Personal property securities reform: what are the changes?
The reform of Australia’s laws on secured financing using personal property has taken another step with the introduction of the Personal Property Securities Bill (Consequential Amendments) Bill in Parliament on 21 October 2009. The Bill proposes a national set of rules on security interests in personal property with the aim to resolve a complicated, and sometimes inconsistent, set of Commonwealth, state and territory laws regulating the area.
Pathway to reform
The introduction of the Bill follows a national public consultation process, which started during 2008. The first iteration of the Bill was introduced into Parliament in June this year and in late August the reporting Senate Committee handed down findings which resulted in the consequential round of amendments (in the form of a separate Bill to be debated alongside the original Bill). The consequential Bill takes into account feedback received from stakeholders, privacy protection for individuals and drafting issues.
The purpose of the Bill is a single, national piece of legislation to provide rules for the creation, extinguishment and enforcement of security interests in personal property and for determining priorities between competing security interests. To achieve this, the referral of powers from each State to the Commonwealth is necessary. This has happened so far in New South Wales, South Australia, Queensland and Victoria. At present the proposed commencement date is May 2011, but this may shift depending on progress through Parliament and further changes that may need to be made to the Bill.
The reform will create a national, electronic register of security interests in personal property. “Personal property“ will encompass any property except land. This includes intellectual property rights and licenses. A “security interest“ is any interest in personal property which is created by an agreement that secures the payment or performance of obligations. At present there are more than seventy (70) federal, state and territory acts which regulate personal property securities. This involves many registers of security interests nationally. The prevailing rules vary as to their application by virtue of a set of factors, including the identity of the grantor of the security, where the personal property is located, where the transaction occurs, the legal form of the personal property security and the nature of the personal property.
The regulatory system proposed is a generic set of rules applying to all personal property. A single set of priority rules between competing securities will apply. The aim is to help prospective purchasers and lenders determine whether personal property is subject to a security interest, to reduce complexity and to increase efficiency and certainty.
Overview of proposed rules
Assuming the Bill is passed and becomes law, the new scheme which will cover the registration and enforcement of securities. Briefly, a security interest would attach to personal property when:
- the “grantor“ has transferable rights in the personal property;
- the “secured party“ has given value; or
- “grantor“ has done an act by which the interest is created.
A security interest will be enforceable against third parties when:
- security interest has attached to the personal property;
- the secured party has possession and/or control; and/or
- where the security agreement is in writing and signed and the collateral properly described.
“Perfection“ of the security interest occurs when the security interest has attached to the personal property; a secured party has taken possession and/or control; or the interest is registered on the PPS Register. There are rules which relate to the extinguishment of interests, when personal property may be acquired “free“ from security interests that would otherwise attach and the application of priority rules between security interests.
Purpose of amending bill
As noted above, the consequential round of amendments to the Bill aims to simplify concepts in the Bill, address internal discrepancies and effect modifications to other legislation for consistency with the PPS regime. Amongst these are changes to the statutory regimes regulating intellectual property. The consequential Bill does not address changes which will need to be made to the Corporations Act 2001 Cth), which implies that a further level of consultation and amendments (or further separate bill) will be necessary before the regime can have full effect. Of interest from an intellectual property viewpoint are the following:
- The regime will apply equally to intellectual property rights and rights exercisable under intellectual property licenses.
- The registration of security interests will not occur exclusively on the existing intellectual property registers, but will be maintained on the PPS Register.
- The consequential Bill amends the Designs Act, the Patents Act, the Plant Breeder’s Rights Act and the Trade Marks Act. The main purpose is to introduce the concept of a “Personal Property Securities Act security interest“ into those statutes and to make consequential changes concerning registration of interests, admissibility issues and the commencement of PPS changes.
There are likely to be further changes to the PPS regime. What is clear is that it will affect owners of intellectual property rights, including licencees. This is both from an acquisition (due diligence) and monitoring perspective (third parties claiming “interests“ in intellectual property). The PPS regime is complex and though the commencement is likely to be a way off, it may be sensible for businesses to start reviewing and implementing management strategies for assessing and dealing with the proposed changes.