PPSR Transitional Arrangements to End Soon
What is the PPSA?
From 30 January 2012, the Personal Properties Securities Act 2009 (Cth) (PPSA) came into force and established a new system for the creation, priority and enforcement of security interests in personal property (which is generally all property other than land, fixtures and certain statutory interests and includes intangible property such as IP).
The PPSA was established to simplify the registration system by creating a single register, that being the Personal Properties Securities Register (PPSR), to remove the requirement of the numerous Commonwealth, State and Territory laws dealing with security interests having to be administered by over 40 such registers.
What is the PPSR?
The PPSR is a national online register for consumers, businesses and the finance industry. Consumers and business operators can search the PPSR when they need to know whether certain personal property has a security interest registered against it.
Under the PPSA, IP Australia’s registers are no longer the legal registers for recording security interests in IP. Previously, there was a system of voluntarily recording interests in IP for licensing arrangements with IP Australia but as they were voluntary, they were rarely utilised by those with IP interests. All security interests in IP now need to be registered on the PPSR. Therefore, it is critical that holders of IP review their arrangements now to ensure their interests are correctly registered on the PPSR.
What if I created a security interest after 30 January 2012 when the PPSA was in force and didn’t register at that time and wish to register now?
When the PPSA took effect from the 30 January 2012, the most concerning effect of the legislation for clients especially lessors, hire/purchase businesses and retention of title sellers was the effect of ss.267 and s.267A of the PPSA known as the ‘vesting rule’. The vesting rule provides that unperfected interests (i.e. those interests or agreements that have not been registered) will vest in the grantor when the grantor becomes bankrupt or goes into liquidation, administration or a deed of company arrangement. When the vesting rule applies, security interests become ineffective and owners can lose their ownership of the goods or assets to trustees in bankruptcy, liquidators, receivers and administrators.
However, it is s.588FL of the Corporations Act 2001 (Cth) which contains the most severe vesting rule which was not included in the PPSA and it applied to most kinds of PPSA security interests when the grantor is a company. It vests perfected interests in the grantor if there had been undue delay in registration.
Under this rule a security interest vests in the grantor company if it is registered after the later of:
- 6 months before the insolvency; or
- 20 business days after the security agreement that gave rise to the security interest came into force.
It seems from the drafting that the vesting rule in the Corporations Act 2001 (Cth) can only be avoided if there is a registration within 20 business days of the security agreement, or registration has occurred after the 20 day period but 6 months have elapsed since the security interest was registered when the insolvency event occurred.
From 30 January 2012, it is critically important for security interest holders to register their interests within 20 business days of the security agreement being made. If this has not occurred, then we highly recommend that your agreements be registered as a matter of priority now.
What is the importance of the transitional period to me?
Client’s should be aware that the two year transitional period for the temporary protection of security interests under the PPSA will end on 30 January 2014. The transitional period was implemented to maintain priority between arrangements that created security interests which existed prior to the commencement of the PPSA on 30 January 2012.
This means that any transitional security interests must be perfected on or before 30 January 2014 (in most cases by registration on the PPSR). A failure to register or otherwise perfect the security interest by 30 January 2014 may expose any security interest holders including those with IP to a loss of priority to other third parties who have a competing interest with a security interest. For example, if there is an insolvency or bankruptcy of a party granting the security interest in the IP, if the security interest is not perfected, then there is a risk that the secured party may lose that security interest.
Review and register your agreements and security interests now?
With the impending deadline closing as of 30 January 2014, steps must be taken to ensure that any such security interests are registered or perfected including those in IP, which would include trademarks, patents, designs, copyright and IP licences and distribution arrangements. Potentially you may need to undertake an audit to ensure that all IP security interests are properly recorded and captured in the PPSR before the deadline ends.
What if I do not know what to do or I need further advice?
The PPSA has a much broader application than the information provided above. In addition to addressing the relevant security interests before the 30 January 2014 deadline, clients need to be aware of the full effects of the PPSA relevant to their own circumstances.
If you require further information on how the PPSA affects you or your business, or you require assistance in registering and securing your interests on the PPSR to take advantage of the transitional period, then contact us or visit the PPSR website.