Transition period under the PPSA
PPSA being patronised, but not by everyone
The Insolvency Trustee Service of Australia (the Government department responsible for managing the Personal Property Securities Register, or PPSR) reported at the end of April that almost 1 million new security interests had been registered on the PPSR since the commencement of its operation on 30 January of this year. This does not take into account the almost 4 million security interests migrated from other registers.
Notwithstanding the above high patronage, anecdotally it appears many small businesses are opting not to perfect their security interests by registering with the PPSR.
Transition period – what is it?
Some suppliers are choosing to rely on the 24-month transition period, which essentially provides a period of temporary perfection for those security interests that existed prior to or on 30 January 2012. Suppliers need to tread carefully when relying on the transition period, for reasons outlined below.
Misunderstandings or traps
Many suppliers have or are in the process of updating their customer engagement documents to ensure that their methods and processes align with some of the new concepts enunciated in the Personal Property Securities Act 2009 Cth (the Act). However suppliers need to be aware that by having their customers signed up to new agreements after 30 January 2012, they will be unable to rely on the transition period. This is because the arrangement under which a security interest may have been granted (like a PPS Lease or a retention of title provision in terms of trade) would then be considered to post date the implementation of the Act.
Example: a customer has been with a supplier for 10 years under old terms and conditions and is sent (and signs) new terms on 1 February 2012. All orders placed under the new terms will not be protected by the transition provisions in the Act.
Some suppliers (or their agreements) treat each new purchase or lease as a separate agreement with their customer, even where only one set of terms is entered into. In cases such as these, every transaction entered into after 30 January, regardless of whether new terms are being used or not, will be subject to the rules of priority set out in the Act and will not be protected by temporary perfection afforded under the transition period. It pays to have your agreements reviewed to determine whether you are in fact able to rely on the transition period, if that is what you wish to do.
Example: a supplier’s terms specifically state: “Each order placed under these terms and conditions is a separate binding agreement to purchase goods from the Seller”. All orders placed under these terms after 30 January 2012 will not be protected by the transition provisions in the Act.
The Act now sets out an order of priority between different types of security interests, including purchase monies security interests, unperfected security interests, and transitional security interests.
It is true that a transitional security interest, even where not registered, will take priority over a registered non-transitional security interest. However, it is worth pointing out that out of two competing transitional security interests where one is registered and one is not, the registered transitional security interest will take priority.
If you require any further information on this topic, please contact Tim Osborn.