1 MARCH 2012
If your business leases or supplies goods and relies on a retention of title clause (“ROT”) as a means of protecting itself in the event of debtor default or bankruptcy, the commencement of operation of the Personal Properties Security Act (“PPSA”) on 31 January 2012 will be of significance to you.
A lease or a retention of title clause over assets you supply in your trading terms will create a security interest for the purposes of the PPSA. A security interest must be perfected to avoid losing any claim your business may have over an asset in the event of non-payment by the party who takes possession of it as part of the transaction.
A security interest is defined in the PPSA as a transaction which “in substance secures the payment or performance of an obligation“. The PPSA is wide reaching and applies to any form of property other than land. This means tangible property (for example, vehicles, watercraft, aircraft, office equipment, crops, livestock, stock and inventory); intangible property (for example, intellectual property or contract rights) and financial property (for example, currency and negotiable instruments) are covered.
One method of perfecting a security interest over an asset is for the true owner or holder of the title in the assets, to register an interest in the asset on the Personal Property Securities Register (PPSR).
The PPSA then sets out the way to determine priority between:
- multiple security interests in the same personal property; and
- a security interest and another type of interest in the same personal property;
as well as providing complex rules on how security interests apply when supplied goods are affixed to other goods or mixed with, or blended into, other goods.
We strongly recommend that you review your trading terms and lease agreements to ensure they deal effectively with creation and perfection of a security interest and where appropriate you have a system in place to register your security interest prior to possession of any asset passing.
You are a valued Kinneally Miley contact, for more information related to this Legal Update please contact us.
[contactsbox] [leftcolumn]Contact Partner: Tracey Miley
Direct Telephone : 07 3210 5780
Mobile Telephone : 0438 776 161
[email protected]
Contact Partner: Francesca Petroccitto
Direct Telephone : 07 3210 5771
Mobile Telephone : 0402 293 644
[email protected]