The Personal Property Securities (PPS) legislation will establish a national system for the registration of security interests in personal property. It sets out new rules for the creation, priority and enforcement of security interests in personal property. This will affect the way security is taken over almost every form of property other than land. It will also affect transactions that are currently not regarded as “securities”, and transactions that are currently not registrable. The new system is expected to be in place by May 2011 (Start Date), with a two year transitional period.
Clearly, financiers will be among those most affected by this legislation, and major structural and other changes will be required in their systems, processes, policies, procedures and documentation, well in advance of the Start Date.
Financiers will need to consider, at a minimum, the impact of PPS on or in respect of the following:
The legislation also deems certain transactions to be security interests even if they do not secure the payment or performance of obligations (eg leases of goods for a term of more than one year and transfers of receivables).
Financiers will need to consider the risk profile of, and how to value assets owned by, such borrowers. Similar issues arise in relation to borrowers who lease goods as some of these leases are deemed to be security interests under the Bill (for example, leases for a term of more than one year). Financiers should also analyse whether the position of a secured party is weaker under the PPS regime and the impact this may have on security coverage, gearing ratios, pricing and regulatory capital.
This will be much simpler than the current ASIC form 309. Security interests can be registered before the security agreement is entered into, and a single financing statement can relate to more than one secured party and debtor and more than one security agreement between the same parties. A copy of the security agreement need not be lodged (but certain persons may request a copy of the agreement from the secured party and the secured party must comply with this request unless exceptions apply). Policies, procedures and systems will need to be reviewed to reflect these changes.
Financiers will need to review existing contracts and products to determine if any need to be registered as security interests and consider any other impact on existing transactions. Given the considerable breadth of the categories of interests registrable under PPS, the task of identifying all relevant agreements should not be underestimated.
Consideration should be given to whether PPS changes can (or should) be implemented together with other changes required because of other market regulatory developments (for example, national consumer credit laws, unfair contracts laws and regulation of margin lending). This will avoid unnecessary re-working of documents and procedures over a short period.
We know from the experience in New Zealand with the implementation of its change to a PPS regime that the period until the Start Date, and the 2 year transitional period, is very short. Dealing with PPS is not something that can be pushed down the priority list.
We can help - both by way of assisting with the development of an overall project plan for dealing with the transition to PPS, and also with particular aspects such as documentation changes.
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