Personal Property Securities Reform

This report provides an update on the proposal to replace all types of security with the exception of real estate mortgages with a new regime known by the acronym PPS which stands for Personal Property Securities.

The PPS regime will replace many, sometimes inconsistent, state and territory laws and registers. It's proposed the PPS regime will commence in May 2010. The final form of the law is not yet known and so it is too early to work on amended documentation and procedures. The final form of the law and regulation should be known early in 2009.

This scheme is endorsed by COAG (the Council of Australian Governments) and provides for the states to refer powers to the Commonwealth so that we have a uniform national regime. The regime contemplates a new national PPS register where interests are recorded. However the register will not operate like the Torrens system to provide virtual certainty as to ownership and security interests.

Generally the PPS regime will apply to all security interests in all kinds of tangible and intangible property with the exception of real estate. For example, PPS will cover chattels, goodwill, copyrights and intellectual property. The PPS regime will replace security interests such as charges, chattel mortgages, Romalpa clauses, hire purchase agreements, pledges, and finance leases.

We'll have to get used to the American term "collateral" because this is used by the legislation to describe the security that is provided. Collateral is categorised into consumer property, equipment, inventory, chattel paper, documents of title, intangible property (which includes accounts receivable), tangible property, intellectual property, investment instruments (eg shares and interest in a managed investment scheme), currency and negotiable instruments.

We will also have to get used to "attachment" which arises when value is given by the lender or a security interest has been created, and "perfection" which occurs when the security interest is registered or the secured party takes possession of the collateral. There will be new priority rules to determine which of a number of competing interests will rank first.

The legislation will change both documents and lending procedures. Significant staff training will be required. There will also be changes to marketing material and credit concepts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

By Jon Denovan