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New register signals big changes

News

Cite as: December 2011 85(12) LIJ, p. 25

The way that businesses and individuals take  security for payment is about to change and lawyers need to be across it.  
 

Any lawyer who draws up contracts of sale involving personal property – be it a small business, plant and equipment or even a houseboat or aircraft – will need to be aware of sweeping changes to the way security for payment is made.

The Personal Property Security Act 2009 (Cth), set to be introduced from 1 February 2012 (although the Attorney-General may specify a later date), will radically change how businesses and individuals secure debts, claim retention of title and maintain priority over debts, LIV president-elect Michael Holcroft has warned.

Motor vehicle registers, company charges, chattel mortgages and retention of title claims will become things of the past, once the sunset period lapses.

Instead, security will be dictated by whether a creditor or owner has a registered interest on the new Personal Property Security Register (PPSR), a national online database.

“Up until now there hasn’t been a single register for personal property owned by individuals,” Mr Holcroft told the LIJ. “If your client is buying a business from Joe Smith, there is no way of checking whether Joe Smith actually owns all the stock or assets which make up that business. A finance company may later come along and say it has security over an item of plant and there is currently no way of checking that.

“The new system means there is a common register to search when seeking to buy personal property.”

Personal property will include goods; inventory; motor vehicles; aircraft and watercraft; financial property including cash, bank accounts and financial instruments; agricultural property including crops and livestock; intangible property including intellectual property and licences; certain personal and/or contractual rights; and proceeds of personal property.

It will not include land, fixtures to land or water rights.

“It is really going to affect a huge number of transactions,” Mr Holcroft said. It will cover personal property leases – as distinct from real estate – and some bailments.

The legislation will allow a purchase money security interest to be claimed even if goods are mingled, or merged or sold.

Mr Holcroft said solicitors acting in chattel purchases and purchases of businesses would need to be extremely familiar with the legislation.

“The register will be extremely important for lawyers undertaking purchases of business as such purchases usually include items of a moveable/personal nature, as well as possible leased items and stock.

“Failing to check the new PPSR will be a bit like failing to do a title search if you are acting in a purchase of land. It will become that fundamental.”

Existing securities must be registered within 24 months of the new legislation beginning; however, new securities will need to be registered within 15 days.

“Failure to register within that period may result in someone else gaining first priority over the security, or the security being lost completely.”

Mr Holcroft said the PPSR would need to be checked to ensure the buyer obtained clear title to the goods purchased. The old registers will also need to be checked during the transition period.

He said the downside was that businesses would need to revise their terms of trade and include sufficient wording to bring the security under the umbrella of the Act and provide a registered interest.

“Many businesses will be required to obtain further details, including dates of birth of individuals, before registration can take effect,” he said.

The LIV will run seminars on the new legislation as part of its continuing professional development (CPD) program.

Topics to be covered include the key concepts of what a “security interest” is, when it applies, what is required to effect registration, the transitory provisions and practical advice regarding registration and competing interests.

“The problem with security law is that many people shut off and think: ‘Oh, it doesn’t affect me’, but this legislation will impact on a wide variety of assets and solicitors will need to be across it otherwise they risk exposing themselves to claims of negligence,” Mr Holcroft warned.

The Legal Practitioners’ Liability Committee (LPLC) has begun sending circulars to lawyers warning them to be vigilant and to familiarise themselves with the provisions of the Act. (See LPLC column, page 72)

For more information.

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