The End of the Transitional Period - What did it mean?

While it probably won’t have escaped your attention that the PPSA’s Transitional period came to an end at midnight of 31/01/2014, you are likely to be substantially less aware that security holders can, nevertheless, continue to register transitional security interests on the PPSR.  What is more, transitional registrations will continue to be free of charge from the PPSR.

It is, however, important to note that any registration identified as transitional must arise from a security agreement as in force on or before 30/01/2012. If your security interest relates to a later security agreement, registering that interest as transitional will almost certainly invalidate that registration.

You should note that a number of insolvency practitioners have indicated that, where any later amendment to pre-30/01/2012 Terms & Conditions has taken place, any subsequent security interests could not be deemed to be transitional.

If you are not confident you have documents dated prior to 30/01/2012 evidencing your rights to your security interest you will have a much easier time of it if you register your interest as non-transitional.

Obviously, the facility to continue lodging transitional registrations begs the question as to what all the fuss was about with the end of the transitional period.

Well, the key change is that any registrations lodged from 01/02/2014 onwards, whether transitional or non-transitional, will only be effective from the date of registration – there is no longer any provision for ‘counting back’.

Certainly the biggest losers out of those who failed to register a transitional security interest before the end of the transitional period would be banks or financiers securing a loan.  A bank registering collateral for their ‘transitional’ loan on 31/01/2014 would have their ‘seniority’ counted back to 30/01/2012 whereas if they had registered a day later their ‘seniority’ would be determined by their actual registration date and they would thus lose out to anyone who had registered earlier even though their loan agreement might have been entered into later.

While this might still be an issue for trade credit suppliers it is certainly less of an issue provided they don’t leave it too long before they register their security interests.  The longer the gap between the end of the transitional period and when a supplier finally lodges their registration the greater the risk that they will lose out.

Suppliers wanting to perfect a Purchase Money Security Interest (PMSI) based on a retention of title clause must register prior to the goods they are supplying being delivered (or, in the case of supply of non-inventory items, within 15 days of delivery).