It's not just finance lawyers being affected by the new personal property securities regime. Construction lawyers, mining and resource lawyers and general commercial lawyers are also feeling the pressure. DLA Piper partner, David East, writes.
On 30 January 2012 the new Australian personal property securities regime went live. The new web based PPS Register (found at www.ppsr.gov.au) - designed to be accessible 24/7 and with a user friendly interface - heralds the start of a fundamentally new approach to dealing with security interest in almost all assets other than real property.
So how will the PPS Act 2009 (Cth) and the PPS Register impact legal practice in Australia?
For well over 12 months the big banks and lease finance companies have had teams of lawyers (mostly in-house) redrafting precedent security documents and re-engineering business processes so that all their security interests are properly perfected. In most cases, perfection will be achieved by the registration of a 'financing statement' on the PPS Register.
Some financiers have chosen to develop their own B2G (business to government) technology platforms which will interface directly with the PPS Register. Others have chosen to access the PPS Register via the web - just like all other users of the Register, including lawyers acting on behalf of clients.
In private practice, banking and finance lawyers have been the most directly affected by the PPS reforms. The old learning about fixed and floating charges, legal and equitable mortgages and registration of company charges with ASIC has been replaced with concepts of 'general security agreements', circulating assets, purchase money security interests (known as PMSIs) and perfection by way of possession, control or registration.
But it is not just finance lawyers who have been affected. Because of the substance over form approach and the extension of security interests to cover retention of title and finance lease transactions and absolute assignments of receivables, the PPS Act has a much wider impact. Commercial lawyers acting for manufacturers or supplies of goods under retention of title terms have been called upon to consider standard trading terms and the cost/benefit question of whether or not to register the resulting security interest against their customers.
Construction lawyers, mining and resource lawyers and general commercial lawyers will need to consider the impact of the PPS Act on a whole range of commercial transactions. Under a construction contract, the supply of plant to the contractor for an indefinite term may amount to a deemed security interest as a 'PPS lease'. Any assignment of debts or security deposits may involve a security interest which should be perfected by registration.
In a sale of business transaction, depending on the nature of the business and its assets, an assessment of the target's compliance with the PPS Act may be an important legal due diligence requirement. As a minimum, the PPS Register should be searched to determine what security interest have been registered and by whom. If any serial numbered property is involved (being motor vehicles, watercraft, aircraft or certain intellectual property rights), a search of the PPS Register will be critical to ensuring that an unencumbered interest is obtained.
PPS will also have a significant impact on the litigation side of legal practice. Insolvency lawyers in particular will need to get up to speed on the new concepts of PMSIs and circulating assets. Also, if the experience in New Zealand, Canada and the US is anything to go by, there are likely to be a range of cases coming before the courts in relation to priority and ownership disputes. There are likely to be more cases arising after the 2 year transition period when the deemed perfection of 'transitional security interests' falls away (assuming that the secured party does not register a financing statement during that period).
All aspects of legal practice are affected by the PPS regime and all lawyers should find out how the new regime has or will impact on their clients and their business.