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LPLC: What role will you take?

Every Issue

Cite as: April 2012 86 (04) LIJ, p.76

Every firm needs to consider what role to play in the administration of security interests on the Personal Property Securities Register.

Every law firm needs to determine what role it will take in registering, maintaining and searching for financing statements on the new Personal Property Securities (PPS) Register. In other words, will the firm do this on behalf of its clients or not?

Some firms may have previously undertaken the process of registering company charges on behalf of their clients by lodging a Form 309 with ASIC. That process no longer exists. To do the same job, it is necessary to register one or more financing statements on the PPS Register.

However, this new process is a lot more complicated and risky because:

1. There are many more options to consider when registering a financing statement (e.g. choosing the class of collateral, choosing between commercial or consumer property, choosing between a purchase money security interest (PMSI) or non-PMSI, choosing between inventory or non-inventory, choosing between transitional or non-transitional, choosing whether to register by serial number, and choosing whether or how to use the free-text field);

2. The consequences of making clerical errors when inputting data for searches or registrations are potentially far more severe;

3. It may be necessary to register more than one financing statement. For example, if the collateral belongs to more than one collateral class, if the security interest is both a PMSI and a non-PMSI (e.g. an “all-monies” ROT clause), or if the grantor is a trustee company (with an ACN) that operates a trading trust (with its own ABN).

There are a myriad of new ongoing obligations and responsibilities on secured parties, each with their own specific timeframes, some (but not all) of which can be contracted out of. These include:

  • giving a verification statement to the grantor;
  • responding to “amendment demands” and “requests for information”;
  • giving a notice to other secured parties in various circumstances;
  • registering a financing change statement when a security interest becomes unperfected or is discharged or a grantor’s name changes;
  • making sure all of the collateral is covered by the registration and making new registrations when required; and
  • renewing registrations after seven years or 25 years.

If the firm decides to both register and maintain financing statements on behalf of their clients, it will need to invest in business processes and filing or IT systems to keep track of what financing statements have been registered for which clients. Among other things, the law firm will need to:

  • set up an account either directly with the PPS Register or through one of the information brokers;
  • set up one or more secured party groups (SPGs) on the PPS Register;
  • securely store reference numbers, tokens (or passwords) for each registration and SPG;
  • track all activities (searches, registrations, amendments, notices etc.) for billing purposes; and
  • have a calendar or diary system to provide alerts when registrations need to be renewed;
  • ensure the client has the final responsibility for confirming the accuracy of financing statements lodged on its behalf or in relation to its assets.

Furthermore, will the law firm take responsibility for complying with all of the ongoing obligations and responsibilities of secured parties? If so, the firm will need a sophisticated system to track exactly which obligations have been contracted out of for each specific security interest, and be able to respond to notices promptly (including the seeking of instructions as and when necessary).

If the firm will not take this responsibility, it will be important to make that clear to the client, ensure that the client’s address (rather than the law firm’s address) is used for the address for service in the registration, make the client aware that only the client (and not the firm) will receive notices, and provide the client with the necessary tokens and registration numbers.

Most importantly, the firm will obviously need to invest in training the relevant staff in the new processes and systems, and particularly the various choices that need to be made when registering a financing statement.

Alternatively, there are several “information brokers”, consultants, specialist lawyers and software vendors who are offering compliance and registration services, as well as consultancy services and workshops.

It is recommended that firms meet with at least two providers in order to make their own assessment as to which provider to use.

A third alternative is that a firm may decide that taking on the responsibility of registering, maintaining and searching for financing statements is too risky or onerous.

In such cases it is very important the firm makes sure the client is aware that the firm will not be providing such services. The firm should make sure it has written confirmation that its retainer is limited and does not include the physical act of registering a financing statement and/or searching the register. The firm might then refer the client to one of the information brokers or the government website (www.ppsr.gov.au).

Obviously a law firm could adopt a combination of options, or use a different approach depending on the particular client or matter in question. However, it is worthwhile for every firm to consider these options and make a firm-wide policy decision as to how it will deal with such issues.




For more information see the bulletins and videos on the LPLC website www.lplc.com.au.

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