Summary
The next two years are a danger period for security interests in personal property.
The new personal property securities register went live on 30 January 2012 and will eventually provide a definitive list of all security interest in the personal property of an individual or corporation. However, a party with a claim to goods should be aware that many of the associated transitional arrangements will have a significant impact on the priority of interests, particularly over the next two years.
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Key implications
- The new personal property securities register (PPSR) will eventually provide a definitive list of all security interests in the personal property of an individual or corporation.
- However, the two year transition period from 30 January 2012 to 31 January 2014 will be dangerous for interest holders.
- In this period, a person who has a claim to goods with the earliest registered interest cannot be certain their interest has the highest priority. An unregistered interest that predates 30 January 2012 can lie dormant for the next two years and catch out unwary lenders in a priority dispute.
- A secured party will not be able to rely on the PPSR as the determinative register of secured interests until after January 31 2014.
- Similarly, those who delay registering their pre-PPS Act interests risk expensive and unnecessary disputes with later registered interests.
Background
The Personal Property Securities Act 2009 (PPS Act) reforms the existing laws concerning the creation, priority and enforcement of security interests in personal property. It also provides for the creation of the Personal Property Securities Register (PPSR).
The PPSR is the online register of security interests in personal property, which went live on 30 January 2012. Many of the transitional arrangements under the PPS Act have also come into effect from this date and will have a significant impact on the priority of interests, particularly over the next two years.
Registration commencement time (RCT) began on 30 January 2012. From this date all new security interests will need to be “perfected” to ensure their enforceability against third parties. There are a number of ways for an interest to be perfected, including by registration, possession and control.
Pre-existing security interests that have been registered on a number of Commonwealth, state and territory registers have already been migrated onto the PPSR. A list of registers that have been migrated onto the PPSR is available on the PPSR website.
Priority rules during the transitional period
Under the default priority rules, a perfected interest takes priority over an unperfected interest. In disputes between like interests, the first in time takes priority.
However, the PPS Act contains transitional provisions that create a number of exceptions to the default priority rules. For example, a security interest from an agreement created before 30 January 2012 is considered to be a “transitional security interest” (TSI).
Under the PPS Act:
- TSIs will have priority over registered interests created after 30 January 2012 as long as they are perfected; and
- a TSI is also temporarily deemed “perfected” under the PPS Act for 24 months from RCT (i.e. from 30 Jan 2012 to 31 January 2014).
At the end of this period if the TSI has not been perfected by some other means (usually registration) it will revert to an unperfected TSI and will lose priority to later perfected interests.
In a priority dispute between two unperfected TSIs or between two perfected TSIs, the dispute will be resolved using the laws that applied immediately before RCT - as if the PPS Act had not been enacted.
These priority rules are summarised in the table below.
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Priority dispute table
| |
Perfected TSI |
Unperfected TSI^ |
Perfected interest |
Unperfected Interest |
| Perfected TSI |
Apply previous laws. PPS Act does not apply |
Perfected TSI has priority |
Perfected TSI has priority |
Perfected TSI has priority |
| Unperfected TSI^ |
Perfected TSI has priority |
Apply previous laws. PPS Act does not apply |
Perfected Interest has priority |
Unperfected TSI has priority |
| Perfected interest |
Perfected TSI has priority |
Perfected Interest has priority |
First in time has priority |
Perfected Interest has priority |
| Unperfected Interest |
Perfected TSI has priority |
Unperfected TSI has priority |
Perfected Interest has priority |
First in time has priority |
^ until 31 January 2014 all TSI’s will be deemed perfected. Unperfected TSI’s will only exist after this date.
Author
Craig Higginbotham, Partner - Commercial Disputes
Further information
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