Personal Property Securities - New Legal Developments

On 10 November 2008, the Federal Attorney General released the exposure draft of the Personal Property Securities Bill 2008 (Cth.) The Bill is intended to create a single national law governing security interests in all property other than land. Once passed into law (likely to be in the Spring Session of Parliament in 2009), the proposed legislation will fundamentally change the practice of law relating to securities and the way many businesses operate. We anticipate the Bill will become law in May 2010. 

The Bill provides for the creation, extinguishment, registration and priority of “security interests” in “personal property”. Personal property is, essentially all property other than land. The Bill defines a security interest as “an interest or right in relation to personal property provided for by a transaction that in substance requires payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title on the property). 

This means that the Bill now captures transactions that, although recognised as having an economic effect similar to that of a security interest, are not currently regarded as security interests and therefore often not subject to the same regulation.   Examples of those transactions are listed in Section 28 (2) of the Bill and include title retention clauses. 

Essentially, this means that your security interests will need to be “perfected” by registration on the Personal Property Securities Register. The Register will be under the control of the Australian Securities and Investment Commission.

Registration will not be compulsory. Clearly, a small project may not require the inconvenience, time and expense of registration. What the registration fees will be are, at this stage, unknown. These fees will be the subject of regulation once the legislation is passed and comes into effect in mid 2010. 

However, in larger projects, where the reservation of title clause is an important safeguard, registration will be important. A similar register has been in effect in New Zealand for some years. Failure to register has lead to some unfortunate consequences for the owners of goods. Whilst not compulsory, registration is critical for establishing priority in enforcement and effectiveness in insolvency both against receivers and liquidators and against other secured and unsecured creditors. In an era where corporation insolvencies are increasing, and there is an alarming disparity between debts and distributable assets, these sorts of disputes are, in our experience, on the increase. 

For further information concerning this article, please contact Michael Pickering on (03) 9347 1511 or Chris Trieu on (02) 9904 6800