Transitional or Non-Transitional - the short & shiny version

When the PPSR was introduced on 30/01/2012 the legislation effectively stated that any new security/credit agreements you entered into after that date would only be fully effective if they were promptly registered on the PPSR and that their effective date would be deemed to be the date of that registration.

However, where you already had an existing security/credit agreement in place before that 30/01/2012 start date, the PPSA’s transitional rules would deem any security interests arising from that agreement to have been rendered fully effective (without the need for registration) for a period of up to 2 years.  To be effective for more than 2 years, registration would be required.  

During that 2 year period these pre-existing security agreements would be deemed to have an effective start date of just before the PPSR’s 30/01/2012 commencement date.  Any of these transitional agreements that were registered on the PPSR during the 2 year period between 30/01/2012 and 31/01/2014 would also be allowed to ‘count’ their effective date back to before the start of the PPSR rather than the date of the registration itself.

Now that the 2 year window for keeping the pre-30/01/2012 ‘count-back’ has closed, all registrations being lodged on the PPSR have an effective date aligned to the date of registration.

The only real difference now between designating a registration as a transitional as opposed to a non-transitional security interest is that the PPSR does not levy a charge ($8.00) for registering transitional security interests.

UPDATE: The PPSR now charges exactly the same for lodging a Transitional registration as it does for a non-transitional registration.

Over the past 2 years or so we have seen many instances of insolvency practitioners attempting to invalidate or otherwise discredit security interests on the basis that they had been designated as transitional rather than non-transitional.  I have never come across an instance where the reverse has been the case.

• If the agreement signed between you and your customer is dated after 30/01/2012 then you should register as non-transitional.
• If your applicable terms and conditions have been amended since 30/01/2012 you should register as non-transitional.
• If you can’t find a copy of your agreement with your customer then you should look to get a fresh one signed and register as non-transitional.
• If your signed agreement doesn't incorporate your security agreement and your retention of title clause only appears on your invoice then you should register as non-transitional.
• If you're in doubt register as non-transitional.

More information (and my personal contribution to the war on insomnia) can be found at:

http://ppsr-blog.blogspot.com.au/2014/03/the-end-of-transitional-period-what-did.html

http://ppsr-blog.blogspot.com.au/2014/03/a-long-standing-credit-agreement-is-not.html

http://ppsr-blog.blogspot.com.au/2013/07/the-dangers-of-amended-terms-conditions.html

http://ppsr-blog.blogspot.com.au/2013/07/transitional-rules-revisited.html

http://ppsr-blog.blogspot.com.au/2012/10/registering-transitional-security.html

http://ppsr-blog.blogspot.com.au/2012/05/challenges-to-ppsas-transitional-rules.html

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).