OWNERSHIP LAWS COMPLEX
Written on the 30 May 2011
CHANGES to the Personal Property Security Act will overturn long-held concepts of ownership and title when implemented in the new financial year and will have wide ranging implications, according to a Varsity Lakes law firm.
The Federal Government legislation comes into effect from October and will include providing methods for determining which party holds priority over an asset. Another key provision allows complying businesses to outrank banks as secured creditors if trade debtors go into insolvency.
MBA Lawyers partner Clayton Glenister (pictured), says the Act ‘is complex’ and could deprive parties of the right to certain assets unless ownership is placed on the newly created Personal Properties Securities (PPS) Register.
“Under the Act, the concept of title becomes irrelevant and in its place there is ‘security interest’, which is defined as a transaction that ‘in substance secures the payment or performance of an obligation’,” says Glenister.
“At base, the Act assumes in event of insolvency an asset is available for sale regardless of title unless security over it is ‘perfected’ by the true owner. Title no longer delivers rights over assets and the Act has broad implications, especially for enterprises that lease out equipment or supply goods on delayed-settlement terms.
“The PPS Register provides a two-year grace period and we urge all business people to seek legal advice to ensure they correctly secure their interests.”
The Act encompasses debentures, chattel mortgages, retention of title, hire purchase, leases exceeding one year, assignments of debt, consignments, and security trust deeds.
Its single register replaces many others, including ASIC’s Register of Charges, and the Register of Encumbered Vehicles, and introduces a single regime based on the substance of the transaction.
Glenister says the legislation was intended to streamline formal insolvency processes, but in practice has much wider application.
“Those businesses that comply with this new legislation stand to reap the rewards as they outrank the banks in the event of insolvency,” he says.
“This is a major windfall for those businesses in the event of insolvency as they can be the highest secured creditor, meaning they are first in line. To ensure ownership rights over assets, it is essential that parties seek legal advice, develop a plan to minimise risk and list their interests on the PPS register.”