Will the Personal Property Security Changes affect your business?

The changes brought in by the Personal Property Security Act 2009 will affect how you do business if you:

• Sell goods but retain title until the goods are paid;
• Lease equipment to others;
• Hire equipment under a hire purchase agreement to others;
• Enter into chattel mortgages , bills of sale or the like to secure money owed to you; or
• Take security over personal property (i.e. property other than land).

The Act has been passed but only becomes effective on 1 May 2011. 

If you have a right over personal property that secures the payment or performance of an obligation, then it is a security interest that is registrable under the new regime.  It will need to be registered to be protected against claims by third parties such as receivers and liquidators. 

The Act looks at the substance of the transaction, not its form.  Interests in goods that were previously never considered to be securities will now be registrable as security interests in goods.  For example, the retention of title technique in Australia, or Romalpa Clause, if drafted properly has never been considered a security that required registration to be effective against a liquidator or a receiver.  From 1 May 2011, if you use a Romalpa Clause in your business it will need to be registered on the PPS Register in order to ensure it may be enforced against an insolvent defaulting debtor, their receiver or liquidator. 

This also has a consequence for lenders who take a security over your business.  While the lender’s securities have always required registration, your lender may now need some comfort that you will be registering your interests in the goods you have sold, leased or hired to your customers.  Your lender may need evidence that you are protecting your and, ultimately, their interest in the goods.   This may mean you need to provide more evidence to your lender when seeking credit showing that you are adequately protecting your interest in the goods you are selling on credit terms

In order to be properly protected in the new environment you may wish to consider:

• Reviewing the terms on wish you sell goods on credit or lease or hire them
• Ensuring you understand the requirements of the new PPS Regime
• Amending your credit policies and procedures.

Please contact Hadyn Oriti should you require any further information..
Hadyn Oriti
July 2010
P: +61 2 6583 0449
E: horiti@dohlaw.com.au