Personal Property Securities Register
A number of overseas jurisdictions have regimes to record financial interests and securities over non-real estate assets (for example equipment, motor vehicles, aircraft, boats, debts, insurance policies, licenses and intellectual property). These are known as personal property securities (PPS). In Australia, a PPS regime was introduced in January 2012. It applies to arrangements which are regarded in substance or which are deemed to be ‘security interests’ in personal property, including equipment leases, hire purchase, chattel mortgages, retention of title arrangements and securities over debts.
The PPS regime is relevant to equipment financiers across the full spectrum of their activities. A key element is that title (for example under a lease or hire purchase) has no bearing on priorities, instead what matters is whether there is an actual or deemed security interest and whether and when that interest has been registered.
The PPS Register is managed by the Insolvency and Trustee Service Australia (ITSA). The Register acts as a notice board which secured parties can use to notify interested parties of their interest in a particular asset or in all of the assets of a customer (known as a “grantor”). Registration does not affect the validity of a security between a secured party and a grantor but, critically, it determines the priority between secured creditors and third parties who may claim an interest in property covered by a security (for example the purchaser of a motor vehicle). A properly registered security interest will generally prevail over an unregistered interest, so there is a strong incentive for equipment financiers to register their interests under all types of financial arrangements.
Special provisions apply if the goods are “serial numbered goods” such as motor vehicles, boats and aircraft; if the goods will be “inventory” in the hands of the customer; and if the customer might on-hire or lease the financed equipment to its customers.
AELA was closely involved in the development of the PPS regime in Australia. An important benefit available to equipment financiers is the ability to take a “purchase money security interest” or “PMSI” over financed equipment and, if strict timing and other registration requirements are met, to achieve priority over prior registered security interests that are not PMSIs.
The PPS regime applies to pre-existing security interests that were in place before the Act came into effect in January 2012. A number of State and Federal registers (including the ASIC company charge register, REVS and bills of sale registers) were abolished. Securities on those registers were migrated to the PPS Register, with secured parties obliged to “find and claim” their registrations in order to be able to deal with or enforce them at a later date. AELA recommended that Members obtain lists of their registrations from the old registers and ensure that they were accurate, because a migrated registration which was defective on an old register (for example because of an incorrect serial or vehicle identification number) may not be effective on the PPS Register. In these cases, it would be necessary to re-register the security on the PPS Register.
Many security interests that were not previously registrable (such as equipment leases and retention of title arrangements) were given two years transitional protection until 29 January 2014. This allows time for secured parties to register their security interests if they require protection under the PPS regime. When the transitional period ends, the PPS rules will apply to these securities, including priority, extinguishment, enforcement and insolvency rules, whether or not they have been registered. For example, they will rank behind later-created security interests which have been registered; the security interest may vest in the grantor if it becomes insolvent; and the financier will have only have rights as an unsecured creditor. Financiers with transitional security interests which secure facilities that will be in place in January 2014 should register these on the PPS Register well before then to avoid these risks.
AELA worked with a number of industry and legal representatives to develop a model form of Deed of Priority and a Release and Undertaking for use under the PPS regime. These are available via the following link: http://www.afc.asn.au/afc_info/publications.html. The documents are not endorsed by AELA and their use is a matter for individual financiers, based on their legal advice, the transaction in contemplation and the nature of their business operations and customers. AELA has also circulated to Members draft wording for a payout letter and a no interest advice which, in some cases, may be more appropriate than a formal document in relation to security discharges and priority arrangements.
AELA is represented on industry liaison forums convened by ITSA to consider operational matters relating to the functionality and performance of the Register and to consider strategic and policy development matters relating to the PPS regime as a whole. Members are encouraged to inform AELA of any concerns with the day-to-day operation of the PPS Register, practical concerns with the application of the legislation to their businesses and of developing market practices in the registration, discharge and enforcement of security interests so that these can be appropriately addressed.