Understanding personal property securities law [2nd edition.] 9781922042026, 1922042021

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Disclaimer No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, nor for any error in or omission from this publication; and (2) the publisher is not engaged in rendering legal, accounting, professional or other advice or services. The publisher, and the authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.

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© 2013 CCH Australia Limited Published by CCH Australia Limited First 2nd published....................................December edition.................................... 2010 November 2013 All rights reserved. No part of this work covered by copyright may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying, recording, recording taping, or information retrieval systems) without the written permission of the publisher.

Foreword Peter Mills, Special Counsel — Personal Property Securities + Creditor Recoveries + Insolvency, Herbert Geer Lawyers. VicePresident, Qld Division of the Australian Institute of Credit Management (AICM). LLB (QUT). Member of the Qld Law Society’s Banking & Financial Services Committee. Solicitor of the Supreme Court of Queensland and the High Court of Australia, and Lawyer of the Supreme Court of Papua New Guinea. Since the registry’s commencement time under the Personal Property Securities Act 2009 (the Act) on 30 January 2012, there have been very few works which have sought to provide a comprehensive and practical daily working guide to the Act. This text, like its previous edition, provides such a comprehensive guide in an easily read and understood manner with excellent examples. It is an essential source of knowledge for all credit managers, finance teams and other professionals who deal with the many opportunities and risks arising because of the Act. It is a timely reminder and update of the Act, given the substantial developments in the law since 30 January 2012. The authors have continued and refined their art of explaining a very complicated piece of law with a matter of fact and example filled narrative. They have again given priority to the use of clear and practical business examples, a practice sadly overlooked by so many other writers on the Act.

This text introduces the reader to words and principals which they have possibly never dealt with before, such as the “Super priority” of the Purchase Money Security Interest (or “PMSI”). It provides scenarios which will potentially save readers and their businesses hundreds, if not millions, of dollars, due to: • unnecessary time and costs when undertaking compliance and enforcement under the Act • loss of assets and priority ahead of others when participating in the winding up of insolvent debtors • having to comply with steps and documentation which do not assist or hamper their ability to recover their money and goods • the interests of main stream banks, financiers and controllers of insolvent debtors • providing credit to unsuitable customers, by explaining the transparency of the Act’s register and by using various registrations, and information and documentation gathering tools, and • correctly dealing with and registering against assets under the Act. In modern business, many companies deal with suppliers, customers and assets located in foreign countries, such as New Zealand, Canada and the USA. The Act was created from similar laws in these foreign countries and is therefore relevant to not only local dealings, but also many dealings made outside of Australia. Because of this, and with very few court decisions in Australia to guide us, the authors have excelled themselves by also locating simple and straightforward foreign examples and applied them to everyday business transactions under the Act. This reference source has completed an excellent job in: • cementing its reputation among credit professionals as a compulsory desk top source of knowledge, and • building on the first edition’s examples with local and foreign examples of how Australian courts are likely to interpret this very new Australian law.

It is recommended that anyone who is either new to the Act or has even read the first edition should make sure that they have this updated version handy when reading a new customer’s credit application or a controller’s report, or more importantly when considering how they want to recover more from their potentially delinquent debtors and suppliers.

CCH Acknowledgments CCH Australia Limited wishes to thank the following who contributed to and supported this publication: Managing Director: Bas Kniphorst Content Director: John Stafford Publisher: Adriana Giometti Editor in Chief, Law and Business: Scott Abrahams Editor: Anne Wardell Production Team Leader: Lily Lim Lee Lee Sub-editor: Ch’ng Shear Lane Production Editor: Audrey Kong Lian Geok Indexer: Renee Ho (Suet Ling) Marketing Manager — Books: Lauren Ma Books Coordinator: Mele Aloua Cover Designer: Mathias Johansson

About the Authors Del Cseti Principal Consultant for Compliance Focus Pty Ltd. MLS (UTS), MEd (UTS) As Principal Consultant to Compliance Focus, Del works with companies in managing their compliance and risk management requirements in particular through the delivery of both face-to-face and online training. Prior to joining Compliance Focus Del was the National Training Manager & Manager of External Affairs for the Australian Institute of Credit

Management (AICM). In this role Del was responsible for developing and expanding AICM’s qualification based programs and managing AICM’s response to legislative reforms. Del’s qualifications include a Master of Legal Studies and Master of Education from the University of Technology Sydney. Anne Wardell, BA LLB (Monash) Anne was admitted to practise as a solicitor and barrister in Victoria in 1985 and in New South Wales in 2005. Currently, Anne is the Deputy Editor in Chief, Law & Business at CCH Australia Limited. Prior to joining CCH in 1997, Anne was the National Director of Insolvency at the Australian Taxation Office. She is a former Deputy District Registrar of the Federal Court of Australia and spent five years as a barrister at the Victorian Bar. During her legal career Anne specialised in insolvency and commercial law. Jason Harris BA LLB, LLM, FCIS Jason is a senior lecturer in insolvency law in the UTS Faculty of Law where he teaches undergraduate and postgraduate courses in insolvency, finance law and corporate law for law and business students. Jason is an academic member of the Insolvency Practitioners Association and a member of the Insolvency and Restructuring Committee of the Business Law Section of the Law Council of Australia and a member of academic committee of the Banking and Financial Services Law Association. Jason was the Insol International 2010–2011 Scholar for the Asia-Pacific Rim. He has written extensively on insolvency and corporate law having published several books and over 70 articles in professional and academic journals. Jason is the co-author of the Annotated Personal Property Securities Act and the Australian Personal Property Securities Law Reporter (both published by CCH). Author acknowledgments I would like to express my sincere appreciation to my co-author and editor Anne Wardell, her support and enthusiasm for all matters relating to Personal Property Security is limitless. I would also like to thank Jason Harris (UTS) and Peter Mills (Herbert Geer) for their continued friendship and fascination with Personal Property law.

As always final thanks go to my daughter Isabelle and my parents Douglas and Enid for their constant support. Del Cseti. I would like to thank my co-author Del Cseti for introducing me to the wonders of the PPSA regime and sharing her enthusiasm for it with me. I would also like to thank Jason Harris and Nicholas Mirzai for being able to answer every PPSA question I throw at them. I would like to dedicate this to my nephews James, Matthew, Simon, William and Winston Wardell. Anne Wardell.

Glossary ACCC

Australian Competition and Consumer Commission

ADI

Authorised deposit taking institution

AFSA

Australian Financial Security Authority

AICM

Australian Institute of Credit Management

AML-CTF

Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)

APAAP

all present and after acquired property

ASIC

Australian Securities and Investment Commission

NCC

National Credit Code

PMSI

Purchase money security interest

PPS

Personal property security system

PPSA

Personal Property Securities Act 2009 (Cth)

PPSB

Personal Property Securities Bill 2009

PPSR

Personal Property Securities Register

PPSReg

Personal Property Securities Regulation 2010

ROT

Retention of Title

TSA

Transitional security agreement

TSI

Transitional security interest

WHAT IS THE PPSA AND WHY WAS IT INTRODUCED? ¶1.1 How to use this book This book is intended for people who require an understanding of the Personal Property Securities Act 2009 (PPSA). Each chapter of the book deals with the different aspects of the PPSA and endeavours to highlight the key principles with which the reader should be familiar. This book is not intended to be a definitive guide to all of the aspects of the operation of PPSA. In some situations, the reader may need to obtain professional advice to ensure that the policies and procedures the reader intends to apply will accord with this new legislation. The reader should be mindful that the PPSA is a complex piece of legislation. Where appropriate, sections of the PPSA have been quoted in full; otherwise, the reader is referred to the relevant section. It should also be appreciated that the drafting of the PPSA is a little unusual in that within a section of the PPSA there may be subheadings. An example of this practice is found at s 74 where there is a subheading between s 74(3) and s 74(4). This book does not discuss Ch 6 Judicial proceedings and civil penalties nor does this book explore the constitutional basis for the PPSA (Ch 7, Pt 7.3).

Important Note The authors have conducted numerous seminars and made many submissions in relation to the development of the PPSA. One of the issues which clearly emerged is that the best way to begin to understand the operation of the PPSA is to put to one side your knowledge of the previous legislative regime relating to personal property. In the authors’ experience, people who try to match the

new terms and concepts to terms and concepts used under the old system find it harder to understand PPSA. There is a very simple reason for this; there is no direct correlation between what existed before and the new law. It is suggested that if you apply this principle you will soon be familiar with the PPSA.

¶1.2 Overview In this chapter we will consider: • why the PPSA was introduced • the advantages of having a personal property securities (PPS) system • an overview of how PPS operates • the application of the PPSA.

¶1.3 Why was the PPSA introduced? After much delay the PPSA commenced on 30 January 2012. Commencement could not occur until the Personal Property Securities Register (PPSR) was operational. The commencement date is important when seeking to understand the transitional provisions of the Act which are discussed later in this book. There were a large number of factors which influenced the development of the PPS legislation and each one was a substantial contributor to informing the Federal Government’s conclusion that the introduction of a PPS regime would be beneficial. It is helpful if these different factors are considered within several broad categories: • the Commonwealth, state and territory legislative framework • purchasers and consumer rights • economic factors

• international factors — harmonisation • a brief history of the previous attempts to introduce these reforms.

¶1.4 The Commonwealth, state and territory legislative framework Under the legislative regime which was in force until the PPSA commenced on 30 January 2012, there were an extraordinary number of Acts which had relevance to personal property. Just a few examples include: • Bills of Sale Act 1886 (SA) • Bills of Sale Act 1899 (WA) • Chattel Securities Act 1987 (Vic) • Consumer Credit (New South Wales) Act 1995 (NSW) • Conversion of Securities Adjustment Act 1931 (NSW) • Credit Act 1984 (NSW) • Disposal of Uncollected Goods Act 1961 (Vic) • Fisheries Act 1995 (Vic) • Goods Act 1958 (Vic) • Goods Securities Act 1986 (SA) • Motor Car Traders Act 1986 (Vic) • Motor Vehicles and Boats Securities Act 1986 (Qld) • Sale of Goods Act 1895 (SA) • Sale of Goods Act 1895 (WA) • Sale of Goods Act 1896 (Qld)

• Warehouse Liens Act 1990 (SA) • Warehouseman’s Liens Act 1935 (NSW). It has been stated that up to seventy Acts in total touched upon personal property. A significant issue with these diverse Acts is that the focus of the legislation was upon the form of the security rather than its effects. This has meant that organisations who sought to protect their security interest would first need to establish if there was relevant Commonwealth law and in addition determine if there was relevant state or territory legislation. With some limited exceptions, the focus of all of this legislation has been limited to security interests such as company charges, bills of sale, stock mortgages and some crop liens. This diverse range of legislation has meant that there has been a substantial compliance cost to both business and consumers to ensure that rights and responsibilities are adhered to and upheld. Consider the situation a national supplier of goods would face. The supplier would need to comply with the various state and territory sale of goods legislation, possibly the warehouse liens legislation and potentially many other pieces of legislation. As well, a business may need to register their security interest on more than one register thus adding to their costs. In addition, some of this legislation is based on extremely old legal concepts and is in fact based on English statutes and is anchored in common law and equity principles. The outcome of this situation has been a large body of case law which has influenced the wording of documents in an attempt to protect a supplier’s rights and remedies. The success or otherwise of this response has, on occasion, been less than successful from the supplier’s perspective. An additional complication was that due to the limited nature of the security interests which could be formally recognised, many creditors fell under the category of unsecured creditors as their security interests could not be registered. The holders of unregistered security interests are given a lower priority irrespective of when the security interest was created1.

The multiplicity of legislation was compounded by an equally extensive number of registers where eligible security interests could be registered. There were both Commonwealth and state registers. A few examples are set out below: • Australian Register of Company Charges (Cth) • Register of Co-operative Charges (NSW) • Register of Encumbered Vehicles (REVS) (NSW) • Register of Liens on Crops, Register of Liens on Wool and Mortgages of Stock (Vic) • Register under Registration of Interests in Goods Act 1986 (NSW) • The Register (Bills of Sale Act 1900 (Tas)) • Register of legal and equitable interests in petroleum titles (NSW) • Vehicle Securities Register (Chattel Securities Act 1987 (Vic)). This meant that if an organisation was endeavouring to ascertain if there were registered security interests then all relevant registers would need to be searched. Further, some of the registers were paper-based and electronic lodgement was not available. Web-based searching was also unavailable for some of the registers. An additional downside of this situation was that in some circumstances it was not possible to ascertain whether a security interest had been taken. This situation has been described in the Review of the law on Personal Property Securities Options Paper2 as being “fragmented”, a comment which is really a substantial understatement. Footnotes 1

Standing Committee of Attorneys-General Review of the law on Personal Property Securities Options Paper, April 2006, p 4.

2

Ibid, p 2.

¶1.5 Purchasers and consumer rights The previous regime did not always protect purchasers of personal property from subsequent claims by unidentifiable security holders. If a vendor was unable to definitively state that the property was free from any security interest, then this could impede sales or result in a lower sale price. Whilst registers such as REVS sought to offer consumer protection, such registers were confined to specific classes of goods. Prior to the PPSR, there was no central register which addressed the needs of both consumer and commercial purchasers and suppliers. The PPSR has significantly remedied this problem as it is available online 24/7 and the fee for conducting a search is modest.

¶1.6 Economic factors As mentioned above, the multiplicity of legislative provisions imposed considerable compliance costs on business. It had also been concluded that a disincentive to offering lending and/or credit facilities to small business was the absence of an appropriate system to register security interests. Further, to reflect international trends and support Australia’s transition to a services-oriented tertiary economy, consistent law relating to personal property is an important component3. In addition to the factors already highlighted, one of the most compelling arguments for introducing the PPSA was the expanded range of property that a business may use to raise capital and obtain credit. This may be especially important for a new business where, for example, the principal asset is the intellectual property. Unless a business whose capital is invested in unregistrable property can come within a registration scheme, then they will remain at a disadvantage relative to other businesses4. Such a situation discourages economic growth and business innovation

and ultimately results in investment being directed to registrable property. Footnotes 3

Ibid, p 2.

4

Ibid, p 9.

¶1.7 International factors — harmonisation of personal property law Australia’s participation in international trade and financial arrangements was impeded by the previous legislative regime. There is an expectation amongst Australia’s trading partners and international investors that there will be legal consistency within a country and between countries in lending and credit arrangements. This concept is referred to as harmonisation. These factors are essential for Australia’s continued economic growth and development. Thus this aspect gave further impetus to the need for the introduction of the PPSA. Legislation similar to that set out in the PPSA is already in operation in the United States, Canada and New Zealand. The UK Law Commission is also exploring reforms which will bring the UK closer to a personal property regime. It is interesting to note that the PPS regime has been introduced into Papua New Guinea and Samoa with other Pacific nations expected to follow. In New Zealand the Personal Property Securities Act 1999 (NZ) commenced on 1 May 2002. Given the close relationship between Australia and New Zealand as set out in the Closer Economic Trade Relations Agreement of 1983, the impetus for introducing an Australian version of the PPS has become more critical. The Australian legislation, whilst similar to that of New Zealand, is not a direct mirror of the New Zealand Act, which was in turn based on the Canadian provincial Acts.

Thus, whilst cases from these other jurisdictions will be persuasive for judges deciding cases in Australia, it should not be assumed that case law from these jurisdictions will determine the operation of the PPSA in Australia. At the time of writing this second edition, there had been ten Australian cases dealing with the operation of the PPSA. The most important of these is Re Maiden Civil (P&E) Pty Ltd; Albarran and Pleash (as receivers and managers of Maiden Civil (P&E) Pty Ltd) v Queensland Excavation Services Pty Ltd (2013) APPSR ¶701-008; [2013] NSWSC 852. In this case the judge considered a number of cases from New Zealand and was guided by them in reaching his decision. Maiden Civil will be discussed in greater detail at ¶6.3 and in Chapter ¶10. Another important decision is Re Cancer Care Institute of Australia Pty Limited (Administrator appointed) (2013) APPSR ¶701-006; [2013] NSWSC 37 which dealt with the interaction of the PPSA on the question of fixtures as they apply in a commercial lease. The case is discussed in greater detail at ¶2.4 and ¶4.2. A number of the other cases are discussed in later chapters. The facts from each of the cases have been used in the case studies examples at the end of this book. One clear outcome of this harmonisation process has been the introduction of new terms and concepts which will be unfamiliar to most Australian readers. Terms such as grantor, perfection and collateral are anchored in the legal concepts found in other countries’ personal property securities legislation.

¶1.8 A brief history of attempts to reform personal property law There have been various previous attempts to reform personal property law in Australia. During the 1970s, the Molomby Committee (a committee of the Law Council of Australia) proposed the overhaul of personal property law. Subsequently in 1992 there was a joint report by the Victorian and Queensland Law Reform Commissions, however, there was little enthusiasm for the proposed reforms5. Further reports and discussion papers in the mid-1990s again failed to gain interest and the concept remained dormant until 2002 when a workshop was convened at

Bond University by the then Banking Law Association and the Australian Finance Conference. The culmination of this workshop was a draft bill released in 20026. Finally after further deliberation the Standing Committee of Attorneys-General released an Options Paper in 2006 and it was from this point that support for the reform grew. Further support was gathered through the release of discussion papers and consultation drafts of the proposed legislation. The final outcome was the enactment of the PPSA in December 2009. Considerable credit should be given to the then Attorney-General Philip Ruddock who took a leadership role in garnering support for the reforms and this was then consolidated by the then Attorney-General Robert McClelland, who took office at the end of 2007. Footnotes 5

Ibid, p 3.

6

Bond Law Review, Volume 14, Number 1, December 2002.

¶1.9 The objectives of the PPSA The intention of both the Commonwealth, state and territory AttorneysGeneral in supporting the introduction of the PPSA was to achieve several objectives. These objectives may be summarised as follows: • to establish a national personal property regime • to introduce a single national register of personal property security interests which would comprehensively address security interests in collateral owned by both individuals and organisations7 • that the personal property regime would focus on the transactions that secure payment or the performance of an obligation without regard to the form of the transaction8

• that registration could also be made of any security interest when the security provider (in other words the debtor and/or guarantor) has use of the collateral, for example, by lease or commercial consignment even though the legal ownership is held by the security holder (for example a lender, credit provider and/or lessor)9 • the new personal property regime would provide legal certainty for all parties to the transaction or when dealing in personal property. Further, any exclusions from the regime would be clearly identified10 and the legislation would focus on the substance of the security interest rather than the form of the security interest. In other words, the law should not be focused on whether the personal property is wool, a boat or contract rights • that there would be clear priority, enforcement and extinguishment rules. Overwhelmingly the PPSA does address these objectives. Whilst it may be inevitable that there may be a need for subsequent amendments to the legislation, the general principles are clearly established by the new law. Footnotes 7

Standing Committee of Attorneys-General Review of the law on Personal Property Securities Options Paper, April 2006, p 10.

8

Ibid, p 11.

9

Ibid, p 11.

10

Ibid, p 11.

¶1.10 A brief guide to the principles of the operation of the PPSA

A grantor who may be for example a debtor, lessee or guarantor grants a security interest which creates a performance obligation or secures a payment to a secured party who may be for example a supplier, manufacturer, lender, creditor or lessor. The creation of the security interest means that the security interest has been attached to the personal property. Personal property to which a security interest has attached is known as collateral. The attachment of the security interest is usually in writing where the grantor acknowledges that a security interest has been taken. However, once attachment is obtained the security interest must be perfected. This may occur by one of the following methods: • control • possession • registration on the PPSR • temporary perfection. Only when all of the steps are completed do you achieve perfection. Competing security interests are determined in accordance with the priority rules. The principal rule being the first in time rule whereby the first security interest perfected will have the highest priority. However, there are some special priorities rules which relate primarily to a unique class of security interests known as Purchase Money Security Interests (PMSIs). Throughout this book, you will find an explanation of these new concepts and how they will operate.

WHAT IS INCLUDED AND EXCLUDED FROM THE PPSA? ¶2.1 Introduction One of the threshold issues which many people initially have trouble understanding is what is included and what is excluded from the operation of the Personal Property Securities Act 2009 (PPSA). A starting point for this confusion lies in the fact that many people are unfamiliar with the legal definition of personal property, which at its broadest construct includes everything except land formally known as realty. Thus personal property is not confined to those goods which may be considered to be consumer goods but includes commercial goods and many other types of property that has traditionally been excluded from the legal remedies relating to the sale of goods. A second area of confusion arises in relation to which types of security are included under PPSA, and the types of security that are excluded. In this chapter, we will explore: • the categories of personal property addressed by the PPSA • examples of transactions which will be included in the PPSA • what is excluded from the operation of the PPSA • what this law will mean for current securitisation arrangements such as mortgages • what will remain unchanged by the introduction of the PPSA.

¶2.2 Categories of personal property addressed by the PPSA

The first concept that needs to be addressed when considering the types of property covered by the PPSA is that there are two broad classes of property: • tangible property • intangible property. In addition, the property will be classified as to whether it is commercial property or consumer property and whether it can be described by use of a serial number. 2.2.1 Tangible property Tangible property traditionally means those items which in essence have a physical presence and this is the case with the PPSA. Examples of tangible property include: • motor vehicles • aircraft • watercraft • machinery • office furniture • currency • artworks • inventory and stock • goods • crops • livestock including fish.

Important Note

This list should not be taken to be exhaustive.

However, there are some special rules relating to tangible property which you should be mindful of. 2.2.1.1 Serial numbered goods A serial numbered good must meet the definition contained in s 10 of the PPSA which is as follows: “serial number, in relation to collateral, means a serial number by which the regulations require, or permit, the collateral to be described in a registration.” Clause 2.2 in Sch 1 of the Personal Property Securities Regulations 2010 (PPSReg) sets out the requirements for describing goods by serial number. Subclause 2.2(1)(a) and (b) in Sch 1 of the PPSReg contain the word “must” and therefore if the property is being described as consumer property then a description by serial number is mandatory in order to comply with s 153 of the PPSA. Subclause 2.2(1)(c) in Sch 1 of the PPSReg contains the word “may” and therefore if the property is being described as commercial property then a description by serial number is not mandatory. The fact that they are not so described will not invalidate the financing statement. Subclause 2.2(3) in Sch 1 of the PPSReg sets out what must be included in a description of collateral by serial number. What this means is that if you wish to take a security interest in collateral which falls within these requirements, then you will have to take into account the options and requirements relating to the registration of serial numbered goods. We will explore this in Chapter ¶5 — How do you achieve perfection? However, what is important to understand is that serial numbered goods means only those goods that come within predefined parameters and is confined to: • motor vehicles • watercraft • aircraft including airframes, aircraft engines, small aircraft and

helicopters • intellectual property. The PPSReg contains additional definitions of these goods in reg 1.6 and 1.7. A further transitional definition of watercraft is contained in reg 9.1 of the PPSReg. You should also take note of the definitions contained in the PPSReg for the following words: • aircraft engine • airframe • chassis number • helicopter • hull identification number • manufacturer’s number • outboard motor • small aircraft • vehicle identification number. Note This is not an exhaustive list of the definitions contained in the PPSReg.

As stated in the Personal Property Securities Reform Discussion Paper Regulations to be made under the Personal Property Securities Act [October 2009]: “… serial numbered goods receive special treatment … because they can be readily identified by a number that is unique, accurate and affixed permanently to the property …”1 Serial numbered goods also receive special treatment “… because they

are generally highly mobile [goods] …”2. Thus you should not assume that you will be able to treat your organisation’s goods as serial numbered, unless they fall within these specific categories. 2.2.1.2 Financial property Many people would quite reasonably assume financial property to be intangible property. However, the PPSA specifically excludes financial property from the definition of “intangible property” contained in s 10 of the PPSA. Financial property is defined in the PPSA at s 10 as follows: “financial property means any of the following personal property: (a) chattel paper; (b) currency; (c) a document of title; (d) an investment instrument; (e) a negotiable instrument.” You should also note the definition of financial product contained in s 10 when dealing with an investment interest. Regulation 1.10 was inserted into the PPSReg in 2012 to include references to carbon credits and emissions to the definition of an investment interest. The Abbott Government has indicated a change of direction for Australia in relation to climate change. It may be that there will be further amendment to the PPSA to take account of this new direction. It will be helpful when you come to Chapter ¶5 — How do you achieve perfection? if you appreciate at the outset that financial property is a category in its own right. 2.2.1.3 Accessions It is also advantageous if you start to understand the meaning of the term “accession”. Accession is defined in s 10 of the PPSA as follows: “accession to other goods means goods that are installed in, or

affixed to, the other goods, unless both the accession and the other goods are required or permitted by the regulations to be described by serial number.” The concept of allowing an accession to be secured is new to Australian law and embraces the situation whereby goods are combined together, yet the secured party will still be able to have their security interest continue in the goods even though the goods supplied are now combined. The maintenance of the security interest is achieved through registration. Example Green Ltd manufactures boats but purchases the sails for the boats from Brown Pty Ltd. The sail is an accession and Brown could take a security interest over the sail which would continue even after the sail was affixed to the boat. In this example, the sail is an accession because it can be removed without damage to the boat.

There are special priority rules relating to accessions which will be discussed in Chapter ¶7 — Agricultural interests, accession and commingling. 2.2.1.4 Commingled goods Commingled goods are defined in s 10 of the PPSA as follows: “goods that are commingled include goods that are mixed with goods of the same kind.” This definition is perhaps less than clear as there are two concepts underpinning commingling. Firstly, commingling embraces the situation whereby goods are so mixed together that it is impossible to separate them, yet the secured party will still be able to have their security interest continue in the goods even though the goods supplied are not separable. In other words, they have been transformed. The second concept is when goods are of the same kind and mixed together. Example 1 Miss Nora Pewter is a specialty furniture designer who sources the goods needed for her furniture from a variety of suppliers. Miss Pewter sources timber from Orange Pty Ltd, metal fasteners from Apricot Pty Ltd and glue from Blue Pty Ltd. Each of the suppliers would be

able to take a security interest in the goods supplied and this security interest would continue even when the different components have been combined (commingled) to make an item of furniture.

Example 2 Blue Pty Ltd manufactures food products the basic ingredient of which is flour. Blue sources the flour from several suppliers including Best Wheat Pty Ltd and First Wheat Pty Ltd. Upon delivery, Blue stores the flour from the suppliers in one central silo and it is not possible to distinguish or separate the flour from the different suppliers. However, each supplier would be able to take a security interest in the goods supplied and maintain the security interest once the goods have been commingled.

In both of these examples, the secured party can seek no more than the value of the goods supplied. Thus even if the commingled goods are ultimately worth more, the secured party has in effect a ceiling on their claim. The secured parties would not be able to claim the difference between the value of the goods supplied and the retail price. With the flour the secured parties’ claims would be determined on a percentage basis. Thus if Best Wheat supplied 60% of the flour in the silo and First Wheat 40%, then that would determine the value of their respective claims. This maintenance of the security interest is achieved through registration of the security interest. There are special priority rules relating to commingling which will be discussed in Chapter ¶7 — Agricultural interests, accession and commingling. 2.2.1.5 Agricultural products Agricultural products are also given special consideration in the PPSA. Security interests can be taken in crops and livestock which are subject to special priority rules. These special rules will be considered in Chapter ¶7 — Agricultural interests, accession and commingling. 2.2.1.6 Property covered by the PPSReg It is important that you refer to the PPSReg when considering the operation of the PPSA as the regulations contain exceptions or additions

for the purposes of various sections of the Act. Regulation 1.5 of the PPSReg provides that the PPSA applies to the following interests: • a mortgage-backed security, and • if transferred to a person in connection with the issue by the person of a mortgage-backed security — a real property mortgage loan. A mortgage-backed security has the meaning given by s 286 of the Duties Act 2001 (Qld). The following example is reproduced from p 4 of the Explanatory Statement to the PPSReg: Example Bank A bundles the rights of repayment for a number of outstanding loans they have provided over farm properties near Tumut, New South Wales. Bank A sells this bundle of loan repayment rights (the sale’s documentation specifies some of the more prominent farms involved) to Company B, which agrees to pay Bank A back for the bundle over the next five years. Concurrent with and consequent to the transfer of the bundled rights, mortgage-backed securities in relation to the repayment rights are issued to a number of investors in Company B in relation to the repayment rights who finance this purchase with a loan from Bank C. Bank C then onsells the right to repayment from the sale of the bundled rights to a private investor, Mr D. Mr D’s interest in the right to repayment is a security interest to which the Act applies in accordance with reg 1.5(1)(b). The interest of Bank C in the mortgage-backed securities is a security interest to which the Act applies in accordance with reg 1.5(1)(a).

2.2.2 Intangible property Intangible property is defined in s 10 of the PPSA as follows: “intangible property means personal property (including a licence) that is not any of the following: (a) financial property; (b) goods; (c) an intermediated security.” It can be very frustrating when legislation defines a term by telling you

what it does not mean. Primarily intangible property relates to intellectual property which is defined in s 10 as follows: “intellectual property means any of the following rights (including the right to be a party to proceedings in relation to such a right): (a) the right to do any of the things mentioned in paragraph 10(1) (a) to (f) of the Designs Act 2003 in relation to a design that is registered under that Act; (b) the right to exploit or work an invention, or to authorise another person to exploit or work an invention, for which a patent is in effect under the Patents Act 1990; (c) the rights held by a person who is the registered owner of a trade mark that is registered under the Trade Marks Act 1995; (d) the right to do, or to license another person to do, an act referred to in section 11 of the Plant Breeder’s Rights Act 1994 in relation to propagating material of a plant variety; (e) the right to do an act referred to in section 17 of the Circuit Layouts Act 1989 in relation to an eligible layout during the protection period of the layout; (f) the right under the Copyright Act 1968 to do an act comprised in the copyright in a literary, dramatic, musical or artistic work or a published edition of such a work, or in a sound recording, cinematograph film, television broadcast or sound broadcast; (g) a right under or for the purposes of a law of a foreign country that corresponds to a right mentioned in any of paragraphs (a) to (f).” The PPSA also provides that a security interest can be taken against an intellectual property licence. An intellectual property licence is defined in s 10 of the PPSA as follows: “intellectual property licence means an authority or licence (within the ordinary meaning of that term) to exercise rights comprising intellectual property.”

Another form of intangible property are contract rights which may also be the subject of a security interest. Thus a creditor may seek a security interest in a much wider range of personal property than previously available. As discussed in Chapter ¶1 — What is the PPSA and why was it introduced?, the intellectual property of a business may be a substantial asset and should not be overlooked when making a credit worthiness assessment. 2.2.2.1 Serial numbered goods The following is a list of intangible property which can be described by serial number: (a) a design, or (b) a patent, or (c) a plant breeder’s right, or (d) a trade mark, or (e) a licence over any intangible property mentioned in cl 2.2(1)(a)(ii) (A) to (D). (Subclause 2.2(1)(a)(ii) Sch 1 PPSReg) Subclause 2.2(1)(a) in Sch 1 of the PPSReg contains the word “must” and therefore if the intangible property is being described as consumer property then a description by serial number is mandatory in order to comply with s 153 of the PPSA. Subclause 2.2(1)(c) in Sch 1 of the PPSReg contains the word “may” and therefore if the intangible property is being described as commercial property then a description by serial number is not mandatory. The fact that the intangible property is not so described will not invalidate the financing statement. Subclause 2.2(2) and (3) in Sch 1 of the PPSReg set out additional requirements for registration which will be discussed further in Chapter ¶5 — How do you achieve perfection? Footnotes 1

Personal Property Securities Reform Discussion Paper

Regulations to be made under the Personal Property Securities Act, October 2009, p 43. 2

Personal Property Securities Reform Discussion Paper Regulations to be made under the Personal Property Securities Act, August 2008, p 36.

¶2.3 Examples of transactions which will be incorporated under the PPSA The following extract from s 12 of the PPSA provides a useful insight into the range of transactions which fall within the operation of this legislation: “(2) For example, a security interest includes an interest in relation to personal property provided by any of the following transactions, if the transaction, in substance, secures payment or performance of an obligation: (a) a fixed charge; (b) a floating charge; (c) a chattel mortgage; (d) a conditional sale agreement (including an agreement to sell subject to retention of title); (e) a hire purchase agreement; (f) a pledge; (g) a trust receipt; (h) a consignment (whether or not a commercial consignment); (i) a lease of goods (whether or not a PPS lease);

(j) an assignment; (k) a transfer of title; (l) a flawed asset arrangement. (3) A security interest also includes the following interests in relation to personal property, whether or not the transaction concerned, in substance, secures payment or performance of an obligation: (a) the interest of a transferee under a transfer of an account or chattel paper; (b) the interest of a consignor who delivers goods to a consignee under a commercial consignment; (c) the interest of a lessor or bailor of goods under a PPS lease.” Fundamental to your understanding of how the PPSA operates is that this is “principles” based law rather than function based law. This subtle but significant difference means that the focus is upon whether or not the transaction will satisfy the definition of a security interest contained in s 12(1) of the PPSA: “A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).” Thus where there is a performance obligation or the securing of a payment in relation to collateral, then there is a reasonable likelihood that a security interest can be established. This is why it is often stated in regard to the operation of the PPSA that title is no longer “king”.

¶2.4 What is excluded from the operation of the PPSA? There are a number of interests which are excluded from the operation of the PPSA. These are set out in s 8 of the PPSA. In particular, matters

relating to the sale and ownership of land and buildings attached to land are outside the operation of the PPSA. Unfortunately, this also means that fixtures which are defined in s 10 of the PPSA as follows: “fixtures means goods, other than crops, that are affixed to land” also fall outside the operation of the PPSA. Organisations which supply collateral that may become a fixture are able to take a security interest in the collateral. However, once the goods are affixed then an alternative security method would need to be applied. Re Cancer Care Institute of Australia Pty Limited (administrator appointed) (2013) APPSR ¶701-006; [2013] NSWSC 37 is the first Australian decision to grapple with the issue of fixtures under the PPSA regime. The defendants owned a medical centre. The second plaintiff leased as lessee, part of the medical centre although there was no written lease agreement. The lessee bought two linear accelerators for about $9m from Varian Medical Systems Australasia Pty Limited (Varian). The linear accelerators were used in the treatment of cancer patients by delivering high energy radiation. Varian held a purchase money security interest (PMSI) in the linear accelerators and this was registered on the Personal Property Securities Register. The linear accelerators were installed on steel base frames which were grouted into the floor. The lessor claimed that the linear accelerators were fixtures in the premises so that title passed to the lessor and that they were therefore subject to mortgages over the premises. The lessee and its administrators sought declarations as to title to the equipment. His honour Black J held that the linear accelerators had not become fixtures. He said that the fact that the linear accelerators were purchased on credit, on terms that Varian, the vendor, would retain a PMSI in them, was another factor tending against an objective intention that they would become part of the premises. The fact that both the lessee and Varian proceeded on the basis that the lessee was able to give an effective security interest over the equipment was inconsistent with an objective intention by the lessee that the equipment would become part of the premises.

An interesting element in the case is the argument around whether the steel base frames, which were affixed to the premises, were part of the equipment. As set out above, s 10 provides that a fixture is something which is “affixed to the ground” which the frames were. The judge distinguished between the frames and the linear accelerators and said that the security was over the latter. It is also worth noting, when considering this decision, that the relationship between the directors of the lessee and the lessor were not clearly explained. It would seem unusual to install expensive equipment on premises which were the subject of an oral agreement. For a discussion of the case and how it impacts on a PMSI, see ¶4.2.2. Water rights are excluded from the PPSA at s 8, however, some clarification is provided by s 8(5) of the Act which provides that water rights include a right that a person has against another person to receive (or otherwise gain access to) water3. Jason Harris and Nicholas Mirzai have commented in their book that: “Concerns have been raised regarding this exclusion as there is no standard register for interests in water rights that can be relied upon in place of the PPS Register. The state and territory rules regarding water rights are also not uniform, The exclusion appears to be based on political expediency rather than economic or commercial reasons.”4 In general, the operations of pawnbrokers are also excluded from the PPSA at s 8. This exception will apply when the value of the collateral is less than or equal to $5,000. In essence, this is to avoid conflict with s 47 of the PPSA when the goods are purchased or leased for personal, domestic or household use and the value of the goods is not more than $5,000 or as prescribed by regulation. What this means is that low value consumer goods will not be subject to a security interest. This will be considered further in Chapter ¶8 — Taking personal property free of security interests. For the purposes of s 8(1)(l) of the PPSA, the PPSA does not apply to a right or interest in personal property mentioned in s 260-5 of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA) (reg 1.4(1) PPSReg). This section of the TAA applies to the right of the Commissioner to collect

amounts from third parties. Certain interests created under the Bankruptcy Act 1966 are also excluded by operation of s 8(1)(g) of the PPSA. These interests are as follows: • the interest of the Official Trustee or a registered trustee who has taken control (within the meaning of s 50 of that Act) of a debtor’s or grantor’s property under that section • the interest of the Official Trustee or a registered trustee in property of a debtor or grantor that has vested in the Official Trustee or the registered trustee under s 58 of that Act • a charge created under s 139ZN of that Act • a charge created under s 139ZR of that Act • an interest created under a personal insolvency agreement under Pt X of that Act. In addition, s 12(5) excludes the following: “(5) A security interest does not include: (a) a licence; or (b) an interest of a kind prescribed by the regulations for the purposes of this section.” However, you need to be careful when considering the outcome of holding a licence. Note that in New South Wales commercial fishing licences, fishing boat and charter fishing boat licences and aquaculture leases, among other things, have been declared not to be personal property for the purposes of the PPSA.5 This will be discussed subsequently. Regulation 1.8 of the PPSReg prescribes that the extinguishment of a beneficial interest in an account or chattel paper is not a security for the purposes of s 12(5)(b) of the PPSA. Footnotes

3

Section 8(5) was inserted by Act No 96 of 2010, s 3, Sch 2, Pt 1, item 14, effective 6 July 2010.

4

Jason Harris and Nicholas Mirzai, Annotated Personal Property Securities Act 2009 (Cth) CCH Australia Limited 2011.

5

Fisheries Management Act 1994 (NSW), s 286A.

¶2.5 What this law means for securitisation arrangements such as mortgages The introduction of the PPSA did not change the methods used for obtaining land-related securities such as mortgages and caveats. Nor did the introduction of the PPSA affect the operation of the state-based land titles registers.

¶2.6 What will remain unchanged by the introduction of the PPSA? Section 8 of the PPSA specifies those interests which will remain outside the operation of the PPSA. Section 8 is a lengthy and detailed section of the PPSA. The complexity of the operation of this section is compounded by the fact that the state governments need to refer their constitutional powers to the Federal Government in order that the PPSA can operate effectively. Despite extensive negotiations between the federal and state governments, some state governments have elected not to refer all matters. A detailed analysis of each state government’s referral legislation is outside of the scope of this book. Some examples of matters which will be excluded include: • liens • any right of set-off • any right or interest held by a person under or any interest provided

for by any transaction defined in s 5 of the Payment Systems and Netting Act 1998 (Cth) • a transfer of present or future remuneration (including wages, salary, commission, allowances or bonuses) payable to an individual as an employee or a contractor • mining tenement licences • fishing licences • liquor licences • gambling licences.

Important Note Whilst some licences may be excluded, this does not mean that goods and income derived from the licence will be excluded. Thus for example fish caught under a fishing licence and supplied as goods could come within the operation of the PPSA.

¶2.7 Changes made to the Corporations Act 2001 The Corporations Act 2001 (Corporations Act) was amended to incorporate the changes introduced by the PPSA. An important aspect of the PPSA was the introduction of a number of new concepts and names. The Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) changed references to “charges” in the Corporations Act to “security interests”. It is important to note that the concept of a security interest under the PPSA is broader than the traditional security arrangements which used to operate such as a “charge”. Perhaps more importantly, a new Div 6A (Security interests) was inserted into Pt 1.2 (Interpretation) of the Corporations Act which inserted a number of important new definitions. For example, s 51 of the

Corporations Act defines a “PPSA security interest” which involves security interests recognised by the PPSA that are not excluded by the PPSA (see PPSA s 8) and which are not “transitional security interests” as defined under s 308 of the PPSA. Section 51A defines a “security interest” as either a PPSA security interest or a “charge, lien or pledge”. Remember, however, that s 8 of the PPSA sets out various interests to which the PPSA does not apply, such as liens arising by operation of law. Section 51B follows by defining a “secured party” in similar terms. See also the definition of “secured creditor” in s 51E of the Corporations Act. Section 51D defines a “possessory security interest” as either a PPSA security interest that is perfected by possession or control, or a lien or pledge. One of the most important definitions is that of a “circulating security interest” in s 51C of the Corporations Act. This is defined as either a floating charge (ie one that is not a PPSA security interest as defined by s 51, such as a transitional security interest consisting of a floating charge in a pre-commencement security agreement) or as a PPSA security interest (which must have attached and the grantor must have title to the asset). Section 51F of the Corporations Act includes a new term “PPSA retention of title property”. Under s 51F(1), property of a corporation is PPSA retention of title property where all of the following conditions are present: (a) the property is personal property (b) the property is used or occupied by, or is in the possession of, the corporation (c) the corporation does not have title to the property (d) a PPSA security interest (see above) is attached to the property, within the meaning of the PPSA (e) the corporation is the grantor in relation to the PPSA security interest, within the meaning of the PPSA. These concepts will be discussed in more detail in Chapter ¶9 — Dealing

with corporate insolvency situations written by Jason Harris.

WHAT IS A SECURITY AGREEMENT? ¶3.1 Overview It is important to distinguish between a security agreement and a financing statement which is what you register on the Personal Property Securities Register (PPSR). The security agreement is the document which provides written evidence of the underlying security agreement between the secured creditor and the grantor. The financing statement is the document used to register this interest. It does not of itself create any security interest between the parties. The elements of a financing statement are covered in Chapter ¶5 of this book. In this chapter, we will explore the concepts that underpin a security agreement. Next we consider how a security agreement may be formally expressed and the types of documentation that may constitute a security agreement.

¶3.2 What is a security agreement? A security agreement is the formal confirmation that there is a security interest in the collateral. This simple statement introduces two important concepts, collateral and security interest, the meaning of each of which needs to be understood in order for you to follow how the Personal Property Securities Act 2009 (Cth) (PPSA) operates. Collateral is defined in the PPSA at s 10 as follows: “collateral: (a) means personal property to which a security interest is attached; and (b) in relation to a registration with respect to a security interest — includes personal property described by the registration (whether or not a security interest is attached to the property).

Note: Section 161 of the PPSA authorises the registration of a financing statement that describes personal property before or after a security agreement is made covering the property, or a security interest has attached to the property.”

Therefore collateral should be read in its broadest interpretation and, as stated in Chapter ¶1 — What is the PPSA and why was it introduced?, it goes beyond physical goods. When creating a security agreement, the PPSA provides that the collateral should be described. We will shortly consider the definition of a security agreement, however, it is useful if we consider the specific wording relating to collateral at this point. Section 20(2)(b)(i) of the PPSA states: “the writing evidencing the agreement contains: (i) a description of the particular collateral, subject to subsections (4) and (5);”

Note This section of the PPSA will be considered in greater detail in Chapter ¶5 — How do you achieve perfection?

The description of the collateral classes set out in the Personal Property Securities Regulations 2010 (PPSReg) at Sch 1 cl 2.3 is as follows: “2.3 Classes of collateral (1) For paragraph (c) of item 4 of the table in subsection 153(1) of the Act, the following classes of collateral are prescribed: (a) agriculture; (b) aircraft; (c) all present and after-acquired property; (d) all present and after-acquired property, except; [you will insert your exception(s)] (e) financial property;

(f) intangible property; (g) motor vehicles; (h) other goods; (i) watercraft. (2) In paragraph (1)(h): other goods means personal property that is goods, other than agriculture, aircraft, motor vehicles and watercraft.” We will explore in greater detail issues relating to these different collateral classes in Chapter ¶5 — How do you achieve perfection? However, it should be noted that you are not limited to only using the class description but you will be able to elaborate on your description and indeed this may be quite useful especially in relation to the class “other goods”. The reasoning behind why you should have an expanded description is because it will enable third parties to know the nature of the collateral, subject to the security interest, and will also inform any subsequent enforcement action. As with all things, you need to be careful that the supplementary description is not too detailed or too generic. For example, if you describe the collateral as “apples” then the security agreement would be limited to apples and no other fruit. Equally if you only use the terms “consumer property”, “commercial property” or “equipment”, the description would be too generic (s 20(4) PPSA). Further, the use of the term “inventory” would limit the enforceability of the security agreement to the period when the collateral is held as inventory (s 20(5) PPSA). The first Australian PPSA legal decision highlighted the need for care to be taken when describing collateral in a financing statement. In Carson, In the matter of Hastie Group Limited (No 3) (2012) APPSR ¶701-001; [2012] FCA 719, the administrators appointed to the companies in the Hastie Group applied for directions allowing them to dispose of unclaimed plant and equipment. The Hastie Group held a large number of items of plant and equipment. The administrators took multiple steps to identify the items of plant and equipment that were subject to security interests and other claims. However, approximately 3,684 items remained

unclaimed (amounting to approximately 77% of the plant and equipment). The ongoing rental cost of storing the plant and equipment was significant. The court made orders for the administrators to be permitted to sell the property and, after a period of three months, use the remaining unclaimed proceeds in the administration. Justice Yates noted, at [10] of the judgment: “Given the level of generality of many of the registrations in the PPSR and the existence of many transitional security interests that are not registered, it has proved extremely difficult for the administrators to rely upon the PPSR for the purpose of identifying property that is subject to third party security interests.” People preparing financing statements may wish to reconsider the level of specificity or generality used in the description of the security, in light of this case. If a registration is made in very general terms, this can cause practical difficulties for clients in the future, because it hampers the ability of conscientious third parties to rely on the PPSR to identify specific items of property that are subject to security interests. On the other hand, there can be advantages to describing the collateral in broad terms. For example, it may be more efficient to register a single broadly-worded financing statement in relation to all property supplied under an ongoing trading relationship. The problems of identifying property are discussed later in this book in CS 9 in the Case Studies section.

Important Note Section 153(1) of the PPSA does require that the collateral be described as consumer property or commercial property; however, this must be in conjunction with one of the collateral classes and not in isolation.

The second concept with which you should be familiar is security interest. As already discussed in Chapter ¶1 — What is the PPSA and why was it introduced?, a security interest is defined at s 12 of the PPSA

as follows: “Meaning of security interest (1) A security interest means an interest in personal property provided for by a transaction that, in substance, secures payment or performance of an obligation (without regard to the form of the transaction or the identity of the person who has title to the property).” Thus in order to create a security agreement there must be a security interest which satisfies this definition. This section originally contained the words “in relation to” before the words “personal property”. These words were removed prior to the commencement of the PPSA in order to bring the definition in line with that contained in the New Zealand PPSA. The Explanatory Memorandum to the amending Bill provided the following explanation as to the amendment1: “21. Section 12 of the PPS Act defines a security interest to mean an interest ‘in relation to personal property …’, and various other provisions in the PPS Act refer to security interests in a similar way. 22. The corresponding provisions in the New Zealand personal property securities legislation do not include the words in relation to and the addition of the words in relation to may suggest that the definition in the PPS Act is different, and broader, to that in the New Zealand legislation. 23. Because the definition of security interest is fundamental to the PPS scheme and because it is desirable to harmonise the scheme with the corresponding New Zealand legislation, the proposed amendments would remove all references in the definition of security interest to ‘in relation to’ personal property.” A more detailed discussion of s 12 of the PPSA is set out in Chapter ¶2 — What is included and excluded from the PPSA? You will also find other references to s 12 throughout this book as understanding the concept of a security interest is fundamental to understanding the PPSA.

Important Note — Deemed security interests One of the more curious aspects of the PPSA is the introduction of the concept of deemed security interests. There are three categories of security interests which are “deemed” to be security interests irrespective of whether or not they secure payment or performance of an obligation. They are as follows: • the interest of a transferee under a transfer of an account or chattel paper • the interest of a lessor under a PPS lease • the interest of a consignor who delivers goods to a consignee under a commercial consignment. You should be aware that whilst these “deemed” security interests are excluded from the enforcement rules (refer to Chapter ¶6 — Enforcement rights and remedies for secured parties), they are treated as a security interest for all other purposes such as priority and extinguishment rules. An important case dealing with deemed security interests is In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors (2013) APPSR ¶701-008; [2013] NSWSC 852 which is discussed in greater detail in Chapter ¶10 at ¶10.4.

A further note Chattel paper The term chattel paper will be unfamiliar to readers as it has not previously been used in Australian law. Chattel paper is defined in s 10 of the PPSA as follows:

“chattel paper means one or more writings that evidence a monetary obligation and either or both of the following: (a) a security interest in, or lease of, specific goods, or specific goods and accessions to the specific goods (even if the description of the goods (and accessions) is taken to include a description of intellectual property, or an intellectual property licence, under section 105); (b) a security interest in specific intellectual property or a specific intellectual property licence; but does not include any of the following: (c) a document of title; (d) an intermediated security; (e) an investment instrument; (f) a negotiable instrument.” Examples of chattel paper include hire-purchase agreements and car rental agreements.

Once you have established that you have a security interest in collateral, you can draft a security agreement. It is vital that you have an effective security agreement as this will be your protection against third parties who may also have an interest in the collateral. The PPSA does not define how a security agreement should be worded. However, s 257(2) of the PPSA does make s 18(1) subject to Commonwealth, state and territory laws and general law, so you should be mindful of contract law principles and other relevant law such as the National Consumer Credit Protection Act 2009 (Cth). This Act contains the National Credit Code in Sch 1 (formerly the Uniform Consumer Credit Code). Further, your security agreement must be not be in breach of Ch 4 of the PPSA. A security agreement is defined in the PPSA at s 10 as follows:

“security agreement means: (a) an agreement or act by which a security interest is created, arises or is provided for; or (b) writing evidencing such an agreement or act.” You may make your security agreement long or short, this will depend upon your circumstances. A short security agreement could be as simple as a statement such as “A grants a security interest to B” and incorporated into existing documentation such as: • an equipment lease • a supply agreement • a chattel mortgage. However, you should be mindful that a short security agreement may not address other aspects of the PPSA, such as the enforcement provisions. Please refer to Chapter ¶6 — Enforcement rights and remedies for secured parties, for more information about enforcement. In response to the uncertainty caused by the introduction of the PPSA, five major Australian law firms collaborated to draft a suggested standard for the core provisions to be included in a General Security Agreement. The law firms involved in this are: • Allens • Ashurst • Herbert Smith Freehills • King & Wood Mallesons, and • Norton Rose Fulbright. A copy of the PPSA model clauses is contained in Appendix 4 at the end of this book. Within this book, the model clauses will be described as the PPSA model clauses General security agreement collaboration document.

The parties to a security agreement are the secured party and the grantor. Again it is essential that you understand the meaning of these terms. A secured party is defined in s 10 of the PPSA as follows: “secured party: (a) means a person who holds a security interest for the person’s own benefit or for the benefit of another person (or both); and (b) if the holders of the obligations issued, guaranteed or provided for under a security agreement are represented by a trustee as the holder of the security interest — includes the trustee; and (c) in relation to a registration with respect to a security interest — includes a person registered as a secured party in the registration.” Thus a secured party is not always a creditor. A secured party may be, for example, a lender or lessor. The term grantor is also new to Australian law and there are a number of provisions in the PPSA which serve to establish who may be a grantor. For instance s 6(1)(b) of the PPSA states that the PPSA will apply if the grantor “is an Australian entity”. Whilst a grantor may be a debtor, a debtor will not always be the grantor. Section 10 of the PPSA defines debtor as follows: “debtor means: (a) a person who owes payment or performance of an obligation that is secured by a security interest in personal property (whether or not the person is also the grantor of the security interest); or (b) a transferee of, or successor to, an obligation mentioned in paragraph (a).” Thus whilst the debtor may have the obligation, a different person may be the grantor, for example the guarantor. The PPSA defines grantor in s 10 of the PPSA as follows:

“grantor means: (a) a person who has the interest in the personal property to which a security interest is attached (whether or not the person owes payment or performance of an obligation secured by the security interest); or (b) a person who receives goods under a commercial consignment; or (c) a lessee under a PPS lease; or (d) a transferor of an account or chattel paper; or (e) a transferee of, or successor to, the interest of a person mentioned in paragraphs (a) to (d); or (f) in relation to a registration with respect to a security interest: (i) a person registered in the registration as a grantor; or (ii) a person mentioned in paragraphs (a) to (e).” The wording of the Explanatory Memorandum assists with the clarification of this term stating that a grantor is: “A person (or their transferee or successor) who owns or has an interest in the property to which a security interest has attached. A grantor would include a person who receives goods under a commercial consignment, a lessee under a PPS lease and a transferor of an account of chattel paper2.” This statement makes clear that there is continuity in the design of this legislation and that a security interest will not necessarily be set aside if the collateral is transferred to another person. This will be further considered in Chapter ¶8 — Taking Personal Property free of security interests, and Chapter ¶6 — Enforcement rights and remedies for secured parties. Consider the following case study.

Case Study Ms Isabelle Pewter has leased a printing press from Colour Pty Ltd. Ms Pewter has granted a security interest to Colour in relation to the printing press. However, Ms Pewter then seeks further funding from the Peoples Bank. Peoples Bank requires that Ms Pewter give a security interest in all of her personal property including the printing press. Ms Pewter is able to grant the security interest sought by the Peoples Bank even though she does not own the printing press.

A cautionary note This case study is very simplistic and is designed merely to highlight how a security interest could be granted in personal property not owned by the grantor. In subsequent chapters, we will explore some of the possible ramifications of Ms Pewter’s actions.

Footnotes 1

Personal Property Securities (Corporations and Other Amendments) Bill 2011.

2

Personal Property Securities Bill 2009 Explanatory Memorandum, p 18.

¶3.3 How to formalise a security agreement As already stated above, a security agreement does not necessarily have to be expressed in writing. However, it is good practice to use a written agreement especially if there is any likelihood that you may need to enforce your rights against a third party. Further, your security agreement will be the basis upon which you will lodge a financing statement if

achieving perfection by registration (refer to Chapter ¶5 — How do you achieve perfection?). So it is sensible if you include all the information you will need to lodge a financing statement in your security agreement. As already discussed, you must describe the collateral. You should also consider whether or not you wish to incorporate your security agreement in a broader contract. Section 275 of the PPSA provides that third parties may request a copy of your security agreement. You may not wish to disclose commercially sensitive information when providing a copy of your security agreement. The security agreement may embrace security interests in the grantor’s “after acquired property”. This will be elaborated in Chapter ¶5 — How do you achieve perfection? You may also wish to address the issue of enforcement costs and registration costs. As stated earlier in this chapter, the definition of security agreement in s 10 of the PPSA includes the words “is provided for”. The term “provides” is given specific meaning in s 10 of the PPSA which states: “a security agreement provides for a security interest if the interest arises under the agreement”. This somewhat circular definition means that you cannot have a security agreement unless there is a security interest. Therefore you must ensure in the formulation of your security agreement that the security interest is clearly expressed.

¶3.4 Does a security agreement have to be in writing? The issue of whether or not a security agreement has to be in writing has caused some confusion. Clarification is found by referring to the definition of “writing” in s 10 of the PPSA which reads as follows: “writing includes: (a) the recording of words or data in any way (including electronically), if, at the time the recording was made, it was reasonable to expect that the words or data would be readily accessible so as to be useable for subsequent reference; and

(b) the display, or other representation, of words or data by any form of communication (including electronic), if: (i) the display or representation is recorded in any way (including electronically); and (ii) at the time the recording was made, it was reasonable to expect that the words or data would be readily accessible so as to be useable for subsequent reference.” It is the intention of the PPSA to give a contemporary meaning to the term “writing”. It is intended to embrace current technology whereby documentation may be electronically created and conveyed. Further insight is gained when you consider the wording of s 20(2) of the PPSA which states: “Written security agreements (2) A security agreement covers collateral in accordance with this subsection if: (a) the security agreement is evidenced by writing that is: (i) signed by the grantor (see subsection (3)); or (ii) adopted or accepted by the grantor by an act, or omission, that reasonably appears to be done with the intention of adopting or accepting the writing; and (b) the writing evidencing the agreement contains: (i) a description of the particular collateral, subject to subsections (4) and (5); or (ii) a statement that a security interest is taken in all of the grantor’s present and after-acquired property; or (iii) a statement that a security interest is taken in all of the grantor’s present and after-acquired property except specified items or classes of personal property.” As this is new law and, as mentioned in Chapter ¶1 — What is the PPSA and why was it introduced?, there is limited case law to guide us in

understanding some of the provisions of the PPSA, a cautious approach is probably the better strategy. What is apparent from the cases decided so far is that Australian judges are using New Zealand PPSA cases to assist them in interpreting the Australian provisions. An example of this can be found in the decision of In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors (2013) APPSR ¶701-008; [2013] NSWSC 852 where the judge applied the principles found in New Zealand Bloodstock Ltd v Waller (2005) FPPSR ¶700-002; [2006] 3 NZLR 629 in deciding the case. At [32] of the judgment Brereton J, after quoting from the Bloodstock case, said that: “32 The Commonwealth Parliament, in enacting legislation that was modelled on the New Zealand and Canadian legislation, should be taken to have intended the same approach, which was by then wellestablished in Canada and New Zealand, to apply.” The judge made the following important observation in relation to the issue of whether a security agreement must be in writing in [41] of the judgment: “… I observe — though it was not argued — that QES’s security interest is vulnerable not only because it was not perfected by registration, but also on the ground that it was not enforceable against third parties under s 20, because there was no security agreement that covered the collateral for the purposes of s 20(1)(b) (iii): while the PPS leases were ‘security agreements’, they were not in, or evidenced in, writing as required by s 20(2); accordingly, s 20(1)(b) is not satisfied.” The facts of this case are contained in Appendix 6 together with a headnote written by Jason Harris. Thus, for example, should you resolve to create your security agreement electronically rather than paper-based you must be able to satisfy the test that the security agreement would be “… readily accessible so as to be useable for subsequent reference …”. This may be able to be achieved by ensuring that your computer files are regularly copied to a back up file. The second aspect of security agreements which has also caused concern is whether or not the grantor must sign the security agreement.

Whilst s 20(2)(a)(i) of the PPSA does state that the grantor should sign the security agreement, s 20(2)(a)(ii) provides for the grantor to “… adopt or accept …” the security agreement. It has been suggested that taking delivery of goods supplied would constitute adoption or acceptance. Again a cautious approach is probably preferable, in at least the introductory period of the PPSA’s application, and therefore you should have your security agreement signed in a manner that will comply with the wording of the PPSA.

¶3.5 Methods of signing The PPSA at s 20(3) does allow for a signature to be obtained by means other than by handwriting and embraces the concept of encrypted electronic signatures. Section 20(3) of the PPSA states: “Methods of signing writing (3) Without limiting subparagraph (2)(a)(i), for the purposes of that subparagraph a grantor is taken to sign writing if, with the intention of identifying the grantor and adopting, or accepting, the writing, the person applies: (a) writing (including a symbol) executed or otherwise adopted by the person; or (b) writing wholly or partly encrypted, or otherwise processed, by the person.” The critical issue will be that you have evidence of your security agreement and evidence of its adoption or acceptance and that you can, if required to do so, produce evidence of the signing of the agreement by a method acceptable to both parties and in compliance with the PPSA. A more significant aspect relating to the signing of a security agreement is that the person who signs (by whatever method) has the authority to do so. This issue is considered in greater detail in Chapter ¶11 — Implementing the PPSA in your organisations and lessons learned after one year. However, this short case study serves to highlight this point.

Case Study Molly Cobalt signs delivery receipts for goods supplied under a security agreement. Is Molly in fact signing a security agreement that will be giving a security interest over all goods supplied now and in the future? Importantly does Molly have this authority?

¶3.6 Types of documentation that may be a security agreement As stated above, a security agreement does not have to be a separate document but may be incorporated into existing documents such as: • leases • credit applications • chattel mortgages • loan applications. Rather than needing new documents, what is required is to insert a clause into these types of agreements which makes reference to the PPSA. In the PPSA model clauses General security agreement collaboration document, the following clause is suggested for a security interest: “Security interest The Grantor grants a security interest in the Collateral to the Secured Party to secure payment of the Secured Money. This security interest is [a transfer by way of security of Collateral consisting of: (a) accounts and chattel paper (each as defined in the PPSA) which are not, or cease to be, Revolving Assets; or (b) a Key Contract.

To the extent any Collateral is not transferred, this security interest is] a charge. If for any reason it is necessary to determine the nature of this charge, it is a floating charge over Revolving Assets and a fixed charge over all other Collateral.”3 It has also been suggested that invoices should reflect the terms of the security agreement together with a description of the collateral supplied. If you use more than one form of documentation, it is recommended that the grantor sign (adopt or accept) all of the documents that set out the security interest and describe the collateral. Factors that will inform the review of your documentation are addressed in detail in Chapter ¶11 — Implementing the PPSA in your organisations and lessons learned after one year. As well you should ensure that your policies and procedures address these new requirements. Footnotes 3

PPSA model clauses General security agreement 16 May 2013 drafted by Allens, Ashurst, Herbert Smith Freehills, King & Wood Mallesons and Norton Rose available on the Allens website at www.allens.com.au/pubs/baf/cubaf16may13.htm.

THE ROLE AND FUNCTION OF PURCHASE MONEY SECURITY INTERESTS (PMSIs) ¶4.1 Overview A purchase money security interest (PMSI) is a security interest in collateral created by: • a seller who secured the obligation to pay the purchase price • a person who provided the value to purchase the collateral • the interest of a lessor or bailor under a PPS lease • the interest of a consignor who delivers property under a commercial consignment. A PMSI confers “super-priority” on the secured party1. Under the new PPS regime the best form of perfected security is perfection by control. The next level of priority is given, subject to certain rules, to perfected PMSIs2. Perfection by control is limited in accordance with s 21(2)(c) of the Personal Property Securities Act 2009 (PPSA) to the following forms of collateral: (i) an authorised deposit taking institution (ADI) account in relation to which the ADI is the secured party (such as a savings account or term deposit)3 (ii) an intermediated security (iii) an investment instrument (iv) a negotiable instrument that is not evidenced by a certificate

(v) a right evidenced by a letter of credit that states that the letter of credit must be presented on claiming payment or requiring the performance of an obligation (vi) satellites and other space objects. As these types of security interests will have specific application, the next best form of security interest you can obtain is a PMSI. Other than perfection by control a PMSI will have priority over other security interests. A PMSI is not subject to the first in time rule. The concept of a PMSI was included in the PPSA in part to address a potentially disadvantageous situation when a secured party perfects a security interest using either of the following collateral classes: • all present and after acquired property, or • all present and after acquired property, except. The Personal Property Securities Regulations 2010 (PPSReg) define the collateral class “all present and after acquired property” in reg 1.6 as follows: “all present and after-acquired property means: (a) personal property over which the grantor has an interest at the registration time for the financing statement for a security interest or prescribed property; and (b) personal property acquired after the registration time for the financing statement for the security interest or prescribed property.” When this collateral class is used, the secured party is taking an all embracing security interest in all of the personal property of the grantor at the time of registration and all personal property acquired after the registration. However, if the collateral class selected is “all present and after acquired property, except”, which is defined in reg 1.6 as follows: “all present and after-acquired property, except means all present and after-acquired property, except for an item or class of personal property stated in the financing statement for the interest”,

then the security interest is in all of the personal property at the time of registration and all personal property acquired after the registration except for an item or class of personal property and this must be specified in the financing statement for the security interest. It is anticipated that security holders such as financiers will utilise one of these collateral classes as it will give them the best protection. However, it was acknowledged that if the grantor were to seek subsequent financing and/or credit facilities, then the second financier would be reluctant to provide such an arrangement as it would be unlikely that there would be any personal property left after the first financier exercised their rights. A PMSI gives the second financier/creditor the opportunity to protect their security interests in relation to the collateral acquired with the additional finance or credit. Thus, PMSIs serve to engender a degree of fairness under the PPSA regime. On the first anniversary of the PPSA, the Australian Financial Security Authority (AFSA) (formerly known as Insolvency and Trustee Service of Australia (ITSA)) produced a number of statistics extracted from the Personal Property Securities Register (PPSR). Motor vehicles were the most common form of collateral over which an interest was registered. This was followed by “all present and after acquired property” which accounted for almost 2 million of the total 7.1 million registrations.4 However, before you get too excited about PMSIs, you need to understand the special rules that apply to them as they are not available in all circumstances. Footnotes 1

Personal Property Securities Bill 2008 Australian Government Attorney-General’s Department Revised Commentary, December 2008, p 15.

2

Section 3 PPSA.

3

An ADI account is defined in s 10 of the PPSA as follows: an ADI account means an account, within the ordinary meaning of that term, kept by a person (whether alone or jointly with one or more other persons) with an ADI that is payable on demand

or at some time in the future (as agreed between the ADI and the person or persons). 4

Table 4, PPSR one year anniversary statistics provided by the Insolvency and Trustee Service of Australia (now called AFSA) and available on its website at https://www.afsa.gov.au/aboutus/ppsr/ppsr-statistics/personal-property-securities-registerppsr-one-year-anniversary-statistics#Table 4.

¶4.2 General definition The definition of a PMSI at s 14 of the PPSA is extremely long so we will separately consider each part of the definition. “General definition Section 14(1) A purchase money security interest means any of the following: (a) a security interest taken in collateral, to the extent that it secures all or part of its purchase price; (b) a security interest taken in collateral by a person who gives value for the purpose of enabling the grantor to acquire rights in the collateral, to the extent that the value is applied to acquire those rights; (c) the interest of a lessor or bailor of goods under a PPS lease; (d) the interest of a consignor who delivers goods to a consignee under a commercial consignment.” Thus you will note that a PMSI does have a fairly broad coverage. It is the form of security interest that will be most applicable to suppliers and manufacturers who supply collateral on credit terms usually by means of retention of title arrangements. It also addresses the need to protect a security interest in collateral delivered on commercial consignment and collateral obtained through a leasing arrangement.

Goods supplied on commercial consignment are best explained by example. Example A car manufacturer (the consignor) delivers motor vehicles to a car dealer (the consignee) on a commercial consignment commonly referred to as floor plan financing. The car dealer sells the goods (the cars) in its ordinary course of business without ever having obtained title to the goods.

An arrangement such as the one described above will give rise to a security interest under the PPSA as per s 14(1)(d) and is eligible to be registered as a PMSI. A number of car manufacturers have amended their documents to require the dealers to register an interest on the PPSR. A decision of Stevenson J in Auto Moto Corporation Pty Ltd v SMP Solutions Pty Ltd [2013] NSWSC 1403 provided a reminder for car dealers of the care which must be taken when buying and selling vehicles. In this case the vehicle involved was a Lamborghini Aventador worth between $700,000 to $800,000 and the original owner ended up losing both the vehicle and the proceeds of sale. It was also ordered to remove any interest in the vehicle it had registered on the PPSR. Although the judge was satisfied that the PPSA did not apply to the facts, the case is still worth being aware of. 4.2.1 Value A PMSI is also applicable when a person gives value (a lender/financier). At this point you need to understand what is meant by the term “value”. Value is defined in s 10 of the PPSA as follows: “value: (a) means consideration that is sufficient to support a contract; and (b) includes an antecedent debt or liability; and (c) in relation to the definition of purchase money security interest — has a meaning affected by section 14.” In other words value will usually mean funds. Thus a PMSI is available if

the funds are used to obtain collateral but only to the value of the collateral. Not surprisingly the PMSI will only be effective if it is perfected and it is noted on the registration that it is a PMSI. We will consider issues relating to registration in Chapter ¶5 — How do you achieve Perfection? 4.2.2 Bailment and PPS lease The term “bailment” may be unfamiliar to readers and it is not defined in the PPSA. However, in the Personal Property Securities Bill 2008 Revised Commentary December 2008, the term is defined at p 11 as follows: “Bailment A bailment involves the delivery of tangible personal property to another party who holds possession of it. A bailment does not transfer ownership rights in the property and the bailor has the right to take possession of the property at any time or in accordance with the terms of the bailment.” An example of bailment is as follows: Example Fred Green is the trustee for a family trust. Fred purchases lawn mowers which become an asset of the trust. A related entity to the trust is Peach Gardening Pty Ltd. Fred makes the lawn mowers available to Peach Gardening so that it can perform their gardening contracts. These assets are made available under bailment. Peach Gardening do not own the lawn mowers and the trustee can take possession at any time in accordance with the bailment agreement.

As a PMSI may be applicable when goods are leased or bailed, it is useful to consider what is meant by the term “PPS lease” as set out in s 13 of the PPSA. Again this is a very long provision. “(1) A PPS lease means a lease or bailment of goods: (a) for a term of more than one year; or (b) for an indefinite term (even if the lease or bailment is determinable by any party within a year of entering into the lease or bailment); or

(c) for a term of up to one year that is automatically renewable, or that is renewable at the option of one of the parties, for one or more terms if the total of all the terms might exceed one year; or (d) for a term of up to one year, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the leased or bailed property for a period of more than one year after the day the lessee or bailee first acquired possession of the property (but not until the lessee’s or bailee’s possession extends for more than one year); or (e) for goods that may or must be described by serial number in accordance with the regulations, if the lease or bailment is: (i) for a term of 90 days or more; or (ii) for a term of less than 90 days, but is automatically renewable, or is renewable at the option of one of the parties, for one or more terms if the total of all the terms might be 90 days or more; or (iii) for a term of less than 90 days, in a case in which the lessee or bailee, with the consent of the lessor or bailor, retains uninterrupted (or substantially uninterrupted) possession of the leased or bailed property for a period of 90 days or more after the day the lessee or bailee first acquired possession of the property, (but not until the lessee’s or bailee’s possession extends for 90 days or more). (2) However, a PPS lease does not include: (a) a lease by a lessor who is not regularly engaged in the business of leasing goods; or (b) a bailment by a bailor who is not regularly engaged in the business of bailing goods; or

(c) a lease of consumer property as part of a lease of land where the use of the property is incidental to the use and enjoyment of the land; or (d) a lease or bailment of personal property prescribed by the regulations for the purposes of this definition, regardless of the length of the term of the lease or bailment. Bailments for value only (3) This section only applies to a bailment for which the bailee provides value.” The concept of leasing is given particular attention under the PPSA and is subject to special rules as set out above. The threshold test is whether or not the lease is for 12 months or longer. However, if the lease is for a shorter period and renewable, for example a renewable six-month lease, then it will fall within the definition of a PPS lease (s 13(1)(c) PPSA). If the leased or bailed goods are serial numbered as defined in Chapter ¶2 — What is included and excluded from the PPSA? and consumer property which therefore must be described as serial numbered goods in the registration, then the security interest will fall within the PPSA if: • the lease is for 90 days or more • the lease is for less than 90 days and automatically renewable so that the term would extend beyond 90 days, or • the leasee or bailee retains possession of the goods, by consent, beyond 90 days. The exclusions in s 13(2) of the PPSA are quite specific and in essence the lessor or bailor must be in the business of leasing or bailment. Note It should be noted that at s 13(2)(d) of the PPSA there is reference to the PPSReg. If you have an interest in goods leased or bailed, you should check the PPSReg to ascertain whether or not a particular lease or bailment arrangement has been prescribed.

In Re Cancer Care Institute of Australia Pty Limited (administrator appointed) (2013) APPSR ¶701-006; [2013] NSWSC 37 is the first Australian decision to consider the interaction of a PMSI and a commercial property lease. The defendants owned a medical centre. The second plaintiff leased, as lessee, part of the medical centre although there was no written lease agreement. The lessee bought two linear accelerators for about $9m from Varian Medical Systems Australasia Pty Limited (Varian). The linear accelerators were used in the treatment of cancer patients by delivering high energy radiation. Varian held a PMSI in the linear accelerators and this was registered on the PPSR. The linear accelerators were installed on steel base frames which were grouted into the floor. The lessor claimed that the linear accelerators were a fixture in the premises so that title passed to the lessor and that they were therefore subject to mortgages over the premises. The lessee and its administrators sought declarations as to title to the equipment. His honour Black J held that the linear accelerators had not become fixtures. He said that the fact that the linear accelerators were purchased on credit, on terms that Varian, the vendor, would retain a PMSI in them, was another factor tending against an objective intention that they would become part of the premises. The fact that both the lessee and Varian proceeded on the basis that the lessee was able to give an effective security interest over the equipment was inconsistent with an objective intention by the lessee that the equipment would become part of the premises. The judge used the common law principles applicable to the definition of a fixture rather than considering the priority implications of a valid PMSI. The existence of the PMSI was one of the factors the judge considered in determining whether the equipment was a fixture. The preferable approach may have been to establish whether there was a valid PMSI in existence and if so consider the priority rules which would have applied. A further interesting element in the case is the argument around whether the steel base frames, which were affixed to the premises, were part of the equipment. Section 10 of the PPSA provides that a fixture is something which is “affixed to the ground” which the frames were. The

judge distinguished between the frames and the linear accelerators and said that the security was over the latter. The case is also discussed in Chapter ¶2 at ¶2.4. Now that we have analysed the ramifications of s 14(1) of the PPSA and the definitions of value and PPSA lease, we can move on to s 14(2). 4.2.3 Exceptions Section 14(2) of the PPSA states: “Exceptions (2) However, a purchase money security interest does not include: (a) an interest acquired under a transaction of sale and lease back to the seller; or (b) an interest in collateral (as original collateral) that is chattel paper, an investment instrument, an intermediated security, a monetary obligation or a negotiable instrument; or (c) a security interest in collateral that (at the time the interest attaches to the collateral) the grantor intends to use predominantly for personal, domestic or household purposes.” Perhaps the most significant exception is s 14(2)(c) of the PPSA which at first glance may seem to be at odds with s 13(1)(e). This apparent inconsistency hinges on the use of the term “serial numbered goods”. Where the goods that are leased or bailed are serial numbered, they are eligible for registration as a PMSI. Other collateral which are not serial numbered and are for personal, domestic or household purposes are excluded from the provisions relating to PMSIs. Section 14(2A) of the PPSA makes this distinction clear, stating as follows: “(2A) Despite paragraph (2)(c), a purchase money security interest includes an interest if: (a) the interest is covered by subsection (1); and (b) the interest is in collateral that (at the time the interest attaches to the collateral) the grantor intends to use predominantly for

personal, domestic or household purposes; and (c) the collateral is of a kind that is required or permitted by the regulations to be described by serial number.” 4.2.4 Mixed securities We will now consider s 14(3) and (4) of the PPSA together as they both deal with mixed securities and have a similar intention. “Mixed securities (3) If a security interest in collateral secures obligations covered by subsection (7) (‘purchase money obligations’) and other obligations, the security interest is a purchase money security interest only to the extent that it secures the purchase money obligations. (4) If a security interest is granted in personal property (‘purchase money collateral’) that secures a purchase money obligation, together with other collateral, the security interest is a purchase money security interest only to the extent that it is granted in the purchase money collateral.” What these two subsections are saying is that application of the PMSI is confined to the collateral to which it attaches. Consider this example: Example Isabelle Pewter applies to the Big Bank for a loan of $20,000. Ms Pewter uses $15,000 to buy new furniture for her office and spends the remaining $5,000 on new clothes and a trip to Hawaii. Whilst the furniture would secure the entire loan, it would only be a PMSI to the extent that it secured the $15,000.

In other words you cannot use a PMSI to secure a value greater than the value of the collateral. 4.2.5 Renewal Section 14(5) of the PPSA deals with renewal and states: “Renewal etc

(5) A purchase money security interest does not lose its status as such only because the purchase money obligation is renewed, refinanced, consolidated or restructured (whether or not by the same secured party).” This subsection of the definition is reasonably straightforward and addresses circumstances when, for example, a financing arrangement is renewed or refinanced. 4.2.6 Application of payments Section 14(6) of the PPSA deals with how payments made to meet obligations are to be applied. “Application of payments to obligations (6) In any transaction, if the extent to which a security interest is a purchase money security interest depends on the application of a payment to a particular obligation, the payment must be applied: (a) in accordance with any method of application to which the parties agree; or (b) if the parties do not agree on a method — in accordance with any intention of the debtor manifested at or before the time of the payment; or (c) if neither paragraph (a) nor (b) applies — in the following order: (i) to obligations that are not secured, in the order in which those obligations were incurred; (ii) to obligations that are secured, but not by purchase money security interests, in the order in which those obligations were incurred; (iii) to obligations that are secured by purchase money security interests, in the order in which those obligations were incurred.”

Subsection 14(6)(a) of the PPSA gives the parties the opportunity to negotiate and agree upon how payments received should be apportioned. It is not unusual to set out in a contract an order of priority regarding the apportioning of payments received and you are able to include this apportioning in your security agreement. A common order for apportioning payments is as follows: • enforcement costs • interest payable • charges • principal debt. Thus, if you have a security interest which is a PMSI, then you could include an allocation of payments clause. If the PMSI is silent as to the allocation of payments, then s 14(6)(b) of the PPSA would apply. This provision intends that if a debtor has stated how the payments are to be allocated then this is the method to be followed. Consider this example: Example Peach Pty Ltd is a debtor who has granted a PMSI to the Big Bank over collateral to the value of $45,000 with an interest payment of 15% and makes regular payments of $650 per month. Peach states in writing that of the $650 monthly payment $200 is to pay interest and the remaining $450 is to go towards the principal.

This written request would be interpreted as a manifestation of the debtor’s intention and would be applied. If however there is neither an agreement between the parties as to the allocation of payments nor a clear manifestation of the debtor’s intent, then payments would be allocated in the order set out in s 14(6)(c) of the PPSA. An example of such a scenario is as follows:

Example Peach Pty Ltd borrowed $100,000 from the Big Bank to purchase collateral and also obtained a further loan for $150,000. The loan for $150,000 was unsecured but the $100,000 loan was secured by a PMSI. All payments by Peach would first be applied to the unsecured loan and only once this debt was cleared would any payments be allocated to the debt relating to the PMSI. The situation could become further complicated if in addition Peach also obtained a second secured loan from the Big Bank for $50,000 which was perfected using the collateral class all present and after acquired property. In these circumstances the payments would be allocated in the following order: • first unsecured loan $150,000 • second secured loan $50,000 • third PMSI $100,000.

You may find it beneficial to agree on a method for the allocation of payments and include it in your security agreement. 4.2.7 Purchase money obligations Next the definition defines purchase money obligations at s 14(7) of the PPSA which reads as follows: “Purchase money obligations This subsection covers an obligation of a debtor incurred: (a) as all or part of the purchase price of the collateral; or (b) for value given to enable the grantor to acquire or use the collateral (provided the collateral is so acquired or used).” This subsection makes it very clear that purchase money obligations are in relation to the debt arising from the purchase or the funds raised to purchase the collateral. 4.2.8 Purchase price and value The final s 14(8) of the PPSA defines what constitutes the purchase price and value and makes it very clear that any credit charges or interest payable is to be included. “References to purchase price and value

(8) In this section, a reference to a purchase price, or value, includes a reference to credit charges and interest payable for the purchase or loan credit.” This inclusion is very important as it makes a grantor’s obligations explicit. We have now finally finished our consideration of the definition of a PMSI and as you will have noted it has a precise meaning and specific application. We will now contemplate other factors that relate to PMSIs.

¶4.3 Drafting a PMSI security agreement In Chapter ¶3 — What is a security agreement?, we considered the issues involved in drafting a security agreement. When drafting a security agreement which relates to a PMSI, there are a couple of additional points which should be addressed in the security agreement. 4.3.1 Priority requirements When a PMSI is obtained over inventory or its proceeds, the provisions of s 62(2) of the PPSA5 must be satisfied in order for the PMSI to have priority. All three elements of the subsection must be complied with, namely: • the PMSI is in inventory or its proceeds (s 62(2)(a)), and • the PMSI is perfected by registration at the time: – for inventory that is goods, at the time the grantor or other person at the request of the grantor takes possession (s 62(2) (b)(i)), or – for any other kind of inventory, the PMSI attaches to the inventory (s 62(2)(b)(ii)), and • the registration that perfects the PMSI states in accordance with item 7 of the table in s 153 of the PPSA that the security interest is a PMSI6.

Compliance with these provisions will give your PMSI its “super priority”. When a PMSI is taken over personal property or its proceeds other than inventory, then you must perfect your PMSI by registration as follows: • for goods, before the end of 15 days, taken from the day the grantor (or other person at the request of the grantor) obtains possession of the property (s 62(3)(b)(i)) • for any other property, before the end of 15 days from the time the PMSI attaches to the property (s 62(3)(b)(ii)) • the registration that perfects the PMSI states in accordance with item 7 of the table in s 153 of the PPSA that the security interest is a PMSI (s 62(3)(c) PPSA). 4.3.2 What are proceeds? It is useful if we next consider the meaning of the term “proceeds”. Important Note An understanding of the term “proceeds” is relevant to both PMSIs and other security interests.

The definition of proceeds is contained in s 31 of the PPSA and reads as follows: “31 Meaning of proceeds (1) In this Act: proceeds of collateral to which a security interest is (or is to be) attached means identifiable or traceable personal property of the following types, subject to subsections (2) and (3): (a) personal property that is derived directly or indirectly from a dealing with the collateral (or proceeds of the collateral); (b) a right to an insurance payment or other payment as

indemnity or compensation for loss of, or damage to, the collateral (or proceeds of the collateral); (c) a payment made in total or partial discharge or redemption of the collateral (or proceeds of the collateral), if the collateral (or proceeds) consists of any of the following: (i) chattel paper; (ii) intangible property; (iii) an investment instrument; (iv) an intermediated security; (v) a negotiable instrument; (d) if the collateral is intellectual property (or an intellectual property licence) — in addition to any other proceeds, the right of a licensor of the property (whether or not the property is itself a licence) to receive payments under any licence agreement in relation to the collateral; (e) if the collateral is an investment instrument or intermediated security — any of the following: (i) rights arising out of the collateral; (ii) property collected on the collateral; (iii) property distributed on account of the collateral. Note: In section 140 (distribution of proceeds received by secured party) proceeds has its ordinary meaning, so this definition does not apply.

Whether proceeds are traceable (2) Proceeds are traceable whether or not there is a fiduciary relationship between the person who has a security interest in the proceeds, as provided in section 32, and the person who

has rights in or has dealt with the proceeds. (3) However, personal property is proceeds only if: (a) either: (i) the grantor has an interest in the proceeds; or (ii) the grantor has the power to transfer rights in the proceeds to the secured party (or to a person nominated by the secured party); and (b) the interest in the proceeds does not arise because of the operation of paragraph 140(2)(f). Note: Paragraph 140(2)(f) provides for the distribution of an amount or proceeds to the grantor upon the enforcement of a security interest.”

It is sensible to consider s 31(1), (2) and (3) of the PPSA at the same time. The first issue to clarify is that under this definition, proceeds are not confined to funds but go beyond this concept to formalise a statutory right and a set of priority rules relating to proceeds. The threshold test that should be applied in relation to proceeds is: does the grantor have an interest in the proceeds or the power to transfer a right in the collateral to the secured party (s 31(3) PPSA)? Please consider this example. Example loakim Silver grants the Big Bank a security interest in diamonds which he owns. Mr Silver then transfers the diamonds to Molly Cobalt in exchange for pearls without the Big Bank’s authorisation. The Big Bank would have a security interest in the pearls as proceeds of the diamonds.

This example makes it clear that attachment of the security interest in the diamonds is able to be transferred to the pearls because Mr Silver had an interest in the collateral and its proceeds, the pearls, and he had the power to transfer the collateral to another person. As s 31(2) of the PPSA makes clear, there does not have to be a

fiduciary relationship, in other words a relationship of trust and confidence7, between the secured party and the person who deals in the collateral, for the proceeds to be identifiable and traceable8. Of even greater importance is the provision in the PPSA at s 32(5) that the security interest in proceeds would have the same priority time as the security in the original collateral. As stated in s 31(1) of the PPSA, the proceeds must be identifiable or traceable personal property and may be derived directly or indirectly from any types of collateral specified in s 31. An example of identifiable proceeds is as follows: Example A computer equipment dealer sells new computers subject to a security interest and accepts used computers as part of the purchase price for the new computers. The used computers would be considered to be identifiable proceeds.

An example of traceable proceeds using the example above is as follows: Example If the grantor pays cash for part of the outstanding balance on the purchase of the new computers and this money is deposited in an account containing other funds, then these funds would be traceable funds.

Another interesting permutation of s 31(1)(a) of the PPSA is the concept of “proceeds of proceeds” which is most easily explained diagrammatically.

If the security interest continues in the collateral, a secured party is able to enforce their security interest against either or both the collateral or the proceeds. However, this “… is limited to the market value of the collateral immediately before the collateral gave rise to the proceeds …” (s 32(2) PPSA). As well, when a secured party takes enforcement action against both the collateral and the proceeds, “… the amount recoverable would be limited to the market value of the collateral immediately before the collateral gave rise to the proceeds, unless the collateral is an investment instrument or, at the time of the transfer, the transferee knew that the transfer was in breach of the security agreement (s 32(2)–(3)) …”9 Remember that s 14 of the PPSA provides that a security interest in investment instruments cannot be a PMSI. The exception provided for in s 32(3) only refers to the issue of whether the transferee was aware that the transfer was in breach of the agreement. This exception makes sense given that a wrongdoer should not be rewarded. Footnotes 5

The PMSI priority rules are also considered in Chapter ¶6 — Enforcement rights and remedies for secured parties.

6

For a detailed explanation of the use of the term “inventory”, please refer to Chapter ¶6 — Enforcement rights and remedies for secured parties.

7

Butterworths Concise Australian Legal Dictionary 3rd ed 2004.

8

Personal Property Securities Bill 2009 Explanatory Memorandum para 2.42.

9

Ibid, para 2.47.

¶4.4 An overview of the priority rules The priority rules are considered in Chapter ¶6 — Enforcement rights and remedies for secured parties. However, it seems appropriate to briefly state the priority rules in relation to both proceeds and PMSIs at this point. As stated above, s 32(5) of the PPSA provides that a security interest in proceeds is afforded the same priority time as the security interest in the original collateral (however effected). It should be read in conjunction with s 55 of the PPSA which contains the default priority rules. However, to ensure that proceeds are part of your security interest, you should include a reference to proceeds in your security agreement and comply with the requirements specified in para (d) of item 4 of the table in s 153 of the PPSA which states that “… any description of proceeds must comply with the regulations …” when lodging your financing statement. Note Section 153(1) item 4(d) of the PPSA does not mandate that proceeds are described in a registration. It does, however, mandate the form of the description of proceeds.

Schedule 1, cl 2.4 of the PPSReg provides that the description of

proceeds would need to comply with the appropriate option as set out below: “2.4 Description of proceeds For paragraph (d) of item 4 of the table in subsection 153(1) of the Act, a description of proceeds must describe proceeds: (a) as all present and after-acquired property; or (b) for a particular item of personal property — in a way that identifies the item, including identifying a class to which the item belongs; or (c) for a class of personal property — in a way that identifies the class, including identifying the class by identifying a larger class of personal property that wholly includes the class.” Note If the proceeds are of a kind that are within the description of the original collateral, or alternatively for example, currency or cheques, it will not be necessary to describe the proceeds.

If you are uncertain as to whether or not you should perfect a security interest in proceeds but have perfected a security interest in collateral, s 33(2) of the PPSA gives you five business days of temporary perfection in the proceeds from the time the original security interest attaches to the collateral. If you do not perfect your security interest within this time, then s 33(3) of the PPSA states that the security interest in proceeds will be unperfected. 4.4.1 PMSI priority rules As noted earlier, s 62 of the PPSA establishes the basis upon which your PMSI can achieve its “super-priority”. However, it is possible that there may be competing PMSIs and if so the basis to determine the priority is proscribed in s 63 of the PPSA. Competing PMSIs could arise in the following situation.

Example 1 An exploration company secures funds from a financier to pay the deposit on a lease of exploration equipment. The lessor would take a PMSI on the equipment and the financier could also take a PMSI on the equipment. In this case the lessor would trump the financier as provided for in s 63 of the PPSA whereby “… a perfected purchase money security interest (the priority interest) that is granted by a grantor in collateral or its proceeds to a seller, lessor or consignor of the collateral has priority over any other perfected purchase money security interest that is granted by the same grantor in the same collateral if the priority interest is perfected …” (s 63 PPSA).

Example 2 However, it is possible that a situation could arise which falls outside the operation of s 63. For instance an exploration company may secure funds from two financiers to purchase exploration equipment. The supplier does not take a PMSI as it has received payment in full for the equipment; however, both of the financiers do take a PMSI. As neither of the financiers fall within s 63 of the PPSA because they are not a seller, lessor or consignor, the priority between these competing PMSIs would be determined in accordance with the general priority rules in s 55. Thus the first PMSI to be perfected would have the highest priority.

4.4.2 PMSI priority in commingled goods A perfected PMSI in goods that are commingled will have priority over security interests in the commingled “… product or mass that either continues in the product or mass or is given by the same grantor.” (s 103 PPSA). This is similar to the way a perfected security interest will take priority over an unperfected interest. Consider the example of the flour in the silo in Chapter ¶2 — What is included and excluded from the PPSA? It is conceivable that Best Wheat Pty Ltd had obtained a PMSI over the flour supplied whereas First Wheat Pty had taken a security interest but not specified that the security interest was a PMSI. In this case s 103 of the PPSA would apply and Best Wheat would have the higher priority. 4.4.3 PMSI priority in agricultural interests One final issue to be aware of when considering PMSIs is in relation to taking security over crops and livestock. The PPSA provides for what are known as “agricultural PMSIs” in s 85 and 86. It is important to be aware

of these interests because arguably a security interest that is taken to enable crops to grow may have “super, super priority” given that it will have priority over a PMSI. However, a PMSI will take priority over a security interest taken to enable the livestock to develop provided the other conditions are met. Although these types of security have been referred to as an “agricultural PMSI”, they do not operate in the same way and have different rules in relation to registration and time periods. The term “agricultural PMSI” is not used in the PPSA but is referred to in the Explanatory Memorandum at [3.2] when describing the operation of s 85. Agricultural interests are discussed in greater detail in Chapter ¶7 — Agricultural interests, accessions and commingling at ¶7.2. A special note about registering PMSIs You should not register a PMSI unless you have the evidence to support that the security interest does come within the relevant sections of the PPSA. If you inappropriately register a PMSI and the security interest is challenged, then you may find that you not only will lose your PMSI status but could end up without a valid security interest in the collateral. Mechanisms for dealing with defects in registration are dealt with at s 164–166 of the PPSA. Equally, if you do not state on your financing statement at the time of registration that your security interest is a PMSI then it will not have PMSI status10. There are limited opportunities to amend a registration if it is incorrect. We will consider this issue in Chapter ¶5 — How do you achieve perfection? Footnotes 10

See the table at s 153(1) item 7.

¶4.5 Section 64 Non-purchase money security interests in accounts Before we conclude our consideration of PMSIs, it would be remiss to not

include reference to s 64 Non-purchase money security interest in accounts. This section is also considered in Chapter ¶6 — Enforcement rights and remedies for secured parties, however, it should be touched upon in this chapter as it is a provision in the PPSA that will “trump” a PMSI provided the conditions of s 64 of the PPSA are met. The wording of the section turns on the phrase “new value” which is defined in s 10 of the PPSA as follows: “new value means value other than value provided to reduce or discharge an earlier debt or liability owed to the person providing the value.” In essence new value means an injection of funds over and above funds previously obtained. Note The use of the term “accounts” in s 64 of the PPSA is informed by the definition of security interest in s 12(3)(a) of the PPSA relating to the transfer of accounts as well as the definition in s 10 of account which is taken to mean as follows: “account means a monetary obligation (whether or not earned by performance, and, if payable in Australia, whether or not the person who owes the money is located in Australia) that arises from: (a) disposing of property (whether by sale, transfer, assignment, lease, licence or in any other way); (b) granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided).” Importantly the definition of account in s 10 does not include the following: • an ADI account • chattel paper • an intermediated security • an investment instrument • a negotiable instrument. Thus a security interest will be created upon the sale of receivables that are receivables financing or as referred to in the PPSA accounts financing. Section 64 of the PPSA does not apply to inventory financing.

The rules relating to a non-purchase money security interest (non-PMSI) in accounts (the priority interest) may be summarised as follows: • the priority interest is for “new value” and is perfected by registration which occurs before the PMSI is perfected • a non-PMSI is registered before a PMSI is perfected, or • the priority interest holder gives 15 days’ notice to existing PMSI holders that a priority interest is to be perfected by registration. Note that s 64(2) provides that the notice must be in an approved form or contain a description of the inventory to which the notice relates together with details of the effect of subsection (1). There is one other instance where a PMSI may be trumped which is under s 71 of the PPSA when a “… person acquires chattel paper or an interest in chattel paper through a consensual transaction and in the ordinary course to that person’s business of acquiring interest of that kind …”.11 The basis for this allocation of priority which, as noted in s 71(3) of the PPSA, “… this section applies despite sections 62 and 64 …” in relation to chattel paper is not explained in the PPSA. There is a brief reference in the PPS Bill 2009 Explanatory Memorandum to new value (at p 46) so presumably this is the foundation for the inclusion of this provision. This brings us to the end of this chapter. In the next chapter we will consider the somewhat abstract concept of how to achieve perfection. Footnotes 11

For a description of chattel paper, see Chapter ¶3 — What is a security agreement? at ¶3.2.

HOW DO YOU ACHIEVE PERFECTION? ¶5.1 Overview Now that we have considered why the Personal Property Securities Act 2009 (PPSA) came into existence, what it will apply to as well as how to draft security agreements and the role and function of purchase money security interests (PMSIs), we next need to consider the concept of perfection. In this chapter we will review the meaning of the terms “attachment” and “perfection” and how they will apply. We will also consider how the Personal Property Securities Register (PPSR) will operate including the steps involved in making a registration and the rules that will impact upon registrations ultimately determining if the registration is effective.

¶5.2 What is attachment? The first step to achieving perfection is to attach your security interest to collateral. The term “attachment” is not defined in s 10 of the PPSA, however, s 19 provides the enforcement rules which apply to attachment. It is these rules which define what is attachment for the purposes of the PPSA. In the PPS Bill 2009 Explanatory Memorandum, attachment is defined at p 6 as follows: “Attachment The creation of a security interest in personal property which could be enforced against that property.” What needs to be appreciated is that the attachment of a security interest may serve more than one purpose. It also underpins the fundamental concept of the PPSA regime namely that rights can be created in property regardless of title. A security can attach to property that is not

owned by the grantor in the traditional sense of title and be valid collateral under the PPSA. As the Explanatory Memorandum states at para 2.9: “… Under the Bill, attachment of a security interest is important because once the security interest attaches to the collateral, the grantor’s rights in the collateral are limited by the rights of the secured party and the secured party acquires enforceable rights against the collateral …” The rights of the secured party against grantors which arise from the attachment of a security interest are set out in s 19 of the PPSA which reads as follows: “Enforceability of security interests against grantors — attachment Attachment required for enforceability (1) A security interest is enforceable against a grantor in respect of particular collateral only if the security interest has attached to the collateral. Attachment rule (2) A security interest attaches to collateral when: (a) the grantor has rights in the collateral, or the power to transfer rights in the collateral to the secured party; and (b) either: (i) value is given for the security interest; or (ii) the grantor does an act by which the security interest arises. Time of attachment (3) Subsection (2) does not apply if the parties to a security agreement have agreed that a security interest attaches at a later time, in which case the security interest attaches at the time specified in the agreement. (4) To avoid doubt, a reference in a security agreement to a

floating charge is not a reference to an agreement that the security interest created by the floating charge attaches at a time later than provided under subsection (2). Goods leased, bailed, consigned or sold under a conditional sale agreement. (5) For the purposes of paragraph (2)(a), a grantor has rights in goods that are leased or bailed to the grantor under a PPS lease, consigned to the grantor, or sold to the grantor under a conditional sale agreement (including an agreement to sell subject to retention of title) when the grantor obtains possession of the goods. (6) Subsection (5) does not limit any other rights the grantor may have in the goods. Note: A security interest may attach to crops while they are growing, and to the products of livestock, before they become proceeds of the crops or livestock (for example, wool before it is shorn). See subsections 31(4) and (5) (meaning of proceeds) and section 84A (security interests in crops and livestock).”

Note The attachment of a security interest in crops and livestock will be discussed in Chapter ¶7 — Agricultural interests, accessions and commingling.

As you will observe this section will come into operation provided: • the grantor has rights or the power to transfer rights in the collateral • value is given or an act is performed by the grantor. The attachment rule in s 19(2) of the PPSA may seem to be a little unclear and it is probably best clarified by example. Example A grantor has acquired sapphires as collateral using funds made available from a financier. The grantor would have rights in relation to the sapphires and value has been given by the financier.

The concept of time of attachment is very important as this will inform the achievement of perfection. The general principle behind s 19(2) of the PPSA is that attachment occurs when the conditions of this subsection are satisfied and commonly this will be at the time the security agreement is entered into. However, s 19(3) of the PPSA enables the parties by agreement to specify a later time for attachment of the security interest. It is conceivable that such a situation could occur if, for example, the collateral was bespoke furniture which must be manufactured to a unique design and/or of unique materials and it was agreed that the attachment should not occur until the furniture was completed. The next subsection s 19(4) of the PPSA is a little perplexing as it refers to a floating charge. While some secured parties may still refer to a floating charge in their documentation, it is more likely that over time this will change to the use of either of the following collateral classes: • all present and after acquired property, or • all present and after acquired property, except. In their book, Annotated Personal Property Securities Act 2009 (Cth), Harris and Mirzai provide the following explanation for the insertion of s 19(4): “Section 19(4) provides statutory recognition of the view of the court in Re G M Homes Inc (1984) 4 PPSAC 116; 10 DLR (4th) 439 (Sask CA) where notwithstanding the form of the security agreement as a floating charge the court declined to read into the terms of the agreement that a security interest would attach at a later stage into such terms. See also Innovation Credit Union v Bank of Montreal (2010) 17 PPSAC (3d) 1; 235 DLR (4th) 605 (SCC); Royal Bank v Sparrow Electric Corp (1997) 12 PPSAC (2d) 68; 143 DLR (4th) 385 (SCC). For more information on the legal status of the concept of a ‘floating charge’ under the PPSA see Pt 9.5.”1 Subsection 19(4) of the PPSA is intended to define the time that the collateral attaches in relation to a floating charge which will be the same time as provided for in s 19(2). Subsection 19(5) of the PPSA confirms that a grantor has rights in

relation to goods that are leased, bailed, consigned or sold under a conditional sale agreement from the time the grantor obtains possession. Thus collateral which has been made available under one of these methods of supply will still come within the attachment rules of s 19. The second instance when attachment is relevant is in relation to enforcement against third parties who may claim a competing interest in the collateral. As the Explanatory Memorandum states at para 2.10: “… Attachment would also be required for a security interest to be enforceable against third parties claiming competing interests in the collateral (clause 20(1)). But attachment on its own would be insufficient for a security interest to be enforceable against third parties, and in addition, the secured party would have to have either control or possession of the collateral or there would have to be a written security agreement between the parties …” The PPSA at s 20 sets out the rules relating to enforceability of security interests against third parties. We have already considered some aspects of s 20 in particular s 20(2)–(5) in Chapter ¶3 — What is a security agreement? and the meaning of proceeds (s 31 PPSA) and attachment of proceeds (s 32) in Chapter ¶4 — The role and function of purchase money security interests (PMSIs). However, as indicated in Chapter ¶3, we also need to consider s 20(1) of the PPSA which deals with the interrelationship between attachment and enforceability of a security interest against a third party. Section 20(1) states: “General rule (1) A security interest is enforceable against a third party in respect of particular collateral only if: (a) the security interest is attached to the collateral; and (b) one of the following applies: (i) the secured party possesses the collateral; (ii) the secured party has perfected the security interest by control; (iii) a security agreement that provides for the security interest covers the collateral in accordance with

subsection (2). Note: For possession and control of collateral, see Part 2.3.”

Thus you will note attachment is essential if you are going to enforce against a third party. Footnotes 1

At p 104, [19.5.3].

¶5.3 Perfection Once you have attached your security interest you must then perfect it. As stated in Chapter ¶1 — What is the PPSA and why was it introduced? perfection may be achieved by one of several methods, namely registration, possession, control or temporary perfection. The main rule relating to perfection is contained in s 21 of the PPSA which reads as follows: “Perfection — main rule (1) A security interest in particular collateral is perfected if: (a) the security interest is temporarily perfected, or otherwise perfected, by force of this Act; or (b) all of the following apply: (i) the security interest is attached to the collateral; (ii) the security interest is enforceable against a third party; (iii) subsection (2) applies. (2) This subsection applies if: (a) for any collateral, a registration is effective with respect to the collateral; or

(b) for any collateral, the secured party has possession of the collateral (other than possession as a result of seizure or repossession); or (c) for the following kinds of collateral, the secured party has control of the collateral: (i) an ADI account; (ii) an intermediated security; (iii) an investment instrument; (iv) a negotiable instrument that is not evidenced by a certificate; (v) a right evidenced by a letter of credit that states that the letter of credit must be presented on claiming payment or requiring the performance of an obligation; (vi) satellites and other space objects. Note: For what constitutes possession and control of collateral, see Part 2.3.

(3) A security interest may be perfected regardless of the order in which attachment and any step mentioned in subsection (2) occur. (4) A single registration may perfect one or more security interests.” We will now consider each of the four methods for achieving perfection in some detail. 5.3.1 Perfection by control As previously discussed perfection by control is limited to specific types of collateral as set out in s 21(2)(c) of the PPSA. It is helpful to define control as this will assist your understanding of why this type of perfection has been limited to only these forms of collateral. Control is somewhat unhelpfully defined in s 10 of the PPSA as follows:

“control has the meaning given by Part 2.3. Note: Control has an extended meaning in section 341 (control of inventory and accounts in relation to fixed and floating charges).”

However, further clarification can be obtained from the PPS Bill 2009 Explanatory Memorandum which states at para 2.30: “… Perfection by control would occur when a creditor takes all steps necessary to be in a position to sell the collateral without further action by the grantor …” The guide to Pt 2.4 provides the following in relation to control: “Control of certain types of personal property is effective to perfect a security interest in the property (see paragraph 21(2)(c)). This Part includes some special rules about control of the following: (a) ADI accounts; (b) intermediated securities; (c) investment instruments; (d) letters of credit; (e) negotiable instruments not evidenced by a certificate.”2 Sections 25 to 29 contain specific rules in relation to control of the above listed types of personal property. As Ch 2, Pt 2.3 of the PPSA is quite lengthy we will need to consider the various forms of control separately. Control of an authorised deposit taking institution (ADI) account can only occur when, as stated in s 25 of the PPSA the secured party is the ADI. The note to the section goes on to state that “control has an extended meaning in relation to ADIs in sections 341 and 341A (control in relation to fixed and floating charges)”. It is clear that when seeking to take control of an ADI account a number of sections must be considered. A detailed examination of ADI accounts is outside the scope of this book. Control of intermediated securities can be achieved if in accordance with the main rule (s 26(1) PPSA) “… a person has control of an intermediated security that is credited to a securities account if, and only if, this section so provides …”. Alternatively s 26(2) of the PPSA provides for control by agreement.

There has been reference to intermediated securities several times and it seems sensible to define what is meant by this term. Intermediated security is defined in s 15 of the PPSA and the following extract should give appropriate guidance: “Meaning of intermediated security An intermediated security is the rights of a person in whose name an intermediary maintains a securities account.” The section also provides a detailed definition of “intermediary” and “securities account”. As with ADI accounts, a detailed examination of intermediated securities is beyond the scope of this book. The method to achieve control of investment instruments is contained in s 27 of the PPSA and details a range of criteria by which investment instruments may be subject to perfection by control. The means to exercise control of a letter of credit is set out in s 28 of the PPSA with the key test being that: “… A secured party does not have control of a right evidenced by a letter of credit, to the extent of any right to payment or performance of an obligation by the issuer or a nominated person, unless the issuer or nominated person has consented to assigning the proceeds of the letter of credit to the secured party …”. The final type of security that can be perfected by control is negotiable instruments that are not evidenced by a certificate. Section 29 of the PPSA states: “Control of negotiable instruments that are not evidenced by a certificate (1) A secured party has control of a negotiable instrument that is not evidenced by a certificate if, and only if: (a) the instrument is able to be transferred in accordance with the operating rules of a clearing and settlement facility; and (b) there is an agreement in force under which the secured party (or a person who has agreed to act on the instructions of the secured party) controls the sending of some or all electronic messages or other electronic communications by

which the instrument could be transferred (2) For the purposes of subsection (1), a secured party has control of a negotiable instrument even if the registered owner (who might be the grantor) retains the right: (a) to make substitutions for the instrument; or (b) to originate instructions to the issuer; or (c) to otherwise deal with the instrument.” Examples of negotiable instruments are provided in s 10 of the PPSA and include the following examples: • a bill of exchange (within the meaning of the Bills of Exchange Act 1909), or • a cheque (within the meaning of the Cheques Act 1986), or • a promissory note (within the meaning of s 89 of the Bills of Exchange Act 1909). Note that the definition excludes the following documents from the definition of negotiable instruments: “(f) the creation or transfer (including a successive transfer) of a right to payment in connection with interests in land, if the writing evidencing the creation or transfer does not specifically identify that land; (g) a document of title; (h) an intermediated security.”3 Now that we have considered perfection by control and the specific types of security interests to which it applies, we will consider perfection by possession. 5.3.2 Perfection by possession When considering the concept of possession the first point to note is that as stated in the Explanatory Memorandum at para 2.29:

“… possession under the Bill would not equate to the common law meaning of possession. Possession would equate to include both apparent and actual control of the property (Clause 24(2)). Even if a secured party has actual possession of collateral, if it appears to be in the possession of the grantor (or another person on behalf of the grantor), the secured party would not have possession of the collateral (clause 24(1)). It follows that when goods in the secured party’s possession are transferred to the grantor’s possession, the security interest becomes unperfected (unless perfected by another means, such as by registration or through temporary perfection of returned collateral (clause 36)) …” This example may assist in your understanding of the concept of perfection by possession. Example Douglas Black obtained finance from the Big Bank and the Big Bank took a security interest in a valuable Degas sculpture owned by Douglas, in exchange for the financing arrangement. As the Big Bank was nervous that Douglas might sell the sculpture and disappear with the funds, the Big Bank took possession of the sculpture on 25 June 2010. Douglas wanted to impress his overseas business colleagues so he requested the Big Bank to return the sculpture for a business meeting to be held in his home. The Big Bank agreed and returned the sculpture on 23 August 2010. The Big Bank then resumed possession of the sculpture on 1 September; however, in accordance with s 24 (set out below) the Big Bank’s security interest ceased to be perfected by possession on 23 August. Perfection by possession commenced afresh on 1 September 2010. The Big Bank could remedy this situation if it perfected its security interest by registration or temporary perfection was achieved in accordance with s 36 of the PPSA.

The key test in relation to perfection by possession is contained in s 24(1)–(2) of the PPSA which states: “Possession by one party exclusive of possession by others (1) A secured party cannot have possession of personal property if the property is in the actual or apparent possession of the grantor or debtor, or another person on behalf of the grantor or debtor. (2) A grantor or debtor cannot have possession of personal property if the property is in the actual or apparent possession of the secured party, or another person on behalf of the secured

party.” You should also be mindful of the meaning of the term “apparent possession” which is explained in s 126(1) of the PPSA as follows: “Apparent possession of collateral (1) If: (a) collateral cannot be readily moved from a grantor’s premises; or (b) adequate storage facilities are not readily available for collateral; a secured party may seize the collateral under section 123 by taking apparent possession of the collateral. Note: This section does not apply in relation to collateral that is used predominantly for personal, domestic or household purposes (see subsection 109(5)).”

In other words it is possible to take possession without physically having the collateral. In a recent High Court of New Zealand decision, the judge rejected a claim by a secured creditor which had taken possession of the relevant property following the liquidation of a building company. The case involved a priority contest between two secured creditors, one which had provided money to buy the equipment and registered a PMSI and the other which took possession of the equipment by default. At [71] of the judgment Collins J concluded: “Possession is recognised as a form of perfection because it gives publicity to the existence of that party’s security interest. In determining what is meant by ‘perfection by possession’, regard must be had to that underlying policy rationale. In this case, Hobson Gardens were not in possession of the hoists prior to Mainzeal’s default. Mainzeal had apparent control of the hoists up until that point, even though they were on Hobson Gardens’ building. Hobson Gardens then secured apparent control or possession upon Mainzeal’s default. That amounts to seizure. Section 41(1)(b)(ii) of the Act excludes seizures or repossessions from actions which constitute acquiring possession of collateral”4 The equivalent section under the Australian PPSA is s 21(2)(b).

The concept of apparent possession is also discussed in Chapter ¶6 — Enforcement rights and remedies for secured parties. We now will explore the idea of temporary perfection. 5.3.3 Temporary perfection The idea of temporary perfection is, not surprisingly, available in a limited set of circumstances. In most cases the reason for the inclusion of the concept of temporary perfection is to address the situation where there is a transitional aspect to the achievement of perfection or where there is a degree of uncertainty as to whether or not perfection is appropriate. Temporary perfection is relevant in relation to proceeds as described in Chapter ¶4 — The role and function of purchase money security interests (PMSIs), and is set out in s 33 of the PPSA. This is applicable when there may be a degree of uncertainty as to whether or not the security interest in proceeds should be perfected. When collateral is transferred, temporary perfection may be relevant and the provision relating to this situation is located in s 34 of the PPSA. However, it should be noted that the temporary perfection will be restricted to the time frames contained in s 34(1) of the PPSA. Once the relevant timeframe is reached, the security interest will be unperfected unless another method of achieving perfection is utilised. Temporary perfection may also be applicable when goods are returned to the grantor or the debtor by a bailor for any of the reasons specified in s 35(1) of the PPSA which are as follows: “(a) sale; (b) exchange; (c) any other action in preparation for sale or exchange, including (but not limited to) the following: (i) loading; (ii) unloading; (iii) storing; (iv) shipping;

(v) manufacturing; (vi) processing; (vii) packaging. Note: Subsection 22(1) provides for the perfection of a security interest in goods possessed by a bailee.”

You should be aware that this form of temporary perfection will only be valid for five business days (s 35(2) PPSA) after which unless the security interest is perfected by an alternate method the security interest will become unperfected (s 35(3) PPSA). Section 36 of the PPSA has similar temporary perfection arrangements in relation to returned collateral comprising negotiable instruments and investment instruments. Section 39 of the PPSA provides the main rule in relation to relocation of property from overseas to Australia. Section 39(3) provides temporary perfection in connection with the relocation of collateral or a grantor to Australia. It is important to be aware of the time periods set out in s 39(3) which are as follows: “Temporary perfection after move to Australia (3) If a security interest in collateral is continuously perfected under subsection (1), the security interest in the collateral is temporarily perfected for the period: (a) starting at the time the property becomes located in Australia; and (b) ending at the earlier of the following times: (i) the end of 56 days after the day the collateral becomes located in Australia; (ii) the end of 5 business days after the day the secured party has actual knowledge that the collateral has become located in Australia.” However, the temporary perfection will become unperfected if at the end of the relevant time period another form of perfection has not been

adopted. The consequence of not adopting another form of security within the time period is that the security will be deemed to have never occurred (s 39(4) PPSA). The temporary perfection of relocated intangible and financial property is dealt with in s 40 and has similar timeframes and requirements to those contained in s 39 of the PPSA. Note there is also a temporary perfection rule contained in reg 9.2 of the Personal Property Securities Regulations 2010 (PPSReg) which deals with transitional securities. The first major Australian decision on the PPSA dealt with this issue as part of its review of competing securities5. The case and other aspects of transitional securities are discussed in Chapter ¶10 — Managing the PPSA Transition 30 January 2012– February 2014. Let us now consider perfection by registration. 5.3.4 Perfection by registration As set out above, s 21(2)(a) of the PPSA provides for perfection by registration and this means the registering of a financing statement on the PPSR. Chapter 5 of the PPSA provides for the establishment and maintenance of the PPSR and we will now contemplate this Chapter of the PPSA in some detail. As mentioned in Chapter ¶2 of this book, it is important to distinguish between a security agreement and a financing statement. The security agreement is the document which provides written evidence of the underlying security agreement between the secured creditor and the grantor. The financing statement is the document used to register this interest. It does not of itself create any security interest between the parties. The elements of a security agreement are covered in Chapter ¶2 of this book. Section 147 of the PPSA provides for the establishment of the PPSR and the person who has responsibility for the PPSR is to be known as the Registrar. Section 148 of the PPSA prescribes the contents of the PPSR and makes clear that the PPSReg will inform the operation and content of the PPSR. Section 148(b) of the PPSA refers to data prescribed by the regulations. This is the data that must be included in the financing statement which we will consider shortly.

Section 148(c) of the PPSA refers to prescribed property as set out in the PPSReg and this property is defined in the PPSReg at reg 5.3 as follows: “5.3 What the register contains (1) For paragraph 148(c) of the Act, the following types of personal property are prescribed: (a) a motor vehicle that has been impounded, immobilised or forfeited, or is subject to an impoundment, immobilization or forfeiture application, under a law that provides for impoundment, immobilisation or forfeiture of a motor vehicle because it is being used, or has been used, in the commission of certain offences; (b) personal property that is subject to a notice or an order, or is confiscated or forfeited, under a provision of a proceeds of crime law; (c) personal property that is subject to an order of a court or tribunal (however described) that: (i) prevents or restricts a person dealing with the property; or (ii) enforces another court order (however described); or (iii) orders the sale or other disposal of all or part of the property; (d) personal property that: (i) is not mentioned in paragraph (a), (b) or (c); and (ii) immediately before the registration commencement time, could have been registered on a transitional register maintained under a law of the Commonwealth, a State or a Territory. Note: For subparagraph (d)(ii), transitional register has the meaning given by section 330 of the Act.

(2) In this regulation:

court order does not include an order made under a proceeds of crime law. proceeds of crime law means: (a) the Mutual Assistance in Criminal Matters Act 1987; or (b) the Proceeds of Crime Act 1987; or (c) the Proceeds of Crime Act 2002; or (d) a law of a State or Territory that is a corresponding law within the meaning given by section 338 of the Proceeds of Crime Act 2002.” The rules relating to financing statements with respect to prescribed property are contained in s 154 of the PPSA and further elaborated in Sch 2 of the PPSReg (see Appendix 2). Indicative clarification as to the content of the PPSR is found in the Information Sheet released by the Attorney-General’s PPS Branch which states that the PPSR is to be “… an electronic noticeboard of security interests over personal property …”6. You will not load your security agreement(s) on the PPSR; instead you will complete a financing statement. On 19 August 2013, the Registrar released the Personal Property Securities (Approved Form) Instrument 2013 which contains details of the current approved forms. The forms are interactive forms designed to be used online. A list of the current forms and notices is contained in Appendix 3. As stated in s 150 of the PPSA, you will apply to the Registrar to lodge your financing statement and you will be charged a lodgment fee. Your application will be accepted provided your application is not in contravention of s 150(3)(c) and (d) of the PPSA in particular: “(c) … (i) frivolous, vexatious or offensive, or contrary to the public interest; or (ii) made in contravention of s 151 (belief about security interest); and

(d) … prohibited by the regulations …” You must have reasonable grounds for making the application to register a financing statement or register a financing change statement. If you make the application and do not have reasonable grounds, you may be subject to a civil penalty (s 151(1) PPSA). Equally if you apply to lodge a financing statement in the expectation that you have reasonable grounds and this expectation proves to be unfounded you must, within five days, apply to end the registration (s 151(2) and (3) PPSA). You can register a financing statement irrespective of whether the personal property or the person who has rights in the property is located in Australia (s 152 PPSA). Important Note As indicated above s 21(4) of the PPSA provides that a single registration may perfect one or more security interests. This subsection is a little confusing and should be read in conjunction with s 153(1) item 4, Note which states that two or more types of collateral that belong to different classes prescribed by the regulations must be described in separate registrations. However, two or more registrations can be effected through a single application. As well, a single PMSI registration could confer priority on multiple supplies of goods. In other words, when there is an ongoing supply. However, if the collateral supplied is different to the original registration, you may need to amend your registration or make a new one. For example, if your description specifies tables and you also start to supply china, the china would not be subject to a perfected security interest. This is why you need to be careful when entering the description and if you elect to enter data in the free text field. There will need to be a balance between being too specific as against too general.

Note Do you need the grantor’s agreement to apply to lodge a security agreement? Whilst the PPSA is silent on the specific issue of whether or not you need a grantor’s permission or approval to apply to lodge a financing statement, it is reasonable to assume that the grantor gives their agreement when they adopt, accept or sign the security agreement (s 20(2) PPSA). However, to ensure the validity of this assumption, you should include in your security agreement a statement that the security agreement will be registered on the PPSR.

5.3.4.1 Elements of a financing statement

Section 153(1) of the PPSA specifies the data that will comprise your financing statement as follows: “Financing statements with respect to security interests (1) A financing statement with respect to a security interest (including such a financing statement as amended by the registration of a financing change statement) consists of data that complies with the following table: Item Data about:

Details of data

1

The secured party

The details prescribed by the regulations, in relation to each secured party, of:





(a) the secured party; or





(b) a person nominated by the secured party who has authority to act on behalf of the secured party.

2

The grantor

Whichever of the following is applicable:





(a) if the collateral is consumer property, and is required by the regulations to be described by serial number — no grantor’s details





(b) if the collateral is consumer property, and is not required by the regulations to be described by serial number — the grantor’s name and date of birth, as evidenced in accordance with the regulations, and no other details





(c) in any other case — the grantor’s details as prescribed

by the regulations. 3

Giving of notices

The following:





(a) an address (including an email address or fax number) for the giving of notices to the secured party (or secured parties) relating to the registration





(b) details of any identifier provided for the giving of notices to the secured party (or secured parties).





Note: For identifiers, see section 289.

4

The collateral and proceeds

A collateral description in accordance with all of the following rules:





(a) the collateral must be described as one of the following:





(i) consumer property





(ii) commercial property.





(b) the collateral may or must be described by serial number, if allowed or required by the regulations





(c) the collateral must belong to a single class of collateral prescribed by the regulations





(d) any description of proceeds must comply with the regulations.





Note: two or more types of collateral that belong to different classes prescribed by the regulations must be described in separate registrations. However, two or more registrations can be effected through a single application.

5

The end time for registration

For all the collateral described in the statement, the following data:





(a) for collateral other than consumer property or property described by a serial number:





(i) no stated end time; or





(ii) an end time for the registration no later than the time (the default time) that is the end of the day 25 years after the registration time; or





(iii) if the registration is amended to include or change (but not omit) an end time — an amended end time for the registration no later than the time (the default time) that is the end of the day 25 years after the amendment time for that amendment.





(b) for consumer property, or property described by a serial number:





(i) an end time for the registration no later than the

time (the default time) that is the end of the day 7 years after the registration time; or



(ii) if the registration is amended to change the end time — an amended end time for the registration no later than the time (the default time) that is the end of the day 7 years after the amendment time for that amendment.

6

Subordination

An indication of whether the security interest is (or is to be) subordinated to any other security interest. However, this indication need not be included.

7

Security interest

An indication of whether the security interest is, or is to be, a purchase money security interest (to any extent) if the security interest is in respect of a class of collateral prescribed by the regulations for the purposes of this item.

8

Any matter prescribed by Details of the matter prescribed the regulations by the regulations, whether or not the matter also comes under any of the other items in this table.

While the PPSA sets out the essence of what will be contained in a financing statement, the PPSReg contain important additional requirements which must be satisfied. Schedule 1 of the PPSReg contains the matters which are prescribed for various items in the above table. Items 1 and 2 of the table refer to the secured party and the grantor. The

prescribed matters are contained in Sch 1, Pt 1 of the PPSReg and refer to the following types of person or entity: • individual secured party or grantor (cl 1.2) • body corporate secured party or grantor (cl 1.3) • secured party or grantor is a partner (cl 1.4) • secured party or grantor is a trustee (cl 1.5) • body politic secured party or grantor (cl 1.6). The Explanatory Statement to the PPSReg explains, at pp 16–17, the importance of correctly identifying a secured party or a grantor as follows: “Part 1 contains the matters prescribed for items of the table in subsection 153(1); that is, it contains the rules to correctly identify either the secured party or grantor in a financing statement registered on the register, as well as the source of those relevant identifiers. These clauses are required primarily to ensure the accuracy of information recorded for grantors. Accuracy of grantor details is critical since the register is partly indexed by grantor details (the only exception being registration of financing statements over consumer property that is described by serial number). Since an entity can be described in many ways, it is important that the regulations provide rules on which identifier to use and from where that identifier should be sourced. This will allow the secured party to know which documents and details they need to obtain from the grantor, and searchers will also know what grantor details they should enter in their searches. The identifier rules also apply when identifying the secured party in a registration. This is to achieve consistency in how the secured party and grantor identifiers are recorded. The relevant identifier varies, depending on the entity type of the secured party or grantor. The item that applies to the person with the lowest item number in the tables will be the relevant identifier and source.”

Clause 1.1 in Sch 1 of the PPSReg states that in relation to an individual who may be either a secured party or a grantor the following will apply: “1.1 Definitions for Part 1 In this Part: individual: (a) includes a sole trader who has an ABN for the enterprise for which the security interest is granted or held; and (b) does not include an individual who is a partner in a partnership or a trustee of a trust if the partnership or trust has an ABN for the enterprise for which the security interest is granted or held. 1.2 Individual secured party or grantor (1) For items 1 and 2 of the table in subsection 153(1) of the Act, this clause applies if the secured party or grantor is an individual. (2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the individual mentioned in the item. (3) For subclause (2), the prescribed details are the details mentioned in the item of the table that: (a) applies to the individual; and (b) has the lowest item number. (4) For a grantor, in addition to the details mentioned in each item of the table, the grantor’s date of birth is prescribed. (5) The source for a grantor’s date of birth is the source in an item of the table that: (a) includes details of dates of birth; and (b) applies to the grantor; and (c) has the lowest item number.

(6) Item 1 of the table applies only to a registration by the Registrar under subsection 333(2) of the Act. Item Individual

Details

Source

1

Individual whose details are recorded in a transitional register, for a migrated security interest

Individual’s surname and given names, as recorded on the transitional register

Transitional register

2

Individual grantor who is known to the secured party, because of the operation of the AML-CTF Act

Individual’s surname and given names, as known to the secured party, because of the operation of the AML-CTF Act

Current data known by the secured party, because of the operation of the AML-CTF Act

3

Individual who holds a current driver’s licence

Individual’s surname and given names, as recorded on the individual’s driver’s licence

Current driver’s licence issued by a State or Territory licensing authority to the individual

4

Individual who holds a current proof of identity or current proof of age card

Individual’s surname and given names, as recorded on a proof of identity or proof of age card issued by a State or Territory body

Current proof of identity or current proof of age card issued by a State or Territory body to the individual

5

Individual who holds a current Australian

Individual’s surname and given names, as

Current Australian passport issued to the individual

passport

recorded on the individual’s current Australian passport

6

Individual who holds a current visa, issued by the Australian Government

Individual’s Current Australian surname and visa issued for the given names, as individual recorded on the individual’s current Australian visa

7

Individual who holds a current passport other than an Australian passport

Individual’s surname and given names, as recorded on the individual’s current passport issued by the jurisdiction in which the individual ordinarily resides

Current passport issued by the jurisdiction in which the individual ordinarily resides

8

Any other individual

Individual’s surname and given names, as recorded on the individual’s birth certificate

Birth certificate issued for the individual

As you will note from the definition in cl 1.1 in Sch 1 of the PPSReg you must deal with sole traders who have an ABN which is applicable to the security interest, as an individual. We will consider the requirements in relation to partnerships and trust shortly. When the secured party or the grantor is a body corporate, then cl 1.3 in Sch 1 of the PPSReg which reads as follows will apply: “1.3 Body corporate secured party or grantor (1) For items 1 and 2 of the table in subsection 153(1) of the Act, this clause applies if the secured party or grantor is a body

corporate that: (a) is a trustee and has an ARSN; or (b) is not a trustee. (2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the body corporate mentioned in the item. (3) For subclause (2), the prescribed details are the details mentioned in the item of the table that: (a) applies to the body corporate; and (b) has the lowest item number. (4) Item 1 of the table applies only to a registration by the Registrar under subsection 333(2) of the Act. Item Body Corporate

Details

Source

1

Body corporate for which details have been included on the transitional register, for a migrated security interest

Body corporate Transitional number or name register of body corporate, as recorded on the transitional register

2

Body corporate that is the responsible entity of a registered scheme, if the scheme has an ARSN

Registered scheme’s ARSN

National Names Index

3

Body corporate that has an ACN

ACN

National Names Index

4

Body corporate

ARBN

National Names

that has an ARBN 5

Any other body corporate

Index Name of body corporate, as provided for in body corporate’s constitution or equivalent document

Body corporate’s constitution or equivalent document

If the secured party or grantor is a partner, then you will follow the provisions of cl 1.4 in Sch 1 of the PPSReg. “1.4 Secured party or grantor is a partner (1) For items 1 and 2 of the table in subsection 153(1) of the Act, this clause applies if the secured party or grantor is a partner in a partnership. (2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the partner mentioned in the item. (3) For subclause (2), the prescribed details are the details mentioned in the item of the table that: (a) applies to the partner; and (b) has the lowest item number. (4) Item 1 of the table applies only to a registration by the Registrar under subsection 333(2) of the Act. (5) Despite subclause (2), if an individual partner grants a security interest over the partner’s net interest in a partnership, the prescribed details are the details mentioned in the item of the table in clause 1.2 that: (a) applies to the partner; and (b) has the lowest item number.

(6) Despite item 3 of the table, if a body corporate is a partner in a partnership that does not have an ABN, the prescribed details are the details mentioned in the item of the table in clause 1.3 that: (a) applies to the body corporate; and (b) has the lowest item number. Item Partner

Details

Source

ABN, name of partner or name that identifies partnership, as recorded on the transitional register

Transitional register

1

Partner of a partnership for which details of the partnership have been included on the transitional register, for a migrated security interest

2

Partner of a ABN partnership that holds or has an interest in collateral in the course of, or for, an enterprise that has been allocated an ABN

Australian Business Register

3

Partner in any other Partnership

Source of the details mentioned in the item in the table in clause 1.2 that applies to the partner

Details mentioned in the item in the table in clause 1.2 that applies to the partner

Caution should be used when reading New Zealand PPSA cases dealing with a party which is a partner. The Personal Property Securities Act

1999 (NZ) requires a partnership grantor to have the name of the partnership included on the financing statement. This requirement is not contained in s 153 of the PPSA nor is it required by the PPSReg as set out in cl 1.2 and 1.4 reproduced above. If the secured party or grantor is a trust, then cl 1.5 in Sch 1 of the PPSReg will apply. “1.5 Secured party or grantor is a trustee (1) For items 1 and 2 of the table in subsection 153(1) of the Act, this clause applies if the secured party or grantor is: (a) a body corporate that is a trustee of a trust that: (i) has an ABN; and (ii) does not have an ARSN; or (b) any other trustee of a trust. (2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the trustee mentioned in the item. (3) For subclause (2), the prescribed details are: (a) for a trustee that is an individual — the details mentioned in the item of the table in clause 1.2 that: (i) applies to the trustee; and (ii) has the lowest item number; and (b) in any other case — the details mentioned in the item of the table that: (i) applies to the trustee; and (ii) has the lowest item number. (4) In this clause: trustee details means:

(a) the ABN allocated to the enterprise carried on by the trust; or (b) the ACN or ARBN allocated to the trustee; or (c) the name of the trust or trustee. (5) Item 1 of the table applies only to a registration by the Registrar under subsection 333(2) of the Act. Item Trustee

Details

Source

1

Trustee of a trust for which details of the trust have been included on the transitional register, for a migrated security interest

Trustee details, as Transitional recorded on the register transitional register

2

Trustee of a trust ABN that holds or has an interest in collateral in the course of, or for, an enterprise that has been allocated an ABN

Australian Business Register

3

Trustee of any other trust

Source mentioned in paragraph (3)(a)

Trustee details mentioned in paragraph (3)(a)

The final category of secured party and grantor dealt with in the PPSReg is that of a body politic. The details required in relation to a body politic are set out in cl 1.6 in Sch 1 of the PPSReg as follows: “1.6 Body politic secured party or grantor (1) For items 1 and 2 of the table in subsection 153(1) of the Act,

this clause applies if the secured party or grantor is a body politic. (2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the body politic mentioned in the item. (3) For subclause (2), the prescribed details are the details mentioned in the item of the table that: (a) applies to the body politic; and (b) has the lowest item number. (4) Item 1 of the table applies only to a registration by the Registrar under subsection 333(2) of the Act. Item Body Politic

Details

Source

Body politic details, as recorded on the transitional register

Transitional register

1

Body politic for which details have been included on the transitional register, for a migrated security interest

2

Body politic that ABN holds or has an interest in collateral in course of, or for, an enterprise that has been allocated an ABN

Australian Business Register

3

Body politic or has an interest in collateral, other than in the course of, or for, an

Constitution of body politic

Name of body politic, in accordance with constitution of body politic

enterprise that has been allocated an ABN This extensive set of rules relating to the details required concerning a secured party and the grantor are designed to ensure that the correct information is recorded on the financing statement. You may care to note that when the regulations refer to the lowest item number, this should be read as meaning the first item you are able to source starting from the top of the list. For example, if your grantor was an individual and your organisation did not have any transitional registrations migrated to the PPSR (such as a motor vehicle registration) nor did your organisation need to comply with the Anti Money Laundering and Counter Terrorism Financing Act 2006 (Cth) (AML-CTF Act), then you would use the next item source, which would be the individual’s drivers license. A useful tip when sourcing information from a driver’s license is to check the back of the driver’s license as it is usual to record any change of address on the back of the license. You will also have to ensure that you have the individual’s or sole trader’s date of birth as required in cl 1.2(4) in Sch 1 of the PPSReg. When registering a security interest which involves a partnership, you may wish to consider not only registering your security interest against the partnership but also against the individuals who comprise the partnership. If you have a security interest in collateral where the grantor is a trust, you may wish to consider registering your security interest against the trust, the trustee of the trust and any related entity which may be operated by the trust. Item 3 from the table in s 153 of the PPSA sets out the information you must supply in your financing statement so that notices may be given in relation to the registration. Item 4 explains the steps you must complete relating to the description of collateral. Item 4(c) dealing with the collateral class has been previously discussed in Chapter ¶3 of this book and item 4(d) concerning the description of proceeds is addressed in Chapter ¶4 — The role and

function of purchase money security interests (PMSIs). However, it may be constructive to reaffirm your understanding of the term “description of personal property” by considering the definition in s 10 of the PPSA: “description of personal property (including collateral and proceeds) means: (a) in the case of a particular item of personal property — a description that identifies the item, or that identifies a class to which the item belongs; or (b) in the case of a class of personal property — a description that identifies the class, including a description that identifies the class by identifying a larger class of personal property that wholly includes the class. Example 1: A description that identifies collateral as ‘sheep’ (a type of livestock) is sufficient to identify collateral that is sheep wool (a product of livestock, which is a class of collateral wholly included in the larger class of ‘sheep’). Example 2: A description that identifies collateral as ‘fruit’ is sufficient to identify collateral that is apples.” Important Note In s 153(1) of the PPSA there is reference to matters that may be prescribed by the PPSReg. The reference to prescribed should be understood in accordance with legal terminology whereby a prescribed requirement means: “… a procedure or method, set out in legislation, which must be followed in order to have legal effect. Prescription requirements will often be located in the regulations of an Act7 …” Thus when you are perusing the contents of the table in s 153, reference to prescribed should be read as something that must be done.

In relation to item 4 of the table in s 153(1), the PPSReg state that an intermediated security is to be treated as financial property (cl 2.1 in Sch 1 of the PPSReg). Item 4(b) of the table in s 153(1) is concerned with the information

required in relation to serial numbered collateral and these requirements will be considered at ¶5.3.4.5 of this chapter. Item 4(d) deals with the description of proceeds and we have already considered the requirements of the Regulations in relation to the description of proceeds in Chapter ¶4 of this book. If you are registering a PMSI in accordance with item 7 of the table in s 153(1), then cl 3.1 in Sch 1 of the PPSReg must be adhered to: “3.1 Purchase money security interest For item 7 of the table in subsection 153(1) of the Act, property is in a prescribed class of collateral if the collateral can be subject to a purchase money security interest under section 14 of the Act.” The wording of this regulation is less than clear; clarification may be obtained as to the intent of the regulation by referring to the Explanatory Statement which was released with the PPSReg which states at p 26: “Table item 7 of subsection 153(1) of the Act provides that a financing statement is to include an indication of whether the security interest is, or is to be, a purchase money security interest (to any extent) if the security interest is in respect of a class of collateral prescribed by the regulations for the purposes of this clause.” A PMSI is defined in s 14 of the PPSA. Section 14(2) provides that a security interest in certain types of collateral cannot be subject to a PMSI, for example: • collateral that the grantor intends to use predominantly for personal, domestic or household purposes (unless the collateral is of a kind required or permitted by the regulations to be described by serial number), or • collateral that is a chattel paper, an investment instrument, an intermediated security, a monetary obligation or a negotiable instrument. This clause therefore provides that, for the purposes of Table item 7 of s 153(1) of the Act, a financing statement can have an indication of whether the security interest is, or is to be, a PMSI, for the class of collateral that can be subject to a PMSI under s 14 of the PPSA. This

avoids the need to specify again those collateral types that are contemplated under s 14 as possibly having a PMSI. In other words you cannot register a PMSI if the collateral class is one of the following: (a) a chattel paper, an intermediated security, an investment instrument, a monetary obligation or a negotiable instrument (b) collateral to be used predominantly for personal, domestic or household purposes. Item 5 specifies the end date for a registration and this will be determined by the type of collateral. Item 6 is an optional component of the financing statement. Subordination is explained at s 61 of the PPSA as follows: “Voluntary subordination of security interests (1) A secured party may (in a security agreement or otherwise) subordinate the secured party’s security interest in collateral to any other interest in the collateral. (2) The subordination: (a) is effective according to its terms between the parties; and (b) may be enforced by a third party if the third party is the person, or one of a class of persons, for whose benefit the subordination is intended.” For item 8 of the table the following are the matters prescribed by cl 4.1 in Sch 1 of the PPSReg: “4.1 For item 8 of the table in subsection 153(1) of the Act, for collateral, the details mentioned in each item of the table, about the subject mentioned for the item, for the purpose mentioned in the item. Item Subject 1

Inventory

Purpose

Details

Determining whether collateral

For collateral that is commercial

may include inventory, for Part 9.5 of the Act

property — whether or not the collateral may include inventory

2

Control

Determining whether collateral may be subject to control, for Part 9.5 of the Act

For collateral that is commercial property — whether or not the collateral may be subject to control

3

Transitional security interest

Indicating whether a security interest is a transitional security interest

If a security interest is a transitional security interest for section 308 of the Act — a statement that the security interest is a transitional security interest

4

Migrated security interest

Indicating whether a registration is a migrated registration

If collateral is subject to a migrated security interest:







(a) a statement that the security interest is a migrated security interest; and







(b) the name of the transitional register in which the data about the transitional security interest was held; and







(c) when the migrated data was registered in the transitional register

5

Data from Australian Business Register or National Names Index

Recording details from Australian Business Register or National Names Index

If an ABN, ACN, ARSN or ARBN is entered in a financing statement and a verification of these numbers is undertaken with the Australian Business Register or the National Names Index — the entity name or other data attached to those identifier numbers obtained from the Australian Business Register or the National Names Index

Note: For the application of item 4, s 333 of the Act.”

The Explanatory Statement provides a useful example at p 28 as to how this prescribed information will be of assistance to users of the PPSR. Example Financier F had registered its interest over Mr O’s car on a state register of encumbered vehicles on 19 August 2008. This register is identified as a transitional register that will be migrated to the PPSR. Financier F’s registration is migrated from the transitional register to the register. The resulting registration will therefore include the following details: • that the registration is a “transitional” registration • that the registration is a “migrated” registration

• the “original start date”, which is the date the data was first registered on the transitional register, and • the name of the transitional register from which the migrated data was sourced.

5.3.4.2 Secured party group In order to register securities on the PPSR you will need to set up a secured party group. This is a process introduced by the PPS Registrar to facilitate registrations. The following overview is provided in the PPS Register tutorial — creating a secured party group:8 “A secured party group is a term used only by the PPSR system to identify one or more secured parties. To create registrations in the PPSR, secured parties will need to set up a secured party group with their details. When created, the secured party group assists the secured party to manage their registrations in PPSR. Any user can create a secured party group. A new secured party group is required if one does not already exist for the secured party, or if the user wishes to add or remove parties to or from an existing secured party group. A secured party group can contain one or more secured parties. All new secured party groups are allocated a unique secured party group number that is used to identify the group and an access code that is used to authorise users to view and/or amend the secured party group details. The maximum number of secured parties that can be in a Secured Party Group created via the PPSR web user interface is 39. More than 39 secured parties may be included in a Secured Party Group created via a Business to Government connection (for example, through an information broker with a B2G connection).” 5.3.4.3 Verification statements The term “verification statement” is defined at s 155 of the PPSA as follows: “verification statement means a written statement in the approved

form: (a) verifying the registration of a financing statement or a financing change statement (each of which is a registration event) with respect to a security interest, other than a financing change statement registered under section 185 (removal of old data) or 186 (incorrectly removed data); and (b) including other data (if any) including third party data (see section 176C), approved by the Registrar for that form in relation to the registration event, a secured party, a grantor, or collateral.” Section 156 of the PPSA requires the Registrar to give a verification statement in relation to the registration event to the secured party. In turn the secured party who has received the verification statement (the statement holder) must then, in accordance with s 157, give notice to the grantor. Alternatively s 158 of the PPSA provides that the Registrar may publish a single verification statement in relation to a number of registration events. Regulation 5.6 of the PPSReg provides that the PPS Registrar may publish verification statements as follows: “5.6 Verification statements — publication as alternative (1) For subsection 158(1) of the Act, the Registrar may publish a verification statement by publishing the statement on a website maintained by the Registrar on the Internet — (2) A statement published under subregulation (1) must not include the date of birth of a grantor.” Thus if you need to confirm if a verification statement has been published, the place you will check is the PPS Registrar’s website. The following is a sample verification statement provided by the PPSR. SAMPLE NOTICE OF BULK SECURED PARTY GROUP TRANSFER Notice of Verification Statement This notice is given under section 157 of the Personal Property Securities Act 2009. It is made in accordance with the Personal Property Securities

(Approved Form) Instrument 2011. On 3 February 2012, 1017 registrations migrated to the Personal Property Securities Register from the [name of transitional register] were transferred from the secured party group listed in Schedule 1 below (transferring secured party group) to the secured party group listed in Schedule 2 below (receiving secured party group). Schedule 1 — Transferring secured party group Secured party group number:

X10002345



Secured party details:

ABC (Branch 1) Pty Ltd

ACN X23 456 789



ABC (Branch 2) Pty Ltd

ACN X56 789 123



ABC (Branch 3) Pty Ltd

ACN X98 876 765

Schedule 2 — Receiving secured party group Secured party group number:

X10009876



Secured party details:

ABC (Branch 1) Pty Ltd

ACN X23 456 789

Address for service:

Contact name: John Smith





Email: [email protected]





Mailing address: PO Box 5





Jonestown NSW 2999





AUSTRALIA



Physical address:

Level 7





8 Jones Street





Jonestown NSW 2999





AUSTRALIA9



Note that the Registrar issued a new instrument relating to approved forms on 19 August 2013.10 Clause 7 sets out the new requirements for a notice of verification statement. Also see cl 6 for requirements relating to a verification statement. 5.3.4.4 When a registration is effective Now we need to comprehend the provisions of the PPSA which determine when a registration is effective. The general rule is that a registration will become effective from, as stated in s 160 of the PPSA, the moment (the registration time) the description of the collateral is available for “… search in the [PPS] Register in relation to that secured party …”. Section 161 of the PPSA enables personal property to be described in a registration before or after a security agreement is made and the security interest attaches to the property. In addition, s 162 of the PPSA provides that “… a financing statement, or a financing change statement, may be registered to reflect the transfer of a security interest, or of collateral, before or after the transfer …”. The test to confirm that a registration is effective is set out in s 163 of the PPSA: “Effective registration (1) A registration with respect to a security interest that describes particular collateral, in relation to a secured party, is effective with respect to that collateral from the registration time for the description of the collateral until the earliest of the following times: (a) the end time (if any) registered for the collateral; (b) if the registration is amended to omit the collateral description — the amendment time; (c) the time when the description of the collateral in the

registration stops being available for search in the register (by reference to that time) in respect of the secured party. Note: For the registration time for collateral, see section 160.

(2) This section is subject to sections 164, 165 and 166 (defects in registration).” Thus, provided the financing statement has been validly recorded on the PPSR, the registration of the financing statement will generally be effective from the registration time until the earliest of the following: • the registration reaches the end time for the registration • the collateral is omitted from the registration, or • the description of the collateral otherwise ceases to be available for search11. 5.3.4.5 Defects in registration A threshold issue which you should be aware of is that it is the secured party’s responsibility to ensure that the information registered on the PPSR is accurate and complete12. The general rule relating to defects in a registration (s 164 PPSA) is that the registration will be defective if any of the following applies: “(1) A registration with respect to a security interest that describes particular collateral is ineffective because of a defect in the register if, and only if, there exists: (a) a seriously misleading defect in any data relating to the registration, other than a defect of a kind prescribed by the regulations; or (b) a defect mentioned in section 165. (2) In order to establish that a defect is seriously misleading, it is not necessary to prove that any person was actually misled by it.” The method for determining what information may be seriously

misleading is explained in the PPS Bill 2009 Explanatory Memorandum at para 5.74: “This means that parties would need to objectively consider whether certain errors are seriously misleading. This would promote the integrity and reliability of the PPS Register system and minimise recourse to litigation.” In addition s 165 of the PPSA describes the specific circumstances when a registration could be defective: “Defects in registration — particular defects For the purposes of paragraph 164(1)(b), a defect in a registration that describes particular collateral exists at a particular time if any of the following circumstances exist: (a) in a case in which the collateral is required by the regulations to be described by serial number in the register — no search of the register by reference to that time, and by reference only to the serial number of the collateral, is capable of disclosing the registration; (b) in a case in which the collateral is not required by the regulations to be described by serial number in the register — no search of the register by reference to that time, and by reference only to the grantor’s details (required to be included in the registered financing statement under section 153), is capable of disclosing the registration; (c) if the registered financing statement (as amended, if at all) indicates that a security interest in the collateral is a purchase money security interest (to any extent) — the security interest is not a purchase money security interest (to any extent) in relation to the collateral; (d) in any case — circumstances in relation to the data related to the registration that are prescribed by the regulations.” In essence a registration will be defective if: • it is required to be searchable by serial number and it is not

• it is not able to be searched using the grantor’s details • the registration indicates that the security interest is a PMSI and it is not, and • any matters prescribed by regulation are not correct. However, if the error arises from a description of more than one type of collateral, then the correctly described collateral registration will be an effective registration and the incorrectly described collateral will be ineffective (s 164(3) PPSA). Consider this example. Example Fantastic Finance registered a security interest in Enid Rose Pty Ltd’s agricultural collateral corn and intended to add “and barley” in the free text description field but accidentally entered “and rice” then the registration against corn would be effective but ineffective against the barley.

Although there has not yet been an Australian decision on the question of what is a “seriously misleading defect” for the purposes of s 164, there have been some decisions in New Zealand which have considered the issue. In Rabobank New Zealand Limited v Stockco Limited (2010) FPPSR ¶700-004; [2010] NZHC 271 it was noted at [53] that “… The debtor name is a searchable field on the PPSR, whereas non-serial numbered goods are not: s 172 PPSA [NZ]. An error in a non-searchable field is much less likely to be seriously misleading, and would not have prevented a searcher from coming across the financing statement in the first place. An error in the debtor name could mean that a reasonable searcher cannot retrieve the financing statement and so is not put on notice at all.” This decision provides useful guidance in relation to the concept of a “seriously misleading defect” under s 164(1)(a) of the Australian PPSA. It should be noted that the exact match system adopted by New Zealand is the system of searching required by the Australian PPSA.13 The Rabobank decision has been distinguished by Asher J in Polymers International Limited v Toon & Ors (2013) FPPSR ¶700-015; [2013]

NZHC 1897. In this case his Honour held that what is required for a registration to be seriously misleading turns on the effectiveness or otherwise of information provided in the financing statement, which allows an effective search using the PPSA’s search criteria (at [9] of the judgment). The judge went on to make the following points: • the name of the debtor is a critical element of the financing statement. It is the indexing point for all searches, and an error in the debtor’s name will mean that the security interest will not be discovered by a searching creditor: [11]. • the onus is on those who register to enter data correctly and keep it up to date, and the assumption by those who use the register is that such data is correct: [13]. • the failure to register the company number was an omission of an item that the Act provided “must” be in the financing statement. A company’s incorporation number is one of the limited s 172 [PPSA (NZ)] search criteria by which searches can be conducted: [15]. • the omission of the company’s number was a serious error. It meant that those who searched the register by company number or through the Companies Office would not discover the relevant financing statement: [20]. • a failure to correctly record the incorporation number will also result in the registration not being discoverable on a search of the register and will therefore invalidate the registration: [26]. • a failure to classify the debtor company as a “company”, on its own, is not “seriously misleading” as defined in the PPSA: [28].14 The PPSA allows for a registration which contains defects which are beyond the control of the secured party, to have temporary perfection for a defined time period in order that the secured party can rectify the defect. These rules are set out is s 166(2) of the PPSA as follows: “(a) the end time for the registration (as registered immediately before the defect time); (b) the end of the month that is 60 months after the defect time;

(c) the end of 5 business days after the day the secured party acquires actual or constructive knowledge of the defect. Note: The period mentioned in paragraph (c) may be extended by a court under section 293.”

However, this provision does not mitigate the onus on the secured party to maintain the accuracy of the registration. It is recommended that the provisions of s 166 of the PPSA should be considered within the context of s 297–298 of the PPSA which set out the basis for determining if a person or a corporate body or other entity had “constructive knowledge of a particular circumstance”. Thus for example, if you undertake a regular review of your customer records and establish that there have been changes in the relevant details, then you should make the appropriate amendment(s) to your registration(s). Equally a secured party has a statutory obligation to omit collateral or end an effective registration which falls within the definition of consumer goods and/or serial numbered goods when it is no longer applicable (s 167 PPSA). Before we complete our consideration of issues relating to achieving perfection by registration, it is important that consideration is given to the interaction between registration and serial numbered goods. 5.3.4.6 Registration of serial numbered goods — consumer property vs commercial property There are two aspects relating to the registration of serial numbered goods with which you should be familiar. Firstly you need to appreciate that serial numbered goods which will be predominantly used for personal, domestic or household purposes (consumer goods) are subject to explicit rules in relation to the registration of serial numbered goods and these rules are contained in the PPSReg. Subclause 2.2(1)(a) in Sch 1 of the PPSReg specifically requires that the following classes of collateral when described as consumer property must be described by serial number: “(i) aircraft; (ii) intangible property that is:

(A) a design; or (B) a patent; or (C) a plant breeder’s right; or (D) a trade mark; or (E) a licence over any intangible property mentioned in subsubparagraphs (A) to (D). (iii) motor vehicles; (iv) watercraft”. Subclause 2.2(1)(b) in Sch 1 of the PPSReg specifically requires that aircraft be described by serial number: “(b) aircraft that is an aircraft engine, airframe, helicopter or small aircraft, when described as commercial property, must be described by serial number;” Failure to comply with the requirements in the Regulations may render your registration ineffective (s 164(1)(b) PPSA) and could have consequential effects in relation to the taking of personal property free of security interests. (Please refer to Chapter ¶8 — Taking personal property free of security interests for more information). Conversely serial numbered goods supplied for commercial purposes are subject to optional rules relating to registration. In this case the secured party needs to assess whether or not it is appropriate to exercise their options relating to serial numbered goods when applying to lodge a financing statement on the PPSR. Commercial serial numbered goods are also described in the PPSReg. Subclause 2.2(1)(c) in Sch 1 of the PPSReg states that: “(c) the following classes of collateral, when described as commercial property, may be described by serial number: (i) motor vehicles; (ii) watercraft;

(iii) intangible property that is: (A) a design; or (B) a patent; or (C) a plant breeder’s right; or (D) a trade mark; or (E) a licence over any intangible property mentioned in sub-subparagraphs (A) to (D).” Subclause 2.2(2)–(4) in Sch 1 of the PPSReg sets how you will ascertain the relevant serial number. As well you will find in the definitions in reg 1.6 of the PPSReg the official definition of terms such as chassis number, manufacturer’s number and hull identification number. Factors which may influence the secured party’s decision as to whether or not to describe the goods by serial number may include: • the volume of registrations • the level of risk • organisational policy. Before we leave the consideration of serial numbered goods, you should be aware that the PPSReg define what a motor vehicle is for the purposes of the PPSA. Regulation 1.7 of the PPSReg defines a motor vehicle as follows: “1.7 Meaning of motor vehicle (1) For the definition of motor vehicle in section 10 of the Act, personal property described in subregulation (2) or (3) is a motor vehicle. (2) The personal property: (a) is built to be propelled, wholly on land, by a motor that forms part of the property; and

(b) either: (i) is capable of a speed of at least 10 km/h; or (ii) has 1 or more motors that have a total power greater than 200 W; and (c) has any of the following: (i) a vehicle identification number; (ii) a chassis number; (iii) the manufacturer’s number; and (d) does not run on rails, tram lines or other fixed path. (3) The personal property: (a) is capable, when being towed by, or attached to, a motor vehicle, of travelling at a speed greater than 10 km/h; and (b) is a piece of machinery or equipment that is equipped with wheels and designed to be attached to, or towed by, a motor vehicle; and (c) has any of the following: (i) a vehicle identification number; (ii) a chassis number; (iii) the manufacturer’s number.” This definition is intended to be interpreted in a broad sense and embraces a range of vehicles such as: • cars • trucks • motor-cycles

• self-propelled agricultural and mining equipment. It also includes vehicles which are designed to be towed or attached to a motor vehicle, for example, items such as: • trailers • caravans • machinery or equipment such as a plough or drill. However, you may need to be aware that in the Explanatory Statement to the PPSReg at p 9 it is stated that: “Note that an amphibious vehicle — that is a vehicle that can run both on land and water — may be a motor vehicle under subregulation 1.7(2), if is built to be propelled wholly on land by a motor that forms part of the vehicle. This is notwithstanding that it may also have another motor that propels the amphibious vehicle through water. However, if the amphibious vehicle is such that the one motor propels the vehicle on both land and water, then it will not satisfy the definition of ‘motor vehicle’ under this regulation.” Thus if you have a security interest in an amphibious vehicle which utilises one motor for propulsion, then you will need to make alternate security arrangements. 5.3.4.7 Amendment demands As stated in s 177 of the PPSA: “A person with an interest in collateral may require changes to the registration, by way of an amendment demand given to the secured party. An amendment demand may be made if: (a) the obligation owed by a debtor to the secured party is not secured by collateral described in the registration; or (b) the particular collateral in which the person has an interest does not secure any obligation owed by a debtor to the secured party.

An amendment demand, if not voluntarily complied with, may be pursued by an administrative process activated by the Registrar, or by an application to a court. The secured party may also apply to a court to oppose an amendment demand.” The procedure for making an amendment demand is set out in s 178 of the PPSA with the administrative and judicial process relating to amendment demands contained in s 179–182 of the PPSA. Also refer to reg 5.9 of the PPSReg for what is to be contained in a statement in relation to a demand. As stated in s 177 of the PPSA, a request for an amendment demand will only escalate to an administrative or judicial process if the initial request for demand is not responded to. In Re Daniele Cirillo and Registrar of Personal Property Securities [2013] AATA 733 the grantor issued an amendment demand on the Registrar of the Personal Property Securities pursuant to s 178 in relation to a security interest taken over a motor vehicle which had been migrated from the New South Wales Register of Encumbered Vehicles. The Registrar refused to accept the demand on the basis that he had reasonable grounds to believe that the amendment was not authorised by the secured creditor (s 181(1) of the PPSA). Upon receiving the amendment demand, the Registrar sent an amendment notice to the secured creditor which gave the secured creditor a period of five business days to advise whether the information in the amendment notice was correct. The secured creditor responded within the required time and advised the Registrar that the security should not be removed and provided documentary evidence to support this. The Registrar considered the material and decided to refuse the registration of the amendment demand. The grantor sought a review of this decision in the Administrative Appeals Tribunal (AAT). The AAT reviewed the material available and affirmed the decision of the Registrar. It appears from reading the judgment that the grantor was disputing a number of issues relating to the transaction entered between himself and the secured creditor. Instead of seeking to resolve these issues with the secured creditor directly, the grantor decided to simply seek to remove the security interest from the PPSR. Understandably, the secured creditor

did not want the security interest removed. The onus is then on the Registrar to determine if the security interest continued to exist. If the grantor still seeks to challenge the security he or she can lodge an application in the AAT pursuant to s 191 of the PPSA, as was done here. Where there is doubt, the Registrar should decline to give rise to the amendment demand — as was again the case here. The AAT steps into the shoes of the Registrar and determines for itself whether the security interest should stand. This case shows how the provisions of the PPSA relating to amendment demands operate and the safeguards contained within the legislation to prevent a grantor from seeking to escape his or her financial responsibilities. 5.3.4.8 Removal of data — powers of the Registrar Sections 183–188 of the PPSA provide that the Registrar may remove data from the PPSR and correct registration errors if the registration is contrary to the public interest or the data is old. The Registrar may also restore removed data and correct errors or omissions made by the Registrar. The PPSReg, at reg 5.10, also provides that the Registrar may remove data if required to do so by a court order. The meaning of “urgently” is set out in reg 5.10(2) of the PPSReg. 5.3.4.9 Penalty for non-payment of fees Section 168(1) of the PPSA provides that the Registrar may issue a notice requesting payment of any unpaid registration fees to maintain the validity of the registration. If you do not pay the fee within 28 days after the notice is given, then the Registrar “… may register a financing change statement amending the registration to end its effect …” (s 168(2) PPSA). 5.3.4.10 Searching the PPSR The PPSR website provides a number of fact sheets and tutorials on how to use the register including how to conduct a search. The following types of search are able to be peformed on the PPSR: • Serial number – motor vehicle and watercraft serial number, and – other serial number (aircraft or intellectual property).

• Grantor – individual grantor, and – organisation grantor. • Registration number. • Ordinal (compares two registration events).15 Section 170(1) specifies that the PPSR will be searchable with respect to: (a) a security interest, or (b) personal property prescribed by regulations made for the purposes of s 148(c). Regulation 5.7 of the PPSReg outlines the grounds upon which the PPS Registrar may refuse, in accordance with s 170(3) of the PPSA, access to the PPSR. The search criteria are contained in s 171 of the PPSA and are as follows: “(1) A person may search the register by reference to the following criteria: (a) a grantor’s details (as required to be included, if at all, in a registered financing statement under section 153); (b) a serial number by which collateral may (or must) be described in the register; (c) the time of the search; (d) an earlier nominated time, but only with the consent of the Registrar; (da) a unique identifier allocated by the Registrar to a registered financing statement; (e) any other criteria prescribed by the regulations. Note: If a registration is no longer effective, details of the registration can still be found by

searching the register by reference to an earlier time when the registration was still effective (see paragraph (e)). However, data removed from the register may not be available for search by reference to an earlier time (see Part 5.7).”

Regulation 5.8 of the PPSReg provides that, for the purposes of s 171(2), “the method by which the results of a search are to be worked out must allow for case-insensitive searching.” Section 172 of the PPSA provides extensive detail as to who may search the register and the purpose for which they may search the register. The PPSR must not be searched for an unauthorised purpose and there is, at s 172(6) of the PPSA, a provision for the recovery of damages for contravention of this provision. Further, s 173 of the PPSA addresses issues relating to privacy and unauthorised access and use of personal information. Section 174(1) of the PPSA provides that: “… A written search result in the appropriate form (see subsection (3)) is admissible as evidence in a court or tribunal and is, in the absence of evidence to the contrary, proof of the matters stated in the search result … .” This confirmation that a written search result is admissible as evidence could be quite important, for example, if a secured party seeks to exercise their enforcement rights. A secured party may apply for a copy of a financing statement and/or verification statement (s 175 PPSA). A person may apply to the Registrar for a report of matters relating to the person making the application (s 176 PPSA). At the time of writing this book, the fee for preparing such a report is calculated at the rate of $300 for each hour, or part of an hour, of preparation of the report. The fee is payable upon receipt of an invoice for the report.16 The fees payable are available on the PPSR website at www.ppsr.gov.au/AbouttheRegister/AboutFees/Pages/default.aspx You should note that the fee for registering a financing statement that has no stated end time is currently $100 more than that for one with a duration time of more than seven years and less than 25 years. It is therefore important that you remember to insert an end time in your financing statement, especially if you are filing multiple statements.17

In this chapter we have considered the methods available to a secured party to achieve perfection and the role of the PPSR. Once you have established that you have perfected your security interest by whatever means, you next need to understand how you may exercise your enforcement rights. These rights and remedies are addressed in the next chapter. Footnotes 2

Section 23 PPSA.

3

Section 10 PPSA.

4

McCloy v Manukau Institute of Technology [2013] NZHC 936.

5

In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors (2013) APPSR ¶701-008; [2013] NSWSC 852.

6

Personal Property Securities Register, Information sheet, Attorney-General’s Department, June 2010. Available at www.ppsr.gov.au.

7

Butterworths Legal Dictionary 3rd ed 2004.

8

Available on the PPSR website at www.ppsr.gov.au/Help/Tutorials/Pages/default.aspx#CR.

9

Personal Property Securities (Approved Form) Amendment Instrument 2012 (No 2) Explanatory Note.

10

Personal Property Securities (Approved Form) Instrument 2013 available at www.ppsr.gov.au/AsktheRegistrar/forms/Pages/ApprovedFormsInstruments.aspx#no7.

11

Personal Property Securities Bill 2009 Explanatory Memorandum, p 84.

12

Ibid, p 84.

13

Taken from the Editorial comment written by Nicholas Mirzai for the Australian Personal Property Securities Cases, CCH Australia at (2013) FPPSR ¶700-015.

14

Taken from a headnote written by Anne Wardell for the Australian Personal Property Securities Cases, CCH Australia at (2013) FPPSR ¶700-015.

15

Tutorial on how to do a search available on the PPSR website at www.ppsr.gov.au/Help/Tutorials/Pages/default.aspx#CR.

16

Clauses 5 and 8 Personal Property Securities (Fees) Determination 2013.

17

Ibid, cl 4 Item 1.

ENFORCEMENT RIGHTS AND REMEDIES FOR SECURED PARTIES ¶6.1 Introduction The Personal Property Securities Act 2009 (PPSA) provides a regime which establishes a range of remedies available to secured parties whilst at the same time retaining current remedies. These rights and remedies are contained in Ch 4 of the PPSA. In December 2008 the government released a Revised Commentary to accompany the PPS Bill. One of the stated purposes of the enforcement provisions was to: “… operate in conjunction with other laws providing remedial and enforcement rights. The enforcement sections are not meant as a ‘code’ that establishes all rights, remedies and obligations in relation to enforcement. Parties would continue to have the rights and remedies provided for by the security agreement, any Commonwealth, State and/or Territory law and any rule of law or equity (s 112). Accordingly, the rights and remedies available to parties may be a combination of right and remedies provided in the Bill, contractual provisions and other legislation …”1 For creditors who, prior to the introduction of the PPSA, were unsecured creditors the enforcement provisions will bring an additional dimension to their rights and remedies. Footnotes 1

Personal Property Securities Bill 2008, Revised Commentary, December 2008, para 9.20.

¶6.2 The enforcement provisions There are several threshold matters which secured parties will need to consider when becoming familiar with the enforcement provisions. These may be summarised as follows: • matters that are excluded from Ch 4 of the PPSA • issues to be considered at the commencement of the relationship with the customer • whether or not the customer is a consumer or a commercial customer • the rights and remedies available to other interested parties. 6.2.1 What is excluded? 6.2.1.1 If there is no obligation The basic principle is that for a security interest to come within the application of Ch 4 of the PPSA there must be a payment or performance of an obligation. Thus the following are excluded: (a) a transfer of an account or chattel paper that does not secure payment or performance of an obligation (b) a security interest that is incidental to a security interest referred to in para (a) (c) a PPS lease that does not secure payment or performance of an obligation (d) a commercial consignment that does not secure payment or performance of an obligation. (See s 109(1) of the PPSA) 6.2.1.2 Goods outside of Australia Goods that are outside of Australia are excluded pursuant to s 109(2) of the PPSA. The test set out in s 235 of the PPSA for determining location is the jurisdiction in which the personal property is located.

6.2.1.3 Investment instruments and intermediated securities You may recollect that in Chapter ¶5 — How do you achieve perfection? we considered that perfection may be achieved in one of four ways — possession, control, temporary perfection and registration. When an investment instrument has been perfected by possession or control, it is excluded from Ch 4 of the PPSA. In addition if an “intermediated security” has been perfected by control, then it will be excluded from Ch 4 of the PPSA by s 109(3). Note that s 110, 111, 113 and 140 in Ch 4 will still apply. 6.2.1.4 Consumer property If you are supplying collateral that a grantor will use predominantly for personal, domestic or household purposes in other words your grantor is a consumer, then the following sections of Ch 4 of the PPSA will not apply: (a) s 117 and 118 (relationship with land laws) (b) s 120 (enforcement of security interests in liquid assets) (ba) s 126 (apparent possession of collateral) (c) s 128(2)(b) and (c) (disposal of collateral by lease or licence) (d) s 129 (disposal by purchase) (e) s 134 (retention of collateral). (See s 109(5) PPSA) This provision has been designed to avoid potential dual compliance requirements between the National Consumer Credit Protection Act 2009 (Cth) Sch 1, National Credit Code (NCC) and the PPSA. As stated in the Revised Commentary at para 9.44–9.45: “The concurrent operation of the Bill means that • where there are requirements or rights in the Code on which the Bill is silent the secured party must comply with the requirements in the Code • where there are requirements or rights in the Bill on which the

Code is silent: a secured party must comply with the requirements in the Bill, and • where there are corresponding requirements in relation to the same party/s in both the Code and the Bill, the requirements in the Bill may be deemed to be satisfied by a secured party undertaking the requirements in the Code.”2 The relationship between the PPSA and the consumer credit legislation is set out in reg 4.1 of the Personal Property Securities Regulations 2010 (PPSReg). We have included this regulation in Appendix 1 of this book. 6.2.1.5 Commercial supply provisions that may be contracted out of A further aspect that a business should consider when entering into a security agreement with another business, partnership or trust is whether or not the secured party resolves to contract out of those provisions which it is permitted to contract out of. Primarily the provisions which may be contracted out of relate to matters such as the giving of notice, issuing of statement of accounts and other routine obligations. The list of items available for consideration is set out in s 115 of the PPSA and is as follows: “The parties to a security agreement that provides for a security interest in collateral that is not used predominantly for personal, domestic or household purposes may contract out of the following provisions in relation to the collateral (to the extent, if any, mentioned): (a) section 95 (notice of removal of accession), to the extent that it requires the secured party to give a notice to the grantor; (b) section 96 (when a person with an interest in the whole may retain an accession); (c) section 117 (obligations secured by interests in personal property and land); (d) section 118 (enforcing security interests in accordance with land law decisions), to the extent that it allows a secured party to give a notice to the grantor;

(e) section 120 (enforcement of liquid assets); (f) subsection 121(4) (enforcement of liquid assets — notice to grantor); (g) section 123 (right to seize collateral); (h) section 125 (obligation to dispose of or retain collateral); (i) section 126 (apparent possession); (j) section 128 (secured party may dispose of collateral); (k) section 129 (disposal by purchase); (l) section 130 (notice of disposal), to the extent that it requires the secured party to give a notice to the grantor; (m) paragraph 132(3)(d) (contents of statement of account after disposal); (n) subsection 132(4) (statement of account if no disposal); (o) subsection 134(1) (retention of collateral); (p) section 135 (notice of retention); (pa) Division 6 of Part 4.3 (seizure and disposal or retention of crops and livestock), or any particular provision of that Division; (q) section 142 (redemption of collateral); (r) section 143 (reinstatement of security agreement).” This somewhat exhaustive list requires explanation and careful consideration as you would not want to contract out of a provision only to subsequently find that its retention was useful. The sections referred to will be explained subsequently; however, if the collateral supplied is for a consumer purpose, you are not able to contract out of any of these provisions. For organisations with both a consumer and commercial customer base you will need to give careful consideration as to how your

contract, such as a supply agreement, credit application or equipment lease will be worded. The implications of this section of the PPSA will be considered in Chapter ¶11 — Implementing the PPSA in your organisations and lessons learned after one year. 6.2.1.6 Receivers and controllers The final exclusion relates to receivers and controllers. Chapter 4 of the PPSA generally does not apply to property in the hands of receivers or controllers (see s 116 of the PPSA). However, there are some exceptions to this provided in s 116(2) and (3). The interaction of the PPSA with insolvency is discussed in detail in Chapter ¶9 — Dealing with corporate insolvency situations. 6.2.2 Overarching obligations on secured parties Irrespective of whether you have a relationship with a commercial or consumer grantor, there are several obligations in Ch 4 of the PPSA which your organisation must adhere to when exercising your enforcement rights. As previously stated the PPSA does not diminish a secured party, debtor or grantor’s rights and remedies3. There is an obligation, contained in s 111 of the PPSA, to act “honestly” and in a “commercially reasonable manner”. Whilst this provision may appear to be self evident a secured party should be mindful that if their action(s), for example in relation to disposal of collateral, are questioned, documentary evidence as to how the disposal was arranged may need to be produced. Case Study loakim Silver Pty Ltd supplies bespoke tables and chairs to order. A customer of Silver defaulted on their payments and Silver seized and disposed of the collateral. As the market for these items of furniture is limited, Silver advertised the items for sale by tender and accepted the highest offer which was considerably lower than a customer would have been charged. Another secured party questioned whether Silver had acted in a commercially reasonable manner. Silver was able to rebut the accusation by producing the tender documentation.

It is good practice when considering how you would comply with this section to also take into account s 131 of the PPSA which requires you to

obtain market value or the best reasonable price when disposing of collateral. A security interest is not set aside (extinguished) if a secured party has recovered judgment or issued execution (see s 113 of the PPSA). Finally, the proceeds realised from collateral as a result of an enforcement process must be distributed in accordance with s 140 of the PPSA. 6.2.3 Enforcement issues to be considered at the commencement of the relationship with the customer Section 115 of the PPSA enables a secured party to contract out of some of the enforcement provisions when dealing with a grantor that is not a consumer. Equally a grantor may also seek to contract out of some of the enforcement provisions. This will depend upon several factors. For example, a major company may seek to avoid enforcement rights and remedies. On the other hand, the enforcement rights and remedies may be essential for a small business. The decision as to which provisions you may resolve to contract out of may also be influenced by the type of collateral supplied. To use a simple example, if your organisation supplies/leases collateral that is large and heavy and difficult to move, then there are some sections which could be very relevant. Alternatively, if your organisation supplies collateral that is intangible, you will probably have different criteria which will be relevant to each section. As well, a secured party may: • resolve to augment these sections with clauses on matters upon which the enforcement sections are silent • determine their own contractual provisions on these matters, or • use a mix of contractual and statutory provisions. Should you elect to exercise one of these options you must ensure that the terms of the security agreement are consistent with Ch 4 of the PPSA, otherwise your security agreement will be ineffective.

The following exclusions have been suggested in the PPSA model clauses, referred to in Chapter ¶3 at ¶3.2: “6.1 Exclusion of PPSA provisions To the extent the law permits: (a) for the purposes of sections 115(1) and 115(7) of the PPSA: (i) the Secured Party need not comply with sections 95, 118, 121(4), 125, 130, 132(3)(d) or 132(4); and (ii) sections 142 and 143 are excluded; (b) for the purposes of section 115(7) of the PPSA, the Secured Party need not comply with sections 132 and 137(3); (c) [if the PPSA is amended after the date of this document to permit the Grantor and the Secured Party to agree to not comply with or to exclude other provisions of the PPSA, the Secured Party may notify the Grantor that any of these provisions is excluded, or that the Secured Party need not comply with any of these provisions, as notified to the Grantor by the Secured Party;] and (d) [the Grantor agrees not to exercise its rights to make any request of the Secured Party under section 275 of the PPSA, to authorise the disclosure of any information under that section or to waive any duty of confidence that would otherwise permit non-disclosure under that section.]”4 6.2.4 Sections of the PPSA which may be contracted out of We will now individually consider each section of the PPSA that may be contracted out of. 6.2.4.1 Section 95 (notice of removal of accession), to the extent that it requires the secured party to give a notice to the grantor Whilst it is possible to contract out of giving notice to a grantor, you are not able to contract out of giving notice to a higher ranking secured party of your intention to remove an accession. 6.2.4.2 Section 96 (when a grantor may retain an accession)

A person (other than the grantor) who has a security interest in the whole of the goods including the accession may seek to retain the accession even though their security interest is subordinate (lower ranking) to the security interest held in the collateral which was accessioned. The person is able to retain the accession provided they either perform the obligation or pay the then-current value of the accession to the security holder. This somewhat complex scenario is best explained by an example. Example Black Pty Ltd leases a D9 dozer from Fandango Finance Pty Ltd. Cobalt Pty Ltd supplies and installs a laser leveling system worth $880 on the dozer taking a purchase money security interest (PMSI) to protect their security interest in the laser leveler as it will be an accession. As the PMSI on the leveler was registered it has priority over the PPS lease. Six months later Black defaults on its payments to Fandango. Fandango would like to retain the laser leveler as it adds value to the dozer. The current value of the laser leveler is now $220 so Fandango gives notice to Cobalt and pays Cobalt the $220 so that it can retain the accession free of Cobalt’s security interest.

What you need to consider is whether you should contract out of this provision. 6.2.4.3 Section 117 (obligations secured by interests in personal property and land) and s 118 (enforcing security interests in accordance with land law decisions), to the extent that it allows a secured party to give a notice to the grantor It is helpful if these two sections are considered together as the intention is to enable a secured party to have a choice as to how best to enforce their rights. The reasoning behind these sections is to minimise legal costs and processes. The secured party would need to determine how to achieve the maximum realisation of value and select the appropriate legal remedy. Case Study A major supplier of heavy equipment has taken a mortgage over land and an all present and after acquired security interest. The land is worth considerably more than the personal property so instead of taking separate enforcement proceedings the secured party resolves to enforce both the interest in the land and the personal property through one legal action utilising the land law remedies.

6.2.4.4 Section 120 (enforcement of liquid assets) This section operates to reduce the process of needing a secured party to go through multiple steps when the secured obligation is secured by a security interest in collateral in the form of: • an account • chattel paper • a negotiable instrument. Provided notice is given in accordance with s 121 of the PPSA to any higher priority parties and the grantor then the debt can be recovered from a third party. You might find it helpful to view this section as operating in a similar manner to that of a garnishee. This section only applies when the debtor defaults on a payment secured by one of the instruments listed above. Note that the section does not apply in relation to collateral that is used predominantly for personal, domestic or household purposes. 6.2.4.5 Subsection 121(4) (enforcement of liquid assets — notice to grantor) It is possible to contract out of this requirement to give a grantor notice in relation to an enforcement action in accordance with s 120 of the PPSA. 6.2.4.6 Section 123 (right to seize collateral) This section details how collateral may be seized provided the method used is lawful. As the PPSA embraces both tangible and intangible property the section also sets out how intangible property may be seized, usually by the giving of notice. It should be noted that seizure of collateral does not achieve perfection of a security interest. See the discussion of McCloy v Manukau Institute of Technology [2013] NZHC 936 in Chapter ¶5 at ¶5.3.2. Example Orange Pty Ltd supplied goods to Green Pty Ltd; however, Orange did not register a security interest. Orange did not receive payment and so sought to seize the goods. This action would not proceed if there are secured parties who have perfected their security interest in the collateral nor would Orange be able to achieve perfection of their interest in the goods by seizure.

6.2.4.7 Section 125 (obligation to dispose of or retain collateral) When a secured party has seized collateral then the secured party must either dispose of the collateral or follow the applicable retention process set out in s 134–136 of the PPSA. 6.2.4.8 Section 126 (apparent possession) Depending upon the type of collateral, physical seizure may be difficult. You may not be able to easily remove the collateral or you may not have the facility to store the collateral. This section enables the secured party to take apparent possession which is usually done by notice. It should be noted that this section also enables the secured party to dispose of the collateral on the grantor’s premises provided the following conditions are met: • the grantor is not inconvenienced, and • the costs incurred do not go beyond the usual cost of disposal. Taking an extreme example, if you need to demolish part of a structure then the secured party may need to pay for the necessary repair and restoration of the structure. It should also be noted that you will still need to give notice to higher priority parties when utilising the apparent possession provision5. 6.2.4.9 Section 128 (secured party may dispose of collateral) This section enables a secured party to dispose of collateral if the seizure action is in response to a default by the debtor. If collateral is sold, it may be either by private or public sale. Alternatively, if the security agreement includes the option, collateral may be leased as a form of disposal. When the collateral is intellectual property, it may be disposed of by licence. 6.2.4.10 Section 130 (notice of disposal), to the extent that it requires the secured party to give a notice to the grantor You can decide to contract out of the need to give a grantor notice of disposal. However, you should exercise caution if there are other secured parties with a higher priority as you will still be obliged to give these parties notice.

Subsections 130(5)(b) and (c) of the PPSA deal with issues that may arise if the collateral is perishable or could decline in value if not disposed of promptly and removes the need for notice. This will be of particular importance to secured parties who supply food and related perishable products. 6.2.4.11 Paragraph 132(3)(d) (contents of statement of account after disposal) You are able to contract out of the obligation to provide details of any amounts paid to other secured parties. However, you are not able to contract out of the other provisions of this section and it is recommended that you are aware that as a secured party you must provide a written statement of account upon receiving a request from either the grantor or other parties with a security interest in the collateral. 6.2.4.12 Subsection 132(4) (statement of account if no disposal) It could be useful to consider contracting out of this subsection which requires you to give a statement of account if you have not disposed of the seized collateral within six months of seizure and every six months thereafter until disposal. 6.2.4.13 Subsection 134(1) (retention of collateral) It is suggested that you should carefully consider whether or not you would want to contract out of this subsection which gives a secured party the right to retain seized collateral upon default by a debtor. 6.2.4.14 Section 135 (notice of retention) Again this section relates to the giving of notice and you may wish to contract out of the need to give notice when you propose to retain collateral. 6.2.4.15 Division 6 of Pt 4.3 (seizure and disposal or retention of crops and livestock), or any particular provision of that Division Division 6 of Ch 4 of the PPSA specifically addresses seizure and disposal of crops and livestock. Whilst on an initial review this Division may seem to only apply in an agricultural setting, you may find it beneficial to retain this right in a variety of contexts. Example

Your company supplies fuel to rural producers and the principal asset over which you may wish to take a security interest could be crops or livestock.

Important Note Remember that within the PPS regime there are a number of assets that were previously excluded from consideration when entering into commercial transactions. The expanded range of collateral available may assist your risk management and credit worthiness assessment.

6.2.4.16 Section 142 (redemption of collateral) This section is designed to ensure fairness between the parties and enables either another secured party or the grantor to redeem the collateral prior to disposal. 6.2.4.17 Section 143 (reinstatement of security agreement) Of all of the sections that you can consider contracting out of, this section is possibly the most important for commercial creditors. The Explanatory Memorandum to the Personal Property Securities Bill 2009 (Cth) states that the purpose of this section is to “protect grantors and debtors where their default is minor, temporary and atypical.”6 Example Orange Pty Ltd has been supplying goods to Green Pty Ltd having taken a security interest in the goods supplied. Green has now defaulted on their obligations and so Orange has exercised its right to seize and dispose of the collateral supplied to Green. However, Green really needs the collateral so Green pays Orange the amount in arrears (excluding any arrears as a result of an acceleration clause) and any expenses Orange incurred in enforcing its security interest in the collateral. Such action by Green would serve to reinstate the security agreement between Orange and Green. However, it should be noted that Green could only utilise the provisions of this section once. Orange may be very unhappy with this outcome as Green had proved to be a difficult customer whose account was constantly outstanding and Orange was on the point of ending the relationship.

It is recommended that you carefully consider whether or not you should contract out of this section of the PPSA. Footnotes

Footnotes 2

Ibid, para 9.44 and 9.45.

3

Section 110 of the PPSA.

4

PPSA model clauses General security agreement 16 May 2013 drafted by Allens, Ashurst, Herbert Smith Freehills, King & Wood Mallesons and Norton Rose available on the Allens website at www.allens.com.au/pubs/baf/cubaf16may13.htm.

5

Section 127 of the PPSA.

6

Personal Property Securities Bill 2009 Explanatory Memorandum at para 4.96.

¶6.3 The importance of priority under PPSA in relation to enforcement As you may have concluded from the information above, the concept and application of priority rules is intrinsic to the operation of the PPSA. Thus in order to understand the full ramifications of the enforcement provisions of the PPSA, it is essential that you appreciate how priorities will be determined between secured and unsecured parties. The priority rules are contained in Ch 2, Pt 2.6 of the PPSA. The basic premise for understanding the priority rules is set out in s 54 of the PPSA which provides a guide to Pt 2.6 of the Act. Priority rules are relevant when there are two or more security interests in the same collateral and the debtor defaults. The priority rules determine the order in which secured parties can enforce their security interests. However, you should be mindful of the different types of perfection as this will affect the determining of the priority rules. It is also important for you to be aware of the provisions of s 140 of the PPSA which set out the order of distribution of proceeds received by a

secured party. This section applies when proceeds are received by or on behalf of a secured creditor as a result of enforcing a security interest in collateral. The distribution will be largely determined by working out which creditor has priority. 6.3.1 General principles for determining priority The following list sets out the general principles for determining priority, and among other things, priorities in relation to execution creditors: • a perfected security interest(s) will have priority over unperfected security interest(s) • when there is more than one perfected security interest, the first in time rule will apply • when there is more than one unperfected security interest, again the first in time rule will apply • the priority rules will affect the distribution of proceeds realised as a result of an enforcement process (s 140 PPSA) • the priority rules determine if a secured party is entitled to notice when another secured party commences enforcement in relation to collateral (s 130 PPSA) • the priority rules determine if a secured party would be entitled to take over an enforcement process initiated by another secured party (s 127 PPSA). To fully understand how this will operate, you need to remember that perfection by control is in essence a superior form of perfection. Only certain types of collateral can be perfected by control and these are specified as follows: (i) an ADI account (ii) an intermediated security (iii) an investment instrument (iv) a negotiable instrument that is not evidenced by a certificate

(v) a right evidenced by a letter of credit that states that the letter of credit must be presented on claiming payment or requiring the performance of an obligation (vi) satellites and other space objects (s 21(2)(c) PPSA). A security interest that is perfected by control has priority over a security interest in the same collateral perfected by any other means (see s 57(1) of the PPSA). 6.3.2 The interrelationship between PMSIs and the priority rules The exception to the general principles is the priority rule that applies to perfected PMSIs. However, in order to work out the priority you must understand the nature of the collateral. The priority rules will be determined by whether the collateral is: • inventory that is goods, or • inventory that is not goods, or • not inventory but is goods, or • not inventory and not goods. The PPSA differentiates between transactions involving inventory, equipment and consumer goods7. These somewhat subtle differences are best explained by the following example. Example A printer could be: • equipment in an office, and • also part of a retailer’s inventory, and • if used in a person’s home to print photos, a consumer good. Whilst the printer may fit within more than one category, it can only be one of the categories at any one time.

The priority rules for these situations are set out in s 62(2) and (3) of the PPSA and are reproduced below:

“S 62 When purchase money security interests take priority over other security interests Inventory (2) The purchase money security interest has priority if: (a) the purchase money security interest is in inventory or its proceeds; and (b) the purchase money security interest is perfected by registration at the time: (i) for inventory that is goods — the grantor, or another person at the request of the grantor, obtains possession of the inventory; or (ii) for any other kind of inventory — the purchase money security interest attaches to the inventory; and (c) the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest. Note: This subsection is subject to sections 64 (non-purchase money security interest in accounts) and 71 (chattel paper)

Personal property other than inventory (3) The purchase money security interest has priority if: (a) the interest is in personal property, or its proceeds, other than inventory; and (b) the purchase money security interest is perfected by registration before the end of 15 business days after whichever of the following days applies: (i) for goods — the day the grantor, or another person at the request of the grantor, obtains possession of the property; (ii) for any other property — the day the interest attaches

to the property; and (c) the registration that perfects the purchase money security interest states, in accordance with item 7 of the table in section 153, that the interest is a purchase money security interest. Note: The period mentioned in paragraph (b) may be extended by a court under section 293.”

Further clarification of this matter is provided in the Dictionary of the PPSA which provides the following definition of inventory: “inventory means personal property (whether goods or intangible property) that, in the course or furtherance, to any degree, of an enterprise to which an ABN has been allocated: (a) is held by the person for sale or lease, or has been leased by the person as lessor; or (b) is held by the person to be provided under a contract for services, or has been so provided; or (c) is held by the person as raw materials or as work in progress; or (d) is held, used or consumed by the person, as materials.” (s 10 PPSA) Thus the term “inventory” should be read as embracing both inventory and stock. You may also find it helpful to be familiar with the definition of goods. The term “goods” is used extensively throughout the PPSA; however, there is a specific definition of goods also contained in the Dictionary of the PPSA, which is as follows: “goods means personal property that is tangible property, including the following: (a) crops; (b) livestock;

(c) wool; (d) minerals that have been extracted (including hydrocarbons) in any form, whether solid, liquid or gaseous and whether organic or inorganic; (e) satellites and other space objects; but does not include financial property or an intermediated security.” (s 10 PPSA) At first glance this may appear to be a very narrow definition of goods. This is due to two factors. Firstly, the items listed above are usually excluded from the definition of goods and second, as stated in s 238 of the PPSA: “… the validity of a security interest in goods is governed by the law of the jurisdiction (other than the law relating to conflict of laws) in which the goods are located when the security interest attaches, under that law, to the goods …”. However, the State Sale of Goods Acts definitions of goods will apply in relation to the PPSA. An example of the width of such definitions is that contained in s 3(1) of the Goods Act 1958 (Vic) “ ‘goods’ includes all chattels personal other than things in action and money. The term includes emblements [crops produced by a tenant] and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale” Therefore the definition of goods is actually very broad. Note, however, that s 237 allows parties to determine that the Australian PPSA applies (irrespective of where the collateral was located at the time the security interest attached) where the grantor is an Australian entity at the time of attachment. 6.3.3 Determining priority between competing PMSIs A perfected PMSI in collateral or its proceeds if granted to a seller, lessor or consignor will take priority over any other perfected PMSI that is granted to others in the same collateral. The perfection must be achieved by one of the following methods

contained in s 63 of the PPSA: “A perfected purchase money security interest (the priority interest) that is granted by a grantor in collateral or its proceeds to a seller, lessor or consignor of the collateral has priority over any other perfected purchase money security interest that is granted by the same grantor in the same collateral if the priority interest is perfected: (a) if the collateral is inventory that is goods — at the time the grantor, or another person at the request of the grantor, obtains possession of the collateral; or (b) if the collateral is inventory and is not goods — at the time the priority interest attaches to the collateral; or (c) if the collateral is not inventory, and is goods — before the end of 15 business days after the day the grantor, or another person at the request of the grantor, obtains possession of the collateral; or (d) if the collateral is not inventory, and is not goods — before the end of 15 business days after the day the priority interest attaches to the collateral. Note 1: This section is subject to section 57 (perfection by control). Note 2: The periods mentioned in paragraphs (c) and (d) may be extended by a court under section 293.”

Example Kettle Pty Ltd supplies tents to a retailer of tents called Bronze Pty Ltd. In this situation Kettle Pty Ltd’s perfected PMSI would be effective from the time Bronze Pty Ltd takes possession of the collateral as the goods would be inventory.

6.3.4 Non-purchase money security interests in accounts (nonPMSI) A non-PMSI is defined in s 64 of the PPSA and despite its rather unclear name is an important concept, the application of which needs to be understood by credit personnel in particular, as it impacts upon the

priority rules relating to PMSIs. The PPSA makes special provision for receivables finance arrangements. In these circumstances a non-PMSI in accounts will have a superior priority to other PMSIs provided the following occurs: • the non-PMSI is for “new value” and is perfected by registration • a non-PMSI is registered before a PMSI is perfected • alternatively if the non-PMSI holder gives 15 days’ notice to existing PMSI holders that a non-PMSI is to be perfected by registration. A holder of a perfected PMSI would then have 15 days to determine if it wishes to make changes to the contractual relationship with the grantor. Jason Harris and Nicholas Mirzai have commented that: “What is achieved by s 64 is statutory recognition and the affordance of priority to debt financiers, an affordance that pre-dates the implementation of the PPSA in Australia. This is because the commercial reality is that many businesses rely on debt financing and the ability to factor debt. Factoring effectively transfers the risk of bad debt to the funding financier. The financier is then the party who benefits from the recovery of otherwise bad debt. If the process of recovering accounts receivable would permit the purchase money financiers to obtain a position of priority over the recovered funds, the entire process of factoring would be unfeasible and that avenue of debt financing would decline if not cease. This is inconsistent with the preservation of pre-existing commercial realities upon which the PPSA is based. This provision thus retains the pre-existing practice in Australia. While there is interestingly no equivalent provision in New Zealand, the case of Burns and Agnew v Commissioner of Inland Revenue & Anor (2011) 25 NZTC ¶20-070 demonstrates the retention of similar ideals in that jurisdiction via the preferential creditors model of the Companies Act 1993 (NZ).”8 Important Note For many credit and accounts receivable personnel, receivable financing arrangements often are interpreted as a sign of financial distress. However, this assumption may be unfounded as receivables finance is a growing component of the Australian economy.

Example Kettle Pty Ltd has just won a major contract with a government agency to supply tents. Kettle’s CEO, Paul Kettle, knows that the government agency is notorious for late payment of their invoices. Paul Kettle approaches Factorific, a well known receivables finance company, and enters into a financing arrangement on the basis that Factorific will take a non-PMSI. Azure Pty Ltd is a supplier to Kettle Pty Ltd and has previously taken a perfected PMSI over inventory supplied. Upon receipt of a s 64 notice, Azure’s Managing Director, Fred Tea, requests that the matter be investigated by the National Credit Manager as he is seriously considering ceasing supply to Kettle Pty Ltd. Upon investigation it is ascertained that the receivables finance had been sought due to the potential for issues with the government contract. Fred Tea is reassured and continues to trade with Kettle Pty Ltd as he now knows that Kettle has acted responsibly to ensure that the business will not be damaged by late payments.

Whilst this example is somewhat simplistic, it does serve to highlight the risk of rash assumptions. Parts 2.6 and 2.7 of the PPSA also deal with priorities in the following situations: • when collateral is transferred • priority of certain creditors whose debts have been paid • the priority of those who purchase negotiable instruments, chattel paper and negotiable documents • in relation to execution creditors. 6.3.5 Priority of security interests in transferred collateral Chapter 2, Pt 2.6, Div 4 of the PPSA addresses how to resolve a situation when a grantor (the transferor) transfers collateral to another party (the transferee) and prior to the transfer, a security interest is attached to the collateral and then the transferee grants a security interest in the transferred collateral either before or after the transfer. In these circumstances there are two innocent parties, namely the secured creditor with the security interest granted by the transferor and the secured party with an interest in the collateral granted by the transferee. Neither of whom are aware of the circumstances surrounding

the transfer of the collateral. The resolution of these potentially conflicting priorities is addressed in this Division of the PPSA. In essence the transferor who was granted the security interest will have priority if it was perfected prior to the transfer and has been continuously perfected. However, if there is a break in the perfection, s 68 of the PPSA will apply. Important Note The expression “continuously perfected” frequently appears throughout the PPSA. When seeking to understand the meaning of this expression we are somewhat unhelpfully directed to s 56 of the PPSA. The meaning of this section is not readily apparent. A more informative guide to the meaning of this term may be found in the Personal Property Security Bill Commentary, May 2008 which states: “… [a] security interest might be continuously perfected because the secured party has an appropriate registration …”9 “… [b] security interest would be continuously perfected by force of the Bill in certain circumstances. It would be continuously perfected until the earliest of: (i) the end time for the registration against the transferor …”10 Whilst this explanation is specific to the issue of transfer of collateral, it does provide a useful insight into the intention of the legislators when using this term. The authors agree with the view expressed by Harris and Mirzai that “… where there is any risk of losing a perfected interest, perfection by registration should be sought in addition to other forms of perfection. Whilst perfection by registration in and of itself renders the interest vulnerable to perfection by control under some of the more specific priority rules (see the balance of Pt 2.6 below — specifically s 57(1)) for the purposes of maintaining continuous perfection under the PPSA) it is certainly an avenue worth considering.”11

6.3.6 Priority of certain creditors whose debts have been paid If a creditor receives payment of a debt owing by a debtor, in a manner provided by s 69(3) of the PPSA, then the creditor would have priority over any security interest in the: • funds paid • intangible that was the source of the payment for example a bank account

• negotiable instrument, for example a cheque used to effect the payment (s 69(1) PPSA). 6.3.7 Priorities in relation to execution creditors An execution creditor is defined in the Dictionary, contained in s 10 of the PPSA, as follows: “execution creditor means a creditor who has recovered judgment and issued execution against a grantor.” Section 74 of the PPSA provides that an execution creditor has priority over an unperfected security interest stating: “(1) The interest of an execution creditor in collateral has priority over any security interest in the same collateral that is not perfected at the time covered by subsection (4) (even if such a security interest is later perfected). (2) To avoid doubt, an execution creditor does not include a landlord who exercises a right of distress. (3) This section applies despite any other section in this Part. Time of seizure or execution (4) This subsection covers the following times: (a) if the collateral is seized by the execution creditor or by another person on behalf of the execution creditor — the time of seizure; (b) in any other case — the time when: (i) an order is made by a court in respect of a judgment in relation to the execution creditor; or (ii) a garnishee order is made in relation to the execution creditor.” Or to perhaps express this concept more clearly: “… a security interest would be subordinate to the interest of an execution creditor provided the security interest is not perfected at the time of execution …”12

Section 74 explains why in the example above, in relation to s 123 of the PPSA, the seizure action would not be able to proceed as the collateral was subject to a perfected security interest. The PPSReg have prescribed, at reg 1.4(5), that s 74 of the PPSA will apply to the following interests in personal property: • a lien, charge, or any other interest in personal property, that is created, arises or is provided for under a law of the Commonwealth (other than this Act), a state or a territory, unless the person who owns the property in which the interest is granted agrees to the interest • a lien, charge, or any other interest in personal property, that is created, arises or is provided for by operation of the general law • the creation of an interest in a right to payment, or the creation or transfer (including a successive transfer) of a right to payment, in connection with an interest in land, if the writing evidencing the creation or transfer specifically identifies that land • a transfer of present or future remuneration (including wages, salary, commission, allowances or bonuses) payable to an individual as an employee or a contractor. 6.3.8 Determining priority during the transitional period In addition, when understanding the application of the priority rules, it is important to appreciate how the transitional arrangements will operate, in particular for those creditors who under the previous legislative regime would have been categorised as unsecured creditors. These creditors may now choose to exercise their rights by perfecting their existing security interests during the transitional period. The Transitional provisions are located in Ch 9, Div 8 of the PPSA. In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors (2013) APPSR ¶701-008; [2013] NSWSC 852 is an important decision dealing with priorities under the PPSA. Justice Brereton of the Supreme Court of New South Wales deals with the issue of a prior transitional security,

which was not registered on a “transitional register”, and a later perfected security which was. The later perfected security was held to have priority under the PPSA. This case will be discussed in more detail in Chapter ¶10 — Managing the PPSA Transition 30 January 2012–February 2014, and Chapter ¶11 — Implementing the PPSA in your organisations and lessons learned after one year. This chapter has explored complex issues relating to enforcement rights and remedies and the priority rules. The chapter does not reflect the entirety of the relevant components of the legislation; however, it is intended to alert the reader to some of what are considered to be key aspects of the operation of the PPSA with regard to these matters. Footnotes 7

Ibid, para 9.10.

8

CCH’s Australian Personal Property Securities Law Reporter at ¶66-220.

9

Personal Property Securities Bill 2008, Revised Commentary, May 2008, para 6.114.

10

Ibid, para 6.115.

11

Op cit at ¶61-720.

12

Personal Property Securities Bill 2008, Explanatory Memorandum para 2.166.

AGRICULTURAL INTERESTS, ACCESSIONS AND COMMINGLING ¶7.1 Introduction The Personal Property Securities Act 2009 (PPSA) contains specific rules for certain security interests namely, agricultural interests, accessions and commingling. We will deal with each of these specific security interests in turn together with any other special provisions that apply to these security interests.

¶7.2 Agricultural interests Before we begin to examine the specific provisions relating to agricultural interests, it is constructive if we first are familiar with the relevant definitions. Agriculture is defined in reg 1.6 of the Personal Property Securities Regulations 2010 as “personal property that is crops or livestock”. Crops are defined in s 10 of the PPSA as follows: “crops means crops (whether matured or not and whether naturally grown or planted) that have not been harvested, including: (a) the products of agriculture or aquaculture, if the products have not been harvested; and (b) trees (but only if they are personal property), if the trees have not been harvested.” In case there is any confusion regarding the relationship between the terms “crops” and “fixtures”, the definition of fixtures at s 10 of the PPSA specifically excludes crops:

“fixtures means goods, other than crops, that are affixed to land”. Livestock is defined at s 10 of the PPSA as follows: “livestock includes: (a) while they are alive — alpacas, cattle, fish, goats, horses, llamas, ostriches, poultry, sheep, swine and other animals; and (b) the unborn young of animals mentioned in paragraph (a); and (c) the products of livestock before they become proceeds (for example, the wool on a sheep’s back before the sheep is shorn).” In addition wool is defined in s 10 of the PPSA quite broadly: “wool means the natural fibre from any livestock that produce fleece that can be shorn (such as sheep, goats, alpacas and llamas).” Further, just in case any confusion remains s 10 of the PPSA also specifies that the term “goods” includes crops, livestock and wool as forms of tangible personal property. Now that we are mindful of what is meant by these security interests, we will consider the relevant provisions in the PPSA. As Ch 3, Pt 3.2 at s 83 of the PPSA states: “This Part includes rules on 3 topics: (a) the relationship between a security interest in crops and interests in the land on which the crops are growing; and (b) the capacity for a security interest to attach to crops while they are growing, and to the products of livestock, before the crops or products become proceeds (for example, the wool on a sheep’s back before it is shorn); and (c) the priority to be given to security interests in crops (and proceeds) granted to enable the crops to be produced, and security interests in livestock (and proceeds) granted to enable the livestock to be fed and developed.” The first aspect in relation to agricultural interests we will consider is the

interrelationship between a security interest in crops and an interest in land (s 84 PPSA). This section serves two functions. Firstly, it protects a lessor’s or mortgagee’s interest in land provided the interest existed at the time the security interest was created. As well, the section protects a perfected security interest in the crops even if the land is subsequently sold, leased or mortgaged. A security interest may attach to crops even when they are growing and to the products of livestock before they become proceeds (s 84A PPSA). The section gives an example of the products of livestock as being the wool on the sheep’s back before it is shorn. Section 85 of the PPSA provides that: “Priority of crops A perfected security interest (the priority interest) that is granted by a grantor in crops or the proceeds of crops has priority over any other security interest that is granted by the same grantor in the same crops or proceeds if: (a) the priority interest is granted for value; and (b) the priority interest is granted to enable the crops to be produced; and (c) either: (i) the security agreement providing for the priority interest is made while the crops are growing; or (ii) the crops are planted during the period of 6 months after the day the security agreement providing for the priority interest is made.” This section makes it clear that provided the perfected security interest is granted for value and is to enable the crops to be grown, and that the crops are growing or planted within six months of the security agreement then the perfected security interest would have priority. In their book, Annotated Personal Property Securities Act 2009 (Cth), Harris and Mirzai provide the following example of the words “to enable

the crops to be produced”: “This would include fertilizer and equipment used in growing the crops: see Leu v NM Paterson & Sons Ltd (1997) 13 PPSAC (2d) 27; 156 Sask R 36 (Sask QB). In that case the security interest was expressed to cover ‘all crops and proceeds product with seed and/or chemical purchased by the Farmer using financing from the secured party’.”1 A similar provision applies to perfected security interests in livestock at s 86 of the PPSA; however, the section specifically excludes a purchase money security interest (PMSI) from the security interests over which it has priority. Provided the perfected security interest meets the same tests namely granted for value, to enable the livestock to be fed or developed and the grantor holds the livestock or the livestock are acquired within six months of the security agreement, then this security agreement will have priority. These types of security have been referred to as an “agricultural PMSI”, however, they do not operate in the same way and have different rules in relation to registration and time periods. In the Explanatory Memorandum, the following explanation is given in relation to s 85: “It establishes what could be described as an ‘agricultural PMSI’ (purchase money security interest) that would enable farmers to obtain additional finance on a PMSI-like basis, using crops and livestock as collateral. While an ‘agricultural PMSI’ shares many characteristics with PMSIs, they would have a lower priority than a PMSI in the same property.”2 The Explanatory Memorandum goes on to state that: “A similar rule would be established for livestock, but whereas the crop PMSIs would have priority over other PMSIs, the priority interests in livestock would not have priority over PMSIs (clause 86).”3 This is the only reference in the Explanatory Memorandum which indicates why the two sections are different in relation to priority over a PMSI. The effect is that a security interest that is taken to enable crops to grow may have “super, super priority” given that it will have priority over a PMSI. However, a PMSI will take priority over a security interest taken to

enable the livestock to develop provided the other conditions are met. It will be interesting to see what the Australian courts make of this distinction and the apparent anomaly contained in the Explanatory Memorandum. We have previously considered the significance of attachment in Chapter ¶5 of this book and attachment is also necessary when perfecting a security interest in crops and livestock when seeking to enforce against third parties. The note to s 19 of the PPSA provides that: “A security interest may attach to crops while they are growing, and to the products of livestock, before they become proceeds of the crops or livestock (for example, wool before it is shorn). See subsections 31(4) and (5) (meaning of proceeds) and section 84A (security interests in crops and livestock).” As well we must also understand the interrelationship between crops, livestock and proceeds and this is addressed in s 31(4)–(6) of the PPSA: “Crops and livestock (4) The proceeds of collateral that is crops include the harvested produce of the crops, if the produce is identifiable or traceable. (5) The proceeds of collateral that is livestock include products of the livestock (for example, meat or wool), if the products are identifiable or traceable. (6) However, livestock are not the proceeds of collateral merely because they are the unborn young, or the offspring, of livestock that are collateral.” Thus, as discussed in Chapter ¶4 — The role and function of purchase money security interests (PMSIs), you will need to determine if you wish to take an interest in proceeds relating to crops and livestock and ensure that the proceeds would satisfy the remaining provisions of s 31 of the PPSA including that the proceeds are identifiable and traceable. If you are intending to take security over the “unborn young, or the offspring, of livestock that are collateral”, your security agreement and financial statement will need to make specific reference to this. The important

thing to note about taking a security interest, and registering it on the Personal Property Securities Register (PPSR), over crops or livestock, is that your collateral must be identifiable and traceable. Whether this is by reference to a stock book as at a particular date or the exact location of the relevant paddock, thought must be given to this requirement under the PPSA. Jason Harris and Nicholas Mirzai have provided the following helpful explanation in relation to the concept of tracing:4 “Unfortunately, despite appearing in s 31, the term ‘tracing’ is not otherwise defined by the PPSA and how it is to be applied is therefore uncertain. What is made clear however is that like its foreign counterparts, the Australian PPSA expressly removes the requirement that a fiduciary relationship exists. This interpretation can be attributed to the underlying rationale of the PPSA in presenting a consistent approach to priority disputes at law. The tracing principles under the PPSA are thus statutory and whilst guided by common law and equitable concepts are not bound by such precedent. This view has been endorsed by the Saskatchewan Court of Appeal in Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22: ‘[I]n defining the notion of tracing under the PPSA we must have reference to the notion of tracing in the common law and equity. However, certain changes in the concept of tracing will be required in the context of the PPSA.’ In the same case (at [60]), the process for executing tracing principles under the PPSA was enunciated: ‘Tracing at common law and equity is a proprietary remedy. It involves following an item of property either as it is transformed into other forms of property, or as it passes into other hands, so that the rights of a person in the original property may extend to the new property. In establishing that one piece of property may be traced into another, it is necessary to establish a close and substantial connection between the two pieces of property, so that it is appropriate to allow the rights in the original property to flow through to the new property’. Going back to the concept of proceeds deriving from other proceeds,

a security interest will continue where the proceeds can be traced and a close and substantial connection to the collateral is found on the given facts. Importantly, unlike equitable tracing, the underlying consideration here should not be one of fairness or equality rather primacy is given to effectuating the purpose of the PPSA, that is, providing a consistent and predictable application of the statute.” We also need to understand the provisions relating to enforcement of a security interest in crops and livestock. Chapter 4, Pt 4.3, Div 6 of the PPSA sets out the enforcement rules. These enforcement provisions need to be read and understood in conjunction with the enforcement provisions discussed in Chapter ¶6 of this book. Section 138B(1) of the PPSA provides (without limiting s 123) that a secured party may, for the purposes of seizing collateral that is crops or the proceeds of crops: (a) take possession of the crops or the proceeds, or (b) cut, gather or harvest the crops or the proceeds. After they have been taken, cut, gathered or harvested, and subject to Div 2, 3, 4 and 5 of Ch 4, Pt 4.3 of the PPSA, the secured party may dispose of, or retain the collateral (s 138B(2) of the PPSA). A secured party is able to enter the land or the water source in which the crops are or were growing (s 138B(3) PPSA). Water source is defined at s 138A of the PPSA. Section 138C of the PPSA provides (without limiting s 123) that a secured party may, for the purposes of seizing collateral that is livestock or the proceeds of livestock: (a) take possession of the livestock or proceeds wherever it is located, or (b) slaughter the livestock wherever it is located, or (c) take livestock that is fish, or (d) extract products from livestock (for example, by shearing sheep to extract wool).

After they have been taken, slaughtered or extracted, and subject to Div 2, 3, 4 and 5 of Ch 4, Pt 4.3 of the PPSA, the secured party may dispose of, or retain the collateral (s 138C(2) of the PPSA). The term “take” is specifically defined in s 138A of the PPSA in relation to the taking of fish and includes “to catch or kill” and “to gather or collect”. As with s 138B of the PPSA the secured party is able to enter the land on which, or the water source in which, the livestock or proceeds is located. 7.2.1 Taking crops and livestock free of a personal security interest There are no specific provisions relating to the taking of personal property free of a security interest in relation to crops and livestock, therefore one should apply the general rules relating to taking personal property free of a security interest in s 46 of the PPSA and discussed in Chapter ¶8 of this book This concept is considered in CS 9 Ordinary course of business test in the Case Studies included at the end of this book. Footnotes 1

At p 292, [85.4].

2

At [3.2].

3

At [3.7].

4

At [31.5.2] Annotated Personal Property Securities Act 2009 (Cth) CCH Australia Limited 2011.

¶7.3 Accessions We will now explore the specific provisions relating to accessions. The term “accession” has previously been defined in Chapter ¶2 of this book and we will now consider the special rules that apply to accessions which are contained in Ch 3, Pt 3.3 of the PPSA.

As defined in s 10 of the PPSA, accessions are “… goods installed in or affixed to other goods, unless both the accession and the other goods are required or permitted by the regulations to be described by serial number …”. Example An example of when goods would not be an accession is when both the goods are serial numbered goods. Thus, for example, if an owner of a vehicle chassis, which is serial numbered, inserted a new engine, which is also serial numbered, the engine would not be an accession. However, new leather seats installed into the chassis would be an accession as they are not serial numbered goods.

As the PPS Bill 2009 Explanatory Memorandum at p 52 explains, the provisions relating to accessions have been included to address situations where, for example a component may wear out or become obsolete and the value or utility of the goods may be improved with additional components. Usually a security interest in goods which becomes an accession to other goods will continue (s 88 PPSA). Section 89 of the PPSA sets out the priority default rule which is that a security interest in an accession has priority over the whole provided the security interest was attached at the time the goods became an accession. However, s 90 of the PPSA provides that the security interest in the accessioned goods will not apply if any of the conditions in s 90 are relevant. For example, if the owner of a bulldozer purchases new tyres, then the tyres would be an accession. If however the supplier of the tyres forgets to perfect a security interest in the tyres and the bulldozer is sold by its owner, then s 90(a) of the PPSA would apply as the purchaser would acquire for value an interest in the whole. The tyre supplier would be too late. In essence the security interest in the accessioned goods will be lost if it is not perfected. Priority may also be lower ranking, in other words be subordinate, to the security interest in the whole, in accordance with s 91 of the PPSA and as with most priority rules the crux of the matter is in the timing. If the security interest in the accessioned goods is attached after the goods become an accession, then the security interest in the accessioned

goods will be subordinate to the security interest in the whole if: (a) a person who has an interest in the other goods at the time when the goods become an accession and who: (i) has not consented to the security interest in the accession, and (ii) has not disclaimed an interest in the accession, and (iii) has not entered into an agreement under which another person is entitled to remove the accession, and (iv) is otherwise entitled to prevent the grantor from removing the accession, or (b) a person who acquires an interest in the whole after the goods become an accession, but before the security interest in the accession is perfected. So unless the holder of the security interest in the whole: • agrees to the security interest in the accession • disclaims any interest in the accession • agrees that a person may remove an accession, or • has no right to prevent the grantor from removing the accession the security interest in the accession will be subordinate. Also s 91(b) of the PPSA provides that the security interest attached to the goods after they become an accession but not perfected will be subordinate to a security interest in the whole. The question of subordination is considered in CS 9 Ordinary course of business test in the Case Studies included at the end of this book. Sections 92 and 93 of the PPSA are reasonably straightforward and provide that an accession should be removed with minimal damage and with provision for reimbursement of any damage caused by the removal. Section 94 of the PPSA empowers the person who is entitled to damages to refuse permission for the removal until such time as the secured party

has provided sufficient security to cover the possible need for any reimbursement for damages. The need to give notice of an intention to remove an accession must be given in accordance with s 95 of the PPSA. However, notice is not required if s 95(5)–(6) of the PPSA applies: “When notice is not required (5) The secured party is not required to give a notice to a person under subsection (1) if, after the debtor defaults, the person gives written consent to the secured party to remove the accession without receiving a notice. (6) The secured party is not required to give a notice to any person under subsection (1) if: (a) the secured party believes on reasonable grounds that the accession will decline substantially in value if it is not disposed of immediately after default; or (b) the cost of expenses for the retention of the accession that are secured against the accession is disproportionately large in relation to its value. Note: In addition, a secured party is not required to give a notice in any of the circumstances set out in section 144 (when certain enforcement notices are not required).”

Please note s 92–96 of the PPSA are also relevant when exercising enforcement rights. A useful example of the application of s 96 is located in Chapter ¶6 of this book. The final section we need to touch on in relation to accessions is s 97 of the PPSA which provides that a court may: “… on the application of a person entitled to receive a notice under section 95 (notice of removal of an accession), make an order: (a) postponing the removal of the accession; or (b) determining the amount payable to the secured party under section 96 for the retention of the accession. Note: For which courts have jurisdiction, and for transfers between courts, see Part 6.2.”

We will now consider the specific rules relating to processed or commingled goods.

¶7.4 Processed or commingled goods Commingled goods are defined in s 10 of the PPSA and described in Chapter ¶2 — What is included and excluded from the PPSA? The specific rules relating to processed or commingled goods are set out in Ch 3, Pt 3.4 of the PPSA. Also in s 98 of the PPSA, Guide to this Part, additional guidance as to the meaning of processed or commingled is included: “… goods that become an unidentifiable part of a larger product or mass …”. These words make it clear that the concept of commingling or processing as referred to in the PPSA should be read to mean that it is no longer possible to distinguish the separate components of the final product and as stated in s 99(2) of the PPSA “… it is not commercially practical to restore the goods to their original state …”. Section 99(1) of the PPSA provides that “… a security interest in goods that subsequently become part of a product or mass continues in the product or mass if the goods are so manufactured, processed, assembled or commingled that their identity is lost in the product or mass ….”. However, the note to s 99(1) of the PPSA provides that a person might take an interest in the product or mass free of the security interest because of the operation of another provision of this Act. We will consider the extinguishment provisions of the PPSA in Chapter ¶8 of this book. In addition, s 100 of the PPSA provides that a perfected security interest in goods which are commingled would “… be treated as perfection of the security interest in the product or mass …”. However, the value of the security interest in the goods that are commingled would be “… limited to the value of the goods on the day on which they become part of the product or mass …” (s 101 PPSA). We next need to consider the priority rules which will apply when there is more than one security interest continuing in processed or commingled goods. These are contained in s 102 of the PPSA and are as follows: A perfected security interest will have priority over an unperfected security interest (s 102(1)).

If more than one perfected security interest continues in the same product or mass, each perfected security interest is entitled to share in the product or mass according to the ratio that the obligation secured by the perfected security interest bears to the sum of the obligations secured by all perfected security interests in the same product or mass (s 102(2)). In other words, the security interests would be proportioned according to their percentage contribution, however, this would be limited by the value of the obligations. For instance, if there are three security interests in the product and the ratio of the obligations is determined to be as follows: Interest 1 45%



Interest 2 30%



Interest 3 25%



then that is how the share in the product or mass would be distributed. If more than one unperfected security interest continues in the same product or mass, each unperfected security interest is entitled to share in the product or mass according to the ratio that the obligation secured by the unperfected security interest bears to the sum of the obligations secured by all unperfected security interests in the same product or mass (s 102(3)). Assuming that there are no perfected security interests in the product or mass, then the unperfected security interest would be allocated on a ratio basis as per s 102(2) of the PPSA. However, if there are perfected and unperfected security interests, then the perfected security interest would have first priority as per s 102(1) of the PPSA. For the purposes of this section, the obligation secured by a security interest does not exceed the value of the goods on the day on which the goods became part of the product or mass (s 102(4)). This subsection is most easily comprehended by example. Example 1 The Best Bank took a security interest of $15,000 in timber to be used by Helen Wonder Pty

Ltd (the grantor) in manufacturing bookcases. The value of each bookcase is $600 comprising timber, glue, metal staples and the value of the labour involved in the production. Each book case requires $250 worth of timber. The value of the Best Bank’s security interest would be worth $250 per bookcase in a contest between perfected security interests or non perfected security interests.

Example 2 The Best Bank took a security interest of $15,000 in timber to be used by Helen Wonder Pty Ltd (the grantor) in manufacturing bookcases. The value of each bookcase is $600 comprising timber, glue, metal staples and the value of the labour involved in the production. Each book case requires $250 worth of timber. The value of the Best Bank’s security interest would be worth $600 per bookcase in a contest between Best Bank as the only perfected security interest and other non-perfected security interests.

The final aspect of processed or commingled goods we need to consider is the priority of a PMSI in processed or commingled goods. The PPSA at s 103 states: “Priority of purchase money security interest in processed or commingled goods Despite section 102, a perfected purchase money security interest in goods that continues in the product or mass has priority over: (a) a non-purchase money security interest in the goods that continues in the product or mass; and (b) a non-purchase money security interest in the product or mass given by the same grantor.” This provision needs to be read with some care and should not be taken to imply that it is referring to s 64 of the PPSA Non-Purchase money security interests taken in accounts. The section is intended to clarify that a PMSI would have priority over another form of security interest, for example an all present and after acquired security interest. There is one other aspect of Ch 3 of the PPSA which should be mentioned which is in relation to intellectual property. As previously discussed in Chapter ¶2 — What is included and excluded from the PPSA?, intellectual property is defined in s 10 of the PPSA to constitute a form of personal property.

Sections 104–106 of the PPSA clarify how a secured party may exercise their rights in relation to goods which involve the use of intellectual property and the transfer of intellectual property that is subject of a licence (or sub-licence) in which a security interest is granted. In the next chapter, we will consider how personal property may be acquired free from security interests. This is commonly referred to as extinguishment.

TAKING PERSONAL PROPERTY FREE OF SECURITY INTERESTS ¶8.1 Overview The concept of taking personal property free of security interests is quite important under the Personal Property Securities Act 2009 (PPSA). The overarching principles behind the provisions in the PPSA were first detailed in the Personal Property Securities Bill 2008 Commentary May 2008. The principles are based on the concept of “good interest” and informed by the use of the term “knowledge” and are designed to address reasonable commercial expectations in relation to third party transferees.1 8.1.1 Meaning of constructive knowledge The term “constructive knowledge” is frequently used in connection with the acquisition of personal property free of a security interest and it is helpful if you are familiar with this term. Constructive knowledge is defined at s 297 of the PPSA and reads as follows: “For the purposes of this Act, a person (the first person) has constructive knowledge of a circumstance if the first person would have had actual knowledge of the circumstance if the first person had: (a) made the inquiries that would ordinarily have been made by an honest and prudent person in the first person’s situation; or (b) made the inquiries that would be made by an honest and prudent person with the first person’s actual knowledge in the first person’s situation.” In other words a person cannot avoid their obligations by failing to make reasonable inquiries especially if the circumstances are such that reasonable inquiries would be a sensible course of action.

The PPSA also sets out at s 298 how it may be established whether a body corporate or other entity had constructive knowledge. It is important to remember that the person with the knowledge must be acting in their capacity as engaged by the body corporate, or when acting on behalf of the entity. It would not be relevant if they obtained the knowledge in their personal or individual capacity but is only relevant if it is obtained as part of their role for the body corporate or entity. Further in s 299 the PPSA addresses circumstances when property is transferred for example: • between members of the same household • related companies • a company and a company director or officer of the company. The rules relating to taking personal property free of security interests are sometimes referred to as extinguishment rules; however, caution needs to be exercised in using the term extinguishment because as stated in the PPS Bill 2009 Explanatory Memorandum at p 31: “… there may be circumstances where the security interest is attached to more than one item of collateral and the transferee is acquiring only one of those items. Only the acquired item would be taken free of the security interest, which would remain attached to the remaining items …” For this reason the PPSA does not use the term extinguishment. The term is, however, used in the Personal Property Securities Regulation 2010 (PPSReg), in reg 1.8, which prescribes the meaning of security interest for the purposes of s 12(5)(b) of the PPSA. “1.8 Meaning of security interest For paragraph 12(5)(b) of the Act, the extinguishment of a beneficial interest in an account or chattel paper is not a security interest.” The rules relating to taking personal property free of security interests are located in Ch 2, Pt 2.5 of the PPSA. 8.1.2 Application of Pt 2.5 When considering how to take personal property free of security

interests, you should be aware of s 42 of the PPSA which states: “Application of this Part This Part: (a) applies to a security interest: (i) whether or not the security interest is perfected (except in sections 43 (unperfected interests) and 52 (temporarily perfected interests)); and (ii) whether the security interest attaches to personal property as original collateral or as proceeds; and (b) does not apply to the acquisition of an interest in personal property free of a security interest if the interest that is taken is itself a security interest (except in sections 50 (investment instruments) and 51 (intermediated securities)). Note: Some acquisitions to which section 50 applies, and all acquisitions to which section 51 applies, consist of the taking of security interests (see subsections 50(3) and 51(1)).”

What s 42(b) of the PPSA means is that nothing in Pt 2.5 of the PPSA impedes another person from taking a subsequent security interest in the same collateral in which there is already a security interest. Thus, if a security interest is perfected in a set of antique clocks by Enid Rose and then Douglas Black also takes a security interest in the same antique clocks, then this transaction will not be affected by Pt 2.5 of the PPSA. It is important to note that the provisions in Ch 2, Pt 2.5 will apply whether or not the security interest is perfected (except for s 43 and 53 PPSA). Footnotes 1

Personal Property Securities Bill 2008 Commentary May 2008, p 31.

¶8.2 When personal property may be acquired free of

security interests Part 2.5 s 41 of the PPSA lists the circumstances in which personal property may be bought or leased free of a security interest: • unperfected security interests • serial number defects • motor vehicles • taking in the ordinary course of business • personal, domestic or household property • currency • taking investment instruments or intermediated securities in the ordinary course of trading • investment instruments • intermediated securities • temporarily perfected security interests. We will consider each one of these circumstances in turn. 8.2.1 Taking personal property free of an unperfected security interest Section 43(1) of the PPSA sets out the main rule regarding unperfected security interests, which is, that if the buyer or lessee gives value for the personal property then they would acquire the property free from the unperfected security interest. There is an exception to this main rule in s 43(2) of the PPSA which is as follows: “Exception (2) Subsection (1) does not apply if the unperfected security interest was created or provided for by a transaction to which

the buyer or lessee is a party, unless the personal property concerned is of a kind prescribed by the regulations for the purposes of this subsection.” This exception will only apply if the buyer or lessee was a party to the creation of the security interest. Consider this example. Example Bill Brown borrowed $10,000 from the Crazy Bank to buy a home entertainment system. The bank takes a security interest but neglects to perfect the security interest. Bill then gives the home entertainment system to his cousin Rita to meet a debt he owes her. The cousin will take the personal property free of a security interest even though she was aware of the bank’s security interest. This is because Rita was not a party to the creation of the security interest.

The intention behind this provision is to encourage secured parties to perfect their security interests. 8.2.2 Personal property may be acquired free of a security interest if the serial number is missing or incorrect Section 44 of the PPSA specifies that if a buyer or lessee acquires a serial numbered good which falls within the requirements of s 44(1) as follows: (a) the regulations provide that personal property of that kind may, or must, be described by serial number in a registration, and (b) searching the register, immediately before the time of the sale or lease, by reference only to the serial number of the property, would not disclose a registration that perfected the security interest. If the requirements of this section are not complied with then you will acquire the property free of a security interest. This section applies to those items of personal property which, as previously discussed in this book, are subject to regulation regarding serial number in the financing statement such as motor vehicles, watercraft and aircraft. It also applies to intangible property such as a design, patent, plant breeder’s right or trade mark. The requirements for

describing a serial numbered good for the purposes of the PPSA are set out in Sch 1, cl 2.2 of the PPSReg. These requirements are considered in Chapter ¶2 of this book at ¶2.2.2.1. Consider this example. Example Ruth Green owns a number of vintage aircraft which she hires out for special events such as air shows. Ruth obtains a loan from Fantastic Finance and Fantastic Finance perfects a security interest in the aircraft but does not specify each aircraft individually by serial number. Roy Blue, a rival collector of vintage aircraft, approaches Ruth and makes an offer for one of her aircraft. Roy is a careful purchaser and has searched the Personal Property Securities Register (PPSR) prior to meeting with Ruth to check if there is a perfected security interest. Roy had located the financier’s registration against Ruth but as the registration is against aircraft in general Roy is unaware that his purchase of a particular aircraft would constitute a breach of Ruth’s security interest with the financer. Should Ruth sell the plane to Roy he would be able to acquire it free of the financier’s security interest.

You may recall that in Chapter ¶5 — How do you achieve perfection? we considered the importance of s 174(1) of the PPSA which provides that confirmation of a written search of the PPSR would be admissible as evidence. Roy may find this provision very useful if his purchase of the aircraft was challenged by the secured party. There are exceptions to this section of the PPSA and they are contained in s 44(2) as follows: “Exceptions (2) Subsection (1) does not apply if: (a) the buyer or lessee holds the personal property: (i) as inventory; or (ii) on behalf of a person who would hold the collateral as inventory; or (b) the security interest was created or provided for by a transaction to which the buyer or lessee is a party, unless the personal property concerned is of a kind prescribed by regulations for the purposes of this paragraph.”

Using the example above, s 44(2) of the PPSA may be explained as follows. Example If Ruth Green had sold the aircraft to a dealer in vintage aircraft who intended to resell the aircraft, then the dealer would not acquire the aircraft free of a security interest.

Important Note Sections 44 and 45 of the PPSA highlight the need not only to perfect a security interest so that the secured party will protect their interests, but also the need for accuracy when registering serial numbered goods. Both of these sections provide that if the serial number is incorrect then the registration will be ineffective.

8.2.3 Taking motor vehicles free of a security interest There are special rules relating to the acquisition of a motor vehicle free of a security interest and these are contained in s 45 of the PPSA. The PPSReg, at reg 1.7 and 2.1, prescribe the following definition of motor vehicle: “1.7 Meaning of motor vehicle (1) For the definition of motor vehicle in section 10 of the Act, personal property described in subregulation (2) or (3) is a motor vehicle. (2) The personal property: (a) is built to be propelled, wholly on land, by a motor that forms part of the property; and (b) either: (i) is capable of a speed of at least 10 km/h; or (ii) has 1 or more motors that have a total power greater than 200 W; and (c) has any of the following:

(i) a vehicle identification number; (ii) a chassis number; (iii) the manufacturer’s number; and (d) does not run on rails, tram lines or other fixed path. (3) The personal property: (a) is capable, when being towed by, or attached to, a motor vehicle, of travelling at a speed greater than 10 km/h; and (b) is a piece of machinery or equipment that is equipped with wheels and designed to be attached to, or towed by, a motor vehicle; and (c) has any of the following: (i) a vehicle identification number; (ii) a chassis number; (iii) the manufacturer’s number.” Section 45 of the PPSA provides as follows: “Taking motor vehicles free of security interest Incorrect or missing serial number (1) A buyer or lessee, for new value, of a motor vehicle of a kind prescribed by the regulations for the purpose of this section, takes the motor vehicle free of a security interest in the motor vehicle if: (a) the regulations provide that motor vehicles of that kind may, or must, be described by serial number; and (b) there is a time during the period between the start of the previous day and the time of the sale or lease by reference to which a search of the register (by reference otherwise only to the serial number of the motor vehicle) would not

disclose a registration that perfected the security interest; and (c) the seller or lessor is: (i) the person who granted the security interest; or (ii) if the person who granted the security interest has lost the right to possess the motor vehicle, or is stopped from asserting an interest in the motor vehicle — another person who is in possession of the motor vehicle. (2) Subsection (1) does not apply if: (a) the secured party is in possession of the motor vehicle immediately before the time of the sale or lease; or (b) the motor vehicle is bought at a sale held by or on behalf of an execution creditor; or (c) the buyer or lessee holds the motor vehicle: (i) as inventory; or (ii) on behalf of a person who would hold the motor vehicle as inventory; or (d) the buyer or lessee buys or leases the motor vehicle with actual or constructive knowledge of the security interest.” This special provision only applies to motor vehicles and is based upon what is sometimes referred to as the “day and a half rule” which has its origins in the Chattel Securities Act 1987 (Vic) and the Registration of Interests in Goods Act 1986 (NSW). The provision is based upon the concept that the person who is acquiring the property searched the register “… at any time on the day that the interest was acquired, or on the previous day, by reference to the serial number”2 and such search did not disclose a registered security interest, then that person would acquire the motor vehicle free of the security interest.

It is anticipated that s 45(1) of the PPSA would have limited application,3 especially since s 45(2) makes it clear that the buyer or lessee would not take the motor vehicle free of the security interest if: • the secured party is in possession of the motor vehicle immediately before the time of the sale or lease • the motor vehicle is bought at a sale held by or on behalf of an execution creditor • the buyer or lessee holds, or holds on behalf of another person, the motor vehicle as inventory, or • the person has actual or constructive knowledge of the security interest4. It is also important that you are familiar with s 45(3)–(4) of the PPSA which reads: “Taking from prescribed persons (3) A buyer or lessee, for new value, of a motor vehicle of a kind prescribed by the regulations for the purpose of this section takes the motor vehicle free of a security interest in the motor vehicle if: (a) the regulations provide that motor vehicles of that kind may, or must, be described by serial number; and (b) the seller or lessor is in a class of persons prescribed by the regulations for the purposes of this subsection. (4) Subsection (3) does not apply if: (a) the secured party is in possession of the motor vehicle immediately before the time of the sale or lease; or (b) the motor vehicle is bought at a sale held by or on behalf of an execution creditor; or (c) the buyer or lessee holds the motor vehicle: (i) as inventory; or

(ii) on behalf of a person who would hold the motor vehicle as inventory; or (d) the buyer or lessee buys or leases the motor vehicle with actual or constructive knowledge that the sale or lease constitutes a breach of the security agreement that provides for the security interest.” The PPSReg define prescribed persons in reg 2.2 with reference to the holding of a licence to deal or trade in a particular type of motor vehicle. In the Explanatory Statement for the PPSReg, it explains reg 2.2 as follows: “This regulation provides that a buyer or lessee takes a motor vehicle free of a security interest, as provided under subsection 45(3) of the Act, where the motor vehicle is bought or leased from a person: • that holds a current licence to deal or trade in that kind of motor vehicle; and • the licence is issued by a licensing authority in the State or Territory where the sale or lease of the motor vehicle happens. The regulation has the effect that a person who is licensed to deal in only particular kinds of motor vehicles (for example, second hand motor vehicles) can sell or lease motor vehicles of that kind free of a security interest. The rationale for this regulation is that a purchaser or lessee who acquires an interest in a motor vehicle from a licensed motor vehicle dealer or trader should not have to search the register prior to acquiring their interest. All jurisdictions, except Tasmania, Queensland and South Australia, have a licensing scheme over new motor vehicle dealers or traders generally. Queensland and South Australia have a licensing scheme over motor vehicle dealers or traders of second hand motor vehicles. Tasmania does not have a licensing scheme for motor vehicle dealers and traders. Notwithstanding this, purchasers of motor vehicles in these states

are equally protected via section 46 of the Act (taking personal property free of security interest in ordinary course of business).” Therefore in accordance with the terms of this provision, if Enid Rose decides to purchase a car from a motor dealer she will acquire it free of a security interest. 8.2.4 Taking personal property free of security interest in ordinary course of business A buyer or lessee will acquire personal property free of a security interest if it is acquired through the seller’s or lessor’s ordinary course of business of selling or leasing personal property (s 46(1) PPSA). You should be careful when applying this concept. Consider the following example. Example loakim Silver’s specialty jewellery store not surprisingly sells jewellery. Mr Silver decides to refurbish his store and sells his old display cases to a new start up business in a nearby suburb selling gemstones and herbal oils. The sale of the display cases would not constitute in the ordinary course of business.

The exceptions to this main rule are as follows: “Exceptions (2) Subsection (1) does not apply if: (a) in a case in which personal property of that kind may, or must, be described by serial number — the buyer or lessee holds the personal property: (i) as inventory; or (ii) on behalf of a person who would hold the collateral as inventory; or (b) in any case — the buyer or lessee buys or leases the personal property with actual knowledge that the sale or lease constitutes a breach of the security agreement that provides for the security interest.”

8.2.5 Acquiring personal, domestic or household property free of security interest Personal property which has a market value of no more than $5,000 (or a greater amount prescribed in the regulations) and is purchased or leased for new value for personal, domestic or household purposes will be acquired free of a security interest (s 47(1) PPSA). There are exceptions to this main rule which are set out in s 47(2) of the PPSA as follows: “Exceptions (2) Subsection (1) does not apply if: (a) the personal property is of a kind that the regulations provide may, or must, be described by serial number in a registration; or (b) the buyer or lessee buys or leases the personal property with actual or constructive knowledge that the sale or lease constitutes a breach of the security agreement that provides for the security interest; or (c) at the time the contract or agreement providing for the sale or lease is entered into, the buyer or lessee believes, and it is actually the case, that the market value of the personal property is more than: (i) $5,000; or (ii) if a greater amount has been prescribed by regulations for the purposes of this paragraph — that amount.” This provision is sometimes referred to as the “garage sale” rule, and indeed in the PPS Bill 2009 Explanatory Memorandum, garage sales are used as examples of the application of this provision. Consider this example. Example Alice Green is a keen collector of antiques and frequently attends garage sales looking for a

bargain. Alice has a good knowledge of antique furniture and monitors price fluctuations and trends. Alice spotted a fine example of an antique table at a garage sale which, even though it is a bit damaged, she is fairly certain would realise a much higher price, probably $10,000, which is much higher than the $4,500 that the garage sale owner is asking. Alice would not acquire the antique table free of a security interest if, as provided in s 48(c)(i) of the PPSA “… the buyer or lessee believes, and it is actually the case, that the market value of the personal property is more than $5,000 …”.

This example highlights the importance of constructive knowledge. 8.2.6 Taking currency free of security interest This section is quite straightforward and s 48 of the PPSA states: “A holder of currency takes the currency free of a security interest in the currency if the holder acquires the currency with no actual or constructive knowledge of the security interest.” 8.2.7 Taking investment instrument or intermediated security free of security interest in the ordinary course of trading As with s 48 of the PPSA, s 49 of the PPSA is quite clear stating: “A person who buys an investment instrument or an intermediated security in the ordinary course of trading on a prescribed financial market (within the meaning of the Corporations Act 2001) takes the instrument or intermediated security free of a security interest in the instrument or intermediated security.” 8.2.8 Taking investment instrument free of security interest An investment instrument may be acquired free of a security interest if the main rule set out in s 50(1) of the PPSA applies: “A purchaser (see subsection (3)) of an investment instrument, other than a secured party, takes the instrument free of a security interest in the instrument if: (a) the purchaser gives value for the instrument — and (b) the purchaser takes possession or control of the instrument.” Thus this section would apply if: • the person gave value for the interest (unless the interest acquired is a security interest)

• the person acquired their interest in a consensual transaction • the person had no actual or constructive knowledge that the acquisition of the interest was a breach of a security agreement that provides for a security interest in any investment entitlement or financial product5. If however, the purchaser does have actual or constructive knowledge that acquiring the investment instrument would constitute a breach of a security interest, then the purchaser would not acquire the investment instrument free of the security interest (s 50(2) PPSA). The term “purchaser” is given a broad meaning and is defined in s 50(3) of the PPSA as follows: “purchaser, in relation to an investment instrument, means a person who takes the instrument by sale, lease, discount, assignment, negotiation, mortgage, pledge, lien, issue, reissue or any other consensual transaction that creates an interest in personal property”. 8.2.9 Taking intermediated security free of security interest As with s 50 of the PPSA, the main rule in s 51(1) provides that a person (the transferee) will acquire the intermediated security interest free of a security interest if value is given and, as per s 51(1)(b) of the PPSA: “the credit of the interest in the financial product in relation to which the intermediated security arises is made in accordance with a consensual transaction.” Again the exception to this main rule is contained in s 51(2) of the PPSA and the main rule will not apply if the transferee has: “… actual or constructive knowledge that crediting the interest in the financial product constitutes a breach of a security agreement that provides for a security interest in any intermediated security or financial product …” 8.2.10 Taking personal property free of temporarily perfected security interest In Chapter ¶5 — How do you achieve perfection? we discuss the concept of temporary perfection and the circumstances in which it may apply. As collateral subject to temporary perfection would not be searchable on the

PPSR, this provision is designed to protect the innocent purchaser or lessee who acquires the personal property for new value (s 52(1) PPSA). However, this section would only apply if the temporary perfection was applicable immediately before the sale and the security interest is not otherwise perfected at that time (s 52(1) PPSA). In addition, this section applies to a security interest which is a transitional security interest perfected in accordance with s 322 of the PPSA. Also refer to reg 9.2 of the PPSReg which sets out the prescribed exceptions to s 322. The transitional provisions are discussed in Chapter ¶10 — Managing the PPSA Transition 30 January 2012–February 2014. However if, at the time that new value is given, the purchaser or lessee has actual knowledge that the sale or lease would constitute a breach of a security agreement, and the collateral is to be used predominantly for personal, domestic or household purposes, then this provision would not apply (s 52(2) PPSA). 8.2.11 Rights of secured party and transferee on taking personal property free of security interest The final provision we need to consider in relation to acquiring collateral free of a security interest is the rights of a secured party and the transferee. Section 53 of the PPSA states: “Scope (1) This section applies if: (a) a person (the transferee) acquires personal property from another person (the transferor); and (b) as a result, the transferee takes the personal property, or an accession to the property, free of a secured party’s security interest because of the operation of this Part. Rights of secured party (2) The rights of the secured party are subrogated, in relation to the property, to the rights (if any) of the transferor and any predecessor of the transferor (including the right to receive any part of the purchase price for the property which has not been

paid). Rights of transferee (3) If a person who is liable to pay the purchase price of personal property makes a payment before receiving notice of a secured party’s right under subsection (2), the payment discharges the obligation of the person to the extent of the payment.” This provision is designed to clarify the rights of a secured party when personal property is taken free of a security interest. In this situation the secured party’s rights are subrogated to the rights of the transferor “… including the right to receive any part of the purchase price for the property which has not been paid …” (s 53(2) PPSA). If the transferee (the person who acquires the collateral and is liable to pay the purchase price) makes a payment prior to receiving notice of a secured party’s rights as per s 53(2) of the PPSA, then the payment will discharge the obligation of the person to the extent of the payment (s 53(3) PPSA). This completes our consideration of how personal property may be acquired free of a security interest. Footnotes 2

PPS Bill 2009 Explanatory Memorandum, para 2.81.

3

Ibid, para 2.83.

4

Ibid, para 2.80.

5

PPS Bill 2009 Explanatory Memorandum, para 2.98.

DEALING WITH CORPORATE INSOLVENCY SITUATIONS ¶9.1 Introduction Insolvency is an issue that makes an understanding of the PPS regime especially important. Put simply, a failure to perfect a security interest could result in the loss of that interest if the grantor enters formal insolvency (s 267, 267A Personal Property Securities Act 2009 (PPSA) — see, however, the exclusions in s 268). The twilight zone leading up to formal insolvency may also see a scramble among the debtor’s major creditors to take security over the remaining assets that may create priority disputes. It goes without saying that an understanding of the interaction between insolvency law and PPS is an important element in ensuring that security interests are preserved and capable of realisation at a time when creditors need them the most — when the debtor is insolvent. Since the first edition of this book there have been only a handful of cases, mostly concerned with extensions of time under the Corporations Act 2001 (Cth) for registration (s 588FM). There have also been two important cases that involved corporate insolvency: Re Carson; Hastie Group Ltd (No 3) (2012) APPSR ¶701-001; [2012] FCA 719 (5 July 2012) and Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; [2013] NSWSC 852 (27 June 2013). The Hastie case drew attention to potential problems caused by unclear registrations on the Personal Property Securities Register (PPSR), while the Maiden case applied the priority and vesting rules on insolvency to a finance leasing situation. One important development that will occur following the publication of this book will be the expiry of the transitional period (at the end of January 2014). This will be a significant event for insolvency practitioners as they will no longer need to be concerned with determining the effectiveness of transitional interests, in particular transitional purchase money security interests (PMSIs). All such interests will need to be perfected by the end of the transitional period or they may vest in the grantor company upon

liquidation or administration. It may be that insolvency practitioners will be more willing to challenge the perfected status of secured parties once the complexities of the transitional period are finished. This chapter provides an overview of the effect of the PPSA on insolvency situations.

¶9.2 Overview of corporate insolvency 9.2.1 Proving insolvency Section 95A of the Corporations Act defines insolvency as the inability to pay debts as and when they become due and payable. The courts have interpreted this provision as requiring a common sense assessment of the practical ability of the debtor to pay its debts. While the test is essentially based on the debtor’s cash flow, the solvency assessment allows funds from asset sales, secured finance and funds borrowed from third parties (including related companies, directors or shareholders). The Corporations Act also contains a range of provisions that deem a debtor company to be insolvent in certain situations. For example s 459C requires the court to presume that a company is insolvent where: • the company fails to comply with a statutory demand • an order for execution is returned unsatisfied • a receiver is appointed pursuant to a power contained in an instrument that includes a circulating security interest. These presumptions apply to applications to wind up the company. Section 588E of the Corporations Act provides further presumptions of insolvency for recovery proceedings involving voidable transactions and insolvent trading actions against directors: • a failure to keep adequate financial records • proof of insolvency in other proceedings may be used in recovery proceedings. Assessing the company’s solvency is an important issue for the debtor company and its directors as well as for third parties that deal with the

debtor company. Transactions with an insolvent company can be set aside under the voidable transaction provisions (Pt 5.7B Corporations Act) or may be challenged under the law of equity. For example in the recent Bell Group litigation1, banks that took part in a transaction to obtain security over a debtor company’s assets at a time when they knew or should have known that the company was insolvent and were found liable for financial benefits they received under the transaction. Directors have obligations to consider creditor interests when the company becomes insolvent. 9.2.2 Types There are five main types of formal insolvency procedures for insolvent companies. These are: • Liquidation Liquidation may be ordered by the court (principally on the basis that the company is insolvent) or may be approved by the members (for solvent companies). An insolvent company may be put into voluntary liquidation by a resolution of the members and creditors, or by a resolution of the creditors in a voluntary administration. • Voluntary administration Voluntary administration is typically commenced by the appointment of an administrator by a company’s directors on the basis that the company is insolvent. A voluntary administrator may also be appointed by a liquidator or major secured lender with an enforceable security interest over the whole or substantially the whole of the company’s property. • A deed of company arrangement A deed of company arrangement may be entered into by a company in voluntary administration if approved by its creditors. A deed may be proposed by any interested party during a period of voluntary administration. If the creditors approve of the deed by an ordinary majority in number and value, and the administrator and the company both execute the deed, the company moves from voluntary administration into the deed which will manage the rights that creditors have against the company and its property. The voluntary

administrator usually acts as the deed administrator although another insolvency practitioner may be appointed if the creditors so decide. • A scheme of arrangement A scheme of arrangement is a formal procedure which allows the company to adjust creditors’ rights against it, subject to obtaining majority creditor approval which must equate to 75% of the value of debt owed by the company. Schemes require court approval to convene creditor meetings, and then further court approval to implement the scheme after the creditors agree to the scheme. Schemes tend to take longer and are more complicated than deeds of company arrangement, although schemes can be used for complex debt restructuring involving creditor rights against third parties (which deeds are not permitted to do). A scheme is implemented by a scheme administrator. • Receivership Receivership involves the appointment of an insolvency practitioner to take control of assets. Receivership may be commenced by a court order where corporate assets are at a significant risk of dissipation. However, it is more common for a receiver to be privately appointed by a creditor with an enforceable security interest. Unlike other forms of corporate insolvency, private appointment receivership is designed to act in the best interests of the appointing creditor rather than the creditors as a whole. It is possible for receivership to overlap with other forms of corporate insolvency such as voluntary administration or liquidation. Footnotes 1

Westpac Banking Corp v The Bell Group Ltd (In Liq) (No 3) (2012) 30 ACLC ¶12-071; [2012] WASCA 157 (subject to a High Court appeal at the time of writing).

¶9.3 General considerations

9.3.1 Who owns the property? One of the major issues when companies enter formal insolvency is determining the priority rights attaching to assets held by the insolvent company. Under pre-PPS laws, rights to assets held by an insolvent company were generally determined by whichever party had superior title. One common title dispute concerned suppliers who claimed a retention or reservation of title clause (ROT) in their supply contract. The debtor company’s right to possess goods supplied under a valid retention of title contract was based on ownership and repossession rights subsisting under the supply contract. It is common for supply contracts to include a termination clause that will be triggered by the appointment of an insolvency practitioner (such as a liquidator). Assuming that the contractual termination clause is validly drafted and enforceable,2 the supplier will have a superior title to the goods and may make a demand on the liquidator to retake possession. Similar issues arise with the termination of leases on the appointment of an insolvency practitioner. One difference with leases is the extensive statutory and general law regulation related to termination rights and the equitable protections granted to lessees in respect of relief against forfeiture, which allows the lessee to satisfy unpaid rent or remedy defects within a reasonable period of time to avoid the termination of a leasehold interest. The introduction of the PPS regime renders supplies under an ROT arrangement and leasing arrangements as security interests if they secure payment or the performance of an obligation (s 12 PPSA). Certain other leasing and bailment arrangements may also constitute a deemed security interest under s 13 of the PPSA. For example long term (usually longer than one year) operational leases will be deemed to be security interests for the purposes of the PPSA. As noted earlier, title is irrelevant under the substantive approach of the PPSA. Thus, one major change in insolvency practice is the greater focus that must be given to the perfection of security interests rather than establishing good and free title. Where PPSA priority contests arise, the question is not “who is the true owner?” but “who has priority under the rules of the PPSA?”. This occurred in the recent case of Re Maiden Civil

(P&E) Pty Ltd (2013) APPSR ¶701-008; [2013] NSWSC 852. In the Maiden case, the owner of excavation equipment entered into a leasing arrangement with Maiden that was in effect a hire purchase, although not fully documented. Maiden obtained finance and granted a security interest in all of its present and future property. The excavators were specifically listed in the loan documents as assets that were covered by the security interest. The lender perfected its security interest by registering a financing statement on the PPSR, but the lessor did not perfect its leasing arrangement (it was after all, the owner of the equipment). When Maiden stopped paying its lease fees and entered voluntary administration and receivership (which were followed by liquidation), the equipment lessor seized the equipment (except for one excavator that had already been paid off, that was seized by another Maiden creditor in respect of an alleged secured debt that the court rejected). The Maiden receivers (appointed by the perfected secured creditor) sought court orders for possession of the equipment. The lessor claimed ownership, but the court held that the leasing arrangement was a deemed security interest and the contest was therefore between two PPSA secured parties. As the lessor had failed to perfect its security interest it had vested in the company when it went into administration (s 267). Furthermore, the perfected secured creditor took priority over the lessor as unperfected secured party (s 55(3)). 9.3.2 Insolvency of the buyer The insolvency of a buyer of goods may cause significant disruption to the rights of secured parties who have allowed the buyer to retain possession of property. Essentially, unperfected security interests will vest in the grantor once it enters formal insolvency proceedings (s 267, 267A PPSA).3 It is therefore imperative that a supplier of goods, where the substance of the contract is to secure the payment or performance of an obligation (such as goods supplied under a retention of title arrangement to ensure payment of supply invoices), perfect their security interest as soon as possible, and certainly before the appointment of a voluntary administrator, deed administrator or liquidator. This is also important for deemed security interests under s 13 of the PPSA. Suppliers who wish to obtain the super priority of a PMSI registration must be careful to comply with the timeframes expressed in s 62.

It should be noted that secured parties with an enforceable security interest over the debtor’s collateral will be able to rely upon the enforcement rules in Ch 4 of the PPSA if they take enforcement prior to the appointment of an insolvency practitioner. The enforcement provisions in Ch 4 do not apply where the company is in receivership, although they do if the company is otherwise under controllership (s 116 PPSA). The stay provisions in liquidation do not apply to security interests (s 471C Corporations Act), but there are various rules in voluntary administration that restrict the ability of secured parties to take enforcement action (whether under Ch 4 of the PPSA or otherwise), which are discussed below. 9.3.3 Insolvency of the seller Unlike the insolvency of the buyer, the insolvency of a seller will not generally alter a contractual arrangement, as the insolvency practitioner will typically have management powers and may complete the company’s contractual obligations. Of course, an insolvency practitioner may also close down the business and in doing so cause the company to breach its contractual obligations, but this will typically give rise to a claim which is provable in the insolvency (particularly for voluntary administration and liquidation). Footnotes 2

For example, the contract may require notice of breach of the contract before allowing for the exercise of termination rights.

3

Subject to the exceptions in s 268 PPSA.

¶9.4 PPS issues in liquidation A liquidator, whether appointed by the court or under a security agreement, has the protection of a stay over claims against the company and its property (s 471B, 500 Corporations Act). This prevents creditors from taking court action to enforce their debts, unless they receive permission from the court, which is rarely granted. The justification for the

stay is to allow the liquidator to distribute the proceeds of the insolvent company’s assets amongst the creditors in a fair way. The stay does not affect creditors with an enforceable security interest over the company’s property. 9.4.1 Property available to the liquidator As noted above, the “property of the company” concept has not traditionally included property owned by third parties, such as suppliers with a valid retention of title (“ROT”) clause. However, the classification of ROT arrangements as security interests under the PPSA changes this position. Where a secured creditor fails to perfect their ROT security interest (usually as a PMSI) before the commencement of liquidation, s 267 PPSA will vest the security interest in the grantor (the company in liquidation). The 2010 amendments to the Corporations Act made by the Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) introduced new provisions (s 465, 489F, 513AA Corporations Act) that include PPSA retention of title property that has vested in the grantor as the “property of the company”. The liquidator has a statutory power to take control of such property (s 474 Corporations Act). As noted above, PPSA retention of title property is not limited to retention of title arrangements, but also includes deemed security interests under s 13 of the PPSA. The liquidator ordinarily has power to disclaim onerous property held by the company where there would be little net benefit to creditors in retaining the property (s 568 Corporations Act). The expansion of the “property of the company” concept will not extend the disclaimer provisions to PPSA retention of title property that has vested in the company in liquidation because of a failure to properly register the interest or because the security interest was conferred on a related party. 9.4.2 Void charges The PPS alters the regime regarding void charges. The void charge provisions allow certain security interests to be invalidated where they were created within a specific timeframe prior to liquidation, where they were conferred on associated parties (such as company officers) or where the secured creditor fails to perfect his/her interest within the required timeframe. One of the most significant changes is that the

provisions are no longer limited to charges but now cover security interests, which is a broader concept than traditional charge arrangements. The introduction of the PPSA repealed Ch 2K of the Corporations Act which provided for charges registered out of time and charges granted to officers of the company to be void. These two grounds for invalidity are reproduced in the new Pt 5.7B Div 2A and 2B (s 588FK–588FP Corporations Act). There are several key differences with the new law. Firstly, the period for registration of the security interest is reduced under the new s 588FL from 45 days (under the prior s 266 Corporations Act) to 20 business days or within six months of the “critical day” (ie the date the administration or liquidation commences) whichever is the later (under the PPS regime — new s 588FL). The new s 588FM contains a court power to amend these timeframes, and several cases have confirmed that the prior law on extensions of time continues to inform the operation of the new provision. 4 There are various exceptions from the new s 588FL (failure to perfect on time), including security interests over:5 1. the transfer of an account or chattel paper 2. PPS leases over personal property identified by serial numbers for periods longer than 90 days 3. commercial consignments 4. subordination agreements (such as turnover trusts) 5. collateral transferred to the grantor subject to a prior security interest which is perfected within five business days after the transfer or after the secured party becomes aware of the transfer.  (see s 588FN). It should also be noted that the replacement provision for void security interests conferred on officers and related parties (s 588FP) does not apply to PPSA retention of title property of the company. 9.4.3 Priority distribution

The standard priority distribution of the company’s property during insolvency prior to the introduction of the PPSA was to pay fixed charge debts in full first, then employee priority entitlements (out of assets covered by a floating charge — s 561 Corporations Act), then floating charge debts, then the list of priority creditors contained in s 556 Corporations Act, then unsecured debts, then debts owed to members. The PPS reforms maintain this priority distribution regime, although it does so through the use of the concepts circulating security interest and non-circulating security interest. The distinction between a fixed and floating charge is largely irrelevant under the PPSA, however, amendments to the Corporations Act altered s 561 (which previously conferred priority of employee statutory entitlements over creditors with a floating charge) by replacing floating charges with “circulating security interests”. These are defined as either a floating charge6 or as a security interest over circulating assets. Circulating assets are defined as inventory and the proceeds of inventory, bank accounts, negotiable instruments (such as cheques), money and “accounts”. An account for the purposes of the PPSA is defined in s 10 of the PPSA as a monetary obligation that arises from disposing of property or from granting a right or providing services. While an account will include book debts it is not limited to them.7 The money obligation must arise in the ordinary course of the business of the person who is owed the obligation. See further Chapter ¶2 — What is included and excluded from the PPSA? Footnotes 4

See Re Cardinia Nominees Pty Ltd (2013) APPSR ¶701-005; [2013] NSWSC 32.

5

Categories 1–3 are only excluded where the arrangements do not secure the payment or performance of an obligation (s 588FN(1)).

6

As some arrangements may still use a floating charge where those arrangements are excluded from the PPSA.

7

Strategic Finance Ltd (in receivership and in liquidation) v

Bridgman [2013] NZCA 357 (9 August 2013).

¶9.5 PPS issues in receivership 9.5.1 Who is appointed as receiver or controller? Part 5.2 of the Corporations Act regulates receivership and controllership. While a receiver is appointed by the secured creditor as an agent of the debtor company, a controller is merely a person appointed by the secured lender who acts on their behalf. Part 5.2 generally applies to both receivers and controllers. The following discussion uses the term “receiver” to apply to both categories. Similar to liquidation, the PPS reforms expand the scope of individuals who are disqualified from accepting appointment as a receiver to secured parties over the property of the corporation (s 418). 9.5.2 Leasing and ROT arrangements One area where the PPS has an impact in receivership is on leasing arrangements. Section 419 Corporations Act provides that receivers are personally liable for debts they incur during the receivership for “services rendered, goods purchased or property hired, leased, used or occupied”. The courts have interpreted this provision as only applying to debts incurred for new goods and services, rather than the mere continuation of supply during receivership. The privately appointed receiver is the agent of the company and, just as directors or executives act in an agency capacity, is not liable for debts arising out of pre-existing obligations. The PPS changes to s 419 Corporations Act clarify that receivers are liable for leasing costs that constitute a PPSA security interest (s 419 Corporations Act). The concept of a PPSA security interest is defined in s 51 of the Corporations Act to mean a security interest under the PPSA, which will include arrangements that secure the payment or performance of an obligation (under s 12 of the PPSA) and deemed security interests under s 13 PPSA (PPS leases). Section 419A Corporations Act provides that receivers will be personally liable for rental costs “or other amounts” arising under a pre-existing agreement concerning the use of property by the company where the

property is owned by someone else as owner or lessor. The receiver may avoid personal liability where they serve a notice disclaiming the property on the owner or lessor within seven days of appointment under s 419A Corporations Act. The PPS reforms to s 419A Corporations Act state that this personal liability for rent does not extend to third party property that is “PPSA retention of title property of the corporation”. This concept was explained above and includes not only retention of title arrangements, but also leases and other arrangements under s 12 and 13 of the PPSA. It should be noted that the enforcement provisions in Ch 4 of the PPSA do not apply to property that is in the possession of receivers (s 116(1) PPSA). The rights and powers conferred on receivers will depend upon the security instrument that allowed their appointment. Of course, priority issues between secured creditors, such as who may appoint a receiver, will be determined by the PPSA and the security documents (including intercreditor agreements if any). The priority rules were discussed previously in Chapter ¶6 — Enforcement rights and remedies for secured parties. The enforcement provisions provide many benefits for secured parties and they may choose not to appoint a receiver in order to have access to the enforcement provisions in Ch 4 of the PPSA. Controllers are still subject to Ch 4 (s 116(2)). It is possible that the change in terminology from “charge” to “security interest” may mean that many of the provisions of Pt 5.2 of the Corporations Act will apply to enforcement action taken by lessors and ROT suppliers pursuant to enforceable security interests perfected under the PPSA. Prior to the PPSA, neither a lessor nor an ROT supplier hold a charge (although the instruments could be drafted to include a charge), and would not therefore have been considered controllers under Pt 5.2 Corporations Act. However, the 2010 PPS amendment to the Corporations Act may render enforcement action by lessors or suppliers under ROT contracts subject to Pt 5.2. The Corporations Act defines a controller as a person “who (whether or not as agent for the corporation) is in possession, or has control, of that property for the purpose of enforcing a security interest”. Characterisation as a controller would bring the lessor or supplier within the supervision of the court in s 423 Corporations Act and allow the controller to approach the court for directions (s 424 Corporations Act). The appointment of a controller must be notified with ASIC within seven days of the

appointment, and the company’s public documents must note the appointment of a controller (s 427, 428 Corporations Act). Of course, the underlying supply or lease agreement must make provision for enforcement by repossession. Lessors in particular may be subject to limitations when seeking repossession due to the effect of property law statutes in each state that require a notice of demand before retaking possession. The law of equity also provides relief to lessees in the nature of “relief against forfeiture” where the lessee is able to remedy the default within a reasonable period of time.

¶9.6 PPS issues in voluntary administration The company’s property includes PPSA retention of title property (s 435B Corporations Act). This is contrary to current notions of what is included in the property of the company, which would ordinarily be only the property that the company is the legal owner of. The voluntary administration provisions already include within the power of the administrator property which the company possesses or uses but does not own. The automatic stay that applies during administration prevents third parties, including PPSA secured parties as well as non-PPSA secured parties such as owners and lessors of property that are not covered by a PPSA security interest from recovering possession of the property without the permission of the court or the administrator (s 440B Corporations Act). This allows the administrator to attempt to keep the company’s business together while evaluating options to see if the affairs of the company can be restructured or to facilitate a turnaround or a sale of assets. One significant advantage for administrators is the operation of the PPSA vesting rules. If a PPSA secured party fails to properly perfect their security interest prior to the appointment of the administrator, then the security interest in the collateral will vest in the company upon administration (s 267 PPSA). There is the possibility that the secured party may realise their error in failing to properly perfect before the administration commences, in which case they may apply for a court extension of the time to perfect their interest through registration (assuming s 19 and 20 of the PPSA are otherwise satisfied) (s 588FM Corporations Act). This application for an extension must occur before the administration commences.

The PPS amendments to the Corporations Act mean that leases and ROT arrangements that are security interests under s 12 and 13 of the PPSA will be included as property of the company. Section 51F of the Corporations Act defines “PPSA retention of title property” as: • personal property that the corporation does not have title to • property that is used or occupied by, or is in the possession of, the corporation • property that is subject to a PPSA security interest • property where the corporation is the grantor in relation to the PPSA security interest. It is clear that this definition is much broader than traditional notions of supply arrangements subject to retention of title clauses. This is particularly important when considering the rights of other secured parties. Major financiers such as banks typically take an all assets security by using a floating charge over the company’s assets. The change to s 435B will mean that goods leased and subject to retention of title arrangements will need to be counted for the purposes of determining the scope of security interests held by financiers, whereas previously they were not. This may mean that a financier with a perfected security interest over all assets except for leased equipment and goods supplied under ROT arrangements may not have a security over the “whole or substantially the whole of the company’s assets”. Voluntary administration allows a secured party with a security interest over the whole or substantially the whole of the company’s property to appoint a receiver during the first 13 business days of the administration (s 441A). In considering whether a traditional finance company creditor with a fixed and floating charge will have a security interest in substantially the whole of the company’s assets will require consideration of PPSA ROT property, which may make it more difficult for finance companies to take advantage of s 441A. This does not apply to transitional security interests though (s 1501A Corporations Act). It is also possible that security documentation that provides for an all present and after acquired property security will be found to meet the “whole of the assets” test because of the operation of s 18(1) PPSA, which states that

security documents have effect according to their terms. 9.6.1 Effect of Voluntary Administration (VA) on security holders The appointment of a voluntary administrator imposes a stay on claims against the company and its property (s 440D Corporations Act). As noted above, the property of the company will include PPSA retention of title property. Furthermore, the PPS amendments to the Corporations Act have changed s 440B to impose a range of restrictions on enforcing claims covered by a PPS security interest. 1. An owner of property used by the debtor company (other than a lessor), including a supplier whose ROT arrangements constitute a security interest under s 12 or 13 of the PPSA, will be unable to take possession of the property or otherwise recover it or otherwise enforce the security interest (including under Ch 4 of the PPSA). 2. A lessor, including one whose leasing arrangements constitute a security interest under s 12 or 13 of the PPSA, will be unable to levy distress for rent, to take repossession or otherwise recover the property, or to otherwise enforce the security interest (including under Ch 4 of the PPSA). 3. A secured party with a possessory security (including a lien or pledge, or a PPS security interest which is perfected by control or possession) is unable to sell the property or otherwise enforce the security interest. Section 440B of the Corporations Act also provides a catch all provision which states that a person cannot enforce a security interest not otherwise covered by 1–3 above. Section 440B does not prevent a secured party from serving a notice under the provisions of an agreement or instrument covering a security interest (s 441E). Thus, a supplier with a perfected security interest could still serve a notice of termination on the company in voluntary administration, although s 440B would prevent them from then recovering possession of the goods. Property covered by ROT arrangements, leases or possessory securities which do not constitute a PPS security interest are regulated by s 441F– 441J (which provides rules relating to enforcement prior to administration, notification, and recovery of perishable property).

9.6.2 Administrator’s powers to deal with property of the company The voluntary administrator has powers to manage the business of the company under administration and may sell assets for that purpose (s 437A Corporations Act). The administrator’s powers are, however, subject to the powers of a receiver or controller (see receivership discussed above), or a secured party (s 442D Corporations Act). Of course, the secured party must have perfected their security interest otherwise it will have vested in the company under administration (as grantor) once the administration commences (discussed above). Prior to the introduction of the PPS, administrators could sell or dispose of assets covered by a crystallised floating charge as if the charge had not crystallised and was still floating over the secured assets (s 442B Corporations Act). The PPS amendments to the Corporations Act continue this power over security interests over circulating assets, which is the replacement term for floating charges (s 339 PPSA). The administrator has the power to deal with secured property that was a circulating asset (as defined in s 340 PPSA) in any way that the company could have dealt with it immediately before it stopped being a circulating asset. Circulating assets cover a range of collateral including inventory, money, negotiable instruments (such as cheques) and an account (eg accounts receivable). The administrator may sell or dispose of assets covered by a security interest: • with the consent of the secured party • with the consent of the court • in the ordinary course of business (s 442C Corporations Act). Property covered by an ROT arrangement, whether constituting a security interest or not, may still be disposed of in the ordinary course of business even if the owner/supplier terminates the underlying contract and demands the return of the property (s 442C(8) Corporations Act). The administrator does, however, come under a duty of care when selling encumbered assets (s 442CB Corporations Act). The administrator is obliged to distribute sale proceeds in respect of PPSA retention of title property in accordance with the priorities established by s 140 of the

PPSA. 9.6.3 Administrator’s liability and indemnity A voluntary administrator is liable for debts he/she incur (under s 443A Corporations Act) during the performance or exercise of functions or power as administrator for: • services rendered • goods bought • property hired leased, used or occupied • the repayment of money borrowed (including interest and borrowing costs). The PPS amendments to the Corporations Act clarified that leasing costs under leases that are either security interests under s 12 or deemed security interests under s 13 of the PPSA are included in this regime. The administrator has an indemnity over the company’s assets to cover liabilities that arise under s 443A and 443B of the Corporations Act. However, the indemnity does not extend to a perfected security interest that constitutes PPSA retention of title property (s 443D). 9.6.4 Deeds of company arrangement and the PPS A deed of company arrangement (DOCA) is binding on all unsecured creditors, directors and shareholders of the company in administration. A DOCA will not bind a secured party from enforcing or otherwise dealing with their security interest unless the DOCA makes provision for their debt and they voted in favour of the deed (s 444D(2) Corporations Act). Given the expansive scope of security interests, this will include PPSA retention of title property. Suppliers and lessors with arrangements that do not constitute a security interest under s 12 of the PPSA are not bound by a DOCA on similar grounds (s 444D(3) Corporations Act). Those parties bound by a DOCA are prohibited from applying (or continuing with an existing application) to wind up the company or to begin or proceed with an enforcement process against the company or in relation to its property (s 444E Corporations Act). The property of the company includes PPSA retention of title property (s 444E(4)

Corporations Act). The court has the power to make orders limiting the ability of a secured party to enforce their rights even when they are not bound by a DOCA (s 444F Corporations Act).

¶9.7 PPS issues for schemes of arrangement It was noted above that schemes of arrangement are not commonly used for corporate insolvencies. The appointment of a scheme administrator will not cause unperfected security interests to vest in the grantor (unlike for voluntary administration, deeds of company arrangement and liquidation) (s 267, 267A PPSA). However, it is possible that a scheme will be proposed by a liquidator in which case the vesting rules may apply. The effect of the PPSA on schemes should be minimal. This is because schemes must generally separate creditors into separate classes, with lessors and ROT suppliers likely to constitute a separate class (if included at all). The change from recognition of charges in the Corporations Act to the broader concept of “security interests” will group leasing arrangements, ROT suppliers and commercial consignees as secured parties (provided their arrangements secure the payment or performance of an obligation under s 12 of the PPSA) but these creditors may still lack a commonality of interest with traditional chargee creditors (such as banks with an all assets charge) so as to require separate classes of creditors for voting purposes.

¶9.8 Conclusion The introduction of the PPS regime has made significant changes to many common practices in corporate insolvency. Most importantly, as discussed above, the PPS regime has changed the scope and meaning of the phrase “the property of the company”. This may improve the position for some suppliers and lessors who will have the benefit of formal enforcement under Ch 4 of the PPSA (though not if the debtor company enters receivership, or seemingly not after the supplier or lessor company takes possession of the collateral). These secured parties may also have greater bargaining power as their interest will be counted for the purposes of determining whether a major secured lender can appoint a receiver.

MANAGING THE PPSA TRANSITION 30 JANUARY 2012– FEBRUARY 2014 ¶10.1 Overview The transitional provisions are set out in Ch 9 of the Personal Property Securities Act 2009 (PPSA). The transitional provisions address a number of matters including: • the initial application of the PPSA — registration commencement time • specific provisions relating to fixed and floating charges • the migration of data from existing Commonwealth, state and territory registers, and • the provisions relating to transitional security interests such as attachment, perfection and the priority of transitional security interests. In this chapter we will consider the following: • registration commencement time • specific provisions relating to fixed and floating charges • transitional registers which were migrated to the Personal Property Securities Register (PPSR) • the provisions relating to transitional security interests such as attachment, perfection and the priority of transitional security interests including the implications following the decision in In the matter of Maiden Civil.

¶10.2 Registration commencement time

The PPSA received Royal Assent on 14 December 2009 and commenced on 30 January 2012. The registration commencement time for the purposes of the PPSA is 30 January 20121. It is useful if from the outset you have an understanding of two key terms which will be referred to in this chapter. The first term is “transitional security agreement” (TSA) and it is defined in s 307 of the PPSA as follows: “Meaning of transitional security agreement In this Act: transitional security agreement means a security agreement that is in force immediately before the registration commencement time, and that continues in force at and after that time.” The PPS Bill 2009 Explanatory Memorandum explains at para 9.11 that a TSA is an agreement in force immediately prior to the registration commencement time and “… would have applied to the security interest had the Bill been in force before the registration commencement time …” The second term is “transitional security interest” (TSI) and this term is defined at s 308 of the PPSA as follows: “Meaning of transitional security interest In this Act: transitional security interest means a security interest provided for by a transitional security agreement, if: (a) in the case of a security interest arising before the registration commencement time — this Act would have applied in relation to the security interest immediately before the registration commencement time, but for section 310; or (b) in the case of a security interest arising at or after the registration commencement time: (i) the transitional security agreement as in force immediately before the registration commencement time provides for the granting of the security interest;

and (ii) this Act applies in relation to the security interest. Note: Section 310 provides that this Act only starts to apply to security interests at the registration commencement time.”

The PPS Bill 2009 Explanatory Memorandum describes a TSI at para 9.12 in the following words: “… security interest would be a transitional security interest even if the interest arises after the registration commencement time, where the security agreement is entered into prior to the registration commencement time and allows for the creation of the security interest and the Bill would have applied to the security interest had the Bill been in force before the registration commencement time …” In other words if the security agreement is created prior to the registration commencement time and the security interest is established either before or after the registration commencement time, then the security interest will be a TSI. It is highlighted in the PPS Bill 2009 Explanatory Memorandum at para 9.14 that: “A security agreement could expressly provide for ongoing supplies and therefore result in a series of security interests. Provided the security agreement is in force prior to the registration commencement time and allows for future security interests to be granted, each security interest granted under that security agreement, regardless of whether it is granted before or after the registration commencement time, would be a transitional security interest. The secured party to such an ongoing transaction would only need to register one financing statement to cover the ongoing transitional security interests.” An example of such an agreement could be an agreement to sell subject to retention of title which, as you may recollect, is a form of transaction that will give rise to a security interest (s 12(2)(d) PPSA). For information about financing statements, please refer to Chapter ¶5 — How do you achieve perfection? Footnotes

1

Section 5 of the Personal Property Securities (Migration Time and Registration Commencement Time) Determination.

¶10.3 Transitional registers migrated to PPSR The transitional provisions provide default protection until the end of the month that is 24 months after the registration commencement time (s 322(2)(f) of the PPSA). It will be important for you to review all your TSIs before February 2014 to ensure that they have been perfected prior to this date. We will discuss the other methods of perfection later in this chapter. The rules relating to the migration of personal property interests are located at s 330–335 of the PPSA. In essence, for data to migrate it must: • be a valid registration on the existing register (s 332(d) PPSA) • be supplied in an approved form (s 330(b) PPSA). The Personal Property Securities Regulations 2010 (PPSReg) also define in reg 1.6 that for migrated registrations there will be an original registration time which is defined as follows: “original registration time, for migrated data registered under section 333 of the Act, means the time at which the security interest or prescribed property was first registered on the transitional register.” While the PPS Registrar is required to supply a verification statement confirming the migration of the security interest, secured parties do not have to supply the verification statement to the grantor (s 335 PPSA). As with any new system, there were some technical issues involved in the migration of such a large amount of information. The PPS Registrar provides regular updates on the PPSR website as to the resolution of these issues. There is also a “Find and claim” process to “enable secured parties to find and claim their migrated secured party groups (SPG) so that the associated registrations can be transferred to a new SPG (target SPG) on the PPSR which has the correct details — in particular, the

correct address for service to which various notifications are sent from PPSR”2. A list of transitional registers is included in Appendix 5 of this book. Footnotes 2

How to apply for Find and Claim PPSR Fact Sheet available at www.ppsr.gov.au/AsktheRegistrar/FactSheets/Pages/default.aspx.

¶10.4 Specific provisions relating to fixed and floating charges The commencement of the PPSA regime on 30 January 2012 brought in extensive changes to the Corporations Act 2001 (Cth) to bring it into line with the new regime. The Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) repealed Ch 2K of the Corporations Act and changed references to “charges” in the Act to “security interests”.3 In essence a circulating asset as described in s 340 of the PPSA will replace the concept of a floating charge (s 339(5) PPSA). A circulating asset may include (s 340(5) PPSA): “(a) an account that arises from granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided); (b) an account that is the proceeds of inventory; (c) an ADI account (other than a term deposit); (d) currency; (e) inventory;

(f) a negotiable instrument. Example: An example of an account mentioned in paragraph (a) is an account that is a credit card receivable. Note: For the meaning of inventory in this subsection, see section 341.”

However, the personal property will not be a circulating asset if either of the following applies (s 340(2) or s 340(3) PPSA): “Exceptions (2) Despite paragraph (1)(a), personal property covered by subsection (5) is not a circulating asset if: (a) an effective registration with respect to the property, in relation to the grantor, discloses, in accordance with the regulations, that the secured party has control of the personal property; and (b) the secured party has control of the personal property. Note: For the meaning of control in this subsection, see section 341.

(3) Despite subsection (1), personal property covered by subsection (5) is not a circulating asset if: (a) the personal property is goods; and (b) the security interest is perfected by possession.” Control in relation to an ADI account can only be gained for the purposes of the PPSA by an ADI (s 341A PPSA). The concept of control of accounts is also dealt with at s 341(2)–(4) of the PPSA. For other types of personal property, a secured party will have control pursuant to its rights under a circulating asset if: • the secured party has control of the property within the ordinary meaning of the term “control”, or • the secured party has control of the property within the meaning of Pt 2.3 (possession and control of personal property), or • in a case in which the personal property is inventory or an account —

the secured party has control of the inventory or account because of: – para (a) or (b), or – subsection (1), (2), (3) or (4) (s 341(1A) PPSA). Section 341 of the PPSA also sets out the meaning of inventory with inventory having its ordinary meaning (s 341(1B)(a)) and the definition in s 10 is not applicable (s 341(1B)(a) PPSA). A fixed charge over property is defined at s 339(4) of the PPSA as follows: “A reference to a fixed charge over property is taken to be a reference to a security interest that has attached to personal property that is not a circulating asset.” The PPSReg also have specific provisions relating to, amongst other things, charges when they are TSIs. Regulation 9.2 of the PPSReg states: “9.2 Temporary perfection rule — exception (1) For subsection 322(3) of the Act, a transitional security interest is prescribed if, before the registration commencement time it was: (a) registrable on a transitional register, under legislation that conferred priority on security interests that are registered; and (b) not registered. (2) Subregulation (1) does not apply to a transitional security interest if: (a) it is a charge that, under section 262 of the Corporations Act 2001, is required to be registered; and (b) for subsection 265(9) of Corporations Act 2001, it is taken not to have been registered.” This somewhat circuitous regulation is explained in the Explanatory Statement at pp 15–16 as follows:

“This regulation provides that temporary perfection under section 322 will not apply to a transitional security interest that, before the PPS registration commencement time, was registrable on a transitional register that conferred priority but was not so registered.” Note that Ch 2K of the Corporations Act was repealed on 30 January 2012 as part of the amendments introduced to incorporate the PPSA into the Corporations Act. However, s 1502 of the Corporations Act provides that for a period of seven years after the commencement time (30 January 2012), the amendments made do not apply in relation to registrable charges. This regulation (in reg 9.2(2) PPSReg) also clarifies that a provisional registration recorded on the ASIC Register of Company Charges immediately prior to the PPS registration commencement time will have the benefit of the temporary perfection provided under s 322 of the PPSA. Thus if you have a registrable security interest which is eligible for registration on an existing register prior to the commencement of the PPSR, and you have not registered your interest, then you will not be able to claim priority interest. Subregulation 9.2(2) is, as explained above, to manage possible timing issues with charges that are eligible to be registered on the ASIC Register of Company Charges immediately prior to the commencement of the PPSR. In the first major Australian decision to deal with the provisions of the PPSA, Brereton J of the New South Wales Supreme Court applied reg 9.2 in just such a way. In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors (2013) APPSR ¶701-008; [2013] NSWSC 852 (In the matter of Maiden Civil) dealt with a dispute between a creditor and receivers and managers over three large industrial vehicles: a 30 tonne Caterpillar excavator, a 20 tonne Caterpillar excavator and a Caterpillar wheel loader. The judge decided that the failure to perfect the PPS lease security interest at the time of the voluntary administration vested the security interest in the grantor which could not be undone by merely terminating the lease and repossessing the equipment. The judge was satisfied that

the creditor had an unperfected security interest in the vehicles; however, this was defeated by the claim of the receivers. The secured creditor failed to comply with the requirements of the PPSA in two ways: • the PPS lease was not in writing as required by s 20, and • the interest had not been registered on a transitional register when required to prior to the introduction of the PPSA. Therefore it could not use the protection provided by s 322 of the PPSA and suffered the consequence of losing its security. The facts and findings of this decision are contained in Appendix 6. Before we begin to review the provisions relating to TSIs, you should be mindful of the following provisions relating to enforcement as they may impact upon the other provisions relating to TSIs. 10.4.1 Enforcement of security interests in intellectual property licences A security interest in intellectual property licences (s 106 PPSA) will only be applicable to security interests provided for by security agreements made at or after the registration commencement time (s 313 PPSA). 10.4.2 Enforcement of security interests provided by security agreements The provisions of Ch 4 of the PPSA, discussed in Chapter ¶6 — Enforcement rights and remedies for secured parties, will only be enforceable in relation to security interests provided for by security agreements made at or after the registration commencement time (s 314 PPSA). This means that for TSIs you will need to utilise alternate methods of enforcement. Section 311 of the PPSA provides for enforcement against a third party: “… in respect of particular personal property if it would have been so enforceable under the law that applied to the enforceability of security interests immediately before the registration commencement time, and as if this Act had not been enacted (whether the security interest arises before, at or after the registration commencement

time) …” For example, you could apply to a court for an “ex parte preservation order” in relation to proceedings so that the collateral is preserved, in other words not sold, commingled or made a fixture. An application for such an order would need to be made in accordance with the court rules applicable to the jurisdiction in which the application is made. In addition you may have remedies available to you in relation to the provisions in Ch 3 of the PPSA and discussed in Chapter ¶7 — Agricultural interests, accessions and commingling, in relation to accessions and commingling. At the end of the transition period, February 2014, the TSIs will come within the operation of Ch 4 of the PPSA, provided you have perfected these security interests in accordance with s 322 of the PPSA which is discussed below. Footnotes 3

See Chapter ¶2 at ¶2.7.

¶10.5 The provisions relating to transitional security interests such as attachment, perfection and the priority of transitional security interests Section 320(1) of the PPSA provides a guide to the priority rules for TSIs which reads as follows:

Priorities involving transitional security interests The following Item security interest: 1

a perfected transitional security interest

has priority over …

because of …

an unperfected s 55(3). security interest (whether transitional or not)

2

a perfected transitional security interest

a perfected security s 55(5), 322 and interest that is not a 322A. transitional security interest

3

an unperfected transitional security interest

an unperfected s 55(2) and 321. security interest that is not a transitional security interest

4

a perfected security an unperfected interest (whether transitional security transitional or not) interest

s 55(3).

In s 320(2) of the PPSA you are referred to s 323 to ascertain the priority between perfected TSIs and unperfected TSIs, and to s 324 in relation to two perfected security interests, one or both of which may be TSIs. We will now consider these provisions. Section 322A of the PPSA was inserted into the Act after commencement to clarify the position between a TSI and a security interest perfected by control.4 A perfected TSI will take priority over a non-TSI security interest which is perfected by control. Section 323 of the PPSA contains the priority rule to be applied when priority is otherwise undetermined and this section provides as follows: “Priority rule — priority otherwise undetermined If the priority between 2 transitional security interests is not otherwise able to be determined under this Act, they have the priority between themselves that they would have had under the law that applied to such priority immediately before the registration commencement time, and as if this Act had not been enacted. Note: The priority between the following transitional security interests is not otherwise able to be determined under this Act: (a) 2 unperfected transitional security interests (because of section 321, the order of attachment between these interests cannot be determined for the purposes of subsection 55(2)); (b) 2 transitional security interests that have been continuously perfected since immediately before the registration commencement time (because of sections 321 and 322, the order of the priority times for these interests cannot be determined for

the purposes of subsection 55(4)).”

Section 324 of the PPSA provides as follows: “Priority rule — certain security interests upon insolvency or bankruptcy (1) The priority between 2 security interests in the same collateral is to be determined under this Act, as if section 322 had not been enacted, if: (a) the priority between the security interests comes to be determined after the end of the month that is 24 months after the registration commencement time; and (b) either (or each) of the interests is a transitional security interest that has not been perfected, apart from under section 322; and (c) the grantor or secured party in relation to either (or each) of the security interests is insolvent or bankrupt. (2) Subsection (1) is in addition to, and does not derogate from, any other provision of this Division.” Guidance as to the application of this provision may be found in the PPS Bill 2009 Explanatory Memorandum at pp 123–124 and the following example may further clarify your understanding. Example In April 2009 the Friendly Bank lent Alistair Brown Pty Ltd $15,000 and took a security interest in Alistair’s prestige company car as collateral for the loan. The Friendly Bank registered its interest in Alistair’s car on the relevant motor vehicles register. However, Alistair needed more funds so, once again using his prestige company car as collateral, he borrowed $20,000 from the Big Bank five days before the registration commencement time. The Big Bank was very busy in the lead up to the registration commencement time and forgot to register its security interest in Alistair’s car on the motor vehicles register nor did it register its security interest on the PPSR at or after the registration commencement time as per s 315 of the PPSA. Six months later Alistair Brown Pty Ltd experienced significant cash flow problems and became insolvent. The Friendly Bank’s security interest was migrated to the PPSR and was deemed to be registered from immediately before the registration commencement time. As the Big Bank

did not register a security interest on the motor vehicle register nor on the PPSR, the order of priority would be determined as if the PPSA had not been enacted and the Friendly Bank would have priority over the liquidator and the Big Bank’s unregistered security interest.

Reference should also be made to the decision in In the matter of Maiden Civil referred to earlier in this chapter. Having considered issues relating to priority, it is also important that you understand the rules relating to attachment and perfection because as explained above these will inform the determination of priority. The attachment rule is contained in s 321 of the PPSA which states: “Attachment rule For the purposes of subparagraph 21(1)(b)(i) and section 55, a transitional security interest in collateral is taken to have attached to the collateral immediately before the registration commencement time, whether the security interest arises before, at or after the registration commencement time. Note 1: Subparagraph 21(1)(b)(i) provides that unless a security interest in collateral is perfected by force of this Act, the security interest must have attached to the collateral in order to be perfected. Note 2: Section 55 provides for the default rules for determining priority between security interests in the same collateral. In some cases, these rules depend on when a security interest attaches. For example, the priority between 2 unperfected security interests is generally determined by their order of attachment (see subsection 55(2)). However, 2 unperfected transitional security interests have the priority they would have had between themselves if this Act had not been enacted (see section 323). Note 3: See section 320 for a general summary of priority rules as they affect transitional security interests.”

In essence this section requires that a TSI is attached in order that the security interest can be enforceable against third parties. In effect this section operates as a deeming provision whereby it deems the TSI to have attached. The perfection rule is set out in s 322 of the PPSA and states: “Perfection rule Main rule (1) A transitional security interest in collateral is perfected from immediately before the registration commencement time,

whether the security interest arises before, at or after the registration commencement time (including a transitional security interest that arises after the end of the month that is 24 months after the registration commencement time). Note 1: As a result of this subsection, the priority time for a transitional security interest under subsection 55(4) will be immediately before the registration commencement time, as long as the security interest remains continuously perfected. Note 2: See section 320 for a general summary of priority rules as they affect transitional security interests.

(2) However, the transitional security interest stops being perfected under subsection (1) at the earliest of the following times: (a) when the security interest is perfected by registration under Division 6 (migration of personal property interests); (b) when the security interest is perfected by preparatory registration under Division 7; (c) when a registration under Division 6 or 7 is amended so that the registration perfects the security interest; (d) when the security interest is otherwise perfected by registration, or is perfected by possession or control; (e) when the security interest is otherwise perfected (but not temporarily perfected) by this Act, other than under this section; (f) the end of the month that is 24 months after the registration commencement time. Note: In the case of a transitional security interest in collateral that does not arise until after the end of the month that is 24 months after the registration commencement time, this section has the same effect as for other transitional security interests. In particular: (a) if a financing statement describing the collateral is registered before the end of that month, by the operation of sections 21, 55, 321 and this section, the security interest is continuously perfected from the registration time for the collateral until the registration stops being effective; and (b) if the security interest is not perfected (otherwise than under this section) at

the end of the month that is 24 months after the registration commencement time, the security interest will become unperfected at that time.

Exception (3) Subsections (1) and (2) do not apply to a transitional security interest in collateral if the interest is of a class prescribed by regulations made for the purposes of this subsection.” This lengthy provision has been quoted in full as it goes to the heart of the transitional arrangements. One of the most critical aspects of this section is that a TSI will only be effective for 24 months from the registration commencement time. In essence, any TSI will be “deemed” to have been perfected; however, once the 24-month period has elapsed, then the deeming of perfection will no longer be available. In other words, if you do not take any further action, your deemed perfection will lapse and you will have an unperfected security interest. Thus to ensure the continuity of the perfection, you will have to have utilised the relevant subsections in s 322(2)(a)–(f) of the PPSA as discussed below. If you perfect your TSI by registration within the 24 months (s 322(2)(f) PPSA), then you will have a perfected security interest which will have continuous perfection. Consider this example. Example Apricot Pty Ltd has been supplying tables on a retention of title basis to Silver Industries Pty Ltd since April 2002. Apricot wants to ensure that it is protected so it registers its security interest in the tables four months after the registration commencement time. Apricot’s security interest would have been deemed to have been perfected as a TSI immediately before registration commencement time and, because Apricot registered its TSI on the PPSR as a transitional registration in August 2011, it will have an ongoing perfection of its TSI.

If Apricot had decided not to make an application to register its TSI on the PPSR, then at the end of the 24 months after registration commencement time its security interest would lose its status as a perfected TSI and would become unperfected.

A migrated security interest (s 322(2)(a) PPSA) is perfected by registration achieved through the migration process. If a transitional perfection is perfected by registration, control or possession, then s 322(2)(d) of the PPSA applies. If a transitional perfection is replaced by a subsequent perfection by registration, then s 322(2)(e) of the PPSA will apply. If as already discussed, none of the above apply, then the rule contained in s 322(2)(f) of the PPSA will take effect. Note (b) contained in s 322(2)(f) of the PPSA serves to reinforce the application of this provision. A TSI will be defective if either s 337 or s 337A of the PPSA applies. In regard to s 337 of the PPSA, the PPS Registrar has the power to determine that a defective registration is effective primarily in relation to migrated TSIs. This will usually be used to address problems that may arise from the migration process. However, at s 337A of the PPSA a TSA will be defective if “… Without limiting section 164 (defects in registration), a registration that discloses that collateral is covered by a transitional security agreement is ineffective to the extent that it describes collateral that is not covered by a transitional security agreement …” Thus, if you seek to register a TSA and refer to collateral which is outside the operation of the TSA, then your registration will be defective. The key aspect of this chapter is that whilst you may have deemed perfection of your TSI, unless you take the appropriate steps you may lose this perfection as did the secured creditor in In the matter of Maiden Civil. Footnotes 4

Section 322A inserted by Personal Property Securities (Corporations and Other Amendments) Act 2011 (Cth) No 35 of 2011, s 3, Sch 2, item 58, effective 26 May 2011.

IMPLEMENTING THE PPSA IN YOUR ORGANISATION AND LESSONS LEARNED AFTER ONE YEAR ¶11.1 Introduction The introduction of the Personal Property Securities Act 2009 (PPSA) meant that many organisations had to substantially review and revise their policies and procedures. The introduction of the PPSA touched upon many workplace activities including: • human resources • workplace practices • communication with external stakeholders such as customers and clients and financial institutions • communication with internal stakeholders such as the accounts payable team and sales force • rethinking of the organisation’s approach to risk management • new tools to assess credit worthiness at the commencement of the relationship with the customer • the ongoing monitoring and maintenance of customer records • reviewing and revising documentation and other supporting materials such as credit applications, leases, hire purchase agreements and supply contracts.

Important Note The introduction of the PPSA was not the only law reform to pass through the Federal Parliament in 2009 and 2010. In addition to the PPSA and the Personal Property Securities Regulations 2010 (PPSReg), the following legislation has also been passed: • National Consumer Credit Protection Act 2009 • Australian Consumer Law amendments to the Trade Practices Act 1974 which primarily relate to unfair contract terms in standard form contracts • other major changes to the Australian Competition and Consumer Act 2010 (formerly known as the Trade Practices Act 1974); one aspect of which is central to defining the concept of a consumer. In 2013 changes to the Privacy Act 1988 were introduced. They will commence on 14 March 2014 and introduce the following: • the Australian Privacy Principles • new comprehensive credit reporting and enhanced protections for credit reporting information • significantly strengthening and clarifying the Privacy Commissioner’s powers and functions1. It is beyond the scope of this text to explore the ramifications of these reforms; however, you should be mindful of their potential to impact upon your workplace and you should monitor websites and alert services to keep up to date.

Footnotes 1

Australian Privacy Principles Companion Guide, July 2010, p 2.

¶11.2 Reviewing your documentation Notwithstanding that the PPSA has been in operation for over a year, if you have not reviewed your documents and modified them you should do so. First we will consider the relationship between your security agreement documentation and the PPSA as this is often an area of great concern. However, you should be mindful that introducing PPSA into your workplace will not begin and end with reviewing your documentation.

The following is a list of matters, in no particular order, which you may wish to consider as part of your review process: • business purpose declaration • interaction with cease supply and unfair contracts • any reference to legislation should include “… as amended …” so you do not have to keep reissuing and re-signing documentation • obligation to advise of changes to organisation structure, eg mergers and/or takeovers turning into a trust (assignment) • customer to bear enforcement costs • customer to bear registration costs • which provisions in s 115 of the PPSA you want to contract out of and/or retain? • issues to consider in relation to guarantees/indemnities and all monies clause • compliance with Ch 4 of the PPSA • compliance with the PPSReg • issues to address merging of security agreements • any additional clauses you may need over and above s 115 in your security agreement • mechanisms to enable the security agreement to be varied unilaterally and/or with notice • knowledge of your own organisation • who will have the authority to grant security interests on behalf of your organisation? • will you collectively enforce your rights if you are a group?

• should you include in your documents a statement to be signed by the applicant(s) that they have read and understood the security agreement? • a term to extend the security agreement to new companies that become part of the customer’s organisation post contract completion • reviewing your stop/cease supply clause in case it may be construed to be capricious. It is perhaps easiest if you break this long list into the following categories: • customer management • organisational management • documentary review.

¶11.3 Customer management 11.3.1 Current and accurate customer information Fundamental to the successful operation of the PPSA is accurate and current knowledge of your customers. Many customers will have commenced their relationship with your organisation some time ago and there is a reasonable likelihood that over time a proportion of these customers may have changed one or more of the following: • name of organisation • type of organisation. For example, is the sole trader now a partnership or a Pty Ltd company? Are they now operating through a trust? Is the company part of a Group structure? Where does the company fit within the structure? • address of organisation. It is suggested that you include a clause in your security agreement to address such issues. You may find the following examples a useful

starting point. Example 1 Agreement to provide all such information as is required to enable registration of a security interest and/or purchase money security interest (PMSI) under the PPSA2 and the PPSReg.

Example 2 Agreement by the customer that it will not, without notice, change its name or initiate any organisational change, for example, a merger or takeover3.

You should also ensure that before you finalise your documents for signing, you have obtained all of the necessary information from the customer that will enable you to register a financing statement which complies with both the PPSA and the PPSReg. See Chapter ¶5 of this book and Appendix 2. This point is reinforced by the decision of Asher J of the High Court of New Zealand in Polymers International Limited v Toon & Ors (2013) FPPSR ¶700-015 [2013] NZHC 1897. The judge dismissed an application by a secured creditor that it had a valid security. Although the creditor had registered their interest on the PPSR, the application contained the following errors: “(a) It did not include the debtor company’s unique incorporation number. (b) It did not correctly classify the debtor company as a ‘Company’. (c) It misspelled the debtor name of Interworld Plastics N Z Limited without a gap so it read ‘Interworld Plastics NZ Limited’, with no gap between the ‘N’ and the ‘Z’, rather than ‘Interworld Plastics N Z Limited’.” The main error was the failure to include the company’s unique incorporation number. You should verify that the information given to you by your customers is accurate to avoid this sort of situation occurring. As discussed in Chapter ¶5 — How do you achieve perfection? you should be mindful that when dealing with sole traders the rules relating to

registration are the same as for individuals. To confirm the details of a sole trader, you must have their name and date of birth sourced from the first available item on the list of acceptable documentation. You should also refer to Chapter ¶5 of this book for the details you will need regarding grantors who are not individuals or sole traders. Unless you know exactly who you are dealing with, you will not be able to perfect your security interest. Thus before you begin to load registrations on the Personal Property Securities Register (PPSR) you would be well advised to undertake a “data cleansing” of your customer records. 11.3.2 Maintenance of customer information It is not sufficient to rely solely on the information provided when the account commences. You should have in place mechanisms that will ensure that there is regular monitoring and maintenance of your customer details. 11.3.3 Removal of registrations If you cease to trade with a customer and there is no longer a need for a security agreement, you are obliged to remove the registration. However, if you have a reasonable expectation that the customer will continue the relationship, then the registration may be retained on the PPSR. Factors which will inform this decision will include seasonal trading cycles, regular but intermittent trading and so on. 11.3.4 Informing your customers You may find it beneficial to prepare a brief handout/flyer that you can send to your customers explaining that you will be utilising your rights and remedies under the PPSA so that they are informed of their obligations and responsibilities to you as a grantor. To date there has not been extensive media coverage of these reforms so there may be many people who are unaware of what PPS will mean. Footnotes 2

Chris Swanson presentation to AICM PPS Seminar, May 2009.

3

Ibid.

¶11.4 Organisational management 11.4.1 Managing internal stakeholders As stated previously the introduction of the PPSA impacts upon more than just the credit/accounts receivable function. The organisation should also consider issues which arise from both the perspective of managing the receivables ledger and in terms of how the organisation will respond when another party seeks to register a security agreement against the organisation. Such a situation could arise in relation to businesses that trade with your organisation who not surprisingly will seek to protect their interests. This circumstance will mean that other business units will need to be appraised of the operation of the PPSA and the PPSReg. Example Ms Jade is a Purchasing Officer with Azure Pty Ltd and she is responsible for the purchasing and leasing of major equipment from a range of suppliers. One of the supply companies, Bronze Pty Ltd, has advised Ms Jade that they will only lease their equipment to Azure if Azure grants a security interest in the form of a PMSI. Ms Jade has never heard of a PMSI but knows the equipment is vital to her company’s operations so she agrees and signs the lease. Ms Jade did not check with anyone else in the company and Azure has since discovered that Bronze has contracted out of s 143 of the PPSA. The CEO is not pleased as he was relying on the provisions of s 143 should Azure experience cash flow problems to maintain the relationship with Bronze. You will note if Ms Jade had been aware of the ramifications of granting the PMSI, she may well have been able to negotiate a different security agreement or could have referred the matter to the appropriate person within Azure.

A similar situation could arise in other parts of your organisation if your employees, such as the sales force and customer service teams, are not aware of the PPSA or the PPSReg. As mentioned in Chapter ¶3 of this book4, the first Australian PPSA legal decision highlighted the need for care to be taken when describing collateral in a security statement. In Carson, In the matter of Hastie

Group Limited (No 3) (2012) APPSR ¶701-001; [2012] FCA 719, the administrators appointed to the companies in the Hastie Group applied for directions allowing them to dispose of unclaimed plant and equipment. The Hastie Group held a large number of items of plant and equipment. The administrators took multiple steps to identify the items of plant and equipment that were subject to security interests and other claims. However, approximately 3,684 items remained unclaimed (amounting to approximately 77% of the plant and equipment). What this case also highlights is the need to keep a record of what interests you have registered on the PPSR. The address you specify on the security statement will be the address used by other creditors or insolvency practitioners to notify you of a change in circumstances. Whoever in your organisation receives this notification will need to be aware of what they need to do to protect your interests. 11.4.2 Know your organisation When considering how to operate within the PPS regime, it is vital that you know and understand your organisation’s structure. If you know the answers to the following questions, you will be well placed when briefing your team and other parts of your business. 1. Which best describes the structure of your group entity/ties? (a) A single company entity trading in its own capacity, with no subsidiaries, partnership or joint venture. (b) A single company trading as a trustee. (c) A public company with several subsidiaries conducting various roles in the group, eg manufacturer, importer, exporter, finance. (d) Other (please describe, eg foreign corporation with Australian subsidiaries or vice versa with different entities incorporated in New Zealand conducting the businesses in New Zealand). You may find it useful to develop a diagram showing the entities and the legal relationship between them (ie shareholdings and directorships). Once you have ascertained this information, it is a good idea to also have an understanding of the complete range of activities your organisation is involved in. You should include customers and end users and if you are

part of a group structure then you should ensure that you understand the operations of other members of the group. Again asking yourself the following questions will guide you in gaining this knowledge: 2. Entity. (a) What is the name of your organisation? ACN/ABN/ARBN (b) What activities does it undertake? (eg sale of liquor to both wholesalers and retailers as well as directly to end customer) (c) What is the geographical area of the business? Australia wide/Australia and New Zealand/Worldwide. (d) What is the nature of goods or services sold? (e) What are the locations of its customers and their assets? (f) What is the location of end consumer/retailer of goods?5 (g) Is your organisation the responsible entity of a registered scheme? If yes, then does the scheme have an Australian Registered Securities Number (ARSN) and do you know the number? Next you should consider how the accounts receivable function is managed. Again the following questions will help you clarify your understanding: 3. How is your accounts receivable team(s) organised? (a) One regional (refers to the area of Australia and New Zealand) or national credit manager in charge of a team located in one central location, dealing with all of your debtors located in Australia and New Zealand, or allocated to each of your group’s entities. (b) One regional or national credit manager in charge of a team spread over various locations whereby specified team members are responsible for a specific geographical area or business activity (eg team member located in Brisbane responsible for all debtors of your entity located in Queensland).

(c) One regional or national credit manager with several state and New Zealand based and located credit managers being allocated for one or more of your group entities’ debtors in that specified geographical area. (d) Other6. It is recommended that you also understand how the accounts payable team(s) is organised if it is a separate function to the credit team. To gain this information, similar questions should be asked to those relating to the credit team. 4. What best describes how your accounts payable team(s) is organised? (a) One regional or national manager in charge of a team located in one central location, dealing with all of your creditors located in Australia and New Zealand, or allocated to each of your group entities. (b) One regional or national manager in charge of a team spread over various locations whereby specified team members are responsible for a specific geographical area or business activity (eg team member located in Brisbane responsible for all creditors of the Queensland business of your entity, whether or not the creditor is located in Queensland). (c) One national manager with several state and country based and located managers being allocated for one or more of your group entities’ debtors in that state or country. (d) Other7. The next question is whether or not you have a global security agreement or are there different security agreements specific to the different parts of your organisation. The final issue you should consider is whether record keeping and document retention systems are maintained centrally. You may find these questions useful:

5. What best describes the record keeping and document retention systems maintained by you? (a) Centralised whereby all security agreements and records are scanned/electronically captured and able to be accessed by all accounts receivable and accounts payable personnel. (b) Decentralised in several locations, whereby the individual managers must contact persons in several locations to obtain copies of records or documents. (c) Secure entry and varying levels of access and data entry authorities. (d) Web access available to all employees for business purposes or only limited personnel having web access. (e) Other (eg specific software employed). A useful Tip Retain certified copies of your security agreements so you can provide a true and accurate copy if requested.

Whilst this information gathering process may seem to be unduly elaborate and time consuming, it will be of great assistance for the ongoing management of your PPSA registrations. Case Study Green Pty Ltd is a large company that supplies a wide range of products. Green has four divisions (each being a wholly owned Australian incorporated subsidiary); the divisions are based on their target market: • Green Big Things Pty Ltd • Green Small Stuff Pty Ltd • Green Household Things Pty Ltd • Green Equipment Leasing Pty Ltd. The head company Green Pty Ltd is solely responsible for manufacturing the products. It

purchases all raw materials, leases large delivery trucks and commercial premises, and obtains numerous other goods and services from a large number of Australian and New Zealand based suppliers for the benefit of its four divisions. Each supplier has their own terms (which are changed from time to time by new terms on the back of delivery dockets/invoices). No central register of the terms is kept and they have not been reviewed by anyone at Green Pty Ltd for several years. Many of the divisions’ customers are and will be common to other members of the Green Group and are a mixture of consumers, sole traders, partnerships, trustees and businesses. Some of Green’s customers have been trading with Green for many years, often starting out as sole traders and over time expanding their operation into large size business entities trading under a new corporate entity structure. Each division of Green has its own credit team and there is little interaction between the different credit teams. There is no central register of credit applications or customer account referencing numbers. For instance, each division of Green has its own credit application with different terms and conditions which do not make reference to other members of the Green Group. For example one division relies on retention of title (ROT) arrangements, another division requires directors guarantees and indemnities, a third uses an all existing and future interest in real or personal property charging clause, whilst Green Household Things Pty Ltd obtains signed mortgages and consents to caveats and are entitled to unilaterally vary its terms on the giving of seven days’ written notice to the customer. This example is based on firsthand experience and serves to highlight many potential traps and pitfalls that the fictitious Green Group could experience if it does not make some radical alterations to how it manages this situation. The many issues that could arise if Green continues to operate, as outlined above, are considered below. As there are at least some common customers across the Green Group then it is likely that whenever the customers are separately managed then separate security interests could be registered against the same customer more than once and indeed possibly in the same goods. This may leave Green vulnerable to having their registrations found to be defective and Green could lose all of the security interests registered. If this occurred Green would have to re-register their security interests against this grantor and could lose: • priority, and • incur additional costs and charges. Such a scenario could be extremely detrimental to Green. Further, even if Green’s multiplicity of security agreements were upheld, enforcement could prove to be difficult as Green could potentially end up seeking to enforce priorities against itself. To avoid this outcome, Green would be well advised to instigate the following arrangements: • common security agreement documentation across the group • centralised record keeping and document retention systems • procedural requirements that prior to the registration of a security interest the PPSR is checked to ascertain if there is already a PPS registration against the grantor by Green and that it is sufficient to include the goods supplied

• regular dialogue between the different divisions to ensure that all divisions adhere to the new policy and procedures • specific lines of authority for approving credit and/or leasing arrangements • specific lines of authority for enforcing security agreements. Based on the example above Green should also consider having group wide policies and procedures with clear lines of authority in relation to the granting of a security interest(s) to suppliers and financiers.

You may feel that this analysis is unduly elaborate and complex. However, there are early indications that financial institutions will have an expectation that prior to entering into a financing arrangement with a customer the financial institution will perform due diligence upon the prospective or existing customer to ascertain that the customer will be effectively utilising the PPS regime. There is a sound foundation to this approach as it is a mechanism for the financial institution to assess the potential risk exposure of the customer (the counterparty). A strategy such as outlined above would enable Green Pty Ltd to demonstrate compliance and confirm to a financial institution that Green is managing its potential risk exposure responsibly. Thus it is recommended you should consider asking similar questions of your customers as this way you will be protecting your organisation’s interests. Example Fuchsia Pty Ltd is a large concern on the Gold Coast who is to be reseller of Green’s products (on an ROT basis) and also wishes to sublease the specialised equipment. Green is happy to do this as they do not have a good footprint in South East Queensland. However, before they enter into any contracts with Fuchsia, Green requires the following due diligence questions on the credit application be completed: 1. Do they have a process set up to register any PPSA security interests they may have as Green’s security is only as good as Fuchsia’s security? 2. Does Fuchsia have a system to identify any competing security interests which their customers may grant, eg all present and after acquired property security? 3. Are their credit policies robust to assess the above direct interests with their customers? 4. What are their PPS policies like generally (and in particular their enforcement policies)?8

If such a strategy is adopted, then the PPS regime will cascade through the Australian marketplace to the benefit of all parties as everyone will know their level of risk exposure. Footnotes 4

At ¶3.2.

5

Ibid.

6

Ibid.

7

Ibid.

8

The example was first developed by John Canning, Partner, Mallesons in his presentation to the AICM National Conference, October 2010.

¶11.5 Legal and drafting issues 11.5.1 Inclusions to assist with keeping your documentation current As very few of us are able to anticipate what future legislative changes may occur, it is suggested that when referring to legislative provisions in your documentation include the words “… as amended …”. Such a strategy will serve to minimise the need to constantly revise your terms and conditions to reflect changes in legislation. However, if it is a major change, such as has occurred with the renaming of the Trade Practices Act 1974 and the reform of the consumer law system, this inclusion may not be sufficient. 11.5.2 Continuity of security agreements As already discussed, many organisations will go through restructuring of one form or another. Intrinsic to the operation of the PPSA is knowledge of these changes so that your security interest will remain perfected.

Requiring your customer to advise you of such changes should be included in your security agreement as discussed above. 11.5.3 Merging of security agreements It has also been suggested that you should be mindful that the making of changes to security agreements (eg terms of credit and/or guarantee) may result in the original contract being discharged and unable to be relied upon by a creditor, and the later amended contract being the relevant contract between the parties (due to the doctrine of merger). This will be especially important if the variation is not signed by the debtor/guarantor, as it may result in the creditor losing rights if the variations are required to be signed. This may also result in priority being lost for various purposes, eg loss of priority of charging clauses for caveats/loss of ROT/loss of priority otherwise granted by the transitional temporary perfection provisions in the relevant PPS legislation. A unilateral variation clause in the original security agreement or suitable terminology in the later security agreement might avoid this occurring; however, each credit application and guarantee should be considered individually, especially where a caveat/charging clause is the principal source of recovery by the creditor9. You should of course consider whether such a term is appropriate or would be considered a fair term to have in a consumer contract given the recent decision involving Bytecard (discussed below at ¶11.5.5). It is strongly recommended that you seek professional advice if you suspect that you may have arrangements that could be impacted by this issue. 11.5.4 The need for a business purpose declaration statement You should give consideration to an inclusion in your security agreement, if appropriate, that the collateral will be used for a business purpose and that this declaration should be signed by the grantor. One of the more vexing issues to arise out of the Trade Practices Act Amendments is what will constitute a consumer contract. In the absence of definite proof, if challenged, an ostensibly business contract may be found by the court to be a consumer contract. Such a situation could have wide ranging consequences. 11.5.5 The potential ramifications of the unfair contract terms

amendments to the Competition and Consumer Act 2010 As mentioned above, amongst the amendments to the Competition and Consumer Act 2010 was the introduction of the unfair contracts terms provisions. Whilst these provisions relate only to standard form consumer contracts, there is the potential for a knock on effect which would operate as follows. Example Apricot Pty Ltd entered into a security agreement with Miss Lottie Angel, a sole trader for the supply of goods. Miss Angel became insolvent and a personal bankrupt. The trustee in bankruptcy sought to overturn the business contract with Apricot on the grounds that it was really a consumer contract for goods for personal, domestic and household use. Further, the trustee argued that the security agreement was unfair as it contained a cease supply clause which did not set out the basis upon which supply would cease. Nor did the security agreement provide for the giving of notice prior to the cessation of supply. Should the trustee sustain his argument that this was in fact a consumer contract and that the cease supply clause was unfair, then either the whole or part of the security agreement could be overturned. In other words, it will be considered void.

You may find it beneficial to avoid such problems as outlined above by including in your business contracts provisions which would minimise the likelihood of this occurring. Thus your cease supply clause could be based on a period of notice or reasonable grounds. In the review of your documentation it is worthwhile watching out for such provisions and taking remedial action prior to having a problem. In March 2013, the Australian Competition and Consumer Commission (ACCC) released a report Unfair Contract Terms Industry Review Outcomes, which identified a number of problematic terms in standard form consumer contracts. A copy of the report is available on the ACCC website. In the first case prosecuted by the ACCC under the new unfair contract terms the Federal Court declared, by consent, that certain clauses of ByteCard’s standard terms and conditions were unfair contract terms. The unfair contract terms: • enabled ByteCard to unilaterally vary the price under an existing contract without providing the customer with a right to terminate the contract

• required the consumer to indemnify ByteCard in any circumstance, even where the contract has not been breached and the liability, loss or damage may have been caused by ByteCard’s breach of the contract, and • enabled ByteCard to unilaterally terminate the contract at any time with or without cause or reason. The terms were considered unfair as they: • created a significant imbalance in the parties’ rights and obligations • were not reasonably necessary to protect ByteCard’s legitimate interests, and • if applied or relied upon by ByteCard, would cause detriment to a customer. ByteCard was also required to pay a contribution to the ACCC’s costs.10 11.5.6 Guarantees, indemnities and “all monies clauses” For many years guarantees and indemnities have been a source of protection for creditors. Whilst there is no consistency in the wording of a Deed of Guarantee, it is common that a “charging clause” in respect of “all monies” for which the principal debtor and the guarantor may be liable will be included. The charging clause may refer to real estate or personal assets or both. However, there is an aspect which is not always exercised by the organisation which has sought the guarantee, namely that the charging clause over personal assets is not registered in accordance with the provisions of the Corporations Act 2001 nor if the charge relates to land is a mortgage or caveat taken over land until such time as there is a default. If the charge was over personal assets and had been registered with the Australian Securities and Investments Commission (ASIC) as provided for in the Corporations Act, then it will have been transferred to the PPSR. However, if the guarantee is one that is only activated if needed, then it will not have been transferred to the PPSR. As real property (land and fixtures) is outside of the scope of this text, the implications of not utilising the guarantee in relation to land will not be considered.

What you will now have to consider is whether or not you would like to have security over personal assets of both the debtor and the guarantor. If you do then the wording of the guarantee will need to reflect the provisions of the PPSA. The following words are provided solely for your guidance and they should not be utilised without professional advice to ensure that your organisation’s needs are addressed. “… In order to secure payment of all monies for which the Guarantor may become liable to pay the company hereunder, the Guarantor hereby charges as beneficial owner all of the Guarantor’s freehold and leasehold interest in land both in which the Guarantor is now possessed and which may hereafter, along with all of the Guarantor’s personal property both presently owned by the Guarantor and that which the Guarantor may hereafter acquire. The Guarantor further agrees that immediately upon demand being made upon the Guarantor by the company, the Guarantor shall deliver to the company such bill of encumbrance in registrable form, or such other instrument of security or consent to caveat as the company may require duly executed or consented to by the Guarantor. In the event that the Guarantor should neglect or fail to deliver the requested instrument or security, the Guarantor hereby appoints the company to be the Guarantor’s lawful attorney for the purpose of executing and registering such instruments … .”11 However, if your guarantee simply provides for the payment of the principal debt with no charging provisions, it may not be registrable or effective under the PPSA12. Whilst you may still be able to enforce the guarantee under existing law, you would not have any priority over any assets subject to a security interest. If the guarantor has become insolvent, then your guarantee may not be very useful13. In Industrial Progress Corporation Pty Ltd v Wilson (2013) APPSR ¶701007; [2013] WASC 225, the grantors argued that caveats placed on their land by the secured creditor were not valid as the security agreement had not been registered on the PPSR. The judge was satisfied that either the rights of the secured creditor had been temporarily perfected for 24 months pursuant to s 322(1) of the PPSA or that there was no reduction

in the debt flowing from the breach. There was therefore a serious case to be argued and the caveats should remain until the matter was resolved. Interestingly in this case the judge encouraged the parties to resolve their dispute commercially rather than resolving the dispute in court. 11.5.7 Registration costs You may want to include the cost of registration on the PPSR in your contract. 11.5.8 Enforcement costs You may wish to have the grantor pay the cost of any enforcement action and this should be reflected in your contract. 11.5.9 Section 115 provisions As explained in Chapter ¶6 of this book, which deals with enforcement, you should carefully consider whether or not you want to contract out of any of the sections listed in s 115 of the PPSA. 11.5.10 Retention of title clauses It has been suggested that if you have a retention of title (ROT) clause, then the ROT clause should be retained due to a peculiarity in the wording of amendments to the Corporations Act relating to circulating assets and what is defined in the Corporations Act as a Personal Property Act Retention of Title. The specific definition from the Corporations Act is as follows: “S 51F Meaning of PPSA retention of title property Definition (1) Property is PPSA retention of title property (short for Personal Property Securities Act retention of title property) of a corporation if: (a) the property is personal property; and (b) the property is used or occupied by, or is in the possession of, the corporation; and (c) the corporation does not have title to the property; and

(d) a PPSA security interest is attached to the property, within the meaning of the Personal Property Securities Act 2009; and (e) the corporation is the grantor in relation to the PPSA security interest, within the meaning of that Act.” Section 51F may, on an initial review, be misleading as this definition goes beyond ROT. Personal property is PPSA retention of title property if a PPSA security interest attaches to the property by virtue of the transaction concerned, and the grantor is a corporation. The section includes the following examples. The following personal property is PPSA retention of title property if a PPSA security interest attaches to the property by virtue of the transaction concerned, and the grantor is a corporation: (a) property that is the subject of an agreement to sell subject to ROT, or a hire purchase agreement, that secures the payment or performance of an obligation (as per s 12(2) of the PPSA) (b) property that is the subject of a lease, or a consignment agreement, that secures the payment or performance of an obligation (as per s 12(2) of the PPSA) (c) goods that are the subject of a commercial consignment (as per s 12(3) of the PPSA) (d) goods that are leased or bailed under a PPS lease (as per s 12(3) of the PPSA). Thus as you will note s 51F of the Corporations Act goes well beyond a traditional definition of ROT and thus should be referred to in all security agreements which fall within the scope of s 51F. This would include leases, hire purchase and bailment. By retaining your ROT clause and referring to s 51F you should give your organisation the best protection; however, it will not be sufficient to claim these protections, you must also be able to back up your claim with evidentiary documentation. You should also be aware that the Corporations Act still retains reference to ROT. This is to ensure that personal property which does not fall within

the meaning of the PPSA is still addressed in an insolvency situation. You should also refer to the discussion in relation to ROTs in an insolvency context contained in Chapter ¶9 of this book. In Crossmark Asia v Retail Adventures (2013) APPSR ¶701-004; [2013] NSWSC 55, the judge decided that s 267 of the PPSA did not apply to the transaction. The judge did not expand on his reasoning as to why the section did not apply but it appears that the reasons are as follows: • The ROT clause in the pro-forma invoices would originally have created a security interest under the PPSA. • However, the cancellation occurred before the administrators were appointed. • After the contract was cancelled, there was no longer an ROT. At the time of cancellation, the ROT clause was valid and took effect. This meant that property in the goods remained with Crossmark and it was entitled to possession and to sell the goods. After the ROT clause took effect, it was spent and no longer continued to apply. There was no longer a security interest in the goods. • Section 267 applies if two criteria (set out in s 267(1)(a) and (b)) are satisfied. Section 267(1)(a) was satisfied because an administrator had been appointed: s 267(1)(a)(ii). The criteria in s 267(1)(b) was that a security interest granted by RAPL was unperfected at a particular time, namely the s 513C day within the meaning of the Corporations Act. The s 513C day was the day on which RAPL’s administration began, that is, 26 October 2012. However, there was no security interest on that date. Therefore s 267 of the PPSA did not apply. The matter was brought on urgently and the judge was required to deliver his decision on the day of hearing. It was not clear from the facts whether some of the goods were in the possession of the administrator on the relevant day. Care should be taken in applying the findings of this case to other situations. A very important note

Failure to perfect a security interest could result in the interest in the collateral vesting with the grantor at the time an external controller is appointed or winding up is deemed to commence or a sequestration order is made. This issue is discussed in Chapter ¶9 — Dealing with corporate insolvency situations.

Footnotes 9

Peter Mills presentation to AICM PPS Seminar, August 2010.

10

Court declares consumer contract terms unfair, 30 July 2013, ACCC Release number: 174/13.

11

Chris Swanson presentation to AICM PPS Seminar, May 2009.

12

Ibid.

13

Ibid.

¶11.6 Additional clauses and compliance with Ch 4 of the PPSA You are not impeded from including additional clauses in your security agreement that you believe to be relevant and necessary. However, if the security agreement does not comply with the provisions contained in Ch 4 of the PPSA and as discussed in Chapter ¶6 of this book, then your security agreement will not be enforceable. 11.6.1 Risk management issues The utilisation of the PPS regime will serve to inform your risk management practices. You should include in your review of a prospective customer their current level of exposure in terms of security agreements registered against them as a grantor. The PPSR can be used by you on an ongoing basis to monitor a customer’s level of exposure, for example when reviewing credit limits.

You will also be able to reduce your organisation’s level of risk by seeking security agreements against a much wider range of collateral than previously available in particular intangible property. 11.6.2 Workplace practices It is suggested that you will need to consider issues relating to how the workload will be managed in relation to the PPS regime. A fundamental question you may wish to consider is who will be responsible for what. Example Nora Pewter is the National Credit Manager at Godel Pty Ltd. Some of the questions Nora will need to resolve with her team could include: • authorisation and delegation • management of the PPS registrations • monitoring of customer details and records • liaison with other parts of the business • revising policies and procedures • professional development and training requirements. This list is not intended to be comprehensive but instead serve to highlight, when embarking upon the introduction of PPS in your workplace, that you will in effect be managing a major change management project that will require careful planning.

11.6.3 Human resources Finally you could also find it useful to brief the human resources team. It will be helpful if the members of the human resources team understand the skills and knowledge that will be required to work within the PPS regime. This understanding, amongst other things, will assist the human resources team when recruiting personnel, managing professional development and in succession planning.

¶11.7 One year after commencement of the PPSA — case wrap up It has been just over one year since the PPSA commenced in Australia. At the time of writing this book, the Australian courts have made

reference to the Act in nine cases. There has also been an interesting case decided in the Administrative Appeals Tribunal which dealt with the question of an amendment demand.14 The most important decision is In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors (2013) APPSR ¶701-008; [2013] NSWSC 85215. A summary, or headnote, of the case, written by Jason Harris, is contained in Appendix 6 of this book. In that case failure to register a security interest on a transitional register resulted in the creditor losing his security. Four of the decisions have dealt with the issue of extending the effective date of registration to ensure that the creditor was protected by the provisions of s 588FL of the Corporations Act in the event of the grantor going insolvent. This section only provides protection if the security interest was registered within 20 days of its creation. So far the courts have decided that the terms of s 588FM of the Corporations Act are broadly similar to the circumstances in which the court could previously extend the time for lodging notice of a charge under the former s 266(4) of the Corporations Act. Certain circumstances need to be present of course in order for such an order to be made. In In the matter of Barclays Bank PLC (2012) APPSR ¶701-003; [2012] NSWSC 1095, the failure to register the security interests was due to inadvertence, which included not being properly attentive, or failing to understand the requirement to lodge notice of a security interest within the specified period and the consequences of non-registration16. The next case was In the matter of Cardinia Nominees (2013) APPSR ¶701-005; [2013] NSWSC 32. Again the court was satisfied that the failure to register within the 20-day period was due to inadvertence, namely a mistake about the consequences of failing to register. The confusion in this case was caused by poor drafting of the security agreement and perhaps one may suggest an over-reliance on precedent documents. As mentioned above, it is important to include a clause in your security agreement setting out who is responsible for registering the security on the PPSR. The third decision dealing with this issue was In the matter of Apex Gold (2013) APPSR ¶701-009; [2013] NSWSC 881. The judge followed the approach taken in Cardinia Nominees and granted the order.

The fourth decision to date was In the matter of Black Opal IP Pty Ltd ACN 151 765 356 (Subject to deed of company arrangement (2013) APPSR ¶701-010[2013] NSWSC 1225. This case was interesting because it involved an application by the administrator in relation to a security interest registered by him after the administration. He sought an order pursuant to s 588FM of the Corporations Act and this was granted. What is interesting here is that “In this case, the company was subject to DoCA when the security interest arose and therefore, pursuant to s 588FL(2)(a)(ii), s 588FL(2) would only apply if the security interest was perfected by registration and no other means when the security interest arose. The security interest was not perfected by registration at the time that it arose and therefore s 588FL does not apply to it for the purposes of the DoCA”17 This issue was not put before the judge and the case appears to have been argued on the basis that it was open to the judge to be able to make the order. It will be interesting to see if this decision is followed in future cases. Another interesting case decided so far in Australia is In the matter of Cancer Care Institute of Australia Pty Limited (Administrator appointed) (2013) APPSR ¶701-006; [2013] NSWSC 37 which involved a dispute about expensive medical imaging equipment. The judge decided that the equipment was a fixture and therefore when the lease was terminated the rights to the equipment were retained by the secured creditor and not the landlord. The landlord had sought to argue that the equipment had become a fixture. It is interesting to note that although the secured creditor had registered a valid PMSI on the PPSR, the judge referred to this as only one of the factors to be considered when deciding whether the equipment was a fixture or fitting. His Honour used the common law principles to determine the issue. One could perhaps argue that the judge should have simply determined whether there was a valid PMSI attached to the equipment and if so then it became operative. The three other decisions decided to date18 have been sufficiently discussed earlier in this book. Footnotes

14

Re: Daniele Cirillo and Registrar of Personal Property Securities (2013) APPSR ¶701-011; [2013] AATA 733 discussed at ¶5.3.4.7.

15

See ¶3.4.

16

At [13] of the judgment.

17

Editorial comment by Nicholas Mirzai as part of case headnote for In the matter of Apex Gold (2013) APPSR ¶701009; [2013] NSWSC 881 reported in the Australian Personal Property Securities Law Reporter, CCH.

18

• Carson, In the matter of Hastie Group Limited (No 3) (2012) APPSR ¶701-001; [2012] FCA 719 • Crossmark Asia v Retail Adventures (2013) APPSR ¶701-004; [2013] NSWSC 55 • Industrial Progress Corporation Pty Ltd v Wilson (2013) APPSR ¶701-007; [2013] WASC 225

¶11.8 Conclusion This chapter is intended to give you guidance and inform your decisionmaking process when introducing PPS. Each organisation will have different needs and requirements which will be determined by the organisational structure, industry sector and customer base. What will be essential to the successful introduction of PPS will be careful preparation and a sound knowledge of the principles which relate to this new law.

CASE STUDIES Editorial information The case studies provided here are examples only and are not intended to be taken as real situations. Some of the fact scenarios have been taken from recent cases while others have been taken from examples discussed in seminars either attended by or presented by the authors. These case studies are designed to provide examples of how the PPSA operates in practice. Any similarity to actual fact situations is accidental.

Insolvency case studies ¶CS 1 Unperfected PMSI Facts • Contract entered between A Pty Ltd and B Pty Ltd for supply of prefabricated sheds. Agreement contained reference to the PPSA and retention of title but not registered on the PPSR. • Deposit of 25% of the contract value paid with another 50% payment due 30 days after the sheds had been delivered and the balance on practical completion. • An administrator was appointed to B Pty Ltd prior to delivery of the sheds. • Subsequently B Pty Ltd was placed into liquidation. • The liquidator contacted A Pty Ltd and discussions ensued over a period of months. A Pty Ltd was proposing to sell the sheds directly to the third party who was the intended recipient from B Pty Ltd. • The liquidator rejected this proposal and claims an interest in the

sheds as the security interest of A Pty Ltd was not registered on the PPSR. • No payments were made by B Pty Ltd to A Pty Ltd other than the 25% deposit. Issues The first matter to determine is what interests A Pty Ltd and the liquidator have in the sheds. Having determined that, the next issue is what priority rules will apply under the PPSA. Next we must consider if there are any exceptions to the priority rules which would apply. Finally we must consider if there is any valid basis to challenge the interest created under the PPSA such as the 20 business day rule applying to insolvency situations pursuant to s 588FL of the Corporations Act 2001. The section was inserted into the Corporations Act as part of the amendments made to incorporate the PPSA. It essentially provides that, in the general case of corporate grantors, secured parties have until the end of 20 business days to register their relevant security interest. Resolution A Pty Ltd failed to register a security interest on the PPSR but they did retain possession. We therefore do not need to consider s 588FL in this situation. The contract had a retention of title clause which specified that title would not pass until the goods were paid for in full. This gave them the right to register a PMSI which would have given them super priority rights. Section 24 of the PPSA provides that a party can perfect their security by continuous possession of certain types of collateral. Unfortunately for A Pty Ltd the sheds do not fit within the categories of collateral to which this section applies. Therefore A Pty Ltd has an unperfected interest in the goods. The liquidator obtains his rights to the goods pursuant to s 267 of the PPSA which provides that an unperfected security interest will vest in a grantor immediately before the grantor enters formal insolvency

proceedings. The priority rules under the PPSA are applied and the liquidator has the right to possession of the sheds. A Pty Ltd can only lodge a claim in the liquidation for the balance as an unsecured creditor.

¶CS 2 Contract cancelled before insolvency event; unregistered ROT operative Facts Overseas Pty Ltd entered into a contract to supply Australia Pty Ltd with electric ovens and fans. The parties signed two written contracts, comprised of Crossmark’s pro-forma invoices (although the agreement in relation to the ovens was amended orally). There was a retention of title (ROT) clause stating that title to the goods would not pass from Overseas Pty Ltd to Australia Pty Ltd until Australia Pty Ltd had paid the price in full. There was an exchange of emails on 26 September 2012, discussing cancellation of orders for the goods. The cancellation of the order was later confirmed by telephone from the director of Australia Pty Ltd to the director of Overseas Pty Ltd. Australia Pty Ltd entered voluntary administration on 26 October 2012. Some of the goods had been delivered to Australia Pty Ltd and others were still at sea. The administrator sought to claim an interest in the goods on the basis that Overseas Pty Ltd had not registered its ROT security on the PPSR. Issues The issues included the following questions: 1. Were any of the goods outside of Australia? 2. Were the contracts governed by the terms in Overseas Pty Ltd’s proforma invoices or Australia’s purchase orders? 3. Were the contracts of sale terminated? If so, had property in the goods revested in Overseas Pty Ltd (assuming it ever left)? 4. If the contracts were made on Overseas Pty Ltd’s terms, what was the effect of s 267(2) of the PPSA on the ROT clause in the pro-

forma invoices? Section 267 deals with the vesting of unperfected security interests in the grantor (in this case, Australia Pty Ltd) upon the grantor’s winding up or another insolvency-related event (in this case, voluntary administration). Resolution Section 267 of the PPSA did not apply because of the following: • The ROT clause in the pro-forma invoices would originally have created a security interest under the PPSA. • However, the cancellation occurred before the administrators were appointed. • After the contract was cancelled, there was no longer an ROT. At the time of cancellation, the ROT clause was valid and took effect. This meant that property in the goods remained with Overseas Pty Ltd and it was entitled to possession and to sell the goods. After the ROT clause took effect, it was spent and no longer continued to apply. There was no longer a security interest in the goods. • Section 267 applies if two criteria (set out in s 267(1)(a) and (b)) are satisfied. Section 267(1)(a) was satisfied because an administrator had been appointed: s 267(1)(a)(ii). The criteria in s 267(1)(b) was that a security interest granted by Australia Pty Ltd was unperfected at a particular time, namely the s 513C day within the meaning of the Corporations Act. The s 513C day was the day on which Australia Pty Ltd’s administration began, that is, 26 October 2012. However, there was no security interest on that date. Therefore s 267 of the PPSA did not apply. Section 235 of the PPSA sets out the meaning of located for the purposes of the PPSA. It is important to be aware of this section when considering goods that are being imported from overseas. The facts are taken from Crossmark Asia v Retail Adventures (2013) APPSR ¶701-004; [2013] NSWSC 55.

¶CS 3 Security lodged by administrator after insolvency

event Facts Cooper, the first plaintiff and deed administrator of the second plaintiff, Black Opal Pty Ltd, entered into an asset sale deed with the defendant, Integra, on 22 June 2012. The asset sale deed was part of the deed of company arrangement (DoCA). The defendant was required to execute a general security agreement (GSA) in favour of the first plaintiff to secure its obligations under the asset sale deed. On 22 June 2012, the defendant granted the first plaintiff a security interest in all its present and after acquired property. Despite instructions from the first plaintiff, the first plaintiff’s solicitors failed to register that security interest. The security interest was ultimately registered on 28 June 2013. The first plaintiff sought an extension of time fixing 28 June 2013 as the registration date for security interests granted to him by virtue of s 588FM of the Corporations Act. Issues Section 588FL only applies if s 588FL(1) is satisfied, which means that the security interest granted by the company must be covered by s 588FL(2). Section 588FL(2) covers a PPSA security interest if: (a) at the critical time, or, if the security interest arises after the critical time, when the security interest arises: (i) the security interest is enforceable against third parties under the law of Australia, and (ii) the security interest is perfected by registration, and by no other means, and (b) the registration time for the collateral is after the latest of the following times: (i) six months before the critical time (ii) the time that is the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time, whichever time is earlier

(iii) if the security agreement giving rise to the security interest came into force under the law of a foreign jurisdiction, but the security interest first became enforceable against third parties under the law of Australia after the time that is six months before the critical time — the time that is the end of 56 days after the security interest became so enforceable, or the time that is the critical time, whichever time is earlier (iv) a later time ordered by the court under s 588FM. Here the security interest was not perfected by registration AT THE TIME IT AROSE, and so s 588FL(2) does not apply to this security interest because s 588FL(2)(a)(ii) is not satisfied (and hence s 588FL(1) and therefore the whole provision does not apply). Resolution As the insolvency event occurred before the GSA was entered into, s 588FM has no application. The security was not registered at the time of the insolvency event. From a policy perspective, the vesting rules are intended to encourage secured parties to perfect in a timely manner so that the unsecured creditors are not at risk of being gazumped when they extend unsecured credit after the security has been created (without their knowledge) but before it is registered. In this case there was no such prejudice because Black Opal was already in a DoCA (it was the administrator who caused the company to grant the security interest). The vesting rule is intended to cover external administrations after the security interest is created and remains unperfected, not to address security interests created by the external administrator. This view is supported by the wording of s 588FL(2)(b)(i) as this could not apply to this type of situation (you could possibly register six months before executing the security agreement but would be in breach of s 151 of the PPSA so far in advance). The facts are taken from In the matter of Black Opal IP Pty Limited ACN 151 765 356 (subject to Deed Of Company Arrangement) (2013) APPSR ¶701-010; [2013] NSWSC 1225. Note, however, that Brereton J made the orders sought by the administrator.

The authors would like to acknowledge the assistance of Jason Harris and Nicholas Mirzai in understanding the implications of this fact scenario. This analysis is different to the decision made in Black Opal but does not intend to give any view of the way the case was presented or the decision reached by the judge.

Leasing and bailment case studies Editorial information The justification for treating long term leases and bailments as deemed security interests is explained by O’Regan P, Chambers and Harrison JJ of the New Zealand Court of Appeal at [19] of the Rabobank New Zealand v McAnulty (2011) FPPSR ¶700-005; [2011] NZCA 212; [2011] 3 NZLR 192; (2011) 10 NZCLC 264,850 judgment: “The concept of a ‘lease for a term of more than 1 year’ thus includes legal relationships that might not intuitively be thought of as creating a security interest. Rather than attempt to delineate between finance leases (that are by their nature security interests) and true leases (that are not), the legislation simply specifies a category of leases that are treated as security interests. This intentionally brings within the net of the PPSA some transactions that do not have the hallmark of a security interest, in that they do not secure the payment of money or the performance of an obligation. By defining that category by reference to the term of the lease, the PPSA leaves outside the net true leases that are short term in nature.”

¶CS 4 Deemed security interests; termination of unregistered equipment lease Prior to the commencement of the PPSA, three pieces of large excavating equipment were purchased by QES, subject to finance, for use by Maiden pursuant to an oral lease agreement. Each vehicle could be driven and had a VIN number. Maiden used the vehicles for

excavation work in the Northern Territory.

At time of purchase Interest Legal Who has under the Equipment title possession PPSA

Security

Claims

30 tonne caterpillar excavator

QES

Maiden

QES owned the vehicle but Maiden had a proprietary right in them as lessee. Section 19(5) of the PPSA provides that it could grant a security interest in leased property once it obtained possession. This right was not limited to Maiden’s possessory right as lessee.

Verbal lease between QES and Maiden

Purchased by funds provided to QES by Westpac

20 tonne caterpillar excavator

QES

Maiden

Upon payment of the moneys

Verbal lease between

Purchased by funds provided to

Caterpillar wheel loader

QES

Maiden

owing to Esanda, Maiden became the legal owner and could grant a security interest to a 3rd party.

QES and QES by Maiden Esanda. This was paid in full.

QES owned the vehicle but Maiden had a proprietary right in them as lessee. Section 19(5) of the PPSA provides that it could grant a security interest in leased property once it obtained possession. This right was not limited to Maiden’s possessory right as lessee.

Verbal lease between QES and Maiden

Purchased by funds provided to QES by Westpac

QES sent invoices to Maiden for the loan repayments plus 10%. Maiden made all the payments in relation to the 20 tonne caterpillar excavator financed by Esanda and the debt was repaid in full. Maiden retained possession of the vehicle. NO further invoices were sent in relation to this vehicle. Maiden makes only sporadic payments in relation to the 30 tonne caterpillar excavator and the caterpillar wheel loader, both of which were financed by Westpac. QES had no written agreement with Maiden and had not registered its interest in the vehicles on any transitional register. On 31 January 2012 the PPSA commences. In March 2012, Maiden obtained short term finance from Fast Finance. A security agreement was signed and a PMSI was registered on the PPSR which noted Fast Finance’s interest in the vehicles. No other security interest was registered on the vehicles at the time of Fast Finance’s registration. Subsequently Maiden defaulted on the loan to Fast Finance and it immediately appointed receivers. The company was ultimately placed into a creditor’s voluntary administration. QES terminated the lease over the 30 tonne vehicle and the caterpillar wheel loader, took possession of them and leased them to another client. The 20 tonne vehicle was seized by Central Plant Hire (Central) due to a breach of a verbal security agreement with Maiden which purportedly conferred a lien on Central.

At time of insolvency event

Equipment

Legal Who has title possession Security

Claims

30 tonne caterpillar excavator

QES

3rd party subject to lease from QES

Fast Finance QES claimed pursuant to priority as lessor registered PMSI

20 tonne caterpillar excavator

QES

Central Plant Fast Finance Central claimed Hire pursuant to priority pursuant registered PMSI to a lien based on verbal

agreement with Maiden Caterpillar QES wheel loader

3rd party subject to lease from QES

Fast Finance QES claimed pursuant to priority as lessor registered PMSI

The receivers applied to the court for orders for QES and Central to deliver possession of the vehicles to them. The receivers argued that Fast Finance had priority over the vehicles because of its perfected security interest, while QES claimed ownership (as lessor) over the 30 tonne vehicle and loader, and Central claimed priority owing to its alleged lien. Issues The first matter to determine is what interests each of the parties have in the vehicles. Having determined that, the next issue is what priority rules will apply under the PPSA. Next we must consider if there are any exceptions to the priority rules which would apply. Finally we must consider if there is any valid basis to challenge the interest created under the PPSA such as the 20 business day rule applying to insolvency situations pursuant to s 588FL of the Corporations Act. In this case scenario we must also consider if the requirements of the PPSA have been met. Resolution

Post-insolvency event Creditor Claim

PPSA rights

Exceptions

Legal rights

QES

• deemed secured party as its leasing arrangement with Maiden

• s 20 PPSA requirements not met so unperfected security which

vehicle must be returned to Fast Finance who had priority under

lessor

was a PPS lease under s 13 • holder of a transitional security interest pursuant to s 322

vested in Maiden as grantor upon insolvency event • could not rely on the protection given by s 322 because it had failed to register its interest on a transitional register when required to prior to the introduction of the PPS

the PPSA

Fast secured Finance creditor pursuant to registered PMSI

super priority pursuant to a registered PMSI



vehicle must be returned to Fast Finance who had priority under the PPSA

Central

possession but s 21(2)(b) no registered PPSA prevents security perfection by seizure

lien holder

vehicle must be returned to Fast Finance who had priority under the PPSA

A lessee can grant a security interest in leased goods and the interest so granted is not limited to the possessory rights of the lessee, nor is it affected by the termination of the lease following default. In this case, the failure to perfect the PPS lease security interest at the time of voluntary administration vested the security interest in the grantor which could not be undone by merely terminating the lease and repossessing the

equipment. The case also contains a useful discussion of conflicts of laws issues relating to pre-PPSA registration requirements and their effect on the transitional rules. The facts are taken from In the Matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as Receivers and Managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors (2013) APPSR ¶701-008; [2013] NSWSC 852.

¶CS 5 Fixtures and PMSI Facts Cortez Enterprises Pty Limited owned a medical centre. Part of the premises were occupied by the Cancer Care Institute although no written lease had been entered into. The premises occupied by Cancer Care had been modified to accommodate medical imaging equipment. Cancer Care bought two linear accelerators for almost $9m from Varian Medical Systems Australasia Pty Limited. Varian held a purchase money security interest (PMSI) in the linear accelerators, which was registered on the PPSR. The linear accelerators were installed on steel base frames, which were grouted into the floor. Cancer Care failed to make the repayments for the linear accelerators and it went into administration and vacated the premises. Cortez, as landlord, claimed that the linear accelerators had become fixtures and could not be removed. Varian claimed that it had a registered security interest in the linear accelerators and sought to take possession of them. The administrator did not claim an interest in the linear accelerators. Issues The first matter to determine is what interests Cortez and Varian have in the electrical equipment. Having determined that, the next issue is what priority rules will apply under the PPSA. Next we must consider if there are any exceptions to the priority rules which would apply. Finally we must consider if there is any valid basis to challenge the interest created under the PPSA such as the 20 business day rule

applying to insolvency situations pursuant to s 588FL of the Corporations Act. Resolution Varian had taken security over the linear accelerators and had correctly registered this interest as a PMSI on the PPSR. The security was registered within the 20 day time period required by s 588FL of the Corporations Act. The landlord had not executed a written lease with Cancer Care and therefore had no interest in the linear accelerators pursuant to the PPSA. It could only claim an interest under the law applicable to real property under common law. The landlord needed to establish that the linear accelerators had become fixtures. The linear accelerators were affixed to the premises by way of steel frames that had been affixed to the floor. They could be removed from the steel frames and transported without any damage being caused to them or the premises. They had not become fixtures. The following factors are relevant: • the linear accelerators were designed to be moveable equipment. • removal would not destroy or damage the linear accelerators. The value of the linear accelerators greatly exceeded the cost of its removal (approximately $60,000) and would only take a few days to achieve. • there was no written lease over the premises. • the existence of a registered PMSI indicated that at the time they were purchased, it was the intention of Cancer Care and Varian that they would not become fixtures at the premises. • the design of the area leased by Cancer Care was not relevant as it was simply in accordance with the intention of the landlord to lease out premises which could be used for conducting radiological medical procedures. The facts are taken from In the Matter of Cancer Care Institute of Australia Pty Limited (Administrator Appointed) (2013) APPSR ¶701-006;

[2013] NSWSC 37.

¶CS 6 Motor car dealers Facts Supercars Pty Ltd is a car dealer who imports cars from HotV8 Pty Ltd by way of bailment. The cars are available for Supercars Pty Ltd to display in their car yard located in Maroubra, New South Wales. HotV8 Pty Ltd remains the owner of the cars and Supercars Pty Ltd pays them a bailment fee per car supplied. The parties have entered into a commercial consignment arrangement which is also known as a floor plan financing agreement. When a car is sold by the dealer, the loan advance against that car is repaid by the dealer via the purchase price paid by the customer. HotV8 Pty Ltd has registered its interest on the PPSR. Mr Ford inspects a new HotV8 ute located at Supercars Pty Ltd’s dealership and decides to buy it. The purchase will be financed through Holden Bank who have prepared a loan agreement which makes provision for them to register an interest on the PPSR after the sale is completed. Mr Ford pays for the HotV8 ute and drives it out of the lot. He drives it straight to Homer and Kitty Kat’s Tyre Shop and asks the manager to fit four Diablo Tundra rims. Rex Parsons who owns the store offers him finance to pay for the rims and asks him to sign a finance agreement which allows him to register an interest in the rims on the PPSR. Mr Ford says the car is financed with Holden Bank so he must check with them. The bank manager, William Winston, says that is fine as long as Mr Parsons registers a PMSI which is only over the rims. Mr Ford tells Rex Parsons who agrees and the finance agreement is signed. Issues Who has an interest in the car after Mr Ford leaves the dealership? What are the steps that need to be taken to protect the interests of Holden Bank and Homer and Kitty Kat’s Tyre Shop? Resolution The PPSA provides special rules in s 45 which make provision for the taking of motor vehicles free of a security interest. In determining whether

Mr Ford has taken the HotV8 ute free of the security interest of HotV8 Pty Ltd, the following steps should be applied: Section 45 PPSA checklist • Does the HotV8 ute come within the definition of motor vehicle set out in reg 1.7? The HotV8 ute: – is built to be propelled on land – is capable of speeds over 10 km/h – has a vehicle identification number (VIN) – has a chassis number – has the manufacturer’s number, and – does not (subject to the skill of the driver) run on rails, tram lines or other fixed path (reg 1.7(2)). • Is the HotV8 ute required by the regulations to be described by serial number? Regulation 2.2(c)(i) requires motor vehicles as defined by reg 1.7 to be described by serial number. • Is the “day and a half rule” contained in s 45(2) satisfied? A search of the PPSR on the day before the sale was completed would have disclosed a registration that perfected the security interest of HotV8 Pty Ltd. Therefore this section is not satisfied. • Does one of the exceptions contained in s 45(2) apply? Yes, s 45(2)(d) applies as Mr Ford was advised by Holden Bank that a search of the PPSR revealed an interest by HotV8 Pty Ltd. • Does s 45(3) apply to the transaction? Mr Ford is a buyer for new value of a motor vehicle.

Regulation 2.2(c)(i) requires motor vehicles as defined by reg 1.7 to be described by serial number. Supercars Pty Ltd is the holder of a dealers licence allowing it to sell cars manufactured by HotV8 Pty Ltd and therefore is a prescribed person for the purposes of reg 2.2 of the PPSReg. Therefore s 45(3) applies to the transaction. Mr Ford takes the beautiful red HotV8 ute, free of the security interest of HotV8 Pty Ltd. Holden Bank registers its interest on the PPSR. Homer and Kitty Kat’s Tyre Shop registers a PMSI over the Diablo Tundra mag wheels on the PPSR. In the unlikely event that Mr Ford wants to sell the HotV8 red ute with Diablo Tundra mag wheels, he will need to pay out the secured creditors or arrange for them to be paid from the proceeds of sale.

Delay in registration case studies Editorial information Section 588FL of the Corporations Act provides that a security interest taken over a company must be registered within 20 business days of it coming into existence or the interest will vest in the insolvency practitioner (should such a party be appointed). Section 588M of the Corporations Act allows a party to apply to the court for an order extending the time for doing something under the Corporations Act. The interaction of these two sections was explained by Black J, at [11]– [12] in In the Matter of Cardinia Nominees Pty Ltd (2013) APPSR ¶701005; [2013] NSWSC 32 “11. Sections 588FL and 588FM of the Corporations Act were introduced by the Personal Property Securities (Corporations and Other Amendments Act 2010 (Cth). Section 588FL(2) provides that: ‘(2) This subsection covers a PPSA security interest if:

(a) at the critical time, or, if the security interest arises after the critical time, when the security interest arises: (i) the security interest is enforceable against third parties under the law of Australia; and (ii) the security interest is perfected by registration, and by no other means; and (b) the registration time for the collateral is after the latest of the following times: (i) 6 months before the critical time; (ii) the time that is the end of 20 business days after the security agreement that gave rise to the security interest came into force, or the time that is the critical time, whichever time is earlier; (iii) if the security agreement giving rise to the security interest came into force under the law of a foreign jurisdiction, but the security interest first became enforceable against third parties under the law of Australia after the time that is 6 months before the critical time-the time that is the end of 56 days after the security interest became so enforceable, or the time that is the critical time, whichever time is earlier; (iv) a later time ordered by the Court under section 588FM.’ The term ‘critical time’ is in turn defined in s 588FL(7). Broadly, the effect of s 588FL(2) is that, when a company is being wound up, an administrator is appointed, or a deed of company arrangement is executed, any PPSA security interest which was perfected, registered or enforceable against a third party after the latest of six months before the critical time, or 20 days after the security agreement came into force, or a later time ordered by the Court under s 588FM, vests in that company: see Explanatory Memorandum to the Personal Property Securities (Corporations and Other Amendments) Bill at [6.5]. (For completeness, I should

note that, where the PPSA security interest has been registered as is the case here, it is not necessary to address the application of s 267 of the PPSA which would vest an unperfected security interest in the grantor in specified circumstances.) 12. Section 588FM in turn allows the company, or an interested person, to apply to the Court for the fixing of a later time, for the purposes of s 588FL(2)(b)(iv). Section 588FM(2) relevantly provides that: ‘(2) On an application under this section, the Court may make the order sought if it is satisfied that: (a) the failure to register the collateral earlier: (i) was accidental or due to inadvertence or some other sufficient cause; or (ii) is not of such a nature as to prejudice the position of creditors or shareholders; or (b) on other grounds, it is just and equitable to grant relief.’ The Court may make such an order on terms and conditions under s 588FM(3). The terms of s 588FM are broadly similar to the circumstances in which the Court could previously extend the time for lodgement of a notice of a charge under s 266(4) of the Corporations Act.” Also refer to CS 3 Security lodged by administrator after insolvency event in the Insolvency section of the case studies.

¶CS 7 Section 588M order made with conditions Facts Bank A provided a loan to Customer A Pty Ltd which was supported by a General Security Agreement (GSA) executed by both parties. Both parties had solicitors acting for them in the transaction. Customer A Pty Ltd made payments on the due dates. Six months after the date of the transaction, Bank A conducted an

internal audit of its securities and discovered that the GSA had not been registered on the PPSR. Bank A contacted its solicitor seeking an explanation and advice. Partner A reviewed the file and realised that a junior solicitor in the firm had omitted to register the GSA. She advised Bank A of the operation of s 588L of the Corporations Act and the risks involved if an insolvency event occurred to Customer A Pty Ltd. Bank A advised that as far as it was aware Customer A Pty Ltd was not in financial difficulty. Partner A advised that notwithstanding this, an application should be made immediately to the Supreme Court pursuant to s 588M of the Corporations Act to seek an extension. Her firm would of course pay the costs associated with this application. Bank A instructed Partner A to make the application without delay. A search conducted of the PPSR showed that Lucky Pty Ltd had registered a PMSI over a printing press owned by Customer A Pty Ltd within the six months since the GSA had been executed. The delay in registration was due to the inadvertence of a junior solicitor and the parties had at all times intended the GSA to be registered on the PPSR. Issues Section 588FL of the Corporations Act provides that a security interest taken over a company must be registered within 20 business days of it coming into existence or the interest will vest in the insolvency practitioner (should such a party be appointed). In the above facts a period of six months had elapsed so the protection provided by this section was lost. Bank A was therefore at risk of losing its security interest if an insolvency event occurred to Customer A Pty Ltd. Partner A failed to produce any documents to the court which set out the solvency or otherwise of Customer A Pty Ltd. Nor had Partner A served the application on Lucky Pty Ltd or provided it with any notice of the proceedings. Resolution Section 588M of the Corporations Act allows a party to apply to the court for an order extending the time for doing something under the Corporations Act. The court has a discretion to extend the time for protection under s 588FL to a period outside the 20 days if the requirements of s 588M have been

satisfied. Although the requirements of the section had been satisfied, in this fact scenario there was another secured creditor who may have been affected by the order. The judge could not be satisfied as to the solvency of Customer A Pty Ltd and whether an insolvency event would occur in the future. Although the interest registered by Lucky Pty Ltd was a PMSI and would have the benefit of the priority rules under the PPSA, it still had an interest in the making of the order. In such a situation the order would be made but with the following conditions included in the order: (a) The order have no effect on the priority to be afforded to the security interest granted to Lucky Pty Ltd in the collateral referred to in registration number xxx in the PPSR, and (b) Reserve liberty to any liquidator, administrator, deed administrator or unsecured creditor of Customer A Pty Ltd to apply to discharge or vary this order if any winding up of Customer A Pty Ltd commences, or an administrator of Customer A Pty Ltd is appointed under s 436A, 436B or 436C of the Corporations Act, or Customer A Pty Ltd executes a deed of company arrangement, within six months of x September 201x. The judges in the cases which have been decided to date have accepted the proposition that the court may grant an extension if it is satisfied that the failure to register earlier was accidental or due to inadvertence or some other sufficient cause, or was not of a nature to prejudice the position of creditors or shareholders or that it is just and equitable to grant relief on other grounds. The facts are taken from the following cases: • In the Matter of Cardinia Nominees Pty Ltd (2013) APPSR ¶701-005; [2013] NSWSC 32 • In the Matter of Apex Gold Pty Ltd ACN 124 893 778 (2013) APPSR ¶701-009; [2013] NSWSC 881.

¶CS 8 Section 588M order made without conditions

Facts Bank B provided a loan to Customer B Pty Ltd which was supported by a General Security Agreement (GSA) executed by both parties. Both parties had solicitors acting for them in the transaction. Customer B Pty Ltd made payments on the due dates. Six months after the date of the transaction, Bank B conducted an internal audit of its securities and discovered that the GSA had not been registered on the PPSR. Bank B contacted its solicitor seeking an explanation and advice. Partner B reviewed the file and realised that a junior solicitor in the firm had omitted to register the GSA. She advised Bank B of the operation of s 588L of the Corporations Act and the risks involved if an insolvency event occurred to Customer B Pty Ltd. Bank B advised that as far as it was aware Customer B Pty Ltd was not in financial difficulty. Partner B advised that notwithstanding this, an application should be made immediately to the Supreme Court pursuant to s 588M of the Corporations Act to seek an extension. Her firm would of course pay the costs associated with this application. Bank B instructed Partner B to make the application without delay. A search conducted of the PPSR showed that no other creditor had registered an interest within the six months since the GSA had been executed. The delay in registration was due to the inadvertence of a junior solicitor and the parties had at all times intended the GSA to be registered on the PPSR. Issues Section 588FL of the Corporations Act provides that a security interest taken over a company must be registered within 20 business days of it coming into existence or the interest will vest in the insolvency practitioner (should such a party be appointed). In the above facts a period of six months had elapsed so the protection provided by this section was lost. Bank B was therefore at risk of losing its security interest if an insolvency event occurred to Customer B Pty Ltd. The delay in registration was due to the inadvertence of a junior solicitor and no other creditor had registered an interest. No event of insolvency had occurred to Customer B Pty Ltd within the six-month period. Partner B produced documents to the court which showed that Customer B was

solvent and had no objection to the order being made. Resolution Section 588M of the Corporations Act allows a party to apply to the court for an order extending the time for doing something under the Corporations Act. The court has a discretion to extend the time for protection under s 588FL to a period outside the 20 days if the requirements of s 588M have been satisfied. In the above fact scenario the section would have been satisfied and an order made. No other creditor was impacted by the order so it would not need to be made conditionally. The judges in the cases which have been decided to date have accepted the proposition that the court may grant an extension if it is satisfied that the failure to register earlier was accidental or due to inadvertence or some other sufficient cause, or was not of a nature to prejudice the position of creditors or shareholders or that it is just and equitable to grant relief on other grounds. The facts are taken from In the Matter of Barclays Bank PLC (2012) APPSR ¶701-003; [2012] NSWSC 1095.

Agribusiness case studies ¶CS 9 Ordinary course of business test Facts Mr Smith operated four dairy farms in Gippsland under the name the Janeway Group. Each of the farms was owned by a separate company: • Plateau Pty Ltd • Hillside Pty Ltd • Beach View Pty Ltd, and • Smoothie Pty Ltd. West Bank provided finance to each of the farms and took a security

interest over each company including the livestock. Mr Smith’s son also managed a dairy farm which is owned by a company called Butter Pty Ltd. Mr Smith and his son regularly have dealings, on behalf of the companies, with Stock and Station Pty Ltd which is a livestock trading and finance company. The Janeway Group experienced some serious financial pressures and Mr Smith consulted his lawyer for advice on what methods he could use to raise funds without the need to involve West Bank. Plateau Pty Ltd sold 4,000 rising one-year-old heifers (referred to as 4,000 R1 heifers) to Stock and Station which then leased them to Butter Pty Ltd. No notification was given to West Bank of this transaction even though Mr Smith knew that West Bank had a registered security over all livestock in the Janeway Group. Notwithstanding this transaction the cattle remained on Plateau Pty Ltd’s farm land. Some months later Butter Pty Ltd and Plateau Pty Ltd entered into a formal bailment/lease agreement in relation to the cattle. Solicitors acting for Plateau Pty Ltd sent an ambiguously worded letter to Stock and Station enclosing the agreement. Six months later, Janeway “gifted” “750 M/A cows” to Butter Pty Ltd. The cows were not individually identified but simply gifted as a group. Butter Pty Ltd then sold the cows to Stock and Station and leased them back. The gifted cows remained at the Hillside Pty Ltd farm. West Bank held a security interest over the Janeway Group’s personal property, including livestock. Stock and Station held a registered security interest in all livestock leased to Butter Pty Ltd. The Janeway Group’s financial difficulties continued and administrators were appointed by West Bank. The administrators claimed that all livestock on the farms was the property of the Janeway Group and could be dealt with by them. Stock and Station objected to this on the basis that it had an interest in the 4,000 R1 heifers and the 750 cows. Butter Pty Ltd also claimed an interest in the 4,000 R1 heifers and the 750 cows. Issues 4,000 R1 heifers 1. Did Butter Pty Ltd take the 4,000 R1 heifers free of the security

interests of West Bank and Stock and Station? 2. Was Stock and Station’s security interest in the 4,000 R1 heifers subordinated to the Banks’ security interest? 3. Was the letter sent by Plateau’s solicitors sufficient notice of the lease agreement? 750 cows 4. Was there an effective gift of the 750 cows to Butter Pty Ltd? 5. Did Butter Pty Ltd have any property rights in the 750 cows when it entered the sale and leaseback arrangement with Stock and Station? If not, did this matter? 6. Was “750 M/A cows” (where M/A means “mixed age”) an adequate description of the collateral in the Stock and Station/Butter Pty Ltd security agreement? Resolution 4,000 R1 heifers Interest of Butter Pty Ltd Section 46 of the PPSA sets out the circumstances in which personal property can be taken free of a security interest. The main rule is contained in s 46(1) and provides: “A buyer or lessee of personal property takes the personal property free of a security interest given by the seller or lessor … if the personal property was sold or leased in the ordinary course of the seller’s or lessor’s business of selling or leasing personal property of that kind.” Therefore in order for Butter Pty Ltd to take advantage of the provisions of s 46 the property must have been sold or leased in the ordinary course of the seller’s or lessor’s business of selling or leasing personal property of that kind. The companies which made up the Janeway Group all operated dairy farms which produced milk and dairy products which were then sold.

Although cattle must be bought and sold as part of the running of a dairy farm, one cannot say that this was the main profit generating activity of the Janeway Group. The main business of the group was substantial scale dairy farming. Section 46 of the PPSA should not be used to allow a party to change the nature of their business in order to gain the protection of the section. This would create financial instability and discourage the provision of finance. The sale of the 4,000 RI heifers represented a sale of almost 15% of the livestock owned by the Janeway Group and was made at a time when the group was facing financial difficulties. The transaction was done without obtaining the consent of West Bank to the initial sale or adequate notification to Stock and Station of the subsequent bailment/lease agreement. On an objective and factual basis, it could not be said that the sale of the 4,000 RI heifers was “in the ordinary course” of business of Plateau Pty Ltd. Therefore s 46 of the PPSA would not apply to the transaction and Butter Pty Ltd cannot claim an interest in the property. Even if s 46(1) of the PPSA did apply it is likely that the exception contained in s 46(2)(b) would apply: “in any case — the buyer or lessee buys or leases the personal property with actual knowledge that the sale or lease constitutes a breach of the security agreement that provides for the security interest.” Given that the transaction was between family members, one could argue that Butter Pty Ltd was aware that the sale, which was made without the consent of West Bank, would be in breach of the financing agreement in place. Interest of Stock and Station Pty Ltd If Butter did have an interest, the next question would be whether the collateral had been effectively transferred to Stock and Station. The relevant test for temporary perfection following a transfer of collateral is contained in s 34 of the PPSA. This section would not apply to the transaction between Butter Pty Ltd and Stock and Station because West Bank, which was the original secured creditor, did not consent to the transaction (see s 34(1)(c)(i) of the PPSA).

Interest of West Bank West Bank had provided finance to the Janeway Group originally and had secured this transaction by registering its interest on the PPSR. This interest included the livestock owned by the Janeway Group. The interest registered by West Bank was a valid registration and was first in time. West Bank had correctly identified the property, and in particular, the livestock which was to be covered by the agreement. The administrators appointed by West Bank could therefore deal with the 4,000 R1 heifers as part of the secured property of the Janeway Group. 750 cows Interest of Butter Pty Ltd The cows had never been identified or separated in a way that could be characterised as constructive delivery, therefore the gift had never been completed and Butter Pty Ltd did not acquire any proprietary right to the cows. The Janeway Group owned many more than “750 M/A cows”. If this were all the cows owned by the group and they had been moved, then it is more likely that one could say an effective gift had occurred. Butter Pty Ltd therefore had no interest in the “750 M/A cows”. Having eliminated any interest of Butter Pty Ltd in the property, one must consider the competing priority interests of West Bank and Stock and Station. Interest of Stock and Station Pty Ltd If Butter did have an interest, the next question would be whether the collateral had been effectively transferred to Stock and Station. The relevant test for temporary perfection following a transfer of collateral is contained in s 34 of the PPSA. This section would not apply to the transaction between Butter Pty Ltd and Stock and Station because West Bank, which was the original secured creditor, did not consent to the transaction (see s 34(1)(c)(i) of the PPSA). Interest of West Bank West Bank had provided finance to the Janeway Group originally and had secured this transaction by registering its interest on the PPSR. This interest included the livestock owned by the Janeway Group. The interest registered by West Bank was a valid registration and was first in time.

West Bank had correctly identified the property, and in particular, the livestock which was to be covered by the agreement. The administrators appointed by West Bank could therefore deal with the 750 M/A cows as part of the secured property of the Janeway Group. What is knowledge of the transferee’s details for the purposes of s 34(1)(c)(ii)? If West Bank had become aware of the transactions involving the 4,000 RI heifers and 750 M/A cows other than by actual notice from the Janeway Group, then s 34(1)(c)(ii) may apply. Section 34(1)(c)(ii) of the PPSA requires the original secured party to re-perfect their interest within five business days (as opposed to 15 days) of acquiring the knowledge required to do so, that is, knowledge of the transferee’s (the new grantor’s) details. Section 34 of the PPSA also specifies that the new security interest must be perfected in order to take priority after the five business day window. Section 297 of the PPSA provides the following meaning of constructive knowledge: “For the purposes of this Act, a person (the first person) has constructive knowledge of a circumstance if the first person would have had actual knowledge of the circumstance if the first person had: (a) made the inquiries that would ordinarily have been made by an honest and prudent person in the first person’s situation; or (b) made the inquiries that would be made by an honest and prudent person with the first person’s actual knowledge in the first person’s situation.” In the above fact scenario, West Bank had neither actual nor constructive knowledge of the transaction. The facts are taken from Stockco Limited v Gibson & Ors (2012) FPPSR ¶700-009; [2012] NZCA 330. Also see the discussion of Carey v Smith (2013) FPPSR ¶700-016; [2013] NZHC 2291 and the meaning of “ordinary course of business” in Chapter ¶8 at ¶8.2.4.

APPENDIX 1 ¶Appendix 1 RELATIONSHIP BETWEEN THE PPSA AND THE NCC 4.1 Relationship with consumer credit legislation For subsection 119(2) of the Act, a provision in Chapter 4 of the Act mentioned in an item of the table is taken to have been complied with, in the circumstances for the Act mentioned in the item, if a provision of the National Credit Code (the NCC) mentioned in the item has been complied with, in the circumstances for the NCC mentioned in the item. Item

Provision of Circumstances Provision of Circumstances Act for Act NCC for NCC

1

Section 130

At least 10 Section 102 business days before collateral is to be disposed of, the secured party gives notice to the grantor and to any secured party with a higher priority

2

Sections 128 After seizing and 131 collateral, a secured party disposes of the collateral by sale, lease or

Section 104

Within 14 days after taking possession of collateral under a mortgage, the secured party provides a notice to the debtor, and does not sell the goods within 21 days after providing the notice An outstanding obligation has not been paid within 21 days after receiving a notice under

3

Section 132

licence, having first obtained the market value or, if the collateral does not have a market value, the best price reasonably available

section 102 of the National Credit Code and the secured party sells the goods, in accordance with section 103, for at least the estimated value, to a nominated person or to another person for the best price reasonably available

After the sale of Subsection mortgaged 104(3) goods, a secured party, on request by the grantor, higher secured parties and the debtor, gives a notice that contains the following information: (a) the total amount received from the sale; (b) the enforcement expenses, amounts paid to other secured parties;

After the sale of mortgaged goods, a secured party gives the mortgagor a notice that contains the following information: (a) the gross amount realised; (b) the net proceeds of the sale; (c) the amount required to pay out the credit contract; (d) any further recovery action that the secured

4

Section 140

(c) amounts paid to other secured parties; (d) the balance owing to the grantor or by the debtor to the secured party

party intends to take against the grantor; (e) any other information prescribed by these Regulations

A secured party Section 105 distributes funds received in the following order: (a) interests with a higher priority; (b) enforcement costs; (c) higher ranking security interests; (d) the secured interests of the enforcing party; (e) lower priority security interests; (f) the grantor

A secured party deducts the following amounts from any money received from a sale: (a) the secured amount that is outstanding; (b) the amount payable to discharge any prior mortgage; (c) the amounts payable to discharge any subsequent mortgages of which the secured party has notice; (d) the secured party’s reasonable enforcement expenses

APPENDIX 2 ¶Appendix 2 FINANCING STATEMENT MATTERS FOR THE TABLE IN S 154 OF THE PPSA Schedule 2 Financing statement matters for table in section 154 of Act (subregulation 5.5(2)) Part 1 Preliminary 1.1 Definitions for Schedule 2 In this Schedule: individual: (a) includes a sole trader who has an ABN for the enterprise that holds or has an interest in the prescribed property; and (b) does not include an individual who is a partner in a partnership or a trustee of a trust if the partnership or trust has an ABN for the enterprise that holds or has an interest in the prescribed property. Part 2 Matters for item 1 2.1 Individuals (1) For item 1 of the table in section 154 of the Act, this clause applies if an individual holds or has an interest in prescribed property. (2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the individual mentioned in the item. (3) For subclause (2), the prescribed details are the details mentioned in the item of the table that: (a) applies to the individual; and

(b) has the lowest item number. (4) For an individual who is the owner of prescribed property, in addition to the details mentioned in each item of the table, the individual’s date of birth is prescribed. (5) The source for the individual’s date of birth is the source in an item of the table that: (a) includes details of dates of birth; and (b) applies to the individual; and (c) has the lowest item number. Item Individual

Details

Source

1

Individual whose details are recorded in a transitional register, for migrated data

Individual’s Transitional register surname and given names, as recorded on the transitional register

2

Individual whose property is subject to a court order

Individual’s Court order surname and given names, as recorded on the court order

3

Individual who holds Individual’s a current driver’s surname and given licence names, as recorded on the individual’s current driver’s licence

Current driver’s licence issued by a State or Territory licensing authority to the individual

4

Individual who holds a current proof of identity or current proof of age card

Current proof of identity or current proof of age card issued by a State or Territory body to the individual

Individual’s surname and given names, as recorded on a proof of identity or proof of age card issued by

a State or Territory body 5

Individual who holds Individual’s Current Australian a current Australian surname and given passport issued to passport names, as recorded the individual on the individual’s current Australian passport

6

Individual who holds a current visa issued by the Australian government

Individual’s Current Australian surname and given visa issued for the names, as recorded individual on the individual’s current Australian visa

7

Individual who holds a current passport other than an Australian passport

Individual’s surname and given names, as recorded on the individual’s current passport issued by the jurisdiction in which the individual ordinarily resides

8

Any other individual Individual’s Birth certificate surname and given issued for the names, as recorded individual on the individual’s birth certificate

Current passport issued by the jurisdiction in which the individual ordinarily resides

2.2 Bodies corporate (1) For item 1 of the table in section 154 of the Act, this clause applies if the secured party or grantor is a body corporate that: (a) is a trustee and has an ARSN; or (b) is not a trustee.

(2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the body corporate mentioned in the item. (3) For subclause (2), the prescribed details are the details mentioned in the item of the table that: (a) applies to the body corporate; and (b) has the lowest item number. Item Body corporate

Details

Source

Body corporate number or name of body corporate, as recorded on the transitional register

Transitional register

1

Body corporate for which details have been included on the transitional register, for migrated data

2

Body corporate that Registered is the responsible scheme’s ARSN entity of a registered scheme, if the scheme has an ARSN

National Names Index

3

Body corporate that ACN has an ACN

National Names Index

4

Body corporate that ARBN has an ARBN

National Names Index

5

Any other body corporate

Body’s constitution or equivalent document

Name of the body, as provided for in body’s constitution or equivalent document

2.3 Partners (1) For item 1 of the table in section 154 of the Act, this clause applies

if a partner in a partnership holds or has an interest in prescribed property for the partnership. (2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the partner mentioned in the item. (3) For subclause (2), the prescribed details are the details mentioned in the item of the table that: (a) applies to the partner; and (b) has the lowest item number. Item Partner

Details

Source

1

Partner of a partnership for which details of the partnership have been included on the transitional register, for migrated data

ABN, name of partner or name that identifies partnership, as recorded on the transitional register

Transitional register

2

Partner of a partnership that holds or has an interest in the prescribed property in the course of, or for, an enterprise that has been allocated an ABN

ABN

Australian Business Register

3

Partner in any other Details mentioned partnership in the item in the table in clause 2.1 that applies to the partner

Source of the details mentioned in the item in the table in clause 2.1 that applies to the partner

2.4 Trustees (1) For item 1 of the table in section 154 of the Act, this clause applies if the secured party or grantor is: (a) a body corporate that is a trustee of a trust that: (i) has an ABN; and (ii) does not have an ARSN; or (b) any other trustee of a trust. (2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the trustee mentioned in the item. (3) For subclause (2), the prescribed details are: (a) for a trustee that is an individual — the details mentioned in the item of the table in clause 2.1 that: (i) applies to the trustee; and (ii) has the lowest item number; and (b) in any other case — the details mentioned in the item of the table that: (i) applies to the trustee; and (ii) has the lowest item number. (4) In this clause: trustee details means: (a) the ABN allocated to the enterprise carried on by the trust; or (b) the ACN or ARBN allocated to the trustee; or (c) the name of the trust or trustee.

Item Trustee

Details

Source

1

Trustee of a trust for Trustee details, as which details of the recorded on the trust have been transitional register included on the transitional register, for migrated data

Transitional register

2

Trustee of a trust ABN that holds or has an interest in the prescribed property in the course of, or for, an enterprise that has been allocated an ABN

Australian Business Register

3

Trustee of any other Trustee details trust mentioned in paragraph (3)(a)

Source mentioned in paragraph (3)(a)

2.5 Bodies politic (1) For item 1 of the table in section 154 of the Act, this clause applies if a body politic holds or has an interest in prescribed property. (2) The details mentioned in each item of the table, from the source mentioned for the item, are prescribed for the body politic mentioned in the item. (3) For subclause (2), the prescribed details are the details mentioned in the item of the table that: (a) applies to the body politic; and (b) has the lowest item number. Item Body politic 1

Body politic for which details have

Details

Source

Body politic details, as recorded on the

Transitional register

been included on the transitional register, for migrated data

transitional register

2

Body politic that ABN holds prescribed property in course of, or for, an enterprise for which an ABN has been given

3

Body politic that holds prescribed property other than in course of, or for, an enterprise for which an ABN has been given

Australian Business Register

Name of body Constitution of body politic, as provided politic for in constitution of body politic

APPENDIX 3 ¶Appendix 3 NOTICES AND TIMING At Ch 8, Pt 8.5, of the PPSA there are provisions which set out the details of notices which must be given and how these notices are to be given. It should be noted that at s 285 of the PPSA it is stated: “Application of this Part — notices etc. This Part does not apply to notices or other documents served or given: (a) in, or for the purposes of, any proceedings in a court or a tribunal of the Commonwealth or a State or Territory; or (b) in accordance with a procedure specified in a security agreement for serving or giving notices or other documents.” In addition this means that the PPSReg do not contain a “model” security agreement. The PPSR contains a number of forms which have been created by the Registrar. These are available on the PPSR website at www.ppsr.gov.au/Pages/ppsr.aspx. On 19 August 2013 the Registrar released the Personal Property Securities (Approved Form) Instrument 2013 which contains details of the current approved forms. The forms are interactive forms designed to be used online. The following forms have been approved for use: • ITSA Credit Application (section 190) (CA4(P)0813) • Notice of Intention to Remove Accession (section 95) (version N17(P)0813) • Notice of Intention to Dispose of Collateral (section 130) (version N15(P)0813)

• Notice of Proposal to Retain Collateral (section 135) (version N16(P)0813) • Amendment Statement (section 180) (version D1(P)0813)1. These forms are available at www.ppsr.gov.au/AsktheRegistrar/forms/Pages/default.aspx. Other approved forms are: • Application to register financing statement or financing change statement2 • Application for access to the register to search3 both of which are available online only at https://transact.ppsr.gov.au/. The following forms have been approved to be generated by the Registrar: • Verification statement4 • Notice of verification statement5 • Search result6. There are also some approved forms relating to data migration from the transitional register7. The following forms will not be developed by the Commonwealth: • Notice by holder of Non-PMSI in an account • Notice of re-perfection of security interest after transfer • Notice of removal of accession • Notice of decision to enforce security interest in accordance with land law • Notice of enforcement in relation to liquid assets. Footnotes

Footnotes 1

Personal Property Securities (Approved Form) Instrument 2013 s 4, Sch 1.

2

Ibid, s 5.

3

Ibid, s 8.

4

Ibid, s 6.

5

Ibid, s 7.

6

Ibid, s 9.

7

Ibid, s 10, 11.

APPENDIX 4 ¶Appendix 4 PPSA MODEL CLAUSES COLLABORATION In response to the uncertainty caused by the introduction of the PPSA, five major Australian law firms collaborated to draft a suggested standard for the core provisions to be included in a General Security Agreement. The law firms involved in this are: • Allens • Ashurst • Herbert Smith Freehills • King & Wood Mallesons • Norton Rose Fulbright. A copy of an article explaining the clauses is available from the Allens website at www.allens.com.au/pubs/baf/cubaf16may13.htm#Usage. The model clauses have been reproduced in this publication by kind permission of the five law firms referred to above. PPSA model clauses General security agreement1 16 May 2013 1 Security interest The Grantor grants a security interest in the Collateral to the Secured Party to secure payment of the Secured Money. This security interest is2 [a transfer by way of security3 of Collateral consisting of: (a) accounts and chattel paper (each as defined in the PPSA) which are not, or cease to be, Revolving Assets4; or

(b) a Key Contract. To the extent any Collateral is not transferred, this security interest is] a charge.5 If for any reason it is necessary to determine the nature of this charge, it is a floating charge over Revolving Assets and a fixed charge over all other Collateral.6 2 Collateral definition [Grantor is a company and NOT a trustee] Collateral means all the Grantor’s present and after-acquired property. It includes anything in respect of which the Grantor has at any time a sufficient right, interest or power to grant a security interest. [Grantor is a company AND a trustee ONLY charging trust property] Collateral means all the Grantor’s present and after-acquired property which is the subject of the Trust. It includes anything in respect of which the Grantor as trustee of the Trust has at any time a sufficient right, interest or power to grant a security interest. [Grantor is a company AND a trustee charging BOTH trust property and non-trust property] Collateral means all the Grantor’s present and after-acquired property. It includes: (a) anything in respect of which the Grantor has at any time a sufficient right, interest or power to grant a security interest; and (b) the Trust Property.7 Trust Property means, for a Trust8, all the Grantor’s present and afteracquired property which is the subject of the Trust. It includes anything in respect of which the Grantor as trustee of the Trust has at any time a sufficient right, interest or power to grant a security interest. [Grantor is a partnership granting security over partnership assets] Collateral means all the present and after-acquired property of the Partnership.9 It includes anything in respect of which the Partnership has at any time a sufficient right, interest or power for the Grantor to grant a security interest [and each partner’s interest in the Partnership].

3 Dealings with Collateral 3.1 Restricted dealings The Grantor must not do, or agree to do, any of the following unless it is permitted to do so by clause 3.2 (“Permitted dealings”) or another provision in a Transaction Document: (a) create or allow another interest in any Collateral10; or (b) dispose, or part with possession, of any Collateral.11 3.2 Permitted dealings The Grantor may do any of the following in the ordinary course of the Grantor’s ordinary business unless it is prohibited from doing so by another provision in a Transaction Document: (a) create or allow another interest in, or dispose or part with possession of, any Collateral which is a Revolving Asset; or (b) withdraw or transfer money from an account with a bank or other financial institution. 3.3 Revolving Assets If a Control Event occurs in respect of any Collateral12 then automatically: (a) that Collateral is not (and immediately ceases to be) a Revolving Asset; (b) any floating charge over that Collateral immediately operates as a fixed charge; [and] (c) [if the Collateral is accounts or chattel paper (each as defined in the PPSA), it is transferred to the Secured Party by way of security;]13 and (d) the Grantor may no longer deal with the Collateral under clause 3.2 (“Permitted dealings”). 3.4 Conversion to Revolving Assets If any Collateral is not, or ceases to be, a Revolving Asset, and becomes

subject to a fixed charge or transfer under this clause 3, the Secured Party may give the Grantor a notice stating that, from a date specified in the notice, the Collateral specified in the notice is a Revolving Asset, or becomes subject to a floating charge or is transferred back to the Grantor. This may occur any number of times. 3.5 Inventory Any inventory which is not, or ceases to be, a Revolving Asset is specifically appropriated to a security interest under this document. The Grantor may not remove it without obtaining the specific and express authority of the Secured Party to do so.14 4 Revolving assets definition Revolving Asset means any Collateral:15 (a) which is: (i) inventory;16 (ii) a negotiable instrument;17 (iii) machinery, plant, or equipment which is not inventory and has a value of less than [A$1,000] or its equivalent; (iv) money (including money withdrawn or transferred to a third party from an account of the Grantor with a bank or other financial institution); and (b) in relation to which no Control Event has occurred, subject to clause 3.4 (“Conversion to Revolving Assets”).18 5 Control Event definition Control Event means: (a) in respect of any Collateral that is, or would have been, a Revolving Asset: (i) the Grantor breaches, or attempts to breach clause 3.1 (“Restricted dealings”) in respect of the Collateral or takes any step which would result in it doing so; or

(ii) a person takes a step (including signing a notice or direction) which may result in Taxes, or an amount owing to an authority, ranking ahead of the security interest in the Collateral under this document; or (iii) [distress is levied or a judgment, order or Security is enforced [or a creditor takes any step to levy distress or enforce a judgment, order or Security], over the Collateral; or]19 (iv) the Secured Party gives a notice to the Grantor that the Collateral is not a Revolving Asset. (However, the Secured Party may only give a notice if [the Secured Party reasonably considers that it is necessary to do so to protect its rights under this document or if]20 an Event of Default is continuing); or (b) in respect of all Collateral that is or would have been Revolving Assets: (i) a voluntary administrator, liquidator or provisional liquidator is appointed in respect of the Grantor or the winding up of the Grantor begins; or (ii) a receiver, receiver and manager or controller is appointed to any of the Grantor’s property; or (iii) something having a substantially similar effect to paragraph (i) or (ii) happens under any law.21 6 Statutory powers and notices 6.1 Exclusion of PPSA provisions To the extent the law permits: (a) for the purposes of sections 115(1) and 115(7) of the PPSA: (i) the Secured Party need not comply with22 sections 95, 118, 121(4), 125, 130, 132(3)(d) or 132(4); and (ii) sections 142 and 143 are excluded; (b) for the purposes of section 115(7) of the PPSA, the Secured Party

need not comply with sections 132 and 137(3); (c)  23[if the PPSA is amended after the date of this document to permit the Grantor and the Secured Party to agree to not comply with or to exclude other provisions of the PPSA, the Secured Party may notify the Grantor that any of these provisions is excluded, or that the Secured Party need not comply with any of these provisions, as notified to the Grantor by the Secured Party;] and (d) [the Grantor agrees not to exercise its rights to make any request of the Secured Party under section 275 of the PPSA, to authorise the disclosure of any information under that section or to waive any duty of confidence that would otherwise permit non-disclosure under that section.]24 6.2 Exercise of rights by Secured Party If the Secured Party exercises a right, power or remedy25 in connection with this document, that exercise is taken not to be an exercise of a right, power or remedy under the PPSA unless the Secured Party states otherwise at the time of exercise. However, this clause does not apply to a right, power or remedy which can only be exercised under the PPSA. 6.3 No notice required unless mandatory To the extent the law permits, the Grantor waives: (a) its rights to receive any notice that is required by: (i) any provision of the PPSA (including a notice of a verification statement);26 or (ii) any other law before a secured party or Receiver exercises a right, power or remedy; and (b) any time period that must otherwise lapse under any law before a secured party or Receiver exercises a right, power or remedy. If the law which requires a period of notice or a lapse of time cannot be excluded, but the law provides that the period of notice or lapse of time may be agreed, that period or lapse is one day or the minimum period the law allows to be agreed (whichever is the longer).

However, nothing in this clause prohibits the Secured Party or any Receiver from giving a notice under the PPSA or any other law.27 6.4 Appointment of nominee for registration28 For the purposes of section 153 of the PPSA, the Secured Party appoints the Grantor as its nominee, and authorises the Grantor to act on its behalf, in connection with a registration under the PPSA of any security interest in favour of the Grantor which is: (a) evidenced or created by chattel paper [or a Key Contract]; (b) perfected by registration under the PPSA; and (c) transferred to the Secured Party under this document. This authority ceases when the registration is transferred to the Secured Party. Footnotes 1

These clauses include footnotes setting out why they have been included from a PPSA perspective. They do not provide exhaustive guidance on all the issues which may arise when using these clauses.

2

This clause assumes that the nature of the security interest should be characterised. While the characterisation is irrelevant for the purposes of the PPSA except in limited circumstances, it remains relevant outside the PPSA and provides useful guidance to courts and counsel in that context. For example: • the PPSA may not apply to some security interests under the GSA because: – the collateral includes property which is not subject to the PPSA (such as land, water rights and property declared not to be personal property under other legislation); or – there is no requisite territorial nexus under s 6;

– the security interest is excluded under s 8; or • the validity or perfection of some security interests under the GSA may be governed by the laws of another jurisdiction as a result of the application of the governing law rules in Part 7.2. In these circumstances, it is necessary to characterise the security interest. A GSA will invariably cover PPSA and non-PPSA contexts so that the characterisation will always be required for the non-PPSA context. The clause is expressed generally to avoid unnecessary complexity. 3

The secured party may prefer a transfer by way of security (or mortgage) in respect of Collateral that consists of accounts or chattel paper or Key Contracts for the following reasons: • Accounts or chattel paper. The PPSA provides that a security interest provided for by a transfer of an account or chattel paper is not a circulating asset: s 340(4A). Paragraph (a) is intended to enable the secured party to argue that it has a non-circulating security interest in contractual rights that constitute accounts or chattel paper under s 340(4A) (such as debts) even if the secured party has not taken steps under Part 9.5 of the PPSA to control any relevant contractual rights (for example, by requiring all amounts received in payment of debts to be paid into a collection account and requiring the secured party to be a signatory to any withdrawals) and has not registered that it has taken control. It is unclear whether such an argument will succeed and if the secured party wants to be certain that it has a non-circulating security interest over the contractual rights such as debts, the secured party should take control and register that it has control. • Key Contracts. It may be appropriate to include paragraph (b) if the transaction has a concept of “Key Contract” (or similar). The secured party may prefer a transfer by way

of security (or mortgage) over contractual rights where the contract is material to the secured party. In these circumstances, the secured party may want to prevent the contract from being amended. Under the general law, a transfer of the contractual rights to the secured party will have the effect of preventing the grantor and counterparty from amending the contract whereas the granting of a charge or other security interest which does not involve any transfer may not: see Brice v Bannister (1878) 3 QBD 569. However, transfers by way of security (or mortgages) may raise other issues. For example, the underlying contract may prohibit the transfer or transferring contractual rights by way of security could result in the grantor losing the ability to rely on important rights of set-off. 4

If any contractual rights constituting accounts or chattel paper are Revolving Assets, the security does not operate by way of transfer because this would be inconsistent with the fact that the grantor is permitted to deal with Revolving Assets in accordance with clause 3.2(a) (Permitted Dealings).

5

This clause states that the security interest is a charge rather than a mortgage on the basis that there is very little difference between the two except in certain limited circumstances (for example, if the collateral consists of contractual rights, a secured party may prefer a transfer-based security for the reasons noted in footnote 3 (transfer by way of security)). There is also authority in Canada that a security interest arising under the PPSA in Canada “is correlative to a fixed charge”: see Bank of Montreal v Innovation Credit Union 2010 SSC 47 at [51].

6

This clause specifies whether the charge is fixed or floating so that the characterisation is clear if the GSA applies in a nonPPSA context for the reasons noted in footnote 5 (characterisation as a charge).

7

This definition purports to capture all of the trustee grantor’s property (that is, all property it holds in its trustee and nontrustee capacity). Care! If the grantor is a trustee of more than one trust, paragraph (a) may also capture property subject to each trust of which the grantor is a trustee. If this is not the intention in your transaction, you should amend the definition accordingly.

8

You should insert a definition of “Trust”. Consider whether future settled or declared trusts should be expressly covered.

9

You should insert a definition of “Partnership”.

10

Consider whether you need to carve out any permitted security (for example, if another transaction document such as the facility agreement or security trust deed does not contain such a carve-out).

11

Consider whether you need to carve out any permitted disposals (for example, if another transaction document such as the facility agreement or security trust deed does not contain such a carve-out).

12

The term “Collateral” is used as opposed to “Revolving Asset” to cover “any collateral that would have been” a Revolving Asset (see definition of Control Event).

13

This clause should be included if any accounts and chattel paper are to be transferred by way of security. It is intended to enable the secured party to argue that if a Control Event occurs in respect of any Collateral consisting of accounts and chattel paper, that Collateral is transferred to the secured party so the security interest in the collateral will not be a circulating asset by virtue of s 340(4A). Although the issue is already covered by clause 1(a), it is also referred to here in order to reinforce that any accounts and chattel paper that are not transferred at the outset (because they are initially

Revolving Assets) will be transferred if they later cease to be Revolving Assets (because of a Control Event). 14

This clause tracks the language of s 341(1) of the PPSA. Even if inventory is a Revolving Asset, this clause should be retained in case the inventory ceases to be a Revolving Asset under clause 3.3.

15

Assets to be listed will depend on the transaction. If a noncirculating security interest, or fixed charge, is required over any of these assets, they should be deleted and appropriate control mechanics included.

16

This does not incorporate the definition of “inventory” in the PPSA (either in s 10 or s 341(1B)). If you are asked to amend the definition to incorporate the PPSA definition, you should resist this or incorporate the definition in s 341(1B). For the purposes of determining whether a security interest in inventory is circulating under Part 9.5 of the PPSA, inventory has “its ordinary meaning” and not the meaning in s 10: see s 341(1B).

17

This does not incorporate the definition of “negotiable instrument” in the PPSA as the definition in the PPSA is broader than the general law definition.

18

This definition assumes that contractual rights (including debts) will not be revolving assets. As noted above, the transfer language in clauses 1(a) and 1(b) is intended to enable the secured party to argue that the secured party has a non-circulating security interest in any contractual rights that constitute accounts within the meaning of s 340(5)(a) and (b) of the PPSA: see footnote 3 (transfer of account and chattel paper). However, if the secured party wants to be certain that it has a non-circulating security interest over such rights (or in a non-PPSA context, that a charge over such rights is to be fixed), the secured party should take control of those rights (for example, by requiring all amounts received

in payment of the contractual rights to be paid into a collection account and requiring the secured party to be a signatory to any withdrawals) and register that it has control. 19

Whether this clause should be included is a commercial issue. The termination of the grantor’s ability to deal with collateral in these circumstances may not give the secured party a priority advantage in a PPSA context but it may give a priority advantage in a non-PPSA context (for example, fixing the charge may give it priority over a competing floating charge or enable the secured party to defeat a judgement or order in respect of the assets). If you include, consider whether permitted security interests should be carved out.

20

Whether this language should be included is a commercial issue.

21

Some secured parties may prefer to provide that a Control Event occurs if the grantor becomes subject to a broader range of insolvency events (for example, by reference to a broader definition of Insolvency Event). If this is the case, you should amend the clause accordingly.

22

This clause uses “need not comply with” rather than “contract out of” or “exclude” to address the risk that contracting out of an obligation to comply with a procedural requirement may lead to an argument that this prevents a secured party from relying on the remedy to which the procedural requirement relates. For example, the parties may contract out of the obligation of the secured party to give a notice of disposal of collateral under s 130 or a notice of retention of collateral under s 135. However, if the secured party wishes to dispose of collateral by purchasing it, or retaining it (ie rights that re afforded by the PPSA and are not otherwise available, or are heavily qualified, at general law), it may only do so if it has given a notice of disposal or notice of retention (as applicable) and no notice of objection is given to the secured party under s 137(2). By stating that that the secured party

may, but need not, comply with any relevant provisions, this ensures that if the secured party wishes to exercise a PPSAonly right, power or remedy which has related procedural requirements which must be complied with, the secured party has the freedom to elect to exercise the right, power or remedy and comply with the necessary procedural requirements. 23

This clause is optional. If retained, it gives a secured party flexibility to exclude further provisions if the PPSA is later amended to permit the parties to contract out of other provisions. It is likely that the PPSA will be amended as a review of the operation of the PPSA must be undertaken by the Commonwealth within 3 years of the registration commencement time of 30 January 2012: s 343(1).

24

The intention of this clause is to prevent the secured party from having to provide information under s 275 — not to restrict the grantor from making a request other than under that section or from disclosing the information itself. The clause restricts the waiver of duties of confidence as the existence of such a duty is itself a basis for non-disclosure under the section. This is to avoid the risk that a secured party will be estopped under s 283 from denying the accuracy of any information provided. If the grantor is concerned that the clause may have the effect of preventing the grantor from requesting information other than under s 275, the following can be added after the first reference to s 275: “(but this does not limit the Grantor’s rights to request information other than under section 275)”

25

Firms may have their own preferred language to describe rights, powers and remedies.

26

This clause refers to all PPSA notices because this enables the clause to be flexible enough to cover all notices under the PPSA including any further notice requirements which may

be imposed if the PPSA is amended. However, the clause also expressly states that that grantor waives its rights to receive notices of verification statements to avoid any argument that the requirements of s 157(3)(b) of the PPSA have not been satisfied. 27

This is intended to make it clear that the obligation to give notices under s 135 is not excluded by this clause. There is an argument that this clause could be read as excluding this obligation and if this is the case, this might compromise a secured party’s ability to rely on the right to retain under s 134 because the right to retain cannot be exercised unless the notice is given: s 134(2)(a).

28

This clause seeks to address the risk that the transfer of: • chattel paper held by the grantor (eg as mortgagee under a goods mortgage or as lessor under a PPS lease); or • a security interest in favour of the grantor arising under a Key Contract, will un-perfect the underlying security interest evidenced by the chattel paper or arising under the Key Contract (ie the registration in respect of the goods mortgage or PPS lease or the security interest arising under the Key Contract will become defective because the grantor will no longer be the secured party in respect of that mortgage or PPS lease or other security interest). The drafting of the clause tracks the language in s 153 of the PPSA (see item 1(b) in the table) and simply refers to a nominee. It does not state that the nominee relationship is one of agency or trust as this is not required by the section. Section 153 does not specify the extent of authority that needs to be conferred on the nominee — this clause limits the authorisation to acting only in relation to the registration because an unlimited authority to act in relation to the security interest would expose the secured party to potential liability for the

grantor’s enforcement actions.

APPENDIX 5 ¶Appendix 5 LIST OF TRANSITIONAL REGISTERS The registers listed below are closed and their data was transferred to the PPSR prior to 30 January 2012. Australian Government registers • Australian Register of Ships (mortgages only) • ASIC — Register of Company Charges (including provisional charges) • Fisheries Register New South Wales registers • Register of Encumbered Vehicles (REVS NSW) • Security Interest of Goods Register: – stock mortgages originally registered under the Liens on Crops and Wool and Stock Mortgages Act 1989 (NSW) – Bills of Sale from 1 January 2000 – current crop mortgages and all other interests registered under the Security Interests in Goods Act 2005 (NSW) • Register of Co-operative Charges Queensland registers • Register of Encumbered Vehicles (REVS Qld) • Bills of Sale Register (including Register of Liens on Crops of Sugar Cane) • Register of Co-operative Charges

South Australian registers • Vehicle Securities Register • The following registers were maintained by the General Registry Office: – Bills of Sale Register – Stock Mortgages and Wool Liens Register – Liens on Fruit Register • Register of Co-operative Charges Tasmanian registers • Register of Vehicle Security Interests • Register of Bills of Sale, Stock, Wool and Crop Mortgages and Cooperative Charges Victorian registers • Vehicle Securities Register (VSR) • Register of Liens on Wool and Stock Mortgages (stock mortgages only) • Register of Co-operative Charges Western Australian registers • Register of Encumbered Vehicles (REVS WA) • Bills of Sale Register Australian Capital Territory registers • Register of Encumbered Vehicles (REVS ACT — from REVS NSW) • General Register of Deeds and Instruments • Register of Co-operative Charges

Northern Territory registers • Register of Interests in Motor Vehicles and Other Goods (REVS NT — from REVS NSW) • Lands Titles Registration and General Registry Office (Bills of Sale and stock mortgages)

Further information about these registers is contained in the Transitional Registers contact details table available on the PPSR website at www.ppsr.gov.au/AbouttheRegister/TransitionalRegisters/Pages/TransitionalRegisters

APPENDIX 6 Headnote taken from the CCH Australian Personal Property Securities Reporter

¶Appendix 6 HEADNOTE OF IN THE MATTER OF MAIDEN CIVIL (P&E) PTY LTD; RICHARD ALBARRAN AND BLAIR ALEXANDER PLEASH AS RECEIVERS AND MANAGERS OF MAIDEN CIVIL (P&E) PTY LTD & ORS v QUEENSLAND EXCAVATION SERVICES PTY LTD & ORS (2013) APPSR ¶701-008 Court citation: [2013] NSWSC 852 Supreme Court of New South Wales 27 June 2013 Personal Property Securities Law — Deemed security interests — PPS lease – Receiver appointed — all present and after acquired personal property security interests — Competing unperfected security interest over same collateral — Receivers sought orders for possession of secured property held by third party — Whether PPS lessor entitled to rely on nemo dat rule to defeat perfected security interest of “all present and after acquired property” secured party. Transitional security interests — Migrated registers — Failure to register on a migrated register prior to commencement — No protection for unperfected lessor under transitional provision. Personal Property Securities Act 2009, s 10, 12, 13, 19, 21, 40, 55, 112, 233, 235, 238, 267, 308, 311, 322, 330 — Personal Property Securities Regulations 2010, reg 9.2. Maiden Civil (P&E) Pty Ltd (Maiden) is a company involved in the construction industry. It had possession of three large industrial vehicles: a 30 tonne Caterpillar excavator, a 20 tonne Caterpillar excavator and a Caterpillar wheel loader. Each vehicle could be driven and had a VIN

number. Maiden used the vehicles for excavation work in the Northern Territory. Maiden acquired possession of these vehicles from Queensland Excavation Services Pty Ltd (QES). QES had purchased the vehicles from Hastings Deering in 2010 using finance from Esanda (for the 20 tonne vehicle) and Westpac (for the 30 tonne and loader vehicles). The leasing arrangement was based on a verbal agreement. QES issued invoices to Maiden for the finance costs associated with the purchase plus a 10% fee. Maiden paid all of the invoices until QES’s debt to Esanda had been paid off, at which point Maiden retained possession of the 20 tonne vehicle but no further invoices were issued. Maiden continued to possess the other two vehicles and made sporadic payments of invoices issued by QES. In March 2012 Maiden obtained short term finance from Fast Financial Solutions Pty Ltd, with both parties signing a security agreement that included the vehicles. The security agreement included a security interest over all of Maiden’s current and future property. The security interest was perfected by registration on the PPSR by Fast Financial. QES did not register its interest in the vehicles on the PPSR. When Maiden defaulted on its loan to Fast Financial, receivers were appointed in August 2012. The company was also placed into voluntary administration in August 2012. The company then went into a creditors’ voluntary liquidation. QES subsequently terminated the lease over the 30 tonne vehicle and the loader and leased them to another client. The 20 tonne vehicle was seized by Central Plant Hire due to a breach of a verbal security agreement with Maiden which purportedly conferred a lien on Central. The receivers appointed over Maiden by Fast Financial applied to the court for orders for QES and Central to deliver possession of the vehicles to the receivers. The receivers argued that Fast Financial had priority over the vehicles because of its perfected security interest, while QES claimed ownership (as lessor) over the 30 tonne vehicle and loader and Central claimed priority owing to its alleged lien. Held: the receivers were granted an order that required the defendants to deliver possession of the vehicles. 1. Maiden owned the 20 tonne vehicle that had previously been leased from QES under financing from Esanda: [10].

2. Central’s purported lien over the 20 tonne vehicle involved seizure which could not provide perfected status under s 21(2)(b): [85]. 3. QES owned the other two vehicles but Maiden had a proprietary right in them as lessee. Section 19(5) provided that it could grant a security interest in leased property once it obtained possession. This right was not limited to Maiden’s possessory right as lessee: [26]–[31] (Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528; Waller v New Zealand Bloodstock Ltd [2006] 3 NZLR 629; Re Giffen [1998] 1 SCR 91; (1998) 155 DLR (4th) 332 applied). 4. Section 112 was limited to the operation of Ch 4, but did not restrict the scope of attachment: [77]–[79]. 5. The nemo dat rule cannot displace the system of PPSA priorities where the question is one of priority of PPSA security interests rather than one concerning title: [35]. 6. QES was a deemed secured party as its leasing arrangement with Maiden was a PPS lease under s 13: [24]. 7. QES’s verbal security agreement did not comply with s 20: [41]. 8. QES held an unperfected security interest that was vested in Maiden as grantor upon the appointment of a voluntary administrator: [70]–[74]. 9. QES had a transitional security interest, but it could not rely on the protection given by s 322 because it had failed to register its interest on a transitional register when required to prior to the introduction of the PPSA: [42]–[68]. 10. Section 238 applied to disputes involving Australian and overseas laws, not conflicts concerning the application of different state and territory laws in Australia: [61]. 11. Foreign PPSA cases can be used to assist in interpreting the Australian PPSA: [32]. [Headnote by JASON HARRIS] HN Newton (instructed by Thomsons Lawyers) for the plaintiffs. AH Sinclair (Qld) (instructed by The M Kent Law Firm) for the first defendant. W Cullenane for the sixth defendant (in person).

Before: Brereton J.

Editorial comment: This case is the first to examine in detail the perfection requirements for deemed security interests (PPS leases) and to consider the operation of the transitional rules, particularly where there has been a failure to comply with pre-PPSA registration requirements on a transitional register (in this case one involving security in motor vehicles). The case contains a concise discussion of the requirements for security agreements. However, the major point established by this case is the confirmation (consistent with overseas PPSA cases) that a lessee can grant a security interest in leased goods and the interest so granted is not limited to the possessory rights of the lessee, nor is it affected by the termination of the lease following default. In this case the failure to perfect the PPS lease security interest at the time of voluntary administration vested the security interest in the grantor which could not be undone by merely terminating the lease and repossessing the equipment. The case also contains a useful discussion of conflicts of laws issues relating to pre-PPSA registration requirements and their effect on the transitional rules.

CASE TABLE References are to paragraph numbers. Abbreviation ‘CS’ refers to Case Studies throughout the index.

A Paragraph Agricultural Credit Corp of Saskatchewan v Pettyjohn (1991) 1 PPSAC (2d) 273; 79 DLR (4th) 22

¶7.2

Apex Gold, In re (2013) APPSR ¶701-009; [2013] NSWSC 881

¶11.7; CS 7

Auto Moto Corporation Pty Ltd v SMP Solutions Pty Ltd [2013] NSWSC 1403

¶4.2

B Paragraph Barclays Bank PLC, In re (2012) APPSR ¶701-003; [2012] NSWSC 1095

¶11.7; CS 8

Black Opal IP Pty Ltd ACN 151 765 356 (subject to deed ¶11.7; CS 3 of company arrangement), In re (2013) APPSR ¶701010; [2013] NSWSC 1225 Burns and Agnew v Commissioner of Inland Revenue & Anor (2011) 25 NZTC ¶20-070

¶6.3.4

C Paragraph Cancer Care Institute of Australia Pty Ltd (administrator

¶1.7; ¶2.4;

appointed), Re (2013) APPSR ¶701-006; [2013] NSWSC ¶4.2.2; 37 ¶11.7; CS 5 Cardinia Nominees, In re (2013) APPSR ¶701-005; [2013] NSWSC 32

¶9.4.2; ¶11.7; CS 7

Carey v Smith (2013) FPPSR ¶700-016; [2013] NZHC 2291

CS 9

Carson, In re Hastie Group Ltd (No 3) (2012) APPSR ¶701-001; [2012] FCA 719

¶3.2; ¶9.1; ¶11.4.1; ¶11.7

Crossmark Asia v Retail Adventures (2013) APPSR ¶701-004; [2013] NSWSC 55

¶11.5.10; ¶11.7; CS 2

D Paragraph Daniele Cirillo and Registrar of Personal Property Securities, Re (2013) APPSR ¶701-011; [2013] AATA 733

¶5.3.4.7; ¶11.7

G Paragraph G M Homes Inc, Re (1984) 4 PPSAC 116; 10 DLR (4th) 439

¶5.2

H Paragraph Hastie Group Ltd, In re; Carson (No 3) (2012) APPSR ¶701-001; [2012] FCA 719

¶3.2; ¶9.1; ¶11.4.1; ¶11.7

I Paragraph Industrial Progress Corporation Pty Ltd v Wilson (2013) APPSR ¶701-007; [2013] WASC 225

¶11.5.6; ¶11.7

Innovation Credit Union v Bank of Montreal (2010) 17 PPSAC (3d) 1; 235 DLR (4th) 605

¶5.2

L Paragraph Leu v NM Paterson & Sons Ltd (1997) 13 PPSAC (2d) 27; 156 Sask R 36

¶7.2

M Paragraph McCloy v Manukau Institute of Technology [2013] NZHC 936

¶5.3.2; ¶6.2.4.6

Maiden Civil (P&E) Pty Ltd,Re ; Richard Albarran and Pleash (as receivers and managers of Maiden Civil (P&E) Pty Ltd) & Ors v Queensland Excavation Services Pty Ltd & Ors (2013) APPSR ¶701-008; [2013] NSWSC 852

¶1.7; ¶3.2; ¶3.4; ¶5.3.3; ¶6.3.8; ¶9.1; ¶9.3.1; ¶10.4; ¶11.7; CS 4

N Paragraph New Zealand Bloodstock Ltd v Waller (2005) FPPSR ¶700-002; [2006] 3 NZLR 629

¶3.4

P Paragraph Polymers International Ltd v Toon & Ors (2013) FPPSR ¶700-015; [2013] NZHC 1897

¶11.3.1

R Paragraph Rabobank New Zealand Ltd v Stockco Ltd (2010) FPPSR ¶700-004; [2010] NZHC 271

¶5.3.4.5

Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors; Re Maiden Civil (P&E) Pty Ltd (2013) APPSR ¶701-008; [2013] NSWSC 852

¶1.7; ¶3.2; ¶3.4; ¶5.3.3; ¶6.3.8; ¶9.1; ¶9.3.1; ¶10.4; ¶11.7; CS 4

Royal Bank v Sparrow Electric Corp (1997) 12 PPSAC (2d) 68; 143 DLR (4th) 385

¶5.2

S Paragraph Strategic Finance Ltd (in receivership and in liquidation) v Bridgman [2013] NZCA 357

¶9.4.3

Stockco Ltd v Gibson & Ors (2012) FPPSR ¶700-009; [2012] NZCA 330

CS 9

W Paragraph Westpac Banking Corp v The Bell Group Ltd (In Liq) (No ¶9.2.1

3) (2012) 30 ACLC ¶12-071; [2012] WASCA 157

SECTION FINDING LIST References are to paragraph numbers. Anti Money Laundering and Counter Terrorism Financing Act 2006 (Cth) Section

Paragraph

Generally ¶5.3.4.1 Banking Act 1959 (Cth) Section

Paragraph

Generally ¶4.1 Bankruptcy Act 1966 (Cth) Section

Paragraph

50

¶2.4

58

¶2.4

139ZN

¶2.4

139ZR

¶2.4

Pt X (187–232) ¶2.4 Bills of Sale Act 1886 (SA) Section

Paragraph

Generally ¶1.3 Bills of Sale Act 1899 (WA) Section

Paragraph

Generally ¶1.3 Bills of Sale Act 1900 (Tas)

Section

Paragraph

Generally ¶1.3 Chattel Securities Act 1987 (Vic) Section

Paragraph

Generally ¶1.3; ¶8.2.3 Circuit Layouts Act 1989 (Cth) Section Paragraph 17

¶2.2.2

Companies Act 1993 (NZ) Section

Paragraph

Generally ¶6.3.4 Competition and Consumer Act 2010 (Cth) (formerly known as Trade Practices Act 1974) Section

Paragraph

Generally

¶11.1; ¶11.5.1; ¶11.5.5

Consumer Credit (New South Wales) Act 1995 (NSW) Section

Paragraph

Generally ¶1.3 Conversion of Securities Adjustment Act 1931 (NSW) Section

Paragraph

Generally ¶1.3 Corporations Act 2001 (Cth) Section

Paragraph

Pt 1.2 Div 6A (51–51F)

¶2.7

51

¶2.7; ¶9.5.2

51A

¶2.7

51B

¶2.7

51C

¶2.7

51D

¶2.7

51E

¶2.7

51F

¶2.7; ¶9.6; ¶11.5.10

51F(1)

¶2.7

95A

¶9.2.1

Pt 2K (261–282)

¶9.4.1

262

¶10.4

265(9)

¶10.4

266

¶9.4.2

Pt 5.2 (416–434G)

¶9.5.1; ¶9.5.2

418

¶9.5.1

419

¶9.5.2

419A

¶9.5.2

423

¶9.5.2

424

¶9.5.2

427

¶9.5.2

428

¶9.5.2

435B

¶9.6

437A

¶9.6.2

440B

¶9.6; ¶9.6.1

440D

¶9.6.1

441A

¶9.6

441D

¶9.6.1

441E

¶9.6.1

441F–441J

¶9.6.1

442B

¶9.6.2

442C

¶9.6.2

442C(8)

¶9.6.2

442CB

¶9.6.2

442D

¶9.6.2

443A

¶9.6.3

443B

¶9.6.3

443D

¶9.6.3

444d(2)

¶9.6.4

444D(3)

¶9.6.4

444E

¶9.6.4

444E(4)

¶9.6.4

444F

¶9.6.4

459C

¶9.2.1

465

¶9.4.1

471B

¶9.4

471C

¶9.3.2

474

¶9.4.1

489F

¶9.4.1

500

¶9.4

513AA

¶9.4.1

513C

¶11.5.10

556

¶9.4.3

561

¶9.4.3

568

¶9.4.1

Pt 5.7B (588D–588Z)

¶9.2.1

588E

¶9.2.1

Pt 5.7B Div 2A&2B (588FK–588FP)

¶9.4.2

588FL

¶9.4.2; ¶11.7

588FM

¶9.4.2; ¶9.6; ¶11.7

588FN

¶9.4.2

588FN(1)

¶9.4.2

588FP

¶9.4.2

1501A

¶9.6

1502

¶10.4

Generally

¶8.2.7; ¶11.5.6

Copyright Act 1968 (Cth) Section

Paragraph

Generally ¶2.2.2 Credit Act 1984 (NSW) Section

Paragraph

Generally ¶1.3 Designs Act 2003 (Cth) Section

Paragraph

10(1)(a)–(f) ¶2.2.2

Disposal of Uncollected Goods Act 1961 (Vic) Section

Paragraph

Generally ¶1.3 Duties Act 2001 (Qld) Section Paragraph 286

¶2.2.1.6

Fisheries Act 1995 (Vic) Section

Paragraph

Generally ¶1.3 Fisheries Management Act 1994 (NSW) Section Paragraph 286A

¶2.4

Goods Act 1958 (Vic) Section

Paragraph

3(1)

¶1.3; ¶6.3.2

Generally ¶1.3 Goods Securities Act 1986 (SA) Section

Paragraph

Generally ¶1.3 Motor Car Traders Act 1986 (Vic) Section

Paragraph

Generally ¶1.3 Motor Vehicles and Boats Securities Act 1986 (Qld)

Section

Paragraph

Generally ¶1.3 National Consumer Credit Protection Act 2009 (Cth) Section

Paragraph

Schedule 1 National Credit Code (NCC)

¶3.2; ¶6.2.1.4

Generally

¶11.1

Patents Act 1990 (Cth) Section

Paragraph

Generally ¶2.2.2 Payment Systems and Netting Act 1998 (Cth) Section Paragraph 5

¶2.6

Personal Property Securities Act 1999 (NZ) Section

Paragraph

Generally ¶1.7; ¶5.3.4.1 Personal Property Securities Act 2009 (Cth) Section

Paragraph

3

¶4.1

6(1)(b)

¶3.2

8

¶2.4; ¶2.6; ¶2.7

10

¶2.2.1.1; ¶2.2.1.2; ¶2.2.1.3; ¶2.2.1.4; ¶2.2.2; ¶2.4; ¶3.2; ¶3.3; ¶3.4; ¶4.1; ¶4.2.1; ¶4.5; ¶5.2; ¶5.3.1; ¶5.3.4.1; ¶5.3.4.6; ¶6.3.2; ¶6.3.7; ¶7.2; ¶7.3; ¶7.4; ¶8.2.3; ¶9.4.3; ¶10.4

11

¶6.2.1.5

12

¶2.3; ¶3.2; ¶9.3.1; ¶9.5.2; ¶9.6; ¶9.6.1; ¶9.6.3; ¶9.6.4; ¶9.7

12(2)

¶11.5.10

12(2)(d)

¶10.2

12(3)

¶11.5.10

12(3)(a)

¶4.5

12(5)

¶2.4

12(5)(b)

¶8.1.1

13

¶4.2.2; ¶9.3.1; ¶9.3.2; ¶9.4.1; ¶9.5.2; ¶9.6; ¶9.6.1; ¶9.6.3

13(1)(c)

¶4.2.2

13(1)(e)

¶4.2.3

13(2)

¶4.2.2

13(2)(d)

¶4.2.2

14

¶4.2; ¶4.3.2; ¶5.3.4.1

14(1)

¶4.2.2

14(1)(d)

¶4.2

14(2)

¶4.2.2; ¶4.2.3; ¶5.3.4.1

14(2)(c)

¶4.2.3

14(2A)

¶4.2.3

14(3)

¶4.2.4

14(4)

¶4.2.4

14(5)

¶4.2.5

14(6)

¶4.2.6

14(6)(a)

¶4.2.6

14(6)(b)

¶4.2.6

14(6)(c)

¶4.2.6

14(7)

¶4.2.7

14(8)

¶4.2.8

15

¶5.3.1

18(1)

¶3.2; ¶9.6

19

¶5.2; ¶7.2; ¶9.6

19(2)

¶5.2

19(3)

¶5.2

19(4)

¶5.2

19(5)

¶5.2

20

¶5.2; ¶9.6; ¶10.4

20(1)

¶5.2

20(2)–(5)

¶5.2

20(2)

¶3.4; ¶5.3.4

20(2)(a)(i)

¶3.4

20(2)(a)(ii)

¶3.4

20(2)(b)(i)

¶3.2

20(3)

¶3.5

20(4)

¶3.2

20(5)

¶3.2

21

¶5.3; ¶10.5

21(1)(b)(i)

¶10.5

21(2)(a)

¶5.3.4

21(2)(b)

¶5.3.2

21(2)(c)

¶4.1; ¶5.3.1; ¶6.3.1

21(4)

¶5.3.4

22(1)

¶5.3.3

Pt 2.3 (23–29)

¶5.3.1; ¶10.4

23

¶5.3.1

24

¶5.3.2

24(1)

¶5.3.2

24(2)

¶5.3.2

25–29

¶5.3.1

25

¶5.3.1

26(1)

¶5.3.1

26(2)

¶5.3.1

27

¶5.3.1

28

¶5.3.1

29

¶5.3.1

Pt 2.4 (30–40)

¶5.3.1

31

¶4.3.2; ¶5.2; ¶7.2

31(1)

¶4.3.2

31(1)(a)

¶4.3.2

31(2)

¶4.3.2

31(3)

¶4.3.2

31(4)

¶5.2

31(4)–(6)

¶7.2

31(5)

¶5.2

32(2)

¶4.3.2

32(3)

¶4.3.2

32(5)

¶4.3.2; ¶4.4

33

¶5.3.3

33(2)

¶4.4

33(3)

¶4.4; ¶5.3.3

34

¶5.3.3

34(1)

¶5.3.3

35(1)

¶5.3.3

35(2)

¶5.3.3

35(3)

¶5.3.3

36

¶5.3.2; ¶5.3.3

39

¶5.3.3

39(3)

¶5.3.3

39(4)

¶5.3.3

40

¶5.3.3

Pt 2.5 (41–53)

¶8.1.1; ¶8.1.2; ¶8.2

41

¶8.2

42

¶8.1.2

42(b)

¶8.1.2

43

¶8.1.2

43(1)

¶8.2.1

43(2)

¶8.2.1

44

¶8.2.2

44(1)

¶8.2.2

44(2)

¶8.2.2

45

¶8.2.2; ¶8.2.3

45(1)

¶8.2.3

45(2)

¶8.2.3

45(3)

¶8.2.3

45(4)

¶8.2.3

46

¶7.2.1; ¶8.2.3

46(1)

¶8.2.4

47

¶2.4

47(1)

¶8.2.5

47(2)

¶8.2.5

48

¶8.2.6; ¶8.2.7

48(c)(i)

¶8.2.5

49

¶8.2.7

50

¶8.1.1; ¶8.2.8

50(1)

¶8.2.8

50(2)

¶8.2.8

50(3)

¶8.1.1; ¶8.2.3

51

¶8.1.1

51(1)

¶8.1.1; ¶8.2.9

51(1)(b)

¶8.2.9

51(2)

¶8.2.9

52

¶8.1.1

52(1)

¶8.2.10

52(2)

¶8.2.10

53

¶8.1.2; ¶8.2.11

53(2)

¶8.2.11

53(3)

¶8.2.11

Pt 2.6 (54–77)

¶6.3; ¶6.3.4

54

¶6.3

55

¶4.4; ¶4.4.1; ¶10.5

55(3)

¶9.3.1

56

¶6.3.5

57(1)

¶6.3.1; ¶6.3.5

61

¶5.3.4; ¶5.3.4.1

62

¶4.4.1; ¶4.5; ¶9.3.2

62(2)

¶4.3.1; ¶6.3.2

62(2)(a)

¶4.3.1

62(2)(b)(i)

¶4.3.1

62(2)(b)(ii)

¶4.3.1

62(3)

¶6.3.2

62(3)(b)(i)

¶4.3.1

62(3)(b)(ii)

¶4.3.1

62(3)(c)

¶4.3.1

63

¶4.4.1; ¶6.3.3

64

¶4.5; ¶6.3.2; ¶6.3.4; ¶7.4

64(2)

¶4.5

Pt 2.6 Div 4 (66–68)

¶6.3.5

68

¶6.3.5

69(1)

¶6.3.6

69(3)

¶6.3.6

71

¶4.5; ¶6.3.2

71(3)

¶4.5

74

¶1.1; ¶6.3.7; ¶6.3.8

Pt 2.7 (78–81)

¶6.3.4

Ch 3 (82–106)

¶7.4; ¶10.4.2

Pt 3.2 (83–86)

¶7.2

83

¶7.2

84

¶7.2

84A

¶5.2; ¶7.2

85

¶4.4.3; ¶7.2

86

¶4.4.3; ¶7.2

Pt 3.3 (87–97)

¶7.3

88

¶7.3

89

¶5.3.1; ¶7.3

90

¶7.3

90(a)

¶7.3

91

¶7.3

91(b)

¶7.3

92–96

¶7.3

92

¶7.3

93

¶7.3

94

¶7.3

95

¶6.2.1.5; ¶6.2.4.1; ¶7.3

95(5)

¶7.3

95(6)

¶7.3

96

¶6.2.1.5; ¶6.2.4.2; ¶7.3

97

¶7.3

Pt 3.4 (98–103)

¶7.4

98

¶7.4

99(1)

¶7.4

99(2)

¶7.4

100

¶7.4

101

¶7.4

102

¶7.4

102(1)

¶7.4

102(2)

¶7.4

102(3)

¶7.4

102(4)

¶7.4

103

¶4.4.2; ¶7.4

104–106

¶7.4

105

¶3.2

106

¶10.4.1

Ch 4 (107–144)

¶3.2; ¶6.1; ¶6.2; ¶6.2.1; ¶6.2.1.3; ¶6.2.1.4; ¶6.2.1.6; ¶6.2.2; ¶6.2.3; ¶9.3.2; ¶9.5.2; ¶9.6.1; ¶10.4.2; ¶11.2; ¶11.6

109(1)

¶6.2.1

109(2)

¶6.2.1.2

109(3)

¶6.2.1.3

109(5)

¶6.2.1.4

110

¶6.2.1.3; ¶6.2.2

111

¶6.2.1.3; ¶6.2.2

112

¶6.1

113

¶6.2.1.3; ¶6.2.2

115

¶6.2.1.5; ¶6.2.3; ¶11.2; ¶11.5.9

116

¶6.2.1.6; ¶9.3.2; ¶9.5.2

116(1)

¶9.5.2

116(2)

¶6.2.1.6; ¶9.5.2

116(3)

¶6.2.1.6

117

¶6.2.1.4; ¶6.2.1.5; ¶6.2.4.3

118

¶6.2.1.4; ¶6.2.1.5; ¶6.2.4.3

120

¶6.2.1.4; ¶6.2.1.5; ¶6.2.4.4; ¶6.2.4.5

121

¶6.2.4.4

121(4)

¶6.2.1.5; ¶6.2.4.5

Pt 4.3 Div 2 (123–127)

¶7.2

123

¶5.3.2; ¶6.2.1.5; ¶6.2.4.6; ¶6.3.7; ¶7.2

125

¶6.2.1.5; ¶6.2.4.7

126

¶6.2.1.4; ¶6.2.1.5; ¶6.2.4.8

126(1)

¶5.3.2

127

¶6.2.4.8; ¶6.3.1

Pt 4.3 Div 3 (128–133)

¶7.2

128

¶6.2.1.5; ¶6.2.4.9

128(2)(b)

¶6.2.1.4

128(2)(c)

¶6.2.1.4

129

¶6.2.1.4; ¶6.2.1.5

130

¶6.2.1.5; ¶6.2.4.10; ¶6.3.1

130(5)(b)

¶6.2.4.10

130(5)(c)

¶6.2.4.10

131

¶6.2.2

132(3)(d)

¶6.2.1.5; ¶6.2.4.11

132(4)

¶6.2.1.5; ¶6.2.4.12

Pt 4.3 Div 4 (134–136)

¶6.2.4.7; ¶7.2

134

¶6.2.1.4

134(1)

¶6.2.1.5; ¶6.2.4.13

135

¶6.2.1.5; ¶6.2.4.14

Pt 4.3 Div 5 (137–138)

¶7.2

Pt 4.3 Div 6 (138A–138C)

¶6.2.1.5; ¶6.2.4.15; ¶7.2

138A

¶7.2

138B

¶7.2

138B(1)

¶7.2

138B(3)

¶7.2

138C

¶7.2

140

¶4.3.2; ¶6.2.1.3; ¶9.6.2; ¶6.2.2; ¶6.3; ¶6.3.1

140(2)(f)

¶4.3.2

142

¶6.2.1.5; ¶6.2.4.16

143

¶6.2.1.5; ¶6.2.4.17; ¶11.3.1

Ch 5 (145–203)

¶5.3.4

147

¶5.3.4

148

¶5.3.4

148(b)

¶5.3.4

148(c)

¶5.3.4; ¶5.3.4.10

150

¶5.3.4

150(d)

¶5.3.4

150(3)(c)

¶5.3.4

151

¶5.3.4

151(1)

¶5.3.4

151(2)

¶5.3.4

151(3)

¶5.3.4

152

¶5.3.4

153

¶2.2.1.1; ¶2.2.2.1; ¶4.3.1; ¶4.4; ¶5.3.4.1; ¶5.3.4.5; ¶5.3.4.10; ¶6.3.2

153(1)

¶3.2; ¶4.4; ¶5.3.4; ¶5.3.4.1

154

¶5.3.4

155

¶5.3.4.2

156

¶5.3.4.3

157

¶5.3.4.3

158

¶5.3.4.3

160

¶5.3.4.4

161

¶5.3.4.4

162

¶5.3.4.4

163

¶5.3.4.4

164–166

¶4.4.3; ¶5.3.4.4

164

¶5.3.4.5; ¶10.5

164(1)(a)

¶5.3.4.5

164(1)(b)

¶5.3.4.5; ¶5.3.4.6

164(3)

¶5.3.4.5

165

¶5.3.4.5

166

¶5.3.4.5

166(2)

¶5.3.4.5

167

¶5.3.4.5

168(1)

¶5.3.4.9

168(2)

¶5.3.4.9

170(1)

¶5.3.4.10

170(3)

¶5.3.4.10

171

¶5.3.4.10

171(2)

¶5.3.4.10

172

¶5.3.4.10

172(6)

¶5.3.4.10

173

¶5.3.4.10

174(1)

¶5.3.4.10; ¶8.2.2

175

¶5.3.4.10

176

¶5.3.4.10

176C

¶5.3.4.3

177

¶5.3.4.7

178

¶5.3.4.7

179–182

¶5.3.4.7

181(1)

¶5.3.4.7

Pt 5.7 (183–188)

¶5.3.4.10; ¶5.3.4.8

185

¶5.3.4.3

186

¶5.3.4.3

Pt 6.2 (205–219)

¶7.3

235

¶6.2.1.2

237

¶6.3.2

238

¶6.3.2

257(2)

¶3.2

267

¶9.1; ¶9.3.1; ¶9.3.2; ¶9.4.1; ¶9.6; ¶9.7; ¶11.5.10

267A

¶9.1; ¶9.3.2; ¶9.7

268

¶9.1; ¶9.3.2

275

¶3.3

289

¶5.3.4.1

293

¶5.3.4.5; ¶6.3.2; ¶6.3.3

297

¶5.3.4.5; ¶8.1.1

298

¶5.3.4.5; ¶8.1.1

299

¶8.1.1

307

¶10.2

308

¶2.7; ¶10.2

310

¶10.2

311

¶10.4.2

313

¶10.4.1

314

¶10.4.2

315

¶10.5

320

¶10.5

320(1)

¶10.5

320(2)

¶10.5

321

¶10.5

322

¶8.2.10; ¶10.4; ¶10.4.2; ¶10.5

322(2)(a)–(f)

¶10.5

322(2)(f)

¶10.3

322(3)

¶10.4

322A

¶10.5

323

¶10.5

324

¶10.5

330

¶5.3.4

330–335

¶10.3

330(b)

¶10.3

332(d)

¶10.3

333

¶5.3.4.1; ¶10.3

335

¶10.3

Pt 9.4 Div 8 (337–337A)

¶6.3.8

337

¶10.5

337A

¶10.5

Pt 9.5 (338–341A)

¶5.2

339

¶9.6.2

339(4)

¶10.4

339(5)

¶10.4

340

¶9.6.2; ¶10.4

340(2)

¶10.4

340(3)

¶10.4

340(5)

¶10.4

341

¶5.3.1; ¶10.4

341(1A)

¶10.4

341(1B)(a)

¶10.4

341(2)–(4)

¶10.4

341A

¶10.4

Generally

¶1.1; ¶2.1; ¶5.3.1; ¶10.1; ¶11.3.1

Personal Property Securities (Approved Form) Instrument 2013 (Cth) Paragraph Generally ¶5.3.4; ¶5.3.4.3 Personal Property Securities Bill 2008 Australian Government AttorneyGeneral's Department Revised Commentary, December 2008 (Cth) Paragraph Generally

¶4.1; ¶4.2.2; ¶6.1

Personal Property Securities Bill 2008, Revised Commentary, May 2008 (Cth) Paragraph Generally ¶6.3.5; ¶8.1 Personal Property Securities Bill 2009, Explanatory Memorandum (Cth) Paragraph Generally

¶3.2; ¶4.3.2; ¶4.5; ¶5.2; ¶5.3.1; ¶5.3.4.4; ¶5.3.4.5; ¶6.2.4.17; ¶6.3.7; ¶7.3; ¶8.1.1; ¶8.2.3; ¶8.2.5; ¶8.2.8; ¶10.2; ¶10.5

Personal Property Securities (Corporations and Other Amendments) Act 2010 (Cth) Section

Paragraph

Generally ¶2.7; ¶9.4.1 Personal Property Securities (Corporations and Other Amendments) Bill 2011 (Cth) Paragraph

Generally ¶3.2 Personal Property Securities Reform Discussion Paper Regulations made under the Personal Property Securities Act, August 2008 (Cth) Paragraph Generally ¶2.2.1.1 Personal Property Securities Reform Discussion Paper Regulations made under the Personal Property Securities Act, October 2009 (Cth) Paragraph Generally ¶2.2.1.1 Personal Property Securities Regulations 2010 (Cth) Regulation

Paragraph

1.4(1)

¶2.4

1.4(2)

¶6.3.8

1.4(5)

¶6.3.7

1.5

¶2.2.1.6

1.6

¶2.2.1.1; ¶4.1; ¶5.3.4.6; ¶7.2; ¶10.3

1.7

¶2.2.1.1; ¶5.3.4.6; ¶8.2.3

1.8

¶2.4; ¶8.1.1

1.10

¶2.2.1.2

2.1

¶8.2.3

2.2

¶8.2.3

4.1

¶6.2.1.4

5.3

¶5.3.4

5.6

¶5.3.4.3

5.7

¶5.3.4.10

5.8

¶5.3.4.10

5.9

¶5.3.4.6

5.10

¶5.3.4.8

5.10(2)

¶5.3.4.8

9.1

¶2.2.1.1

9.2

¶5.3.3; ¶8.2.10; ¶10.4

9.2(2)

¶10.4

Sch 1 cl 1.1–1.6

¶5.3.4.1

Sch 1 cl 1.2

¶5.3.4.1

Sch 1 cl 1.4

¶5.3.4.1

Sch 1 cl 1.5

¶5.3.4.1

Sch 1 cl 2.1

¶5.3.4.1

Sch 1 cl 2.2

¶2.2.1.1; ¶2.2.2.1; ¶8.2.2

Sch 1 cl 2.2(1)(a)

¶5.3.4.6

Sch 1 cl 2.2(1)(b)

¶5.3.4.6

Sch 1 cl 2.2(1)(c)

¶5.3.4.6

Sch 1 cl 2.2(2)–(4)

¶5.3.4.6

Sch 1 cl 2.3

¶3.2

Sch 1 cl 2.4

¶4.4

Sch 1 cl 3.1

¶5.3.4.1

Sch 1 cl 4.1

¶5.3.4.1

Sch 2

¶5.3.4

Generally

¶11.1; ¶11.2; ¶11.3.1

Plant Breeder's Rights Act 1994 (Cth) Section Paragraph

11

¶2.2.2

Privacy Act 1988 (Cth) Section

Paragraph

Generally ¶11.1 Registration of Interests in Goods Act 1986 (NSW) Section

Paragraph

Generally ¶1.3; ¶8.2.3 Sale of Goods Act 1895 (SA) Section

Paragraph

Generally ¶1.3 Sale of Goods Act 1895 (WA) Section

Paragraph

Generally ¶1.3 Sale of Goods Act 1896 (Qld) Section

Paragraph

Generally ¶1.3 Standing Committee of Attorneys-General Review of the law on Personal Property Securities Options Paper, April 2006 (Cth) Paragraph Generally ¶1.4; ¶1.9 Taxation Administration Act 1953 (Cth) Section

Paragraph

Sch 1 s 260-5 ¶2.4

Trade Marks Act 1995 (Cth) Section

Paragraph

Generally ¶2.2.2 Warehouse Liens Act 1990 (SA) Section

Paragraph

Generally ¶1.3 Warehouseman's Liens Act 1935 (NSW) Section

Paragraph

Generally ¶1.3

INDEX References are to paragraph numbers.

A Accessions

¶7.3

definition

¶2.2.1.3; ¶7.3

enforcement provisions that may be contracted out of

¶6.2.4.1; ¶6.2.4.2

tangible property

¶2.2.1.3

Accounts — see also Non-purchase money security interests in accounts definition

¶4.5

Accounts payable team



organisational management

¶11.4.1

Accounts receivable team



organisational management

¶11.4.2

Acquisition of personal property free of security interests — see Taking personal property free of security interests ADI account



control

¶5.3.1

definition

¶4.1

Administration, voluntary — see Voluntary administration Administrators





liabilities and indemnities

¶9.6.3

power to deal with property of company

¶9.6.2

Agricultural interests

¶7.2

crops and livestock



— seizure and disposal or retention

¶6.2.4.15

— taking crop and livestock free of a personal security interest

¶7.2.1

PMSI priority

¶4.4.3

Agricultural products



tangible property

¶2.2.1.5

Agriculture



definition

¶1.6

Aircraft — see Serial numbered goods



All monies clauses



legal and drafting issues

¶11.5.6

Amendment demands



registration of security interest

¶5.3.4.7

Apparent possession



alternative to seizure of collateral

¶6.2.4.8

definition Assets

¶5.3.2

circulating assets, definition Attachment

¶9.4.3; ¶10.4

definition

¶5.2

rule

¶5.2

— transitional provisions

¶10.5

Authorised deposit-taking institutions



ADI account, definition

¶4.1

control

¶5.3.1

B Bailment



definition

¶4.2.2

Bankruptcy — see Corporate insolvency



Body corporate secured parties or grantors

¶5.3.4.1

Body politic secured parties or grantors

¶5.3.4.1

Business purpose declaration statement



need Buyers — see also Purchasers

¶11.5.4

insolvency

¶9.3.2

C Car



purchase money security interest Case studies

¶4.2

obligation to act in commercially reasonable manner

¶6.2.2

record keeping and documentation systems

¶11.4.2

security interest

¶3.2

signing security agreement

¶3.5

Charges — see also Security interests



transitional provisions

¶10.4

Chattel paper



definition Circulating assets

¶3.2

administrator's power to deal definition

¶9.6.2 ¶9.4.3; ¶10.4

Circulating security interests



definition Collateral

¶2.7

classes

¶5.3.4.1

commercial supply provisions that may be contracted out of

¶6.2.1.5

definition enforcement provisions that may be contracted out of

¶3.2

— apparent possession

¶6.2.4.8

— disposal of collateral

¶6.2.4.9; ¶6.2.4.10

— obligation to dispose of or retain collateral

¶6.2.4.7

— redemption of collateral

¶6.2.4.16

— retention of collateral

¶6.2.4.13;

¶6.2.4.14 — right to seize collateral

¶6.2.4.6

financial statement with respect to security interest

¶5.3.4.1

identifiable and traceable

¶7.2

inventory, equipment and/or consumer goods

¶6.3.2

perfection by control

¶4.1

prescribed matters

¶5.3.4.1

proceeds, definition

¶4.3.2

taking personal property free of security interests

¶8.2

— currency

¶8.2.6

— intermediated securities

¶8.2.9

— investment instruments or intermediated securities in the ordinary course of trading

¶8.2.7

— investments instruments

¶8.2.8

— motor vehicles

¶8.2.3

— ordinary course of business

¶8.2.4

— personal, domestic or household property

¶8.2.5

— priority of security interests

¶6.3.5

— rights of secured party and transferee

¶8.2.11

— serial number defects

¶8.2.2

— temporarily perfected security interests

¶8.2.10

— unperfected security interest transferred

¶8.2.1

Commercial property



serial numbered goods, registration Commercial supply provisions

¶5.3.4.6

contracting out of

¶6.2.1.5

Commingled goods

¶7.4

definition

¶2.2.1.4

PMSI priority

¶4.4.2

tangible property

¶2.2.1.4

Commonwealth legislation



personal property regime Company charges

¶1.4

liquidation, PPS issues

¶9.4.2

Company's property — see Property



Conditional sale agreements



good leased, bailed, consigned or sold under Constructive knowledge

¶5.2

definition Consumer goods

¶8.1.1

low value, exclusion from PPSA

¶2.4

serial numbered goods, registration Consumer property

¶5.3.4.6

exclusion from enforcement provisions Consumer rights personal property regime Contracting out of PPSA provisions

¶6.2.1.4 ¶1.5 ¶6.2.4

Control method of perfection



control, definition

¶5.3.1

transitional provisions

¶10.4

Controllers



definition exclusion from enforcement provisions

¶9.5.2 ¶6.2.1.6

persons appointed

¶9.5.1

Corporate insolvency

¶9.1

buyer

¶9.3.2

insolvency, definition

¶9.2.1

liquidation, PPS issues

¶9.4

— priority distribution

¶9.4.3

— property available to liquidator

¶9.4.1

— void charges

¶9.4.2

overview

¶9.2

ownership of property

¶9.3.1

proof

¶9.2.1

receivership, PPS issues

¶9.5

— leasing and ROT arrangements

¶9.5.2

— persons appointed as receiver or controller

¶9.5.1

schemes of arrangement, PPS issues security interest — exclusion from PPSA

¶9.7 ¶2.4

— priority rule

¶10.5

seller

¶9.3.3

summary

¶9.8

types

¶9.2.2

voluntary administration, PPS issues

¶9.6

— administrative powers to deal with company property

¶9.6.2

— administrator's liability and indemnity

¶9.6.3

— deed of company arrangement

¶9.6.4

— effect on security holders

¶9.6.1

Corporations Act 2001



changes Costs

¶2.7

legal and drafting issues

¶11.5.7; ¶11.5.8

Creditors — see Enforcement and remedies Crops and livestock



crops, definition

¶7.2

livestock, definition

¶7.2

priority

¶7.2

security interest

¶5.2

seizure and disposal or retention

¶6.2.4.15

taking, free of a personal security interest Currency

¶7.2

taking personal property free of security interests Customer management enforcement issues at commencement of relationship

¶8.2.6 ¶6.2.3

PPSA, post implementation review

¶11.3

— curent and accurate customer information

¶11.3.1

— information to customers

¶11.3.4

— maintenance of customer information

¶11.3.2

— removal of registrations

¶11.3.3

D Day and a half rule



taking personal property free of security interest



— motor vehicles

¶8.2.3

Debtors



definition

¶3.2

Deeds of company arrangement



PPS issues in voluntary administration

¶9.6.4

type of formal insolvency procedures

¶9.2.2

Defects in registration Definitions accession

¶5.3.4.5; ¶10.5 ¶2.2.1.3; ¶7.3

account

¶4.5

ADI account

¶4.1

after acquired property agriculture apparent possession attachment

¶5.3.4.1 ¶7.2 ¶5.3.2 ¶5.2

bailment chattel paper circulating assets circulating security interests collateral commingled goods

¶4.2.2 ¶3.2 ¶9.4.3 ¶2.7; ¶9.4.3 ¶3.2 ¶2.2.1.4

constructive knowledge

¶8.1.1

control

¶5.3.1

controller

¶9.5.2

court order

¶5.3.4

crops

¶7.2

debtor

¶3.2

description of personal property execution creditors financial property fixtures goods grantor individual

¶5.3.4.1 ¶6.3.7 ¶2.2.1.2 ¶2.4 ¶6.3.2 ¶3.2 ¶5.3.4.1

insolvency

¶9.2.1

intangible property

¶2.2.2

intellectual property

¶2.2.2

intellectual property licence

¶2.2.2

intermediated security

¶5.3.1

inventory

¶6.3.2

livestock

¶7.2

motor vehicle new value original registration time

¶5.3.4.6 ¶4.5 ¶10.3

other goods

¶3.2

personal property

¶2.1

possession possessory security interest PPS lease PPSA retention of title property prescribed person prescribed requirement

¶5.3.2 ¶2.7 ¶4.2.2 ¶2.7; ¶9.6; ¶11.5.10 ¶8.2.3 ¶5.3.4.1

proceeds

¶4.3.2

proceeds of crime law

¶5.3.4

provides purchase money obligations purchase money security interest purchaser secured party secured party group security agreement security interest serial number

¶3.3 ¶4.2.7 ¶4.1; ¶4.2 ¶8.2.8 ¶3.2 ¶5.3.4.2 ¶3.2 ¶2.3; ¶2.7; ¶3.2 ¶2.2.1.1

tangible property

¶2.2.1

transitional security agreements

¶10.2

transitional security interests

¶10.2

value

¶4.2.1

verification statement

¶5.3.4.3

wool

¶7.2

writing

¶3.4

Description of personal property



definition

¶5.3.4.1

Disposal of collateral



enforcement provisions that may be contracted out

¶6.2.4.9; ¶6.2.4.10

Document retention systems



PPSA, post implementation review Documentation

¶11.4.2

inclusions to help keep current

¶11.5.1

review

¶11.2

security agreement

¶3.6

Drafting a security agreement — see Security agreements



E Economic factors



personal property regime

¶1.6

Enforcement and remedies

¶6.1

attachment

¶5.2

commencement of relationship with customer enforcement provisions

¶6.2.3 ¶6.2

exclusions

¶6.2.1

— commercial supply provisions that may be contracted out of

¶6.2.1.5

— consumer property

¶6.2.1.4

— goods outside Australia

¶6.2.1.2

— investment instruments and intermediated securities

¶6.2.1.3

— no obligation exists

¶6.2.1.1

— receivers and controllers

¶6.2.1.6

overeaching obligations on secured parties

¶6.2.2

PPSA sections which may be contracted out of

¶6.2.4

— apparent possession — contents of statement of account after disposal

¶6.2.4.8 ¶6.2.4.11

— enforcement of liquid assets

¶6.2.4.4

— enforcement of liquid assets, notice to grantor

¶6.2.4.5

— grantor, retention of accession

¶6.2.4.2

— interests in personal property and land

¶6.2.4.3

— notice of disposal — notice of removal of accession — notice of retention — obligation to dispose of or retain collateral

¶6.2.4.10 ¶6.2.4.1 ¶6.2.4.14 ¶6.2.4.7

— redemption of collateral

¶6.2.4.16

— reinstatement of security agreement

¶6.2.4.17

— retention of collateral

¶6.2.4.13

— right to seize collateral

¶6.2.4.6

— secured party may dispose of collateral

¶6.2.4.9

— seizure and disposal of crops and livestock

¶6.2.4.15

— statement of account if no disposal

¶6.2.4.12

priority under PPSA, importance

¶6.3

— competing purchase money security interests

¶6.3.3

— creditors whose debts have been paid

¶6.3.6

— execution creditors

¶6.3.7

— general principles for determining

¶6.3.1

— non-purchase money security interests in accounts

¶6.3.4

— purchase money security interests, relationship

¶6.3.2

— security interests in transferred collateral

¶6.3.5

— transitional period

¶6.3.8

registration of security interest, non payment of fees

¶5.3.4.9

transitional provisions



— security interest provided by security agreements

¶10.4.2

— security interests in intellectual property licences

¶10.4.1

Ex parte preservation orders



security interests provided by security agreements

¶10.4.2

Exclusions from the PPSA — see Personal Property Securities Act Execution creditors





definition

¶6.3.7

enforcement priority rules

¶6.3.7

Extinguishment rules — see Taking personal property free of security interests

F



Fees



non payment, registration of security interest

¶5.3.4.9

PPSR Financial property

¶5.3.4.10

definition

¶2.2.1.2

tangible property

¶2.2.1.2

Financial statements



registration Fixed charges

¶5.3.4.1

transitional provisions Fixtures

¶10.4

definition

¶2.4

exclusion from PPSA

¶2.4

Floating charges — see also Circulating assets



attachment

¶5.2

transitional provisions

¶10.4

G Garage sales



taking personal property free of security interests Goods — see also Tangible property definition other goods, definition

¶8.2.5 ¶6.3.2 ¶3.2

Goods outside of Australia



exclusion from enforcement provisions

¶6.2.1.2

Grantors



contracting out of enforcement provisions

¶6.2.3

definition

¶3.2

enforceability of security interests against, attachment required

¶5.2

financing statement with respect to security interest

¶5.3.4.1

retention of accession

¶6.2.4.2

Guarantees



legal and drafting issues

¶11.5.6

H Harmonisation of personal property law

¶1.6; ¶1.9

Human resources



PPSA, post implementation review

¶11.6.3

I Inclusion in the PPSA — see Personal Property Securities Act Indemnities



legal and drafting issues

¶11.5.6

voluntary administrator Individual secured parties or grantors



¶9.6.3

individual, definition

¶5.3.4.1

information, customer — see Customer management



Insolvency — see Corporate insolvency Intangible property



definition

¶2.2.2

serial numbered goods

¶2.2.2.1

— registration

¶5.3.4.6

Intellectual property



commingled goods

¶7.4

definition Intellectual property licences

¶2.2.2

definition

¶2.2.2

security interests

¶10.4.1

Intermediated securities



control

¶5.3.1

definition

¶5.3.1

exclusion from enforcement provisions

¶6.2.1.3

taking personal property free of security interests

¶8.2.9

— ordinary course of business

¶8.2.7

International factors



personal property regime Inventory definition

¶1.6 ¶6.3.2

enforcement priority rules

¶6.3.2

financing arrangements

¶6.3.4

PMSI priority requirements

¶4.3.1

Investment instruments



control

¶5.3.1

taking personal property free of security interests

¶8.2.8

— ordinary course of business

¶8.2.7

exclusion from enforcement provisions

¶6.2.1.3

L Land enforcement provisions that may be contracted out of

¶6.2.4.3

exclusion from PPSA Leasing

¶2.4

insolvency, ownership of property

¶9.3.1

PPS lease, definition

¶4.2.2

receivership, PPS issues

¶9.5.2

taking personal property free of security interests



— motor vehicles Legal and drafting issues PPSA, post implementation review

¶8.2.3 ¶11.5

— business purpose declaration statement, need

¶11.5.4

— continuity of security agreements

¶11.5.2

— enforcement costs

¶11.5.8

— guarantees, indemnities and “all monies clauses”

¶11.5.6

— inclusion to help keep documentation current

¶11.5.1

— merging of security agreements

¶11.5.3

— registration costs

¶11.5.7

— retention of title clauses

¶11.5.10

— s 115 provisions

¶11.5.9

— unfair contract terms amendments to Trade Practices Act 1974 (Cth)

¶11.5.5

Legislation



personal property regime Letters of credit

¶1.4

control

¶5.3.1

Liabilities



voluntary administrator

¶9.6.3

Licences



exclusion from PPSA

¶2.6

Liquid assets



enforcement provisions that may be contracted out of

¶6.2.4.4; ¶6.2.4.5

Liquidation PPS issues

¶9.4

— priority distribution

¶9.4.3

— property available to liquidator

¶9.4.1

— void charges

¶9.4.2

type of formal insolvency procedures

¶9.2.2

Liquidators



property available

¶9.4.1

Livestock — see Crops and livestock



M Meanings of terms — see Definitions



Mixed securities



PMSI, general definition

¶4.2.4

Mortagages



PPSA, effect

¶2.5

Mortgage-backed securities

¶2.2.1.6

Motor vehicles — see also Serial numbered goods



definition

¶5.3.4.6; ¶8.2.3

taking personal property free of security interests

¶8.2.3

N Negotiable instruments



control New value

¶5.3.1

definition

¶4.5

Non-purchase money security interests in accounts

¶4.5

enforcement priority rules

¶6.3.4

Notice



disposal of collateral

¶6.2.4.10

enforcement of liquid assets

¶6.2.4.5

financing statement with respect to security interest

¶5.3.4.1

removal of accession

¶6.2.4.1

retention of collateral

¶6.2.4.14

O Onus of proof



accuracy of registration, secured parties

¶5.3.4.5

Ordinary course of business



taking personal property free of security interests

¶8.2.4

Organisational management



PPSA, post implementation review

¶11.4

— knowledge of organisation's structure

¶11.4.2

— management of internal stakeholders

¶11.4.1

P Partners



secured party or grantor Payments made to meet obligations PMSI, general definition

¶5.3.4.1 ¶4.2.6

Penalties — see Enforcement and remedies Perfection

¶5.1; ¶5.3

attachment, definition

¶5.2

commingled goods

¶7.4

continuously perfected

¶6.3.5

control method

¶4.1; ¶5.3.1

— enforcement priority rules

¶6.3.1

crops and livestock

¶7.2

main rule

¶5.3

— transitional provisions

¶10.5

possession method

¶5.3.2

purchase money security interests

¶6.3.3

registration method

¶5.3.4

— amendment demands

¶5.3.4.7

— defects

¶5.3.4.5

— effective registration

¶5.3.4.4

— financing statement, elements

¶5.3.4.1

— penalty for non payment of fees

¶5.3.4.9

— Registrar's powers to remove data

¶5.3.4.8

— searching the PPS Register

¶5.3.4.10

— secured party group

¶5.3.4.2

— serial numbered goods, consumer property v commercial property

¶5.3.4.6

— verification statements

¶5.3.4.3

temporary

¶5.3.3

— taking personal property free of security interests

¶8.2.10

— transitional security interests

¶10.4

Personal, domestic or household property — see also Consumer goods



possession method of perfection

¶5.3.2

taking personal property free of security interests

¶8.2.5

Personal property — see also Collateral; Personal Property Securities Act; Proceeds; Taking personal property free of security interests



categories addressed by PPSA

¶2.2

definition

¶2.1

enforcement priority rules

¶6.3.2

enforcement provisions that may be contracted out of

¶6.2.4.3

description of personal property, definition

¶5.3.4.1

intangible property motor vehicle

¶2.2.2 ¶5.3.4.6

PMSI priority requirements

¶4.3.1

tangible property

¶2.2.1

— accessions

¶2.2.1.3

— agricultural products

¶2.2.1.5

— commingled goods

¶2.2.1.4

— financial property

¶2.2.1.2

— property covered by regulations

¶2.2.1.6

— serial numbered goods

¶2.2.1.1

Personal Property Securities Act — see also Enforcement and remedies; Personal property



case wrap up

¶11.7

commencement

¶1.3

customer management

¶11.3

— current and accurate customer information

¶11.3.1

— information to customers

¶11.3.4

— maintenance of customer information

¶11.3.2

— removal of registrations

¶11.3.3

exclusions human resources

¶2.4 ¶11.6.3

inclusions

¶2.2

— examples

¶2.3

interests that are to remain unchanged

¶2.6

legal and drafting issues — see Legal and drafting issues objectives organisational management

¶1.9 ¶11.4

— knowledge of organisation's structure

¶11.4.2

— management of internal stakeholders

¶11.4.1

post implementation review

¶11.1

— additional clauses and compliance with Chapter 4

¶11.6

— customer management

¶11.3

— documentation

¶11.2

— legal and drafting issues

¶11.5

— organisational mangement

¶11.4

principles of operation

¶1.10

rationale for introduction

¶1.3

risk management issues

¶11.6.1

securitisation arrangements, effect on

¶2.5

workplace practices

¶11.6.2

Personal Property Securities Register

¶5.3.4

contents

¶5.3.4

fees

¶5.3.4.10

Registrar's power to remove data

¶5.3.4.8

search criteria taking personal property free of security interests

¶5.3.4.10

— motor vehicles

¶8.2.3

— serial number defects

¶8.2.2

Personal Property Securities Regulations



property covered

¶2.2.1.6

Personal property securities system — see also Personal Property Securities Act



attempt to reform law

¶1.8

Commonwealth, state and territory legislative framework

¶1.4

economic factors

¶1.6

harmonisation of law

¶1.7

international factors

¶1.7

overview

¶1.1

purchasers and consumer rights

¶1.5

PMSIs — see Purchase money security interests Possession method of perfection personal, domestic or household property

¶5.3.2

posession, definition

¶5.3.2

Possessory security interests



definition

¶2.7

PPS lease — see Leasing



PPS Register — see Personal Property Securities Register



PPS transition — see January 2012 – February 2014



PPSA — see Personal Property Securities Act



PPSR — see Personal Property Securities Register



Prescribed persons



definition Prescribed requirements

¶8.2.3

definition Priority distribution liquidation, PPS issues

¶5.3.4.1 ¶9.4.3

Priority under PPSA

¶6.3

accessions

¶7.3

commingled goods

¶7.4

competing purchase money security interests

¶6.3.3

creditors whose debts have been paid

¶6.3.6

crops

¶7.2

execution creditors

¶6.3.7

general principles for determining

¶6.3.1

insolvency or bankruptcy, security interests

¶10.5

non-purchase money security interests in accounts

¶4.5; ¶6.3.4

overview

¶4.4

purchase money security interests



— agricultural interests

¶4.4.3

— commingled gods

¶4.4.2

— drafting a security agreement

¶4.3.1

— priority rules

¶4.4.1

— relationship

¶6.3.2

security interests in transferred collateral

¶6.3.5

transitional period

¶6.3.8

transitional security interests

¶10.5

Privacy Act 1988



changes

¶11.1

Proceeds



crops and livestock

¶7.2

definition

¶4.3.2

description

¶4.4

financing statement with respect to security interests

¶5.3.4.1

priority rules

¶4.4

traceability Proceeds of crime law definition Processed goods — see Commingled goods

¶4.3.2 ¶5.3.4

Proof



insolvency

¶9.2.1

Property



after acquired property, definition

¶5.3.4.1

ownership, corporate insolvency

¶9.3.1

PPSA retention of title property, definition

¶11.5.10

property of the company



— administrator's power to deal with

¶9.6.2

— expansion of concept

¶9.4.1

Provides



definition Purchase money obligations

¶3.3

definition Purchase money security interests

¶4.2.7

agricultural PMSI

¶7.2

commingled goods

¶7.4

definition

¶4.1

drafting a security agreement

¶4.3

— priority requirements

¶4.3.1

— proceeds, definition

¶4.3.2

enforcement priority rules



— competing security interests

¶6.3.3

— interrelationship

¶6.3.2

financing statement

¶5.3.4.1

general definition

¶4.2

— application of payments

¶4.2.6

— bailment and PPS lease

¶4.2.2

— exceptions

¶4.2.3

— mixed scurities

¶4.2.4

— PMSI

¶4.2.8

— purchase money obligations

¶4.2.7

— purchase price and value

¶4.2.8

— renewal

¶4.2.5

— value

¶4.2.1

non-purchase money security interests in accounts

¶4.5

overview

¶4.1

priority rules, overview

¶4.4

— PMSI priority in agricultural interests

¶4.4.3

— PMSI priority in commingled goods

¶4.4.2

— PMSI priority rules

¶4.4.1

Purchasers



definition

¶8.2.8

personal property regime

¶1.5

R Receivers



exclusion from enforcement provisions Receivership PPS issues

¶6.2.1.6 ¶9.5

— leasing and ROT arrangements

¶9.5.2

— persons appointed as receiver or controller

¶9.5.1

type of formal insolvency procedures

¶9.2.2

Record keeping



PPSA, post implementation review Redemption of collateral

¶11.4.2

enforcement provisions that may be contracted out of

¶6.2.4.16

Registers — see also Personal Property Securities Register personal property regime

¶1.4

transitional registers migrated to PPSR Registrar of Personal Property Securities

¶10.3

power to remove data Registration commencement time end time for registration



¶5.3.4.8 ¶10.2 ¶5.3.4.1

failure to register on migrated register prior to commencement

¶10.3

method of perfection

¶5.3.4

— amendment demands

¶5.3.4.7

— defects

¶5.3.4.5

— effective registration

¶5.3.4.4

— financing statement, elements

¶5.3.4.1

— penalty for non payment of fees

¶5.3.4.9

— Registrar's powers to remove data

¶5.3.4.8

— searching the PPSR

¶5.3.4.10

— secured party group

¶5.3.4.2

— serial numbered goods, consumer property v commercial property

¶5.3.4.6

— verification statements

¶5.3.4.3

original registration time, definition

¶10.3

PMSIs

¶4.4.3

“seriously misleading defect” Relocation to Australia

¶5.3.4.5

temporary perfection

¶5.3.3

Remedies — see Enforcement and remedies Renewal



PMSI, general definition

¶4.2.5

Retention of collateral



enforcement provisions that may be contracted out of Retention of title clauses

¶6.2.4.13

insolvency, ownership of property

¶9.3.1

PPSA, post implementation review

¶11.5.10

PPSA retention of title property, definition

¶2.7; ¶9.6

property available to liquidator

¶9.4.1

receivership, PPS issues

¶9.5.2

Rights and remedies — see Enforcement and remedies Risk management



PPSA, post implementation review

¶11.6.1

S Schemes of arrangement



PPS issues

¶9.7

type of formal insolvency procedures Secured parties accessions

¶9.2.2 ¶7.3

accuracy of registration, onus

¶5.3.4.5

commingled goods

¶2.2.1.4

contracting out of enforcement provisions definition

¶6.2.3 ¶3.2

disposal of collateral

¶6.2.4.9

financing statement with respect to security interest

¶5.3.4.1

obligation to act in commercially reasonable manner

¶6.2.2

rights on insolvency of buyer

¶9.3.2

secured party group

¶5.3.4.2

serial numbered goods, registration

¶5.3.4.6

taking personal property free of security interests voluntary administration, effect Security agreements

¶8.2.11 ¶9.6.1 ¶3.1

continuity

¶11.5.2

definition

¶3.2

documentation, types

¶3.6

drafting a PMSI security agreement

¶4.3

— priority requirements

¶4.3.1

— proceeds, definition

¶4.3.2

formalisation

¶3.3

in writing

¶3.4

merging

¶11.5.3

PPSA model clauses reinstatement

¶3.2 ¶6.2.4.17

security interests provided by

¶10.4.2

signing, methods

¶3.5

transitional security agreement, definition

¶10.2

Security holders — see Secured parties Security interests — see also Accessions; Agricultural interests; Commingled goods; Purchase money security interests; Transitional security interests



attachment, definition

¶5.2

circulating security interest, definition

¶2.7; ¶9.4.3

collateral



— commercial supply provisions that may be contracted out of

¶6.2.1.5

corporate insolvency, priority rule

¶10.5

deemend

¶3.2

definition

¶2.3; ¶2.7; ¶3.2; ¶8.2.11

exclusion from enforcement provisions, no obligation exists



— no obligation exists

¶6.2.1.1

financing statements

¶5.3.4.1

intellectual property licences

¶10.4.1

liquidation, void charge provisions

¶9.4.2

possessory security interest, definition

¶2.7

PPSA model clauses

¶3.6

security agreements, provided by

¶10.4.2

Seizure of collateral



enforcement provisions that may be contracted out of Sellers

¶6.2.4.6



insolvency

¶9.3.3

Serial numbered goods



intangible property

¶2.2.2.1

registration, consumer property v commercial property

¶5.3.4

serial number, definition

¶2.2.1.1

taking personal property free of security interests

¶8.2.2; ¶8.2.3

tangible property

¶2.2.1.1

Seriously misleading defects in registration

¶5.3.4.5

State legislation



personal property regime Statement of account enforcement provisions that may be contracted out of

¶1.4 ¶6.2.4.11; ¶6.2.4.12

Subordination of security interests

¶5.3.4.1

Suppliers



personal property regime

¶1.4

T Taking personal property free of security interests collateral

¶8.2

— currency

¶8.2.6

— intermediated securities

¶8.2.9

— investment instruments or intermediated securities in the ordinary course of trading

¶8.2.7

— investments instruments

¶8.2.8

— motor vehicles

¶8.2.3

— ordinary course of business

¶8.2.4

— personal, domestic or household property

¶8.2.5

— rights of secured party and transferee

¶8.2.11

— serial number defects

¶8.2.2

— temporarily perfected security interests

¶8.2.10

— unperfected security interest transferred

¶8.2.1

constructive knowledge, definition

¶8.1.1

overview

¶8.1

Part 2.5, application Tangible property

¶8.1.2

accessions

¶2.2.1.3

agricultural products

¶2.2.1.5

commingled goods

¶2.2.1.4

financial property

¶2.2.1.2

serial numbered goods

¶2.2.1.1

Temporary perfection

¶5.3.3

taking personal property free of security interests transitional security interests Territory legislation

¶8.2.10 ¶5.3.3; ¶10.4

personal property regime

¶1.4

Third party property — see Retention of title clauses



Title — see Retention of title clauses



Trade Practices Act 1974 (currently known as Competition and Consumer Act 2010) unfair contract terms, amendment Transactions

¶11.5.5

incorporated under PPSA Transferees

¶2.3

taking personal property free of security interests Transition period January 2012 – February 2014

¶8.2.11

attachment rule

¶10.5

enforcement priority,determination

¶6.3.8

fixed and floating charges, specific enforcement provisions

¶10.4

— security interests in intellectual property licences

¶10.4.1

— security interests provided by security agreements

¶10.4.2

overview

¶10.1

perfection rule

¶10.5

priority rules



— security interests on insolvency or bankruptcy

¶10.5

— transitional security interests

¶10.5

registration commencement time

¶10.2

transitional registers migrated to PPSR

¶10.3

Transitional security agreements



definition

¶10.2

Transitional security interests



definition

¶10.2

priorities

¶10.5

temporary perfection

¶5.3.3

Trustees



secured party or grantor

¶5.3.4.1

U Unfair contracts terms



amendment to Trade Practices Act 1974 (Cth)

¶11.5.5

standard form consumer contracts

¶11.5.5

Unperfected security interests taking personal property free of security interests

V

¶8.2.1

Value



definition

¶4.2.1

new value, definition

¶4.5

Verification statements



definition

¶5.3.4.3

sample notice

¶5.3.4.3

Void charges



liquidation, PPS issues

¶9.4.2

Voluntary administration



PPS issues

¶9.6

— administrative powers to deal with company property

¶9.6.2

— administrator's liability and indemnity

¶9.6.3

— deeds of company arrangement

¶9.6.4

— effect on security holders

¶9.6.1

type of formal insolvency procedures

¶9.2.2

Voluntary subordination of security interests

¶5.3.4.1

W Water rights



exclusion from PPSA

¶2.4

Watercraft — see Serial numbered goods Wool definition

¶7.2

Workplace practices



PPSA, post implementation review Written sceurity agreements

¶11.6.2

methods of signing

¶3.5

writing, definition

¶3.4