How does the PPS Act apply to the Maiden/QES case?
Before the PPS (Personal Property and Securities) Act, the finance company would not have been able to enforce security in the caterpillar equipment. This is summarised by that most ancient dictum, “you can’t give that which you don’t have”. Now, however, it seems that this no longer applies to those transactions which come under the scope of the legislation, with the PPS Act focussing more on the concept of “possession” rather than “ownership” in certain instances, such as leases.
While the PPS Act may be simple and straightforward – beneficial even – for your more basic “sale/purchase” type transactions, with the PPS Register operating as a streamlined portal for potential purchasers and financiers to determine whether goods are unencumbered – the issue gets more than a little murky in transactions where goods are being held by a person or entity who is not the lawful owner. This person may be for example, a lessee or bailee of goods, or maybe even a distributor, holding goods on behalf of another.
The legal owner needs to register their interest in the goods on the PPS register otherwise they may forfeit their rights if someone else registers their interst in the same goods.
In these cases, it is necessary for the legal owner to register their interest in the goods on the PPS Register – having title to the goods is not enough, and ignorance is no excuse!
How can these risks be minimised by registering your interest on the PPSR?
Registration on the PPS Register is imperative to protect your interest in certain property – even if you are the title holder of those goods, ownership is not enough. Whether it be equipment you have leased to another, or security you have been granted under a Loan Agreement, your interest needs to be “perfected” by registering on the PPS Register.
The effect of the new provisions is that ultimately a creditor of a Lessee or entity in possession of the goods may have the right to your goods if your interest is not registered on the PPS Register!
Registration also sorts out the issue or priority, where more than one entity has an interest in certain goods. Registration grants priority to enforce your interest in the secured property ahead of other creditors. This is important, for example, in the event of bankruptcy or insolvency of the borrower or lessee and you need to enforce your security.
Security interests that are registered on the PPS Register will take priority over those security interests that are not registered.
Where multiple security interests are registered over the property, then the first registered in time takes priority, with earlier registered security interest holders receiving priority ahead of later registered security interests.
Leases – when does the PPS Act apply?
The PPSA will apply to some, but not all, equipment Leases. If your Lease comes under the definition of a ‘PPS lease’ then you will need to register it to protect your leased property.
Generally, a PPS Lease is a lease of goods or equipment that has a term (lease period) of:
- More than 1 year, or the lease is renewable for a term of longer than 1 year;
- More than 90 days, or the lease is renewable for a term of longer than 90 days for the lease of motor vehicles, aircraft or watercraft;
- An unknown period or a lease less than one year but which goes on for more than 1 year.
However, a lessor who is not regularly engaged in the business of leasing goods will be exempt.
Whether your lease is regarded as a PPS lease or not, it is still recommended your Lease be registered on the PPS Register as soon as possible to preserve your priority in the leased goods or equipment.
What is considered “personal property”?
Personal property is any kind of property other than land, fixtures, water rights or a right granted by a Commonwealth, State or Territory law which is expressly excluded from the PPS Act.
Most “personal property” will be captured under the provisions of the PPSA.
Personal property can include tangible items – things you can touch - such as cars, boats, plant and equipment, scaffolding, machinery and crops; as well as intangible items – things that are merely ideas or concepts - such as shares, intellectual property and contractual rights.
What is the Personal Properties Securities Register (PPS Register)?
The PPS Register (“PPSR”) is an electronic 24/7 register operated by the Insolvency and Trustee Service of Australia (ITSA). It is a paperless system that you can access here.
The Register provides a simple and inexpensive way of recording your interests in certain property.
The PPS Register can assist a potential lender or creditor in deciding whether to advance funds or lease goods, in exchange for security in personal property.
If your interests aren’t recorded, then other creditors, who have registered their interests on the PPS Register, will have priority ahead of you.
The register is searchable by potential purchasers of personal property, such as vehicles or business equipment, and financiers to establish whether the property is clear of any security interest. Confirming the goods have clear title is important to ensure the goods cannot later be claimed by a creditor who has a registered security interest over it.
Temporary protection running out
The temporary protections afforded to some transitional security interests (those created under an arrangement entered into before the 30 January 2012 commencement of the Act) are running out – for those of you whom this applies, make sure you register you security interests before 30 January, 2014.
By Ian MacLeod