1. When does the PPS Act commence?
It was passed by the Federal Parliament in December 2009 and became operational on 30th January 2012.
2. Who will administer the PPS Act?
The Insolvency and Trustee Service Australia (ITSA) will manage the registration of security interests on the new national, electronic register (‘the PPS Register’) when it becomes operational. It will also assume responsibility for the Customer Contact Centre that will deal with any PPS Act customer queries.
3. What is the overall aim of the new laws?
They are designed to introduce a single national system for the creation and determination of priorities and enforcement of security interests over personal property.
4. Will the new PPS Act system affect me?
Yes. In general terms all suppliers of goods will be better off under the new laws than they are now. If you supply goods under ROT or consignment arrangements the PPS Act allows you to register your interests (that will now be called ‘Security Interests’) in the goods that you supply to your customers on the PPS Register. This will enable you to protect yourself in the event of your customers default, bankruptcy or insolvency, before they pay you for your goods.
5. What are the main benefits that I will gain if I register my interests in the goods that I sell or consign?
You will be able to claim a special priority in the goods that you have supplied or consigned (called a ‘Purchase Money Security Interest’ (‘a PMSI’)) which will entitle you to:
a) Take possession of your goods that have not been paid for in the event of your customer’s default, bankruptcy or insolvency, and
b) Claim a ‘super priority’ for those goods over all other creditors, later registered secured parties and unregistered secured parties.
6. But what if my customer’s bank has registered their interests before me? Will I still be able to get my goods back?
Yes. If you register your interests as a PMSI you will be deemed to have a ‘super priority’. So even though you may be second in time (in terms of when you have registered your interests), you will be ‘first in line’ – i.e. you will have priority against another party (such as your customer’s bank) who hold a charge over your customer’s assets – (which will now be called a ‘General Security Agreement’ (GSA)) – even if they have registered their GSA before you.
7. Will I gain any other benefits when I register under the PPS Act?
Yes. The new laws will give you some important additional rights. These include:
a) A right to claim an interest in the goods supplied even if your goods are mixed, comingled or attached to other goods, and
b) A right to trace the proceeds of the use or the sale of your goods.
9. Is there a time limit for registration?
No. There is no time limit for registration but a person who registers a security interests in the same goods (collateral) before you do will have priority unless your registration correctly claims a PMSI. You must register your PMSI within 15 business days from the date the security interest is attached to the collateral – this is usually when your customer obtains possession of the relevant goods supplied under this arrangement.
It is suggested that it is best to register your security interests immediately after your customer accepts your Trading Terms and before you supply goods on those terms, so that you fully protect yourself at the earliest opportunity.
10. Will my existing Retention of Title (ROT) clauses in my trading terms still be effective?
Your existing ROT arrangements will remain enforceable between you and your customer without registration for 2 years from the Commencement Date but only if you can prove that you have an existing contract with your customer.
You will need to be able to produce a copy of the contract signed by your customer or other compelling evidence that they have agreed to or accepted the terms (in practice this needs to be written evidence). Experience tells us that it may not always be possible to produce the original signed contract with your customer. You will need to be able to do this for all customers that you wish to register. Even if you have an existing contract that you can prove, it is recommended that you register a Financing Statement as soon as possible after the Commencement Date to perfect any existing arrangements.
11. Should I revise my current Trading Terms for all of my customers?
Yes. It is recommended for all of your existing customers (whether you can or you cannot prove the terms of their existing contractual arrangements) to update your current trading terms. By doing this you will reserve for yourself the right to register security interests, if you wish, at any time thereafter.
Properly drawn terms will:
a) Acknowledge that your terms constitute a security agreement under the PPS Act,
b) Fully secure the monies that are owed to you by your customer,
c) Ensure that your priorities and enforcement rights are fully preserved, and
d) Enable you to take full advantage of the rights that secured parties have under the PPS Act to exclude themselves from some of the burdensome compliance obligations under the PPS Act including:
• To send verification statements to your customers,
• To give various notices under the PPS Act – e.g. when you take certain enforcement action or dispose or retain seized goods, and
• To provide certain confidential information about your security interests to other interested parties when they request it – e.g. to provide them with a copy of your security agreement, details of the amount secured, details of the items of property secured or details of the terms of payment with your customer.
12. What are the consequences if I do not register my interests in my goods?
You will effectively lose control of your goods in the event of your customer’s default, bankruptcy or insolvency. In such circumstances, other parties (such as your customer’s bank and/or their receiver/ liquidator/administrator) will rank ahead of you under the new laws and they will be able to deal with your goods as they wish. In effect, your goods will become available to satisfy the claims of your customer’s bank and all of your customer’s other creditors.
Your rights will be limited to a claim as an unsecured creditor that may result (if you are lucky) in you receiving a few cents in the dollar in the event of the insolvency or winding up of your customer.
13. Is registration of an ROT security interest mandatory?
No. Registration of an ROT security interest is voluntary. ROT arrangements will remain enforceable between you and your customers without registration. It is up to you to make the commercial call as to whether to ‘self-insure’ and not register or to register some or all of your customers.
If you choose not to register you will be electing to bear the risk of losing your rights to your property upon your customer’s insolvency or liquidation. If you choose to register you will obtain the protection and the various rights set out in answers to FAQs 5, 6 and 7.
14. Are there any transition arrangements under the PPS Act?
Yes. There are specific transitional provisions under the PPS Act. A security interest that was created before the registration Commencement Date and did not require registration (such as an interest of a supplier under a ROT arrangement) will be deemed to be effective for 2 years from the registration Commencement Date.
In the terms of the PPS Act, it will be deemed to be ‘temporarily perfected’ but must be registered within two years from the Commencement Date otherwise it will be deemed to be ‘unperfected’ after that time. (Refer to FAQ 10).
15. What is the first step that I must take to start registering my interest in the goods that I supply to my customers?
You will need to put in place an agreement (called a ‘Security Agreement’) with your customer. This agreement will spell out the terms of the PPS Act arrangements that are to operate between you and your customer. This agreement must be in writing and must be either signed or must be adopted or accepted by your customer.
The Security Agreement must also adequately identify and describe the goods supplied. Goods can be described as goods of a certain class. The classes of goods available are specified under the PPS Act. You may, for example, register your interests in the class of ‘any other goods supplied’.
16. How do I go about putting in place a Security Agreement with my customers?
Your trading terms can be crafted into a Security Agreement. Accordingly, you should arrange to update your current Trading Terms to include new ROT and PPS Act clauses. These clauses should include an acknowledgement by your customers of the existence of a Security Agreement and should set out the details of the arrangements for registering security interests on the PPS Register.
You should then send each of your customers a copy of the new terms together with a letter explaining the new arrangements and asking for their consent to the new terms.
Given the number of recent changes in consumer protection legislation such as the introduction on 1 January 2011 of the Australian Consumer Law and the repeal of the Trade Practices Act 1974, you may wish to take the opportunity to update the rest of your Trading Terms.
Your customers can consent to the new terms by some act such as signing an acknowledgement form either in writing or electronically or by signing invoices or consignment documents that incorporate the terms before they take possession of the goods.
17. What do I do after the Customer agrees to enter into a Security Agreement with me?
You should lodge a notice in the prescribed form (called a ‘Financing Statement’) on the PPS Register, that details your interests in your customer’s goods.
18. What information must a Financing Statement contain?
The Financing Statement must, among other things, contain particulars of:
• The supplier of the goods (‘the Secured Party’),
• The customer (‘the Grantor’),
• The giving of notices,
• The goods supplied (‘the Collateral’), the class in which it belongs and (if applicable) its serial number,
• Whether the collateral includes proceeds,
• The term of registration (‘the end time for registration’),
• Whether the interest claimed is to be a ‘PMSI’,
• Whether the interest claimed is a ‘Transitional Security Interest’, and
• Whether the security interest is or will be subordinated.
19. What do I need to do after I register my interests?
When your interests have been recorded on the PPS Register, you will receive a document (called a ‘Verification Statement’) from the PPS Registrar that you will need to send on to your customer (unless this requirement has been waived under your new PPS Trading Terms). Failure to send on the statement to your customer where this condition has not been waived is a breach of the PPS Act and may result in a statutory penalty.
20. What happens if my customer information changes after registration?
If you become aware of new information about your customer after you register your financing statement (e.g. their business trading name changes, or their business is sold or restructures) you have five business days from the date of obtaining knowledge of the change to lodge a ‘financing change statement’.
It is extremely important for you to keep the PPS Register up-to-date as your failure to lodge such astatement advising of changes, may result in a loss of priority to another secured party who has registered their interest before you.
21. How long should I register my interests?
The period of time you can register property varies depending on the nature of the collateral:
- Consumer property and serial number property has a maximum registration end time of 7 years.
- Other property can be registered for various periods and your fee will vary depending on the length of time you choose. If you choose to register for a lesser period of time, your fee will be less.
22. What are the statutory fees of registering my security interests on the PPS Register?
The Registrar has not yet formally published the list of the statutory fees relating to the PPS Register. However, the following fee scale is anticipated:
• To register a Financing Statement:
- For an undefined duration - $130
- For more than 7 years but less than 25 years - $37
- For 7 years or less - $7.40
• To lodge an amending Financing Statement:
- Where the period is less than 7 years - $7.40
• If you choose to register your Financing Statement to protect an interest that is a ‘Transitional Security Interest’ it is likely that there will be no cost to lodging the Financing Statement.
• If you wish to undertake a search of the PPS Register to ascertain what security interests a person (whether a customer or otherwise) may have registered against them or whether a particular property is subject to any existing security interest the fee is likely to be $3.40.
If you appoint an agent to lodge a Financing Statement on your behalf you will need to add their fees to the above costs.
23. Where to from here?
If you require further information about any of the above matters or you have further questions relating to the new PPS laws and how to go about implementing the necessary changes into your business, please phone PPS Solutions on 1300 850 073 or email us at email@example.com
Personal property is all property (other than land or fixtures) that is owned by you, your company or an entity you represent.
Regardless of the form it takes, whether physical or intellectual, it is vital that you register your interests on the new PPS Register.
Yes! If you don’t and your customer hits hard times, a bank or other entity could register their interests on the PPS Register, giving them rights over your property and defeating any claims that you might have over it.
This is no longer enough to protect your rights. From 31 January 2012, the ROT Clause you are relying on will not “win” against another party who has registered their interests on the PPS Register.
27. How do I know if I need to register my interests using the PPS Register?
For peace of mind and to ensure your interests are protected, contact our team for specific advice on your situation and individual requirements.