The Personal Property Securities Act 2009 (Cth) (PPSA) was introduced to cover a field of law that was once complex and inefficient. Prior to 2009, there were 70 pieces of legislation at both federal and state level that dealt with the issues regarding creditors and debtors and their property interests. The disadvantage here is that there were inconsistencies between the different levels of legislation, that exposed personal property interests to unnecessary risks. The Law Reform Commission 1993 petitioned hard for stronger, uniform legislation in this area, which subsequently led to the enactment of the PPSA in 2009. This Legal Kitz post will discuss the PPSA, in detail.
What does personal property mean?
An important aspect to understand is that section 10 of PPSA defines the parameters of personal property. It involves any property that is not real estate, a right, entitlement or authority that is granted by the commonwealth, state or territory. One of the advantages of a PPSA is that future property interests can be secured. This usually involves dealings where there is a security interest agreement.
What does the PPSA do?
The PPSA provides an opportunity for a creditor to have their personal property registered securely, for the purpose of protecting it from liquidation, receivership, and administration. Importantly, the PPSA does not change any aspect of winding up a business, it simply protects property interests from the risk of being sold. However, to obtain this protection, the property owner must perfect their interest.
It is necessary to understand what a security interest is under the PPSA, and section 12(2) provides that a security interest in property is a transaction that secures payment or performance of an obligation. It covers the most common forms of personal property interests, that are formed in equity and the common law such as fixed charges, and floating charges (you can find out more about property interests here). The PPSA also goes further to cover hire purchase agreements, conditional sale agreements, leases, and flawed asset arrangements.
What is perfection?
Perfected interest in property immediately takes priority. To make an interest enforceable against other parties, it must be perfected. Sections 20, 21 and 22 of the PPSA state that to achieve perfection, the security interest in the personal property can be taken into possession or control. It is important to note, that when registering your personal property under the PPSR, you must use serial numbers for vehicles. The PPSR provides that this must be completed for boats, cars, planes, and other types of vehicles.
An unperfected interest is vulnerable to liquidators and other winding-up processes, where there is a person responsible for repaying the debt of the company or organisation. Possession can be taken over leased goods or property, to generate the necessary funds for creditors. It is paramount that a security interest is registered if it cannot be taken into control or possession.
An explanation of the Maiden Civil (P&E) Pty Ltd v Queensland Excavation Pty Ltd [2013] NSWC 852
The facts of the case involved competing interests over the ownership of construction vehicles in the possession of Maiden Civil. The vehicles were supplied by Queensland Excavation with a purchase money hire agreement, which had not been registered and therefore not perfected. A third-party financial company obtained a security interest over the construction vehicles, which secured a loan in favour of Maiden Civil.
When Maiden Civil defaulted on their loan, the financial company which had registered their interest over the vehicles took priority over the Queensland Excavation. This occurred even though under normal property priority rules, the financial company were second in time. Thus, Queensland Excavation lost their property right to their vehicles that they initially leased to Maiden Civil, as they did not register or turn their attention to protecting their interests.
Legal advice
The PPSA allows for the registration of interests in personal property, such as vehicles with the exclusion of real estate. Secured interests in personal property can be valuable when goods or property are leased or hired to other companies that are not financially sound. Registration can limit the risk that those goods or properties will be possessed by liquidators or other personal charged with the responsibility of repaying the debts of the company. If you are leasing out or hiring your assets to another company you must consider protecting your assets through the PPSA.
If you require assistance in taking a matter to court, you should seek legal advice. Legal Kitz can assist with ensuring that your matter in court is as time and cost efficient as possible. Click here to book a FREE consultation with one of our highly experienced solicitors today, or contact us at [email protected] or by calling 1300 988 954.