“PPSR” stands for Personal Property Securities Register, which is essentially an electronic register where details of security interests are able to be registered and searched.

The Personal Property Securities Act or “PPSA” came into effect on 30 January, 2012. This legislation bought together more than 70 different Commonwealth, state and territory laws and registers regarding personal property and security interests under one national law, and one electronic register.

Previously, for example, if you wanted to buy a car you would do a REVS search, or if you wanted to check whether there was a lien on a crop of sugar cane, you would do a Bills of Sale Search.

The PPSR now incorporates all of these registrations and search functions, and is available to search and register 24 hours a day, seven days a week.

Many businesses and individuals are affected by the PPSA, quite often without even realising. In terms of cane-farming activities for example, the PPSA affects:

1. Operations at the farmer level, which will involve the day to day farming operations and the growing and harvesting of the sugar cane crop; and
2. Operations at the mill level, which involves the arrangements between the sugar mill and the farmer, for the sale and payment of sugar cane.

At any given time, a cane farmer will be operating a farm using funds provided by a lender, engaged in arrangements with contractors or harvesters (either using the contractor’s own equipment or the farmer’s equipment), share farming arrangements, growing cane subject to plant breeder’s rights, storage of farming equipment belonging to others or perhaps farming equipment has been sent to an agent for sale.

Each of these parts of a cane farming business has its own interactions and needs to be considered separately from a PPSA perspective.

To put all of this into context an explanation of some of the key concepts and terminology used under the PPSA is required.

The first concept is “Personal Property”. Personal property means any type of property other than land. It comprises tangible property, for example goods, crops, livestock (which includes products of livestock), motor vehicles, boats, caravans and plant and equipment. Personal property also comprises intangible property, such as licences, intellectual property and financial instruments.

A “Security Interest” is an interest in personal property that secures payment or performance of an obligation, regardless of the form of the transaction. A security interest covers everything from a mortgage over a motor vehicle, to a charge over company property. However, the new definition of security interest also covers forms of transactions that were not previously considered as “security”.

One of the most common types of security interest is called a “Purchase Money Security Interest” or “PMSI”, and is distinguished from a standard security interest in two ways. The first is its manner of creation, and the second is the priority it receives relative to other security interests over the same “collateral” (i.e. the secured property).

There are four main scenarios where a PMSI is likely to arise:

• Firstly, where a financier or other lender provides funds for the purchase of personal property. It is usually for transactions where funds are provided at the point of sale.
• Secondly, where the financier or lender has provided personal property, and all or part of the purchase price remains outstanding. This is what retention of title means, where a buyer has possession of personal property, but does not acquire title from the seller until the full purchase price is paid, or any credit facility of any sort is provided.
• Thirdly, financing leases, where personal property is leased for payments that cover the cost of the personal property, and the lessee has the ability to acquire title to the personal property.
• Lastly, there are also deemed security interests under the Act, including consignment arrangements, and leases of personal property for a term exceeding 12 months.

In order for the security interest to be enforceable against the person who granted it, it must be attached to collateral. Attachment is similar to the concept of legally binding relations.

A security interest attaches to collateral if the grantor has rights in the collateral and accepts money or does some other act by which the security interest arises.

So, to put it simply, if someone lent money to your farming company to buy a tractor, in order to protect their investment and perfect their security interest, they would have the company sign a security agreement, and register their security interest on the PPSR. This would then appear as a registration over the company’s name, and would list that particular tractor as the collateral. The lender’s interest in the tractor would then be secured, as a PMSI.

It isn’t necessary to have a written security agreement, but in order for it to be enforceable against a person other than the grantor, such as another secured party, it should be in writing.

Another technical concept of the PPSA is known as “Perfection”, which is a form of protection for a secured party that is stronger than the mere attachment of their security interest to collateral.

In order for a security interest to be perfected, it must have attached, be enforceable against third parties and is either registered on the PPSR, or the collateral is in the possession or control of the secured party.

The benefit of being a secured party with a PMSI is that you will have a super priority, which defeats all other security interests in the collateral. So based on the earlier tractor example, the lender’s registered security interest in the tractor, would defeat an earlier registered all-assets floating charge by a bank over the company’s assets, unless the bank had control of the tractor. This is a real change to the way that the law worked previously.

The PPSR Australian Government website produced a fact sheet stating that these new laws “may” make it easier for farmers and agricultural producers to borrow against crops, livestock, farm machinery, agricultural products and other assets. Whether it has had this result is debatable.

After more than two years of operation, the Act has recently undergone statutory review. The purpose of the review was to consider, based on practical experience, whether the Act achieved its objectives. The final report was issued on 27 February 2015, and can be accessed at:

http://www.ag.gov.au/Consultations/Documents/PPSReview/ReviewofthePersonalPropertySecuritiesAct2009FinalReport.pdf

Many submissions were made, including a submission from the National Farmer’s Federation, which in its introduction stated:-

“The farming community remains unclear about what security they have over their personal property and when, at any given time, personal property interests should be registered. This confusion, compounded by the already heavy burden of regulation on farmers and a lack of industry specific, plain English guidance material has limited the sector’s ability to realise the potential value of the PPSR. Indeed a lack of knowledge of the existence of the PPSR, and when and how to use it, is likely to cause ongoing issues for the sector into the future.”

The findings of the report, culminating in pages of recommendations for amendments to the Act, suggested “That the Act not be repealed, but rather that it be amended to enable it to better achieve its potential”.[1]

To put the Act into more practical terms, below are some summaries of more specific issues and case examples.

Maiden Civil (P&E) Pty Ltd v Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC852

Queensland Excavation Services (QES) was the owner of 3 Caterpillar construction vehicles, which it leased to Maiden Civil. Maiden Civil used Fast Finance to obtain finance for the lease. Apparently unbeknown to QES, Maiden Civil also granted a security interest in favour of Fast Finance over all of Maiden Civil’s property, which included the 3 Caterpillar vehicles.

Fast Finance subsequently registered its interest in the vehicles on the PPSR, and therefore had perfected its interest and gained priority.

Importantly, despite QES providing possession to Maiden Civil, it failed to register its security interest.

Despite QES being found to hold the legal title to the vehicles, the Court found that Fast Finance had priority to exercise its security first as it had registered its interest on the PPSR.

Accordingly, Fast Finance were entitled to sell the vehicles to recover the monies owed to it, with QES receiving the left overs, if any.

Waller v New Zealand Bloodstock Ltd [2006] 3 NZLR 629[2]

The owners of a 2 million dollar racehorse leased it to a stud.

The stud had previously given a security interest over all its present and future assets to its financier.

The stud subsequently found itself in financial difficulty, and the financier repossessed the stud, including the racehorse. The liquidator conducted a search on the PPSR of the horse and found that there was no registered security interest over it.

As the financier had previously registered its security interest over all of the present and future assets of the stud, which was held to include the racehorse, it was held that the financier had priority over the legal owners of the racehorse, and obtained the $2 million dollar horse.

Comment

As the above cases illustrate, while the purpose of the PPSR was to simplify a previously complicated system, in actual fact it created a situation where legal owners of property may see their title defeated by a financier’s perfected security interest (or any other third party with a security interest).

It is of paramount importance to ensure that whenever you are transferring, leasing, or otherwise dealing with property in such a way that you lose control of that property, you obtain advice as to how you can best protect your interest in that property.

Patrick Kelly is a Solicitor and part of the Commercial Litigation & Property Team at Kelly Legal and can be contacted on patrick.kelly@kellylegal.com.au

[1]http://www.ag.gov.au/Consultations/Documents/PPSReview/ReviewofthePersonalPropertySecuritiesAct2009FinalReport.pdf

at page 502

[2]Note that this is a New Zealand case. New Zealand utilise a PPSR system similar to Australia.