 864,000.


2.3 million searches have been undertaken so far on the PPSR – just over 60% searching for specific serial numbered goods, a little under 10% searching by registration number and the remaining third searching by grantor name.

Interestingly, in the July to September quarter, there were nearly twice as many amendments and discharges undertaken on the PPSR than new registrations!

New Registrations            579,424
Amendments                    730,885
Discharges                       358,489

Statistics for the July to September 2012 quarter can be found at http://www.ppsr.gov.au/NewsRoom/News/Pages/StatisticsJulytoSeptember2012.aspx


P

Making Amendments on the PPSR


It is obviously very important to get the details of your PPSR registration correct at the time of registration but every now and then an error will be made or information omitted that might be more helpful to others if it were to be included.  And thus, the prudent security holder will need to lodge an amendment.

The PPSR accepts that amendments might be necessary and breaks amendments down into three categories:  minor, major and benign.

Minor amendments will involve such things as:

  • adding or changing a collateral description text (for most collateral classes this is an optional free-text field of up to 500 characters);
  • adding or changing a Giving of Notice Identifier (effectively, a customer reference field);
  • or re-describing a proceeds description (this is automatically defaulted by the PPSR to ‘all present & after acquired property’).
Minor amendments will be charged at $3.40 by the PPSR.

Major amendments involve, as the label suggests, more substantive changes to the registration.  The most obvious examples of these will be the extension of a registration’s expiry period and the addition of a grantor.

Major amendments are charged as if they were a fresh registration, that is, equivalent to the length of the expiry period ie, $6.80 for a 7 year registration period, $34.00 for a period of between 7 and 25 years and $119.00 for an indefinite period.

Benign amendments (my term, not the PPSR’s) are what would otherwise be major amendments that have the effect of lessening or reducing the nature of the registration.  Examples will include:

  • Reducing the length of a registration period;
  • Removing a grantor where the registration identifies more than one grantor; and
  • Discharging a registration (this is effectively the same as the first ‘benign’ example as the mechanism for discharge is to bring the expiry date forwards to the current date).
Benign amendments although major in nature do not attract a charge from the PPSR.

Other potentially amendable registration elements such as:

  • toggling the Purchase Money Security Interest (PMSI) flag;
  • changing the collateral class; or
  • re-designating collateral as inventory
are not permissible amendments. 

Quite why this should be the case is not clear. Why should it be allowable to change the identity of who is granting the security interest but it not be possible to change the collateral of that security interest?

But by far the biggest inconsistency with the PPSR’s approach to amendments rests with its pricing structure.

I’ve got no problem with the PPSR attempting to recover a contribution towards its development and maintenance costs by charging for amendments and, once we get past the ‘minor’ amendments, the idea of aligning charging with the price of an equivalent registration has some merit; however, why is this approach not applied consistently where Transitional registrations are involved?

If I lodge a transitional security interest with no stated end date the PPSR will not charge me.  If I then realise that I failed to include an additional grantor on my registration and try to correct that error via an amendment the PPSR will charge me $119.00 for the privilege!

*While the work around will be to discharge the incorrect registration (no PPSR fee) and register a fresh Transitional security interest (again no PPSR fee) it seems a nonsense that two separate free PPSR transactions should need to be used as a more reasonable alternative to a single transaction amendment charged at $119.00.

P

Re * above, while my workaround was appropriate at the time of writing, the PPSR's decision to start charging for transitional registrations from 1st July 2015 onwards pretty much invalidates this as a practical solution.

Note: Edited to reflect new PPSR charges introduced on 1st July 2013.
         Further edited to (belatedly) keep up with current PPSR pricing (12/2016) 

Friday, 23 November 2012

PPSA & The 'All Monies' Clause

Earlier today I was asked the following question by one of my colleagues:


If a client [a supplier] has a customer that has goods on their floor that HAVE been paid for, but owes them for goods that have not been paid for, but since used / on-sold  can they go in and get the paid for goods?


Our client’s rights in this begin with the terms of their Retention of Title clause [ROT].  

While a basic ROT would only allow for the client to recover unpaid for goods, an ‘All Monies’ extension to the ROT would allow the client’s recovery rights to also attach to goods that had been paid for provided that other goods they had supplied had not.

However, while the ROT will describe what security interest is present, it is the PPSA that will determine the relative priority of that security interest over other competing interests.

Under PPSA an interest in collateral that secures its own purchase price is designated as a Purchase Money Security Interest [PMSI] and a PMSI will have, effectively, the highest priority around.  Thus recovering unpaid for property should be relatively straightforward and uncontentious (we obviously know better but this is the theory at least!).

However, under an All Monies clause we are not referring to goods that are securing their own purchase price, we are instead referring to goods that have already been paid for but secure the purchase price of other goods that have not yet been paid for.

The paid for collateral that enters the scenario by virtue of the All Monies clause cannot, therefore, be designated as a PMSI security interest.

The upshot being that the unpaid for collateral can be treated as a PMSI and recovered without the need to worry about higher priority competing claims while the paid for collateral is treated as a general non-PMSI security interest and may only be recovered once higher priority competing claims have been considered.  

In this instance, a higher priority competing claim may be an earlier all present and after acquired property security interest put in place many years ago by the customer’s bankers.

If this is a question regarding an actual situation a client is finding themselves in then I would suggest they have a go at recovering all they can as soon as they can.  This is still very new territory to many and our client may get lucky!

P