When should a PPSR registration be lodged?

In general terms, the answer is ‘as soon as possible’ and, in this context, that means, as soon as the supplier has a reasonable belief that they may be doing business with the grantor in question and that such business will involve the granting of a security interest.

In order to avoid falling foul of the Corporations Act, the supplier’s registration should be lodged within 20 business days of their security agreement being formed. For trade credit suppliers, that security agreement will usually be represented by the signing of the initial credit application by which the supplier’s Terms & Conditions of trade are accepted (provided, of course, that those T&Cs contain the supplier’s security rights – usually in the form of a Retention of Title clause).

If the registration is not lodged within that 20 business day period, the supplier runs the risk that, if their customer falls insolvent in the next 6 months, a liquidator will be able to use section 588FL of the Corporations Act to, effectively, ignore the registration.

I’ve written at greater length on the implications of section 588FL HERE.

Obviously, if the supplier misses that 20 business days window, they should still go ahead and register on the PPSR as soon as possible, it just means that they’ll need to keep their fingers crossed that a liquidator doesn’t get appointed during the next 6 months – once 6 months have elapsed with no liquidator in sight, the supplier can relax.

If we put aside for one moment the Corporations Act provisions, the other key timing issue concerns the effectiveness of your Purchase Money Security Interest (PMSI) rights.

As we know, Retention of Title suppliers, those providing goods on a Consignment Stock basis, and long-term leasers of equipment automatically qualify for having the security arrangements that those trading practices represent designated as PMSIs, thus entitling them to a super-priority over any earlier (or later) registered general security interests.

However, in order to ensure their PMSI right is effective, the registration must be lodged within specific time frames:

Where the Collateral is Inventory	Before the grantor takes possession of the goods
Where the Collateral is not Inventory	Within 15 business days of the grantor taking possession of the goods

Any registration lodged outside of those time frames will still be valid, but it won’t benefit from the super-priority that the PMSI designation would otherwise afford.

If repeat supplies are involved, suppliers should remember that even though they may have registered too late for the first few deliveries, a registration will still be effective over later deliveries.

PPSR Statistics and Transitional Registrations

AFSA (the people that operate the PPSR) released their statistics for the quarter ended 31 March 2017 this morning. 

The report, which is quite brief, only comprising seven, easy to read, tables, can be found here.

There’s nothing terribly exciting contained in the report - registrations against motor vehicles account for a little under half of all registrations and a little over half of all searches, and intangible property still appears to be substantially better protected as collateral than agricultural property.

However, what puzzled me was the fact that, during the January – March quarter, 18,686 of the half a million or so registrations lodged were designated as Transitional.

While 18,686 is not very much in percentage terms (3.7% to be precise) it still represents an awful lot of new registrations asserting that the security interest they are intended to protect arose out of an agreement put in place over 5 years earlier and remaining unchanged since that time.

When the PPSR first started, Transitional registrations were free to lodge and, regardless of the date of the registration, the perfection a Transitional registration provided was, effectively, backdated to before the PPSR’s commencement.  However, when the Transitional arrangements ended in February 2014, although still free, the perfection granted by a Transitional registration was no longer backdated and, like non-transitional registrations, only applied from the registration date.  From July 2015, Transitional registrations ceased to be free and began attracting the same charges as their non-transitional equivalents.

The only real difference now between a Transitional registration and a non-transitional registration is that section 337A of the Act states that if you identify your registration as relating to a Transitional security agreement it will be ineffective for any collateral that is not covered by a Transitional agreement. There is, of course, also that annoying section 51 of the Corporations Act that states that a Transitional security interest doesn't count as a PPSA Security Interest!

In other words, if you designate your registration as Transitional and it turns out that your security interest isn’t, your registration will be, effectively, worthless.

Importantly, there is no equivalent clause in the Act stating that non-transitional registrations would be ineffective if it turns out they concern Transitional security agreements!

Thus, mistakenly identifying your registration as non-transitional isn’t half as dangerous in its implications as mistakenly identifying it as Transitional!

While I can certainly understand lodging a Transitional registration during the first couple of years of the PPSR, and can understand the attraction of not being charged for lodging a Transitional registration up to July 2015, I’m not sure I understand the reasoning behind persisting with lodging Transitional registrations today.

18,686 represents the second highest number of Transitional registrations lodged during a quarter since the PPSA’s Transitional Arrangements came to an end and brings the total number of Transitional registrations lodged since that time to over 175,000 – of which almost 100,000 were lodged since the price differential was removed.

I can’t help worrying that there are a significant number of businesses that started following a template for registrations 5 years ago and haven’t made any moves to update it since.

My advice remains:

• 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 any doubt register as non-transitional.

Links to earlier articles relating to the Transitional vs Non-Transitional ‘debate’ can be found here.

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

PPSR Registrations Against Sole Traders

While the PPSR allows you to describe your registration as being in respect of a security interest arising from either a Commercial or Consumer transaction, when it comes to registering that interest against an individual this differentiation appears to have no real effect.

Registrations against a sole trader entering into a security agreement on behalf of their business still have to be lodged against the individual as opposed to the business.

Any registrations against an individual must identify the individual by their full name (such as would appear on their drivers licence) and date of birth.  

The fact that the sole trader has a valid ABN (Australian Business Number) which featured prominently on their application for credit is neither here nor there and the PPSR provides no facility for entering this number as part of the registration.  

But what if the sole trader is acting as the trustee of a Trust?  The PPSA allows for the registration of security interests against Trusts using the Trust ABN - doesn't this allow a creditor to avoid having to use the sole trader's name and date of birth?

Unfortunately, the answer is far from clear.  

The Personal Property Securities Regulations 2010 provides the following definition for an individual:

individual:

                (a)    includes a sole trader who has an ABN for the enterprise for which the security interest is granted or held; and

               (b)    does not include an individual who is a partner in a partnership or a trustee of a trust if the partnership or trust has an ABN for the enterprise for which the security interest is granted or held.

Well, what's unclear about that? (b) seems to be saying quite clearly that if the sole trader is using a Trust ABN then they don't have to be treated as an individual for the purposes of registration.  

Agreed, but if we look further at the Regulations they go on to state that the prescribed details for lodging a registration against a trustee are:

               (a)    for a trustee that is an individual — the details mentioned in the item of the table in clause 1.2                        that:

                          (i)    applies to the trustee; and

                         (ii)    has the lowest item number;

The table in clause 1.2 referred to here takes us back to the instructions stating that the details needing to be provided are the full name and date of birth of the individual as found on their drivers licence!

Now, while I would suggest that the intention of the Act is probably to allow for sole traders who are acting as trustees for Trusts that have ABNs to have registrations lodged against the Trust (as an organisation) and be identified by that Trust's ABN, the relevant wording is so convoluted and unclear that, in the absence of legal precedent, a case could be made either way.

When Transitional Arrangements Don’t Apply

The PPSA and its transitional provisions got another run through the courts in the case of The Receivers of Maiden Civil (P&E) Pty Ltd & Others v Queensland Excavation Services Pty Ltd & Others NSWSC 852 in which a decision was handed down last week.

In many ways the case is not especially noteworthy (other than by virtue of involving the PPSA) and is mainly being cited as confirming what was pretty much accepted anyway:

That the supplier of unpaid for goods will lose them to the liquidator of the company to which they had been supplied unless the supplier holds a perfected security interest over them.  (Section 267 of the PPSA refers).

This will apply whether the goods have been supplied under a contract of sale, leasing arrangement, consignment stock agreement etc.

In the case of Maiden Civil v QES the supply was under a long term leasing arrangement.

Leasing arrangements are deemed by the PPSA to automatically qualify for security interest status by their very nature (sections 12 and 13 of the PPSA refer).

What was particularly interesting to me; however, was why the court determined that the lessor’s security interest had not been perfected by the PPSA’s transitional rules.  The leasing arrangement had been put in place long before the start date of the PPSR and there was nothing about the lease that exempted it from the purview of the PPSA so why no transitional protection?

The answer appears to lie in section 322(3) of the PPSA. 

322(1) covers when the perfection of a transitional security interest begins, 322(2) covers when that perfection ends and 322(3) covers exceptions as follows:

(3)               Subsections (1) and (2) do not apply to a transitional security interest in collateral if the interest is of a class prescribed by regulations made for the purposes of this subsection.

Unfortunately, this didn’t make things much clearer to me until I opened up the Personal Property Securities Regulations 2010.  This is a formal legislative instrument that, among other things, provides a definition of Motor Vehicle and Watercraft and provides some rules relating to access to the PPS Register.

It also, at regulation 9.2, clarifies what is meant at 322(3) of the PPSA, by stating:

         (1)   For subsection 322 (3) of the Act, a transitional security interest is prescribed if, before the registration commencement time it was:

               (a)    registrable on a transitional register, under legislation that conferred priority on security interests that are registered; and

               (b)    not registered.

What this means in practice is that, because at the time of entering into the Leasing arrangement there was already a perfectly good pre-PPSR register in place for registering such interests (in this instance the NT Register of Interests in Motor Vehicles and Other Goods) that was not used, the PPSA’s transitional rules will not apply.

Basically, if you didn’t have your act sufficiently together to register your security interests on the appropriate register before the PPSR was introduced then you can’t rely on the PPSA’s transitional rules to save you when things go wrong!

There’s an excellent overview of the full circumstances of the Maiden Civil case to be found at http://www.herbertsmithfreehills.com/insights/legal-briefings/key-ppsa-decision-nswsc-confirms-vesting-of-unperfected for anyone interested in reading further.

Transitional Rules Revisited

It’s been over a year now since I described what I saw as the intent behind the PPSA’s Transitional arrangements and how a number of insolvency practitioners were seeking to negate that intent with their far more restrictive interpretations (click here for my original piece).

Since that time we have remained without any legal precedent that could be used to determine the issue once and for all.  However, as the 17^th month of the PPSR’s operation drew to a close (the end of June 2013 for those not wanting to count), Justice Beech and the Supreme Court of Western Australia stepped up to the crease and took a pretty healthy swing at the issue.

The Case

In 1998, Supplier Pty Ltd and Buyer Pty Ltd entered into a credit agreement containing a Retention of Title clause intended to provide terms and conditions applicable to future deliveries made by Supplier to Buyer.  Supplier was also the beneficiary of a guarantee from Mr Guarantor committing Mr Guarantor to making good any shortfall in monies owing to Supplier in the event of Buyer’s non-payment.

Back to the present day and the issue being considered is the extent to which Supplier Pty Ltd is able to maintain a caveat over real estate property held by Mr Guarantor by way of protecting the effectiveness of his guarantee.  Mr Guarantor has argued that Supplier’s failure to register their ROT security interest against Buyer Pty Ltd increases the likelihood of a higher value claim against Mr Guarantor’s property and thus maintaining the caveat would be unfair.

Supplier Pty Ltd argues that their ROT interest over Buyer Pty Ltd has been perfected by the PPSA’s Transitional provisions and does not need to be specifically registered in order to be effective.

The Judgement

Unfortunately for us, Justice Beech was not required to rule on whether Supplier’s ROT security interest was, in fact, perfected under the Transitional rules but merely to adjudge whether Supplier Pty Ltd had a ‘seriously arguable’ case.  

Fortunately for us, His Honour considered that Supplier had indeed demonstrated a seriously arguable case that:

• The 1998 document constituted an agreement that would govern future deliveries;
• The 1998 agreement gives retention of title rights in respect of each delivery;
• The 1998 agreement is a security agreement as defined in the PPSA;
• As the 1998 agreement was in force and ‘active’ at the time the PPSR went live, it constitutes a transitional security agreement (s307); and
• As the 1998 agreement provides for the granting of security interests, any security interest associated with deliveries made subject to the terms of that agreement will be transitional security interests (s308).

So while WA’s Supreme Court decision may not have been decisive for our purposes it gives a clear indication that our views as to the intention of the PPSA’s Transitional arrangements are likely to be upheld should they be presented in court and must seriously dent the confidence of those IPs attempting to argue differently.

Remember, however, that all terms & conditions, all credit agreements and all ROT clauses are not created equal and much will depend upon how each have been drafted and to what extent and in what manner they may have been amended or updated since the PPSA came into effect. 

For those who want to investigate this particular case more closely, the decision to which I refer was in relation to Industrial Progress v Wilson and others.  Don’t bother trying to look up Supplier Pty Ltd v Mr Guarantor.

When Should a PPSA Registration be Discharged?

Section 151 of the PPSA allows for registration of a security interest where the Secured Party has a reasonable belief that the collateral identified in the registration will become the subject of a valid security interest in their favour.

Because of the requirement under the Act for security interests taken in inventory to be registered in advance of the debtor/grantor taking possession there will inevitably be circumstances where a registration is in place but not yet applying to specific collateral held by the debtor/grantor.

This is particularly the case in circumstances involving on-going supply, or the reasonable expectation of on-going supply.

If a supplier is approached to open a credit account for a new customer then, provided that credit account includes a provision for a security interest (such as a Retention of Title clause), the opening of that account should be deemed to create a sufficiently reasonable belief in the likelihood of a security interest attaching to collateral thus satisfying the requirements of Section 151.

Similarly, unless it has been specifically stated that the sole purpose of that new credit account is to accommodate a one-off purchase, it would not be unreasonable for that supplier to anticipate a measure of continued/repeat business once the initial purchase under the account has been completed.

However, where there are no longer any reasonable grounds for anticipating on-going business/orders (and there are no monies outstanding on the account) then the registration should be discharged within 5 business days from the point at which there stopped being reasonable grounds for anticipating on-going business.

A clear and unambiguous point at which it could be determined that ‘reasonable grounds’ ceased to exist would be the date the Secured Party received confirmation from the debtor/grantor that no further purchasing was anticipated, possibly accompanied by a request to discharge the registration.  At such point the Secured Party would have 5 business days to discharge the registration.

Unfortunately, real life often does not present us with ‘clear and unambiguous’ events and it is quite likely that many suppliers will have open credit accounts on their books that have been inactive for some time.  At what point does it no longer become reasonable to sustain a belief in the likelihood of further trade (and thus the imminent attachment of their security interest)?  Disappointingly, the PPSA provides no guidance in this and legal precedents have yet to be set so we may well be entering ‘how long is a piece of string’ territory.

However, before suppliers relax too much they should note that part 4 of Section 151 places the burden of proof firmly on the shoulders of the Secured Party (supplier) in establishing the reasonableness of maintaining a registration in the absence of any current trading!

While this shifting of the burden of proof to require the ‘accused’ to prove their ‘innocence’ may come as a rude awakening to those whose legal expertise comes from watching episodes of ‘Law & Order’, those who have to deal regularly with liquidators or the Taxman will simply see this as par for the course.

Although I appreciate that it is much more easily said than done, suppliers’ primary defence against claims of unreasonable registrations will be tight and efficient credit control procedures, regular monitoring of accounts and good communication with customers. 

At a bare minimum credit departments should make sure they have “Discharge PPSR Registration” as a priority item on their check-list whenever an account is closed.

The relevant portions of Section 151 referred to above are reproduced below:

151  Registration—belief about security interest

Requirements for collateral to secure obligation etc.

             (1)  A person must not apply to register a financing statement, or a financing change statement, that describes collateral, unless the person believes on reasonable grounds that the person described in the statement as the secured party is, or will become, a secured party in relation to the collateral (otherwise than by virtue of the registration itself).

Civil penalty:

                     (a)  for an individual—50 penalty units;

                     (b)  for a body corporate—250 penalty units.

             (2)  If a financing statement, or a financing change statement, that describes collateral has been registered on the application of a person, the person must, within the period covered by subsection (3), apply to register a financing change statement to amend the registration to end its effect with respect to the collateral, if:

                     (a)  the person described in the statement as the secured party has never, since the statement was registered, been a secured party in relation to the collateral (other than by virtue of the registration itself); and

                     (b)  there are no reasonable grounds (or there are no longer any reasonable grounds) for the belief mentioned in subsection (1).

Civil penalty:

                     (a)  for an individual—50 penalty units;

                     (b)  for a body corporate—250 penalty units.

             (3)  The period covered by this subsection is as soon as practicable, or 5 business days, whichever is earlier, after:

                     (a)  if there never have been, since the statement was registered, reasonable grounds for the belief mentioned in subsection (1)—the day of the registration time, or the amendment time, for the financing statement or financing change statement; or

                     (b)  if there are no longer any reasonable grounds for that belief—the day when there stopped being reasonable grounds for the belief.

             (4)  A person who wishes to establish that there were reasonable grounds for the belief mentioned in subsection (1) (at any particular time) bears an evidential burden in relation to the matter.

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) 

PPSA Pitfalls

I've been asked to compile some speaking notes for a colleague who wants to talk about some of the PPSA pitfalls we have become aware of since the PPSR opened for business at the end of January this year.  

While this is far from an exhaustive list (this is for a speaking engagement after all and it doesn't take long for eyes to glaze over once the subject of PPSR is raised) I nevertheless thought it might be helpful to reproduce it here.

• Don’t rely on an independent body such as a judge, court or the PPSR itself to determine the validity of your security interest under the PPSA – more often than not such issues will be decided by a receiver acting on behalf of a bank who will have a vested interest in defeating any competing rights you hold.
  
• Where the PPSA requires goods to be registered by serial number you must not make any mistakes in recording that serial number on the PPSR as any error is likely to invalidate the registration without it having to be demonstrated that anyone was misled by that error.
  
• Banks are frequently (wilfully?) misunderstanding PPSR registrations and asking suppliers to discharge registrations to enable the bank to put their own registration in place – they are then ‘generously allowing’ the supplier to re-register their own interest!  Do not fall for this!
  
• If your debtor/grantor is a company with an ACN and you do not specifically register against that ACN then your registration will almost certainly be deemed to be invalid.
  
• Timeliness is very important. Do not allow your new credit agreements to pile up with the intention of registering  them all at the end of the month.
• Where your goods are destined to form part of your buyer’s inventory (WIP, end product etc.) you need to register before you make delivery.
• Where you are selling equipment that will not be on-sold you need to register not later than 15 days from delivery.
  
• Do not confuse ARBNs with ABNs – an ARBN (Australian Registered Body Number) is a 9 digit number issued by ASIC, most commonly to overseas companies whereas an ABN is an 11 digit number issued by the Australian Business Register.  We have seen a lot of invalid registrations arise from this confusion.
  
• While the PPSA does not require you to obtain prior permission from your buyer to register your security interest against them it does require you to notify them once you have lodged your registration. (With the right wording in your agreed Terms & Conditions, however, you can have your buyers waive their rights to receive such notification).
  
• PPSR registration is not enough to justify your claim against an administrator; you will still need to be able to provide the documents that demonstrate you have the valid security interest you are claiming with your registration.
  
• Most know that Retention of Title clauses justify PPSR registration but don’t overlook the need to also register consignment stock and long-term leasing arrangements.
  
• Make sure that your staff who are actually lodging your registrations understand what they are doing – we see many instances where they seem confused by terms such as ‘inventory’ and ‘Retention of Title’ let alone ‘Purchase Money Security Interest’.
  
• It is better to have a PPSR registration you don’t need than to need a registration you don’t have.
  
• Do I need to register all my security interests – No, only the ones you want to be effective.

Challenges to the PPSA’s Transitional Rules

In the run up to the introduction of the PPSR on 30^th 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 30^th 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 30^th January commencement date.

One, for example, expresses the following view:

“The PPSA sets up a transitional regime whereby security interests arising prior to 30^th January 2012 are automatically perfected by force of the legislation for a temporary period.  Interests that arise on or after that 30^th 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 30^th January, and were not registered, you do not have a security interest in any goods where the goods were supplied after 30^th 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 30^th January any subsequent security interests that arise from that agreement (whether before or after 30^th 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 30^th 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 30^th 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.

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Link to the PPSR's Info Sheet on ROTs & Leasing:

http://www.ppsr.gov.au/AsktheRegistrar/FactSheets/Documents/Retention-of-title-and-leasing.pdf