In the run up to the introduction of the PPSR on 30th
January 2012 I spent quite a bit of time explaining to businesses the
difference between Transitional and Non-Transitional security interests.
In general terms my explanation went along the following
lines:
In order for a Retention of Title clause to be effective
once the PPSR comes in, that ROT needs to be ‘perfected’. If the credit agreement that contained the
ROT clause was entered into before 30th January then it is
automatically deemed to have been ‘perfected’ by PPSA legislation for up to two
years. If the credit agreement was
entered into after that date, however, it would need to be registered on the
PPSR in order to be ‘perfected’.
(I appreciate that there are circumstances whereby
‘perfection’ can also be achieved through possession or control but these would
not have been relevant to the businesses consulting with me.)
There would also be some discussion about the absence of
fees for registering a Transitional Security Interest during the two year grace
period but generally I felt that the whole ‘Transitional vs Non-Transitional’
issue was pretty well understood and accepted.
Until, that is, I started to have letters from liquidators/Receivers or
their solicitors referred to me in respect of trading arrangements that
originated well before the PPSR’s 30th January commencement date.
One, for example, expresses the following view:
“The PPSA sets up a transitional regime whereby security interests
arising prior to 30th January 2012 are automatically perfected by
force of the legislation for a temporary period. Interests that arise on or after that 30th
January 2012 will only be perfected, however, if the interest has been
registered prior to delivery of the goods.”
Another takes a slightly different tack but still focuses on
the timing of individual security interests:
“It is our view that your Terms & Conditions of Sale, as attached
to your company’s Credit Account Application, do not constitute a security
agreement. In our view a security
agreement is only created when the contract of sale is formed including those
conditions.
In the context of the relationship between a vendor and purchaser of
goods, a contract of sale is formed in respect of particular goods only when
the goods are ordered and the order is accepted. Where no evidence of
acceptance of an order can be provided, the contract will be formed upon
delivery.
Given a number of your security agreements via the contracts were
formed after 30th January, and were not registered, you do not have
a security interest in any goods where the goods were supplied after 30th
January 2012.”
While both the above approaches use slightly different
needles they are essentially in the same vein, ie, the timing of individual
security interests determines the applicability of the PPSA’s transitional
arrangements rather than the underlying agreement that gave rise to those
interest.
In considering these issues the PPSR has a comparatively
useful Fact Sheet on ROTs and Leasing that has some useful entries on the
subject. I've put the link to the full document at the bottom of this
article but the key passages for our current purposes are as follows:
In order to give businesses an opportunity to adjust to PPS reform and
the need for registration on the PPS Register in particular, a 24 month
transitional period exists from registration commencement time (RCT).
The effect of this transitional period is that ROT suppliers or
lessors who have entered into agreements that create security interests in the
property supplied or leased before RCT will have two years to register those
interests.
It is important to note that it is the agreements that must predate
RCT, the security interests (for example, by way of supply the goods) may arise
after this time. Agreements entered into after RCT are not subject to the
transitional arrangements.
It is important to note that the PPS Act does not require a registration
to be made in respect of all supplies or leases to the same buyer or lessee. A
single registration may cover subsequent security interests in property that is
supplied under later agreements
The
PPSR is clarifying three things here:
1. There is a distinction between
the agreement that gives rise to the security interest and the security
interest itself;
2. Provided the agreement
creating the security interest predates 30th January any subsequent
security interests that arise from that agreement (whether before or after 30th
January) are subject to the transitional arrangements; and
3. One registration is sufficient
to cover multiple security interests where revolving supply contracts are
involved.
Thus
an agreement that creates a security interest can exist quite separately to the
security interest associated with individual supplies and an agreement put in
place prior to 30th January 2012 (RCT) can apply to security
interests that come into being after that date. It is the date of
the agreement (ie, the initial credit agreement between Supplier and Buyer)
that determines whether the PPSR’s transitional arrangements apply and not
the date individual security interests arise.
Before anyone
points out that an information note, while possibly giving an indication as to
intent, is no substitute for the rules themselves I’ll now bulk out this
article with a few relevant extracts from the Personal Property Securities Act (2009)
itself.
Section 307 of
the Act defines a “transitional security
agreement” as being
“a security agreement that is in
force immediately before the registration commencement time, and that continues
in force at and after that time.”
Section 308 of
the Act defines a “transitional security
interest” as being
“a security interest provided for by a
transitional security agreement, if:
(a) in the case of a security interest arising before the registration
commencement time—this Act would have applied in relation to the security
interest immediately before the registration commencement time, but for
section 310; or
(b) in the case of a security interest arising at or after the
registration commencement time:
(i) the transitional security agreement as in force immediately before
the registration commencement time provides for the granting of the security
interest; and
(ii) this Act applies in relation to the security interest.”
Note:
Section 310 provides that this Act only starts to apply to security
interests at the registration commencement time.
Section 321 of the Act provides that
“a
transitional security interest in collateral is taken to have attached to the
collateral immediately before the registration commencement time, whether the
security interest arises before, at or after the registration commencement
time.”
Section 322 of
the Act provides that
“A
transitional security interest in collateral is perfected from immediately
before the registration commencement time, whether the security interest arises
before, at or after the registration commencement time”.
Thus, to refer
back to the assertions made by liquidator/receivers that the PPSR’s
transitional arrangements do not apply to those deliveries made under
long-standing trading relationships that extend beyond 30th January 2012;
I think it is clear that both the intent and letter of the Act are against
them.
The suppliers
will, of course, still need to establish that a valid Retention of Title clause
was present in the original credit agreement with their buyer and that
subsequent deliveries were made subject to the terms of that original
agreement.
P
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