The Personal Properties Securities Act 2009 (PPSA) has been heralded as one of the most significant pieces of legislative reform for Australian business in many years. For such an important piece of legislation, albeit one that has suffered a few false starts in terms of implementation (hence the 2009 date on the Act), it is a wonder that so few business owners are aware of the PPSA. In preparation for this article, we conducted a quick straw poll of 50 randomly selected SMEs and found that fewer than 20 per cent of respondents had any knowledge of the new regime.
Before we explain the workings and definitions of the PPSA, the first thing you need to do is find out if it will affect your business. In a simple ‘business impact’ test, if you answer ‘yes’ to any of the following three questions, then the PPSA will have a material effect on your business and you need to take action to prepare for the new regime:
1. Do you lease goods to customers? (i.e. cars, IT equipment etc.)
2. Do you use property to secure payment from your customers? (i.e. retain ownership until the debt or other obligation is discharged)
3. Do you sell goods to your customers with Retention of Title Clauses? (i.e. you remain the legal owner of the goods until any debt is settled such as, say, 60-day payment terms on goods sold)
Considering the examples above, it is likely that most businesses operating today will consider that they have watertight contracts, terms and conditions of business and the like which cement their ownership rights in the event of a default or a company entering liquidation.
But under the PPSA regime, that will not be enough. The reality is that in the event of a default, there may be many others in the ‘queue’ to recover debts or property. The PPSA is designed to give clarity and consistency to the ‘queue’ – but the key to this is the correct and proper registration of the security interest in the property in the first place.
The Legal Practitioners’ Liability Committee puts it like this: ‘Without a doubt, this (the PPSA) will have a profound impact upon the general business community, both in the short and long term. Any business that supplies goods (whether by way of sale, lease or under terms and conditions) faces a real risk of suffering significant losses in the future if it does not come to grips with the reform and take the necessary steps to protect its rights. Conversely, businesses that do make appropriate use of the Register will reap real benefits by being able to enforce rights over personal property in ways that have not been previously available.’
Why is this? Put simply, the PPSA intends to consolidate the 70+ Commonwealth, State and Territory Acts and security registers that regulate personal property securities into one single national register or remove them entirely. It is designed to reduce complexity and offer consistency by providing uniform rules for all security interest in personal property. It will also provide businesses with peace of mind when transacting with personal property, as it will be easier to see if the property concerned is subject to any third-party interests (such as retention of title, leases and financing arrangements).
Why should I act now?
Under the new regime, the priority of secured creditors in the event of insolvency will change. Those who fail to take adequate measures in preparation for the PPSA risk losing any right to property in the possession of another entity in the event of liquidation or receiving a greatly reduced return on a security over personal property. So what does this mean in real terms?
What action do business owners need to take?
Businesses will need to carefully consider specifically how, under the new regime, they protect any ‘personal property’ that they own or have an interest in. This may include seeking appropriate advice to assist with:
1. reviewing trading activities and checking standard terms of supply, financing arrangements and contracts
2. identifying the assets that are affected and property that needs to be registered on the Personal Property Securities Register (PPSR) to ensure priority (as in most cases, a registered interest will have priority over an earlier unregistered interest)
3. redrafting standard terms and preparing new internal procedures for registering interests.
The PPSA is scheduled to take effect in early 2012, at which point a 24-month transition period will commence.
MSI Global Alliance is a global association of independent legal and accounting firms. Legal member firms in Adelaide, Brisbane, Melbourne, Perth and Sydney are all able to advise businesses on the impact of the PPSA. Visit www.msi-anz.net