Australia Wakes Up with Personal Property Securities Reform
The new Personal Property and Securities Act 2009 (Cth) ('the Act') is due to commence in February 2012. The Act will bring about significant changes to the regulation of personal property securities across Australia by way of a collective referral of power to the Commonwealth by the States and Territories.
The purpose of the Act will be to harmonise the currently fragmented legislation and case law into a single national framework. The new laws will have a considerable impact on small and large businesses in various industries and for this reason we advocate swiftly becoming educated on the operative provisions of the Act in order to be prepared for the looming commencement this coming February.
Key features of the Act
The new regulations will affect securities granted in respect of, but not limited to, fixed and floating charges, chattel mortgages, hire-purchase agreements, consignments, leases or bailments of goods, assignments of goods and agreements incorporating retentions of title.
The Act will establish a national electronic register of all 'security interests' in personal property. However, unlike the Torrens system of land title registration, the register will serve only as a public notice board of registered personal securities and will not provide conclusive evidence of priority over competing interests.
Priority of security interests
In order for a security holder to establish priority, the relevant security interest must be 'perfected' by way of registration, possession, or in some cases control over the subject property. In the absence of perfection, a buyer or lessee of personal property for value will take title of the property free of any unperfected security interest, provided that they are not the party to the agreement giving rise to the security interest.
There are, however, exceptions to the general rule of perfection of security interests. Notably, the Act distinguishes between securities given in respect of goods generally and those given in order to secure payment for goods, or those given under a lease or bailment of goods, known as 'purchase money securities interests' or PMSIs. PMSIs are given super-priority over regular security interests in order to ensure that the rights of bona fide sellers, lessors and bailors of property are protected from fraud.
The provisions of the Act are complex and it will take time for Australia to adjust. We expect that the costs of compliance will not be welcomed by those required to review old standards. However, the importance of doing so ahead of the commencement of the Act will be vital to ensuring that established norms of practice do not become systematic deficiencies.
How to prepare for the commencement of the Act
We recommend that businesses in all industries conduct a thorough review of all existing written agreements with third parties in order to determine whether any action is required to perfect security interests and preserve existing rights and entitlements in respect of personal property.
If appropriate measures are not taken ahead of commencement, businesses risk being exposed to the substantial risk of their securities being usurped by newer interests created by parties with greater awareness and knowledge of the effect of the Act on day-to-day and long-term business management and planning.
Contact Ramsden Lawyers now and we will assist you to ensure that your business remains secure.
By Shanan John Ramsden Lawyer and Managing Partner of Ramsden Lawyers.
3 Oct 2011