Once a security interest is registered, what information is publicly available?

Grantors
Registrations on the Register include data about the grantor’s property or collateral and may contain information such as a person’s name and date of birth.

The following measures have been adopted to protect privacy concerns of grantors:

• If the collateral is consumer property and can be described by serial number; no grantor details will be recorded on the Register.
• If the grantor is a company, it will be identified by its ACN only.
• If an individual grantor’s collateral is not described using a serial number, then their details will be required. The details are the grantor’s name and date of birth.(Section 153(1))
• A search of the Register against an individual grantor’s name and date of birth, and use of the search results, will only be allowed for authorised persons and purposes as set out in Section 172(2) of the Act.

An illegal search may:
(i) incur civil penalties
(ii) constitute an interference of an individual’s privacy under the Privacy Act 1988, and/or
(iii) incur damages for loss caused by the unauthorised search or use of data.

To successfully make a search for security interests granted by the grantor, it is necessary to:
(i) know the exact serial number for the property, or
(ii) have the correct grantor name (given names and surname) and date of birth.

Secured parties
Registrations on the Register will also include data about the secured party, such as the secured party’s identifier and address for service.

It will not be possible to search the Register against the details of the secured party.

A security interest will be enforceable against a grantor when it attaches to collateral and either the secured party has possession or control of the collateral, or a security agreement covers the collateral: section 20.

The rules governing the enforcement of security agreements to which the Personal Propertyy Securities Act applies are set out in Chapter 4 of the Act.

Depending on the security interest type and the collateral type secured parties will need to develop new enforcement procedures to comply with the Act.

Chapter 4 gives secured parties a number of enforcement rights and remedies (as well as obligations) which they would not, or may not, otherwise have under the terms of their security agreements and other legislation.

Chapter 4 distinguishes between collateral used predominantly for personal, domestic or household purposes and other collateral. Whether collateral is used predominantly for personal, domestic or household purposes has a bearing upon the extent to which parties can contract out of provisions of Chapter 4 and upon which remedies are available to a secured party under the Act.

The chapter sets out the rights and obligations of various interested parties in the event that a debtor defaults under a security agreement. Its object is to ensure that when enforcement action is taken all parties who may be affected have an opportunity to appropriately protect their interests. Those parties are:
• The secured party who is taking enforcement action;
• Any other secured parties;
• The grantor or owner of the collateral;
• The debtor, where the debtor is not the grantor; and
• Other interested parties.

All rights, duties and obligations that arise under Chapter 4 must be exercised and discharged honesty and in a commercially reasonable manner. This duty supplements the specific duties imposed by Chapter 4 and those imposed by the general law and other legislation.

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This note by me was published in Complinet

The Personal Property Securities Act 2009 will have major implications for the way that authorised deposit-taking institutions are able to take security over deposits. Under Section 12(4)(b) of the PPS Act an ADI will be able to take a security interest in an ADI account that is kept with the ADI. Failure to register the security interest may result in loss of priority in the account as against a competing creditor or an obligation to account to a trustee for the depositor in the event of his insolvency.

The exception is a claim under contract or common law for a right of set-off alone, however, which will not be a registrable security interest (Section 8(1)(d) PPS Act).

How is that different from the current situation?
Typically a security deposit agreement provides that a Term Deposit is not repayable to the depositor until all money due to the lender under the Loan Contract or the Guarantee has been paid. It also provides that the Term Deposit Holder agrees that the lender may appropriate the whole or any part of the Term Deposit to repay the whole or part of the loan if the Borrower defaults under the Loan Contract or the Guarantor defaults under the Guarantee.

At present a security deposit agreement is not able to be registered and in the event of an insolvency of a depositor (whether an individual or a company) the ADI’s right to priority over the deposit is limited to circumstances where the borrower and the depositor are the same. A claim by an ADI under such an agreement over a deposit held by a third party who is not the same as the borrower will be extinguished in the event of the insolvency of the third party depositor. See Section 86 of the Bankruptcy Act and Section 553C of the Corporations Act.

The PPS Act will give priority to security agreements granted by depositors (whether they are the borrower or a third-party guarantor) provided the security interest is registered.
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Not necessarily. Registrations in most existing security interest registers will be migrated to the PPS Register.

If there is no existing register, security interest holders (grantees) will have 24 months (from May 2011) to consider whether existing security interests should be registered. Failure to register within the 24 months may result in a loss of priority to other security interests, or loss of the security interest on the sale of the collateral or the insolvency of the grantor. (Section 322).

Section 310 states that the Act will apply at the registration commencement time in relation to the following interests:
• a security agreement made at or after the registration commencement time;
• a security interest (other than a transitional security interest) arising at or after the registration commencement time;
• a transitional security agreement;
• a transitional security interest (whether arising before, at or after the registration commencement time);
an interest in personal property (other than a security interest) arising at or after the registration commencement time;
• personal property of a kind prescribed by the regulations;
• personal property, if data in relation to the property is given to the Registrar.

The registration commencement time will be the day the PPS Register commences operation. The registration commencement time will be the start of the first day of the month that is 26 months after the month in which the Act was given Royal Assent (15 December 2009), or an earlier time determined by the Minister , expected to be May 2011. If the Minister determines an earlier time to be the registration commencement time, that time must be at least 28 days after the migration time .

Although the Act commenced on the day after it received Royal Assent, the transitional provisions provide that a person will only be able to apply to register a financing statement or a financing change statement and the Registrar will only be able to register a financing statement, or a financing change statement, at or after the registration commencement time. The Registrar would also only able to register a financing statement or a financing change statement at his or her own initiative at or after the registration commencement time .

Part 9.4 of the Act sets out the rules to support the migration process and early registrations of transitional security interests. The migration time in the Act will be the start of the first day of the month that is 25 months after the month in which the Act is given Royal Assent or an earlier time determined by the Minister . If the Minister determines an earlier time to be the migration time, as is expected, the Minister would also determine an earlier time for the registration commencement time.

As the Personal Property Securities Register will record “security interests” it is essential to understand what is and is not covered by that term.

Not all security interests are enforceable: they must be an “interest in relation to personal property provided for by a transaction that, in substance, secures payment or performance of an obligation” and must satisfy section 20.

The starting point is section 12 of the PPS Act.

Section 8 also lists interests to which the Act does not apply, including land and fixtures, water rights and bills of lading.

The security interest must be an interest in personal property.

Personal property is any form of property other than land and certain licences. It includes motor vehicles, contractual rights, business inventory, intellectual property and company shares. There are other rights or interests that fall outside the concepts of real and personal property. For example, the Act does not apply to native title rights and interests.

Personal property is known as collateral if it is (or is anticipated to be) the subject of a security interest.

When a security interest is registered, the collateral must be described in accordance with the rules given in Section 153. The type of personal property a security interest relates to is important because the type of personal property will, to some extent, govern priority disputes between secured creditors. It is also relevant to privacy of the Register.

Collateral is either commercial or consumer property.

The main collateral classes which are currently proposed to be included in the Regulations are:
• agriculture;
• aircraft;
• all present and after-acquired property;
• all present and after-acquired property, except;
• financial property;
• intangible property;
• motor vehicles;
• other goods;
• watercraft.

Future posts will consider the requirements for an enforceable security agreement, specific types of security interests and how security interests are registered.
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A consignment is another commercial transaction that is not currently specifically registrable but which will become registrable under the Personal Property Securities Act 2009 Cth from May 2011.

Under the Personal Property Securities Act (section 12(2)(h)) a consignment (whether or not a commercial consignment) is a registrable security interest. Failure to register may result in loss of priority.

In general terms, a consignment is property sent to an agent for sale, storage or shipment (Macquarie Dictionary).

The interest of a consignor who delivers goods to a consignee under a commercial consignment may be registered as a purchase money security interest (section 14(1)(d) PPS Act) .

Section 10 of the PPS Act states that “commercial consignment” means a consignment if:

(a) the consignor retains an interest in goods that the consignor delivers to the consignee; and

(b) the consignor delivers the goods to the consignee for the purpose of sale, lease or other disposal; and

(c) the consignor and the consignee both deal in goods of that kind in the ordinary course of business;

but does not include an agreement under which goods are delivered to:

(d) an auctioneer for the purpose of sale; or

(e) a consignee for sale, lease or other disposal if the consignee is generally known to the creditors of the consignee to be selling or leasing goods of others.

There are special rules if the consignment is not registered and the consignee becomes bankrupt or insolvent and a person acquires the personal property from the consignee.

A consignor whose security interest is lost would be entitled to compensation which would entitle them to prove in the consignee’s insolvency.

One of the consequences of the Personal Property Securities Act is that a retention of title agreement (for example a sale under which a seller of goods retains title until it is paid in full) becomes a registrable security interest.

Currently most retention of title agreements (also called Romalpa clauses after a UK case of that name) are not registrable as a company charge (if given by a company) and are not tested until the purchaser becomes insolvent and there is a dispute over the right to the goods or the proceeds of sale.

But in some cases the agreement does constitute a security interest which needs to be registered under a State Act (such as the Victorian Chattel Securities Act).

Under the PPS Act a retention of title agreement (whether given by a company, partnership, trust or an individual) will need to be registered for it to be enforceable against third parties.

When the Personal Property Securities Register starts in May 2011, a retention of title agreement will be registrable provided the security agreement is evidenced by writing that is signed by the grantor or adopted or accepted by the grantor with adequate identfication of the goods.

Suppliers must register their interest on the PPS register to preserve the priority of their interest.

They can register for a series of transactions.

A registered security interest will continue even if the goods supplied are mixed in with other goods, or affixed to other goods. There are new rules as to the rights to the proceeds of sale of goods over which a security interest has been registered.

A seller who has a retention of title agreement can register their security interest as a purchase money security interest which has additional priority rights over general registered security interests given by the purchaser.

Suppliers who provide goods on a title retention arrangement will no longer be able to rely on their title to protect their interest in the goods. The interest of a title holder in goods will not automatically have priority over other secured parties.

Suppliers may continue to include the retention of title clause in the terms of trade and orders and invoices. However, to be enforceable against third parties the purchaser must have signed or accepted the documents which incorporate the retention of title and title holders must have registered their interest on the PPS Register.

Failure to register may leave the supplier with a claim as an unsecured creditor.

This is a dedicated site for information about Australia’s Personal Property Securities regime which is due to commence in May 2011.

For background, have a look at our previous posts here.

Who is affected by the Personal Property Securities Act?
The impact on credit unions and building societies
The effect of the PPS Act on consumer credit

The key resources are:
Personal Property Securities Act 2009 (Cth)
Draft Regulations
Personal Property Securities Register website

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